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The Postmodern Labor Theory of Value and the Illusion of Exploitation

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.

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14 comments

  1. 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 surplus units of fish (or maybe 5 to reflect inflation).

    When you break it into labor/capital, the producer is realizing a surplus, which can be allocated to either profit or wages. The “labor theory of value” doesn’t give the value of the commodity, the price is set by the market (e.g. if you can’t produce a good at market wages that you can sell at a profit, the product doesn’t have greater “value” than its price). The labor theory of value tells us how much of the surplus is siphoned off to a basically dead-weight cost of ownership, after the actual costs of capital goods are paid for. For example, if the state owned the means of production, and rented the means to the workers at actual cost, the economic surplus would all go to the workers as wages, and a basically useless middle man would be cut out. [The input of management is more complicated as management inputs productive labor but also plays a role in preserving a bonanza for owners, as well as trying to line their own pockets to the best of their ability.]

    We could compare the “labor theory of value” with the “corruption theory of value”. You could imagine a third world country where you were expected to kick back a set portion of gross to the government officials. The corrupt officials would be a deadweight cost equivalent to capital under the labor “theory”. With political corruption (which hurts the economic interests of both labor and capital), you can often get an alliance against corruption. However, with respect to wages vs. profit, there is an inherent conflict of interest, and since capital has the advantage of a centralized management and control over the means of production and the capacity to terminate workers as will (not to mention political influence), capital uses its strategic advantages to squeeze workers mercilessly.

    Obviously, if we want to maximize the productive forces of society, you incentivize them, and you want to eliminate as much of the deadweight costs (whether profit or interest payments) in the economy so they are more productive. The labor theory of value is a way of looking at and analyzing those deadweight costs.

    On the other hand, any ruling class attains its wealth precisely by making itself the beneficiary of those deadweight costs that it leeches away from the economic surplus as either costs of ownership, interest, or bribes and kickbacks. For the ruling class, the “labor theory of value” represents a means of quantitatively addressing the economic parasitism of elites, which you can imagine is not something they are very interested in having people consider.

    1. @KD

      The “labor theory of value” is not a “theory” of “value”

      Sorry but it seems that the rest of your post not only shows that it is a theory of value, but explains it very well.

  2. 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 extraction. That said, Marx distributed some quite nourishing food for thought. A steady diet of his fare induces intellectual indigestion, but modest amounts can be quite enjoyable.

    Too much of economic theory relies on obfuscation resulting from inappropriately applied theoretical constants. A little bit of Marx can be refreshing when one is forced to contend with the everyday mendacity of commerce.

  3. Never understood why, if value is subjective, everyone pays the same for a pound of oranges to the cashier in the supermarket.

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  4. 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’ but because we don’t have to work to get it). So I can expect that an umbrella will cost less than a Saturn V, because many more people worked many more hours to make the latter.

    Yes, I can make a killing selling umbrellas if the weather turns wet and I have stock. Yes, I might have to sell at a loss if the place turns into a desert and I’m stuck with too much stock. But given time, the market equilibriates, and these fluctuations do not comment on the overall reality that the cost of things is determined by the labor needed to make them. It is also stupid to point out that labor can be wasted, of course it can. Did Marx not know that employees might be jerking off when they should be working? Did he not understand that a surgeon’s time is worth more than a garbageman’s? He did.

    And perhaps I’m uninformed but this is the first time I’ve heard postmodernism linked to the LTV and to Identitarian Victimology — we do not advocate for a higher minimum wage for blacks than for whites and we do not advocate because of what unskilled labor is ‘worth’ but because a decent society provides a living wage irrespective of ‘worth’.

    This was the worst thing I’ve yet read at Areo, sorry Helen.

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    1. @Ray I was with you until your last sentence. It’s the responsibility of a decent society to provide employment options free of discrimination – not a living wage. And first of all, please define “living wage”. Living wage for a 17 year old high school student from a middle class family is in the neighborhood of $500/month. Living wage for a working mom with 2 kids is closer to $3000/month. Should the crap-burger restaurant pay the teenaged kid $9/hr and the working mom $25/hr – to make crap-burgers??? Let’s get real ok.

      If the working mom can’t make it on $9/hr, she has the option of heading down the road and applying to the “gourmet” burger joint that starts their employees at $15/hr with health benefits and a modest 401k match (yes, they exist). Her choice, her perception of worth.

