The US women’s soccer team has recently become the focus of a national debate over the apparent pay gap between the men’s and women’s teams. Many are pointing to this as an example of systemic discrimination. That the American economic system is inherently exploitative is a common—even trendy—view. Some even think our economic system is not only prone to exploitation, but that exploitation is the fundamental basis on which capitalism operates. This perception originates with the Marxian labor theory of value, which has experienced a recent revival within the postmodernist worldview. It creates the conceptual framework within which the illusion of exploitation exists.
Labor Theory of Value
According to the labor theory of value, the value of a product is determined by the amount of labor required to create it. Therefore, if I spend ten hours crafting a bowl, it will be worth ten hours of my labor. For the sake of argument, if my labor is worth $10 per hour, my newly created bowl will be worth $100. If my bowl is purchased for $20, there’s an $80 dollar difference between the value of the bowl and the compensation I receive, which, according to the theory, implies that I have been exploited.
This theory hinges on a single flawed premise: objective value. In reality, value is subjective, as products are valued differently by different people with different needs. The value of an umbrella goes up in the eyes of a person caught in the rain and down when the forecast predicts sun. The value of any product goes up if few are available, and down if there are plenty in every store. It’s the billions of nodes in a dynamic market that determine the value and corresponding price of a product or service. That’s supply and demand.
Perhaps, instead of being an independent bowl maker, I work for a bowl company. I’m compensated $20 to make a bowl, but the company sells the bowl for $50. If the value of the item is directly linked to the labor required to produce it, the company must have pocketed $30 dollars worth of my labor. Isn’t this exploitation? No, because the process of subjective valuation that affects the price of a product also affects the price of labor. The employee may value his labor highly, whereas the employer may value it lower. The negotiated equilibrium within the network of prospective employees and employers is the market value wage. The simple fact that an employer creates profit is not indicative of exploitation—it’s a necessary condition of a successful business.
Postmodern Labor Theory of Value
I suspect very few people who consider capitalism exploitative to have necessarily read Karl Marx or have a functional understanding of the labor theory of value. But, however implicitly, these ideas have made their way into the minds of young advocates. The labor theory of value has been revived and reinterpreted by these individuals through a contemporary postmodern lens.
Objectivity is the keystone of the labor theory value. The theory is logical, coherent, and empirical—and was even consider by thinkers like Adam Smith. The assumptions are flawed, however, making it an insufficient framework in which to understand value.
Postmodernism is characterized by a rejection of objectivity and absolute truth, which obviously brings it into conflict with the labor theory of value. However, postmodernism is also highly skeptical of logic and coherence, so we end up with a postmodern labor theory of value, in which an individual’s subjective value is the objective value of the object. Both absolute objective value and negotiated value are rejected. This introduces a problem, which is solved by group identity.
What happens when two different people value something differently? The deciding factor is the group identity of the actor, which is where the postmodern labor theory of value draws upon intersectionality. The legitimacy of the subjective valuation is set within a hierarchy of power and privilege. The subjective valuation of an individual with a privileged group identity is superseded by that of an individual with an underprivileged group identity. Interestingly, this unites the postmodern labor theory of value with the original Marxist idea of class struggle between oppressors and oppressed.
The postmodern labor theory of value makes the philosophical underpinnings of many social, political and economic movements apparent. “I’m worth more than $8.25 per hour!,” a minimum wage advocate might declare. But worth more to whom? The person is saying, “I’m worth more to me, and therefore to you.” On an even closer reading, that sentence suggests that, “The subjective valuation of my labor as informed by my identity is the objective value of my labor, and any compensation less than that is exploitation.”
We see a similar thought process in action when students make decisions about college. A student who believes her earning potential is linked to her subjective valuation of her educational labor may pursue a degree that interests her, but doesn’t have any significant earning potential on the job market. A student who graduates $150,000 in debt with a social justice degree may look at our system and feel exploited. In her eyes, it’s unfair for an engineering graduate to make more money than a social justice graduate, if they assign comparable subjective values to their degrees. This perceived inequity and exploitation may lead some to advocate for massive government intervention in the form of wage regulation and student loan forgiveness.
This is also the case with the gender pay gap—the average earnings differential between men and women. This gap is easily accounted for by differences in hours worked, experience, personality traits, risk aversion and industry. In the instance of the US women’s soccer team, the pay disparity can be explained by the difference between the respective sports’ revenue. The 2010 men’s world cup generated $4 billion in revenue, whereas the 2015 women’s world cup only generated $73 million. However, some advocates argue that—regardless of why the pay gap exists—it’s unacceptable. Men and women should make the same amount of money. This rejection of reason and imposition of subjective valuation based on group identity and privilege has clearly been imported from the postmodern labor theory of value.
The postmodern labor theory of value does not provide a comprehensive explanation of every sociopolitical argument of this kind, nor do those convinced by the illusion of exploitation necessarily have a conscious understanding of the labor theory of value or postmodernism. But—however implicitly understood—this illusion justifies some advocates who wish to impose their subjective reality upon the world. It’s tyrannical pessimism rooted in rhetorical trickery, postmodern incoherence and identitarianism, and it minimizes the tragedy of real exploitation and devalues the miraculous opportunity of a free society.
Exploitation is the act of benefiting one party at the cost of another. It’s economic parasitism, usually characterized by coercion, deception or a lack of options. The worst form of exploitation is slavery. A less extreme, but more common, example is when parties deceptively represent what they’re selling through a scam, or false advertising. Exploitation can also occur when there is only one employer in the market: this is known as a monopsony. As with a monopoly, if one entity is the sole buyer of labor, that employer can maximize production and minimize wages at the cost of the worker. These modes of exploitation do not provide the basis on which the American economic system operates.
