Allen Wood is a world-famous authority on nineteenth-century German idealism, and his books on Kant, Fichte, and Hegel are well worth careful study. He combines the skills of an analytic philosopher in assessing arguments with deep sympathy for philosophers outside the mainstream of the analytic tradition, and he is often able to show that what these philosophers said makes sense and is insightful. His skills are on full display in Karl Marx (Routledge [1981] 2nd edition 2004), and he teases out what Marx means by alienation, dialectics, and exploitation. He is less successful in showing that there is much philosophical value in Marx’s thought, but readers of his book can judge for themselves.
Unfortunately, he tries to assess Marx as an economist, and here his lack of knowledge is apparent. He is also very leftwing and loathes capitalism. Although he is aware of some of the problems with Marx’s labor theory of value—the basis of Marx’s claim that capitalists exploit workers—he argues that these difficulties are beside the point.
Let’s first recall the basics of the labor theory of value. The value of a commodity is the socially necessary time required to produce it. Accordingly, the value of a laborer is the value—measured in labor hours—of the commodities he needs to live and reproduce himself. When a capitalist employer hires a worker, this is what he pays for.
But what does he get in return? He gets the worker’s time for the entire working day, which Marx calls his labor power. Each hour of time produces value. The number of hours in the working day will be greater than the number of hours needed to pay for the worker’s value, as defined above; otherwise, it would not pay the employer to hire him. If, for example, the worker works for 12 hours, but it takes only 10 hours to pay for his value, the employer gets two extra hours of value, each of these a creator of value. This is what Marx calls “surplus value.” This is the source of profit, by which Marx means the rate of return on capital, and rent on land; and the employer’s obtaining this is what constitutes exploitation.
Marx’s argument for his labor theory of value has many problems, and, as mentioned above, Wood is aware of a number of them. Indeed, he says that Marx himself recognized that his proof of the theory doesn’t work. I won’t go over these difficulties here, because Wood claims that we don’t need the labor theory of value to show that capitalists exploit workers.
Why not? It is because it is an undeniable fact that the worker has worked more hours than is needed to pay for what he needs to live on. Isn’t it obvious that this is exploitation? The answer is that it isn’t, unless you accept the labor theory of value, or another theory that makes labor hours expended in production the source of economic value. On the subjective theory of value, the worker’s wage is not determined by the number of labor hours someone works but rather by the marginal value of his contribution to production. There are thus no extra hours, in the sense that Marx is talking about.
Wood’s discussion is an instance of a common failing among writers who try to prove that exploitation exists without assuming the labor theory of value. To them, it is obvious that capitalists exploit workers, so they mistakenly think that they don’t need the labor theory of value.
Wood is aware of the subjective theory of value, which holds that profit isn’t based on the extra hours of workers, but he dismisses it as capitalist apologetics. According to the subjective theory, capital and land, not just labor, are sources of value. Each factor earns what it contributes to the product, so no issue of exploitation arises. Indeed, Marx sometimes acknowledges that labor isn’t the sole source of value. The subjective theory is “capitalist apologetics” in the sense that it acquits the capitalist employer of exploitation, but this doesn’t detract from its truth.
Wood’s response to the subjective theory is weak. Because in a capitalist economy, capitalists control the use of capital, they have to be paid a price to allow what they own to be used. But this isn’t really doing anything to contribute to production, as Wood sees the matter.
This is completely mistaken. Capital goods are scarce, and, by deciding where to invest these goods, the capitalist owners allocate them to the projects where they expect to get the highest rate of return. As Austrian theory shows, in doing so they respond to the demands of consumers. Contrary to Wood’s claim, this is a contribution to production of vital importance. A socialist economy would face exactly the same problem of allocating capital goods; but, as Mises’s calculation argument shows, it could not solve the problem.
Wood considers another problem for his account of exploitation, but once again his answer is weak. The problem is that it hasn’t been shown that there is anything bad about exploitation. Why should we try to eliminate it? If the labor theory of value is true, workers are giving their employers extra hours, but is this necessarily bad? Sometimes, people willingly donate labor hours to others (e.g., someone who helps his neighbor build a house).
But, Wood says, workers under capitalism don’t willingly donate extra hours. They have no choice but to do so. Capitalists have more bargaining power than workers, because if a worker loses his job, he will usually find it difficult to get another job, and he needs a job to survive. By contrast, a capitalist can easily hire a replacement if a worker quits.
What this argument ignores is that the issue of bargaining power is irrelevant. A capitalist employer will pay his employees the marginal value of what they produce. If he doesn’t, a competing firm will find it advantageous to offer a higher wage, and competition for workers will continue until workers earn their marginal product. If so, there is no exploitation, unless you make the ungrounded claim that workers should make more than this. Wood needs a better argument; there is no such thing as a free theory of exploitation.