      As a consumer, on occasion, I might want to go to the crap-burger place and get 2-for-a-buck. Or, I might chose to go to the gourmet burger place and pay $17 for a burger and $7 for a beer and leave a 25% tip and walk out of there around $30 poorer. My choice, my perception of value.

      And furthermore, do we really want a society that highly values crap-burger flipping, or do we want a society that nudges people toward more skilled labor as they get older and acquire more skills? I mean honestly, there are few sights more pathetic than a shaggy, tattooed, pierced, late 30’s barista complaining about rent prices and demanding $15/hr.

      1. @JD

        “It’s the responsibility of a decent society to provide employment options free of discrimination”

        Some say even that is far to socialist. I agree that opportunity is the best way to insure that folks have the ability to put a roof over their heads, but I’ll take a minimum wage in a pinch.

        “please define “living wage””

        That’s like: ‘please define minimum age for a driver’s license — there is no ‘right’ answer, we argue it back and forth and we come up with something. There’s folks who might be responsible drivers at 12 and others who should never drive, but we hafta come up with a number and that’s what we do. Nice to theorize about people going down the road for a better job but it doesn’t work like that on occasion. Folks can be so poor that they can’t afford the time it would take to even look for better jobs — presuming there are any to be had. And kids and part-timers are normally exempt anyway. Best to have a robust economy tho, we agree on that.

  5. 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 to that “unpaid” thing, many businesses do in fact have profit sharing and bonuses. Some businesses are even 100% owned by the employees (my daughter worked for one and my friend for a really big one). You are free to start such a business.

    There are of course times when you may feel that you are underpaid. If you are correct, then you should be able to find another job that pays more (I have). My friend when in this situation when out and started his own small robotics company and is making a lot more than he did –though at considerable risk. This process is how wages equilibrate with demand. One reason you may command more $ is if you bring more value to the company. If you are a salesman who can bring in $1million/yr you are worth a lot to an employer. If you can barely get orders right at the burger place you are not bringing in much $.

    Much was made of the mystery of prices. The price of something is affected by all the inputs to it including labor. If you can figure out how to make something with fewer or cheaper inputs or faster, you can make more money or charge less. As to why some people will pay big bucks for a Tesla–that is arbitrary, status, personal preference and can change overnight. In other words some prices for luxury or fad goods are arbitrary. For many goods, however, if you provide a service or product that makes someone’s life easier or better they will pay good money for it. The iPhone is a great example. Totally worth $700

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  6. 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 the Labour Theory of Value, value is not related to the utility of the object, therefore the absence of rain or otherwise does not impact on the value of the object (in fact to be pedantic the utility does not depend, as you suggest, on the weather forecast, but on the actual weather!).

    Even within your own terms, the value of the object does not alter because of a surfeit of the object, if as you wrongly suggest the value of the object is linked to the utility of the object, umbrellas don’t become less useful because there are more of them!

    Your article suggests that you have completely relied on undergraduate lecture notes on the LTV, notes prepared by lecturers who have relied on their undergraduate lecture notes on the LTV, which relied on notes prepared by lecturers who have relied on their undergraduate lecture notes on the LTV, which relied …………

    If you are going to critique the Labour Theory of Value, you may find it useful to actually find out what Marx’s theory states. I do not mean to imply by this contribution that Marx’s theory is beyond criticism, it is not. However I do think that if you are going to critique a theory and then you should have the intellectual integrity to actually examine the source material of the theory you are critiquing.

    Robin Cox has suggested a link which provides a very clear and concise exposition of the Labour Theory of Value, you may even wish to make the big leap and read Marx’s actual work (Wages, price and profit is a fairly straightforward start point), if you are interested in genuine discussion about Marx’s ideas, rather than lazy critiques of parodies of Marx’s work. If you are genuine in your enquiries about the Labour Theory of Value, then I look forward to any comments you wish to make about Marx’s work

    Some other links you might find useful:

    https://www.worldsocialism.org/spgb/publications/where-do-profits-come-from/

    you could even listen to the following links .

    https://www.worldsocialism.org/spgb/audio/marx-and-economics/

    https://www.worldsocialism.org/spgb/audio/rent-interest-and-profit/

    https://www.worldsocialism.org/spgb/audio/labour-theory-value/

    Oh and by the way, the game is called football, not soccer!!