Far from being rooted in exploitation, the American system has legal protections and judicial remedies to prevent and punish coercion, deception, monopsonistic and discriminatory behavior. When an employee and employer voluntarily enter into a mutually beneficial agreement, the simple fact that the business profits is not indicative of exploitation. Neither is it indicative of exploitation when an individual spends hours making a product that no one wants to buy, or invests in an education that provides no marketable skills. Personal failure and bad investments do not exploitation make. Nor does the postmodern understanding of value as linked to identity provide an ethical or practical worldview. The ideals of individualism, personal responsibility, reason, rational self-interest and objective reality are much better tools with which to engage the world.
The “labor theory of value” is not a “theory” of “value”, and its not Marxist, its classical 18th and 19th century economics, as in Adam Smith et. al. Even Adam Smith understood that if you found an uncut diamond on the ground or a chunk of gold ore on a river bank, the diamond and gold had value beyond the effort of picking up the item. Assuming economic growth (e.g. people are not just bartering back and forth) driven by efficiency (whereby one can produce more with the same input of labor), the result will be a surplus. For example, if you have a barter economy where X produces 2 surplus units of baskets and Y produces 3 surplus units of fish (which they exchange), and now X comes up with a new technique and can produce 4 surplus units of baskets, X now has the productive value of 6… Read more »
There are minimum grosses required to sustain any supply chain at every level, irrespective of market pricing levels that move inventory in sufficient quantities to drive growth beyond that required for long-term business health. The labor theory of value attempts to define the constitution of those minimum grosses. The labor theory of value parameterizes the extent of surplus value, which is useful when attempting to plan an economy. What Marx didn’t (and couldn’t) accommodate was how entropy affects value at each link in the supply chain. The labor theory of value has utility, but cannot provide a reliable foundation for forecasting enterprise stability. Minimum and living wages are required purely as a means of maintaining societal order, and must be approached with that in mind. Most of us rightly reject the ideology derived from Marxist doctrine, because central planning is invariably totalitarian once entropy becomes a defining aspect of resource… Read more »
Never understood why, if value is subjective, everyone pays the same for a pound of oranges to the cashier in the supermarket.
The author is a graduate student *at* the U of C. Does this infer that he is a graduate *of* the U of C in economics? If so I am appalled since I had thought that the U of C maintained some standards, particularly in economics. Now, I’m not a graduate of anywhere in anything, but I know sloppy reasoning when I see it: “The value of an umbrella goes up in the eyes of a person caught in the rain and down when the forecast predicts sun.” Does the author imply that Marx did not know that? Even a simpleton like myself can see that the overall averaged price of something will reflect the value of the labor that went into it because there are no other costs (even the cost of resources reflects the labor involved in obtaining them. Air costs nothing not because it is not ‘valuable’… Read more »
It is not I think necessary to carpet bomb our poor author here with the details of Marxian economics. His point I think stands that many young people especially have an idea of “fairness” that they think they should be well-paid for their social justice activism or poetry or novel and that it is “unfair” for the engineer to be paid so much more. I have heard people argue that value depends on the labor that went into something when in fact the less labor the better (labor productivity). Robin suggests that the workers should own the “unpaid” part of their labor (such as machinery bought with profits). This is backwards. The business owner has his money and time at risk and has created a business with his ideas that hires people. If anything, many people are exploiting the business by slacking, stealing office supplies, and doing shoddy work. As… Read more »
Great history for those of us that haven’t “necessarily” read Marx, but rather beating the dead horse (further analysis;), there’s just one fact that should be pointed out, “Objective Value” is the only point we need to consider: https://www.cnbc.com/2019/06/19/us-womens-soccer-games-now-generate-more-revenue-than-mens.html
You state “I suspect very few people who consider capitalism exploitative to have necessarily read Karl Marx or have a functional understanding of the labor theory of value.” strangely enough I have the same suspicion about your good self. Just one example of this: “This theory hinges on a single flawed premise: objective value. In reality, value is subjective, as products are valued differently by different people with different needs. The value of an umbrella goes up in the eyes of a person caught in the rain and down when the forecast predicts sun. The value of any product goes up if few are available, and down if there are plenty in every store.” Even to anyone with a scant knowledge of the Labour Theory of Value, this statement demonstrates a lack of even the faintest idea of Marx’s theory, let alone a functioning understanding of it. In terms of… Read more »
There are so many things wrong with this article it is difficult to know where to start. Lets start with its support for the subjective theory of value Firstly this overlooks that my subjective valuation of a commodity in capitalism means nothing unless I have the means to purchase it – money. Though money is essentially a social relationship it, nevertheless, objectively constrains what I can consume. And the objective distribution of money incomes therefore shapes the overall pattern of consumption itself Secondly, the theory asserts that ‘prices are entirely determined by the value judgments of men’ but fails to grasp that these ‘value judgements’ can conversely be influenced by prices themselves. Thus, if the price of a commodity falls it becomes more ‘desirable’. So there is two-way interaction between prices and ‘value judgements’ – not one-way as the theory implies Thirdly, as Ernest Mandel notes, the ‘Marginalist school was… Read more »
Makes good points but over-simplistic. For example, fails to take into account the power disparity between an individual and a corporation and the restraints upon the individual in the sale of their labour. Rarely can an individual with a particular high skill set simply re-train, or if they have commitments to a particular locality move elsewhere. It is not a coincidence that when those power disparities are to some degree equalised, for example through unionisation, that wages improve.