The Cambridge economist Joan Robinson famously said that “the only thing worse than being exploited under capitalism is not being exploited under capitalism.” By this she meant that exploitation was something to be deplored, but that it made possible the material advance of humanity that has taken place under the capitalist system.
Karl Marx, with his labour theory of value, argues that under capitalism, all value is produced by labour, which is forced by the class of capitalists to work longer than is necessary to provide for their subsistence and, over time, for their ‘customary’ standard of life as the economy grows and wages rise. The capitalist exploits the labouring class by appropriating the surplus value produced by labour, which is the value or output in excess of the value of their wages. Surplus value is distributed as profits, interest and rent, and profits can be reinvested in expanding production and in this way lead to economic growth. Marx argues that his scientific analysis of capitalism shows that exploitation is inevitable under the system and that only by transcending it and moving to socialism can exploitation be overcome. Thus not only is this theory claimed to be scientific, but it is also political and ideological.
But does the claim that exploitation is inevitable under capitalism show that labour is the only source of value? It may be true that without the labouring class, production would not be possible. They could all go on strike, and production would come to an end until the strike had finished. But without the capitalist, who organises the production process and brings together capital goods, in some cases raw materials, and labour in a workplace, production would be equally impossible. Marx argues that only labour is productive, but I would argue that capital is also essential to production, so that the application of science and technology can be said to be productive. Capital may well exploit labour, but Marx has turned something political into what he claims is scientific.
In her ‘An Essay on Marxian Economics’, Joan Robinson makes the above point by drawing attention to Marx’s ‘scientific’ formula, his definition of the rate of exploitation, s/v, where s is surplus value and v is the value of wages paid to labour, what he calls ‘variable capital’. Robinson suggests that this definition, s/v, is political and could equally be s/(s+v), which would add surplus value to the denominator and show that capital and labour can both be seen to contribute to the production of surplus value which allows capitalism to expand and grow.
Exploitation certainly exists under capitalism and it remains as a social and political problem which we should aim to mitigate through public policy. This is the case even if we admit that capital as well as labour contributes to the production of value, and the two are seen to be dependant on each other in production. This does rather undermine the case for socialism if the latter was seen to be the way that labour can appropriate everything that it produces, rather than have capital ‘steal’ it. Despite this, much of Marx’s analysis of capitalism in his work Capital remains important as well as useful. The attempts at socialism in the former Soviet Union arguably failed to remove exploitation and oppression from society and created it in new forms, while socialists will continue to argue that we can do better than capitalism, but it remains the case that the surplus value and profits generated under capitalism, warts and all, are a mostly successful way of improving the material conditions of much of society.
The Political Economy of Development 
First of all, Joan Robinson was also a socialist. Second of all, a capitalist (a mere shareholder) doesn’t organize production per se. He hires/elects directors (members of the board, who are often also shareholder/capitalists themselves, and by nature an extension of the capitalist class) to supervise that process, with the objective of achieving profit. But for an economy to develop, you need not have capitalists (who often care only about short term profits and know little about the enterprise they possess/inherit) selecting the board. Instead, you can have the professionals inside the firm (the technicians, managers, engineers, etc.), who are directly affected by the decisions, who are interested in the sucess of the project and know its workings, being the owners of the firm and democratic electorate of the board. That is the case of Mondragon. That is Socialism – to each according to his/her contribution, which is logically achieved through social ownership (cooperatives).
The Soviet Union had nothing to do with it. It isn’t about state vs market, but about class, about relations of production. You can defend no state at all and still be a socialist (although not a very realist and pragmatic one, in the same sense that anarco-capitalists are not the most reasonable ideologues) in the same way you can defend massive state intervention within capitalism. Within feudalism there were kings and nobleman who advocated and put into practice social reforms which benefited the majority (but who remained serfs), same as social democrats in the post-war decades within capitalism. Same in slavery. I strongly recommend the work of Peter Turchin, who shows this has happened in cycles throughout history. Would you have accepted those reforms then as sufficient or would you have fought for the end of slavery and serfdom?
Again, totalitarianism by bureucrats isn’t socialism – for a better notion of it I suggest David Schewickart’s “After Capitalism”, Gar Alperovitz’s “What then must we do?”, Richard Wolff’s “Democracy at Work” or David Ellerman’s “Democratic Firm”.
I truly like your blog and your defense of a truly scientific economics/human biology, which must come from heterodox schools such as classic political economy and complexity, ecological, evolutionary and behavioral economics. But your political judgement seems to be lacking due to a degree of prejudice or lack of conceptual clarity.
Hope this is helpful.
Thanks so much for you lengthy and interesting comment, as well as your kind words about my blog. I will have a look at some of the references you cite. Politically, I am probably closest to social democracy, seeking reforms to capitalism, rather than a revolution leading to socialism. It may be that some of my thoughts are not quite worked out as you say.