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    1. “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 the Labour Theory of Value, value is not related to the utility of the object, therefore the absence of rain or otherwise does not impact on the value of the object”

      You have failed to understand the article.

      The author never said that LTV relates value to utility. In linking value to utility, he was describing a theory of subjective value that is commonplace in mainstream economics.

      “Even within your own terms, the value of the object does not alter because of a surfeit of the object, if as you wrongly suggest the value of the object is linked to the utility of the object, umbrellas don’t become less useful because there are more of them!”

      Again, you have failed to understand the article. Value is linked to both utility, and supply and demand.

      Try reading Basic Economics by Thomas Sowell.

      https://www.amazon.com/Basic-Economics-Thomas-Sowell/dp/0465060730/ref=sr_1_1?crid=3CX2LLSMJMVIX&keywords=basic+economics+thomas+sowell&qid=1563529647&s=gateway&sprefix=basic+econo%2Caps%2C182&sr=8-1

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  7. 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 never able to solve the problem of the “marginal value of money”, and that for this reason it remained dualistic, combining a subjective theory of value with an objective theory of money (e.g. the quantity theory)… The dualism of the theory is seen if one imagines an increase in the stock of currency suddenly causing a rise in wages, without any change in the marginal value of the commodities concerned’ (1962, Marxist Economic Theory). One might say this is – ironically – a case of the ‘law of diminishing marginal returns’ being used to refute Marginalism itself!

    Nevertheless, it is quite true, as Marx himself acknowledged, that ‘nothing can have value, without being an object of utility’ (Capital Vol 1 Ch 1). The question is – what determines the exchange value of that object? Why should a suit be worth three pairs of shoes and not four?

    ‘Supply and demand’ can only ever serve as a secondary explanation. The tendency in capitalism is for the supply of a commodity to increase should the demand for it grow – meaning supply and demand tend, in the long run, to equilibrate. However:

    ‘If supply equals demand, they cease to act, and for this very reason, commodities are sold at their market-values. Whenever two forces operate equally in opposite directions, they balance one another, exert no outside influence, and any phenomena taking place in these circumstances must be explained by causes other than the effect of these two’ (Capital Vol 3 part 2, ch 10)

    Since supply and demand ultimately cancel each other out something else must then account for differences in prices. Why does a Berlingo van cost so much more than a bicycle? This has to be because they share something in common but differ in the magnitudes of this common attribute.

    Drawing on Aristotle’s observation that ‘exchange cannot take place without equality, and equality not without commensurability’, Marx reasoned that this effectively ruled out ‘utility’ as the basis on which commodities exchanged. How can you measure the ‘utility’ of chalk against cheese? You can’t since utility is subjective. Commodities can only exchange on the basis of something they have in common and by means of which they can be made commensurable. Without commensurability there is no way of telling whether one commodity was objectively equivalent to another, thus allowing you to make an exchange. After all, you wouldn’t buy a bicycle for the price of a Berlingo van, would you?

    Money enables us to measure the exchange value of different commodities but what explains the difference in their prices? What is it that commodities have in common that enables them to be measured against each other and sold in proportions that ensured equivalence? The answer is labour. This is why, roughly speaking, one suit equals three pairs of shoes, and not four, in money terms. They involve approximately the same amount of labour. Labour acting on Nature-given resources is, after all, the source of all wealth.

    Then there is the question of exploitation. Marxists have technical explanation for this which amount to saying that workers must produce a greater value in their output than the value of their wages they receive. This is not just a claim but an established fact. In the US manufacturing sector for example workers receive in wages about one third of the value of their hourly output – meaning two thirds of what they produce represents unpaid labour. Capitalism’s supporters like to argue that this ignores that capitalists have to pay for other things like machinery. But what they overlook is that the machinery is paid for ultimately out the two thirds unpaid labour provided by the workers and that the machinery on being purchased is the property of the capitalist not the workers. So is the luxurious lifestyles of the super-rich paid for out of surplus value

    Market competition imposes on capitalist businesses the need to maximise the economic surplus they extract from the workers. Without that they cannot accumulate capital and hence will not be able to beat off the competition. They will go bust in no time at all

    Might I suggest this for further information https://www.worldsocialism.org/spgb/pamphlet/marxian-economics/

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    1. Dear Robin! Your long answer leads me to a sad conclusion – the time has come to take Captain Obvious seriously

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  8. 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.

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