Rate of Exploitation

BIBLIOGRAPHY

According to Karl Marx, exploitation takes place under capitalism through the extraction of surplus value. In the capitalist mode of production, the surplus takes the form of profits appropriated by the capitalist, and exploitation results from the working class producing a net product that can be sold for more than they receive as wages. Marx made a distinction between labor and labor power that is important for understanding the source of profits. Labor power is the sum total of abilities (spiritual and physical) a worker uses to produce use-values. It is a commodity owned by a laborer but sold in the labor market, and its value—as with any other commodity purchased by the entrepreneur—equals the socially necessary labor time required for the production of goods and services consumed by a laborer for the reproduction of himself and his family. Labor, on the other hand, is the use of labor power—that is, the amount of useful labor provided by a worker in a given period of time (an hour or a day). According to Marx, the amount of labor spent in producing a commodity determines that commodity’s value.

In the capitalist mode of production, the labor time required for the production of the means of subsistence for the laborer is smaller than the labor time actually provided by him to his employer during a labor day. Hence, for any given time period, the laborer produces more value than the equivalent of his or her remuneration (wage). This difference Marx calls unpaid labor or surplus labor. The net product produced by the worker during the labor time that is above and beyond the time needed for the reproduction of the labor class is called surplus value and is the foundation on which the Marxian theory of profit rests. Hence, the amount of surplus value ( s ) a worker produces is the difference between the value he or she produces and the value of his or her labor power ( v ). The value produced by a worker during a labor day is determined by the conditions of the labor process, whereas the value of his or her labor power is determined by the conditions of the labor market and the value of the goods a worker must consume. The ratio s /v represents the rate of surplus value (sometimes called the rate of exploitation ), because it indicates how much value has been produced during a labor day beyond the value that laborers actually receive as remuneration. This surplus product is appropriated by the employers, who are the owners of the means of production.

In a capitalist mode of production, the driving force of the system is the self-expansion of capital that can be attained with the creation of more surplus value. This is because profits are realized as surplus value (through the selling of commodities in the market), and the more surplus value there is, the higher are the profits and profit rates, and by extension, the easier is the process of accumulation and concentration of capital. If π stands for profits and approximates the surplus value and w stands for wages and approximates the variable capital (that is, the wage proportional to labor hours spent for the reproduction of the laborer and his family), then the rate of surplus value or exploitation can be approximated in a real economy by the ratio π / w, which gives us a good idea of the income distribution in the economy. The higher the profit-wage ratio, the higher the distribution of income in favor of profits and, eventually, the higher the investment.

Several economists (right-wing and left-wing) have argued that the constant decline in the above ratio in most economies since the end of World War II indicates an increase in the wage bill relative to profit share, the redistribution of income toward labor, and the lessening of the exploitation rate. One of the reasons claimed for this rise in the wage bill is the unionization of the labor force and the concomitant “malfunctioning” of the labor market (that is, wages do not fall to the level necessary to clear the markets). The same economists argue that the slowdown in growth rates observed after the 1970s is also due to the rise in the wage bill, because that rise deprives capital of the profits needed for investment. Hence, policymakers, based on this evidence, promote the liberalization of the labor market in an attempt to increase profit share.

The counterargument to these suggestions comes from Marxist economists who claim that before the profit-wage ratio can be accurately measured, a distinction must be made between productive and nonproductive labor, to ensure that the correct surplus value ( s / v ) is computed. Relevant studies have shown that the rate of surplus value has increased, indicating an increase in labor exploitation. This increase in the rate of surplus value is absolutely consistent with the falling rate of profit ( r ) during the same time period. In fact, by definition the rate of profit is r = s / ( c + v )—that is, surplus value over capital invested (circulating and variable)—or r = ( s / v ) / [1 + ( c / v )]. The term c /v represents the organic composition of capital, an index of capital intensity whose rate of increase is higher than that of the rate of surplus value, giving rise to a falling rate of profit.

SEE ALSO Accumulation of Capital; Marx, Karl;Primitive Accumulation; Rate of Profit; Social Surplus; Surplus Value; Work Day

BIBLIOGRAPHY

Marx, Karl. [1857] 1973. Grundrisse: Foundations of the Critique of Political Economy. Trans. Martin Nicolaus. New York: Vintage Books.

Marx, Karl. [1867] 1967. The Process of Capitalist Production. Vol. 1 of Capital. Ed. Frederick Engels. New York: International Publishers.

Shaikh, Anwar M., and E. Ahmat Tonak. 1994. Measuring the Wealth of Nations: The Political Economy of National Accounts. New York: Cambridge University Press.

Persefoni V. Tsaliki