[OPE-L:7393] [OPE-L:924] Re: Exploitation?

Gil Skillman (gskillman@mail.wesleyan.edu)
Mon, 26 Apr 1999 14:46:58 -0400

Paul, I'll take the bait.

>I received the following mail from DrKnowmore (sic). He raises
>3 objections to the Marxian theory of exploitation, how would
>fellow list memebers respond to him.
>>Dear Sirs:
>>I very much appreciate your "Reality" site. It features some of the best
>>theoretical defenses of socialism that I have seen. I am particularly
>>impressed with the essays defending central planning vis a vis von Mises
>>and von Hayek.
>>Your book "Towards a new socialism" seems to assume the validitty of
>>"exploitation theory;" i.e., capitalist profit arises from paying the
>>less than the full value of his productivity. In the rest of your site, I
>>did not find a theoretical defense, or even explication, of this key
>>principle. (There is an essay purpoting to defend the labor theory of
>>as scientific on empirical grounds. I am, jowever, unable to access it.
>>Please check your site.)
>>There are three arguments that capitalist income is not exploitative:
>>a) The capitalist benefits workers by paying for their hours of labor
>>their products have been sold. If it were not for the capitalist, workers
>>would have to wait until the end of the production period to obtain payment
>>for hours worked. In effect, there is an "interest discount": workers
"pay" >receive income before the end of the period of production and
>>(Eugen von Boehm Bawerk)

First, the reverse argument is at least equally plausible: since workers
are almost always paid in one- or two-week installments *after* their labor
has been completed, they are in effect loaning capitalists their labor
hours for these periods. Furthermore, there is no market logic which links
pay periods closely to inventory turnover periods. Therefore, as an
empirical matter, products may well be typically sold before the labor that
produced them is paid for. This is *certainly* the case in "service"
occupations, where the product is supplied exactly when the labor is. Why
shouldn't fast-food restaurant workers be paid hourly, for example?

Second, and more fundamentally, it is not a rebuttal of the Marxian theory
of exploitation to assert that workers are made better off by engaging in
the labor exchange. The key issue is, better off compared to what?
"Exploitation" carries the connotation of "making use of the disadvantaged
position of another", and the point of exploitation theory is that the
capitalist class collectively takes advantage of the unpropertied status of
workers. If productive wealth were evenly distributed, laborers would not
have to work for others. They *could*, of course, as a matter of
individual preference, but they wouldn't *have* to, unlike in the
capitalist status quo. More on this point below.

>>b) Profit rewards the entrepreneurial capitalist for assuming economic
>risk. Under any economic system, there is always the risk that production
>>efficient: in the market, this is reflected by an inability to sell the
>>commodity at a price that covers the costs of production. The
>>however, pays the workers for each hour of labor they have expended,
>>regardless of whether the commodity is sold or not. The entrepreneur thus
>>absorbs the loss, and it is only morally and economically right that he
>make a profit when he has correctly understood or forecast market demand.
>>One can thus regard "profit" as payment for the very productive activity of
>analysing the market under conditions of uncertainty.

First, the latter statement reflects (perhaps unintentionally) a
categorical confusion: "analyzing the market", under conditions of
uncertainty or otherwise, is, a type of *labor* and its payment properly
thought of as a wage, not profit.
Profit must be thought of, per the first part of the argument you've
advanced above, as *purely* a return for productively useful risk-taking.

Second, you've asserted what must be proved, namely that entrepreneurs as a
class experience psychic pains from risk-taking, or are, in the language of
mainstream economics, risk-averse. If not, then the "opportunity cost" or
"supply price" of entrepreneurship is (virtually) zero, and expected
profits need only be equal to or at most incrementally greater than zero in
order to assure the supply of this productive input. Thus, even granting
that entrepreneurs bear significant and productively useful risk, it does
not follow that profit levels obtained in practice are on average just
sufficient to cover the psychic costs of risk-bearing. Any return above
this, of course, constitutes pure economic rent.
It must therefore be asked if it is *possible* that risk-bearing capital
suppliers persistently earn such rents.

Third, yes it is. This is the point of Marx's argument in Chapters 6, 7,
and 25 of Capital, Volume I. First, in any given market period, the
capital stock and thus the maximal supply of capital services is fixed,
which is to say that the "supply curve" of such services goes vertical at
some point. If the (direct or implicit) "demand" for such services
intersects supply in its vertical portion, then the equilibrium profit rate
transmits some level of pure economic rent.

