A lot of socialists on Twitter still cling to Marx’s labour theory of value and see all employers as exploiting the employee.
The argument runs that any increase in the value of raw materials has been created by the labour of the employees and they should be entitled to that increase in value. Paying them a wage deprives them of what is rightfully theirs, the excess being taken as unearned surplus profits by the exploiters.
Unfortunately because it is very hard to understand economics and remain a socialist, most people putting forward this view are economically naive.
Here is a simple common sense argument that helps demonstrates the error of this view.
Exactly the Same Labour Activity Can Produce Products With
Very Different, Even Negative Values
Consider two workers in the non exploitative socialist Utopia, let’s call them Murray and Friedrich. They are both skilled labourers and make widgets.
Murray works for Tescopoly Plc and his widgets are painted blue.
Carl works for Leylandus Plc and his widgets are painted red.
In the market Blue Widgets are very popular they command a high price and sell in large numbers. Tescopoly makes large profits and the increase in wealth is shared between all the workers in the business. For each hour spent making widgets Murray is rewarded with £50.
Unfortunately, Leylandus misread the market and nobody wants red widgets. Despite making thousands of them, none were sold and Leylandus made a huge loss. This loss must be shared equally between the workers in the business. For each hour spent making widgets Carl must contribute £50 of his savings.
Both workers did exactly the same thing, they made widgets. In one case the widgets made a profit and in another they made a loss. Despite containing the same amount of labour, one product was worthless to consumers while the other was highly valued.
If socialism is all about equality how can its own system of reward give one man £50 an hour while costing another £50 an hour for doing the same thing?
It should be plain that the relative value of the products and performance of the two businesses was determined, not by the labour hours spent, but by the decision of the entrepreneur to produce one type of product or another and meet the demands of the market most effectively.
The idea that wage labour benefits the capitalist and not the employee is also a myth.
The benefits to the employee are:
1. Capitalists take on the risk of business failure. The workers are paid wages for the time they spend working on the job, they no longer have to take the risk that their work will yield no reward. They have certainty of income which enables them to plan their lives.
It is no different to the way that some people choose risk and invest their life savings in shares, others prefer security and invest in savings accounts. One accepts risk in return for the chance of high reward, the other accepts a lower reward in return for security. Nobody claims the holder of a savings account is being exploited, particularly during a stock market crash!
2. Capitalists provide cash flow for employees during the production process. A Christmas decorations business may operate at a loss all year, only to make enough profit in December to make the business very profitable for the year. The capitalist provides the money to pay the workers during the period that the business is paying out for materials, etc and not receiving any money in.
Most workers do not want to run the risk that they could work all year and end up having to pay out for losses. They do not want to wait until the end of the year when the production has been sold and the accounts worked out before they have money to buy groceries.
Far from exploiting workers, the wage system gives them security and meets their time preference requirements for quick payment, which is why so many of us are employees and quite happy to be so.