I do like to try and take a step back when thinking about economics and politics and try to remind myself that today’s rich countries took a long time to evolve into capitalist democracies. While I think the latter kind of society is desirable, along with sometimes contested aspects such as social justice and low corruption, I recognize that such institutions and social outcomes cannot simply be transplanted into the poorest countries and be successful and have a basis in material development. So I remain interested in development, and do want to post more on it in this blog in the future, as it was what I studied latterly. But I do get distracted by current affairs in economics and it often seems good to post on those sorts of issues.
Thanks again.
With all due respect, I find this paragraph questionable:
“But does the claim that exploitation is inevitable under capitalism show that labour is the only source of value? It may be true that without the labouring class, production would not be possible. They could all go on strike, and production would come to an end until the strike had finished. But without the capitalist, who organises the production process and brings together capital goods, in some cases raw materials, and labour in a workplace, production would be equally impossible. Marx argues that only labour is productive, but I would argue that capital is also essential to production, so that the application of science and technology can be said to be productive. Capital may well exploit labour, but Marx has turned something political into what he claims is scientific.”
I am sure you can argue that capital (machines, raw materials, buildings) is also essential, sine qua non. necessary.
As a Marxist, I would agree with that and I would bet my life so would Marx (although, in Marx’s terminology, machines, raw materials, buildings are called “means of production”). Believe it or not, there is no disagreement there.
The problem, it seems to me, appears when one conflates “capital” with “capitalist” and “capitalist” with “manager”, as it apparently happens in the paragraph above and particularly in the passage in bold.
A capitalist, as capitalist, is not a manager; nor a manager, as manager, is a capitalist. Sometimes they can be, often they aren’t.
The capitalist is the owner of the firm. The manager is a firm’s employee.
As owner of the firm, the capitalist earns dividends and needs do nothing to receive them. In fact, a capitalist needs not be a person: firms are shareholders in other firms. As an employee, the manager earns a salary and that salary depends on him/her working for it: managers are workers.
When Steve Jobs died nothing happened: there was a management structure to replace him.
——-
Ironically, Matt Bruenig, whom I’m sure is not a Marxist and, quite to the contrary, seems quite neoclassical in many respects, has no difficulty understanding that point:
“When faced with such nonsense, it should be simple enough to point out that 30% of the national output each year goes to owners of capital that did not produce it. You can quibble over whether we should describe that 30% as having actually been produced by workers (Marx’s view) or as having been produced by the capital itself (the more conventional view), but there is no quibbling over the fact that the capitalists did not produce it. The marginal productivity of capital is not the marginal productivity of its owners, a fact made even more compelling (and dangerous) by the fact that ‘ownership’ is a purely legal construct.”
http://mattbruenig.com/2015/05/23/vampire-capital/
Thanks for your comment. Would it be fairer to say that the forces of production embodied in the activity of capital and labour combine in production under capitalism and are only productive together? This is still contrary to Marx’s view of labour as the sole source of value, but seems closer to the truth for me.
I would not rule out the development of a variety of different forms of ownership and control if they have the potential to be more productive, which would change the nature of the labour process. I think that part of the controversial nature of the debate, as you say, lies in how we define capital.
I realize that Marx explains how capital changes its form through the production process and I do find this kind of analysis appealing as it shows up the fluid nature of meaning, so that capital is not simply a factor of production as in neoclassical theory.
Would it be fairer to say that the forces of production embodied in the activity of capital and labour combine in production under capitalism and are only productive together?
It certainly seems fairer.
This is still contrary to Marx’s view of labour as the sole source of value, but seems closer to the truth for me.
Frankly, I can’t see where the contradiction is. Perhaps it would help if you explained your point.
Still, given Bruenig’s idea let me sketch an argument. I realise that, as a follower of Joan Robinson, you may object to it because it’s based on the production function. For the sake of the argument, I propose we deal with the neoclassical theory of the firm. There are two reasons for that: (1) it’s the most favorable case for the claim that capitalists’ earn their profits and for the justice of capitalism in general, and (2) it’s an argument easy to understand and I’m sure you are familiar with it, even if you don’t agree with it.
So q = q(K, L) is a production function with all the standard properties (continuity, differentiability, first derivatives positive, etc). The symbols are the standard and the measurement units are the usual.
We add linear homogeneity [i.e. q(t.K, t.L) = t.q(K, L), for any real number t] to the description of the production function (we want to apply Euler’s theorem of the sum) and we further specify that the firm operates in the long run in a perfectly competitive market.
Because the firm operates in the long run in a perfectly competitive market, the firm’s profit maximisation problem reduces to selecting the values of K and L (K*, L*) that make
p.q(K, L) – r.K – w.L
as large as possible (p, r and w, positive real parameters, are respectively output price, return to capital and wages, in suitable units). Other than non-negativity, there are no constraints on K and L.