This situation is promoted by capitalist wealth inequalities in two ways,
the first acknowledged explicitly by Marx: if the capitalist class holds
all the productive wealth, then there may be a shortage relative to the
demand (given, in a long-run sense [i.e., ignoring Keynesian-type aggregate
demand fluctuations], by the size of the labor force), creating the
conditions for economic rents to capitalists in the form of profit.
Second, though, there is evidence that risk aversion is declining in wealth
or income, implying that wealthy capitalists have a low "supply price" for
risk-bearing capital assets, and thus are in a better position to accrue
such rents.

The main economic objection to the above scenario is that this "short-run"
condition of class-based capital scarcity can be undone through the process
of capital accumulation: since capital, unlike land, can be accumulated,
and potentially at a pace exceeding the growth rate of the labor force, it
is at least *logically* possible that accumulation would drive the profit
rate to its "normal" level (i.e., that dictated by the supply price of risk
bearing), thus eliminating economic rent.

This possibility is addressed by Marx in Chapter 25, where he counters by
demonstrating the alternative possibility of a "steady state" rate of
profit which not only exceeds the "supply price" of capital services (which
Marx takes to be zero, judging from his sarcastic commentary in Ch. 7 and
elsewhere), but becomes progressively greater over time due to the
capital-intensifying dynamic he imputes to technical innovation in
capitalist economies. Even if one does not accept the latter argument, it
is still clear that observed profit rates may persistently exceed their
"normal" levels. We can talk about the empirical evidence in support of
this scenario (which I think is at least credible if not compelling), but
to do so would take us away from the main point, which concerns the logical
coherence of Marx's theory of exploitation as the basis of capitalist profit.

>>c) Interest, the return on capital, is the reward for sacrificing
>>consumption during the investment period. It is a way of making
"extraction of surplus product" voluntary. For example, suppose that a
worker receives "full value" for his productivity (income = value added).
Instead of expending it on
>consumption, he invests it himself or lends it to another. This is a
>activity, and he deserves a capitalist reward. There are many cases, in
fact, in
>which an American immigrant family save their earnings and then open a small
>shop. >>

Again, this claim begs the question by asserting what must be proved,
namely that capital suppliers always bear psychic costs of foregone
consumption. For the highly wealthy (who own the lion's share of
interest-bearing assets as well as equities; net saving is highly income
elastic, such that lower-income households are net dis-savers, at least in
the U.S.), this claim strains credulity: does a billionaire really agonize
over sacrificing the marginal, say, million dollars to the purchase of
interest-bearing securities, rather than spending that sum on yet another
yacht or country home? Doubtful.

The available evidence suggests that saving is on average
interest-inelastic. This suggests just the sort of "vertical supply curve"
story on interest-bearing capital assets that I mentioned above, meaning
that at least some portion of interest received constitutes, in fact, a
pure economic rent. My point here, though, is again not to debate the
evidence but to establish the coherence of an alternative viewpoint which
is consistent with Marx's theory of exploitation.

(An aside: lest it be thought, by virtue of anecdotes about thrifty
immigrant families, that class status is relatively changeable, data from
the Panel Study of Income Dynamics and elsewhere suggests, for the U.S. at
least, that income and wealth mobility is relatively limited: poor
families tend to stay poor, and rich families tend to stay rich.)

The sense of my reply to this point is that it is at least equally
plausible to understand realized rates of profit and interest in capitalist
economies as class-based scarcity rents rather than just-sufficient returns
to the psychic pains of risk-bearing and foregone consumption. The sense
in which such returns constitute "exploitation" of resource-poor workers
under this scenario is clear.

My guess is that most Marxists would take the argument at least one step
further by questioning the exclusive right of wealthy capital suppliers to
determine how and to what degree socially desirable investments are made.
Even granting your representation of profit and interest as returns to
productively useful risk-bearing and foregone consumption, it might
reasonably be asked why we must in effect bribe the wealthy in order to
ensure that these socially desirable outcomes are obtained. But pursuing
this line of argument would take us into the Marxist critique of private
property, as seen for example in Gerald Cohen's response to Robert Nozick's
_Anarchy, State and Utopia_. That's a tall order, so instead I think I'll
stop here.

Gil Skillman

>>I would be most interested in hearing your reply to these apologiae.
>Paul Cockshott