(K*, L*) satisfy the following system (one finds the partial derivatives of profit, etc):
MPL = w/p
and
MPK = r/p
At the point (K*, L*) we get:
q(K*, L*) = w.L*/p + r.K*/p
or p.q(K*, L*) = w.L* + r.K*
So, the most favourable neoclassical argument concludes that Labour gets what it contributes to physical output and to profits; so does Capital. And there’s nothing else left to fight about.
But “capital” is not the same as “capitalist”: the machines, raw materials, buildings would be every bit as productive if they were the property of the workers. Whatever return the capitalists get (they got r.K* in the previous exposition), could as easily be expropriated by the workers: it’s just a matter of changing the legal relations of property.
Currently, capitalists use a part of r.K* to cover legitimate business costs (raw materials, depreciation of machines and buildings). One can add for good measure opportunity costs. If workers owned the firm, they would get that amount, and use this part for the same purposes.
Another part of r.K* goes to cover the capitalists’ personal expenses. If the firm were a property of their workers, they could distribute that among themselves. It belongs to them.
What capitalists don’t consume, they invest. It’s from this investment that they derive their ownership of the firm. The capital they own (K*) it’s an accumulation from these fractions of r.K*, it came from previous iterations of this process: it belongs to the workers, as well.
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It appears that the meaning of “exploitation” most prominent in Marx’s thinking amounts to “the inadequate remuneration of a producer”, or “an insufficient share of the producer in the value of his output”.
However, the meaning of this concept of “exploitation”, and most alternative denotations of it, are open to contestation under innumerable circumstances. In fact, in a free society (which communism promises to be) people will have and — as we will see below — amply exercise the right of debating whether or not they are affected by “exploitation”.
Even if it were possible to unequivocally distinguish capital from labour and prove that value is only created by labour, the issue of exploitation would remain indeterminate/open to contestation.
This is because no production is possible without engaging in social relationships characterised by differential power among the participants. Whenever differential power prevails amongst a group of humans there is the possibility of divergent assessments of processes and outcomes brought about by activities involving dominance, subordination, and dependency. Exploitation in Marx’s sense is a variant, an element, one hypothesis among others in a large set of possible evaluations of power-based production. People, not Marx, will decide if his conception is useful. When free to follow their own assessment they tend to dismiss Marx.
For Marx’s elementary error is to assume that power is a historically specific attribute of capitalist social relations (and earlier historical stages) but will no longer play a role in the future — under communism.
Even if labour ensures for itself sole possession and the exclusive right of disposition of the means of production, at once power relationships will emerge among the labourers. There will be competition for power accompanied by all phenomena associated with such a clash of interests (from contented obedience to mobbing and revolt). This is clearly borne out by experiments with worker cooperatives and grand scale attempts at communism.
Marx was hopelessly naïve concerning this unsuspected cornerstone (the ineradicable role of power in production) of his shaky theoretical cathedral. His oversight has cost millions of people their lives.
Marx was unable to follow the concept of power to a sufficiently high level of abstraction. Insinuating a benign power vacuum under communism, he paved the way for ruthless power-seekers who imposed their repressive and self-serving agenda on the people under the pretence of abolishing “exploitation”.
The functional division of labour in modern complex production processes justifies differentiation of categories like capital(ist), management, labour (and still further distinctions), while the production of value requires cooperation within and among these groups, giving inevitably rise to conflicts that may be couched in terms of “exploitation” (“my share in managerial decision power/pecuniary remuneration/protection from work hazards etc. is inadequate relative to the value I produce.” “No, it isn’t.” “Yes, it is!”). Admission and expression of such conflicts may be suppressed (as under communism) but their ongoing occurrence cannot be conjured away, except in theory, which is the path that Marx chose.
Incidentally, anarcho-capitalists fall prey to a similar error. Thinking that unfettered freedom will give rise to processes free of power and the need to conquer and defend incumbent power — in a word: politics. Thus, they dream of a society without politics, when in fact freedom presupposes politics as a means to establish a power structure capable of supporting a society where liberty thrives to the most feasible extent. For individual freedom to prevail a lot of individual freedom has to be restricted and much space must be gained for collective rights and decisions. In fact, freedom encourages dissent and therefore the management of conflict (a central task of politics), including forms of conflict-suppression, is essential for liberty.
Sorry it’s taken so long to reply to this very constructive comment. I think you make a very important point: that relations of power, and politics, are inevitable in human societies and can be contested by their constituent members. You also make a very persuasive case that Marx was in error in thinking that exploitation will vanish under socialism or communism and the costs of this belief in terms human suffering and lives lost under particular oppressive regimes. Many thanks.
Thanks, Nick. Your wonderful blog is so full of new insights and inspiring ideas, I can hardly keep up with the flow of your thoughts and the excellent reporting on other theories and thinkers in your posts. Your blog is a great achievement and a constant joy and challenge for me. Vielen Dank aus Deutschland.