A crucial point missing from debates about capitalism
I just read Ben Burgis’s reply to Sabine Hossenfelder’s controversial video defending capitalism. This is deep blogosphere stuff, and I’m not going to go into it, except to say that it reminds me of a fundamental point that seems to never get mentioned in debates about capitalism.
Inevitably, these debates hit on the idea of profit. Here, for instance, is how it comes up in Burgis’s characterisation of capitalism:
workers under capitalism […] have no realistic choice except to part with much of what they produce. There’s a portion of the day in which they’re laboring to produce products or services that are equivalent to what were advanced to them as wages, and a portion of the day in which they’re laboring to enrich the boss. So part of the money generated by the activity of workers in Amazon warehouses, for example, goes to paying for Jess Bezos’s spaceship.
This is straight out of Das Kapital, vol.1, ch.7. But I have emboldened the crucial word: equivalent. Workers are not generally paid in what they produce. Factory workers producing dishwashers in a Shenzen factory don’t get to keep a certain proportion of the dishwashers they make. Rather, they get paid a wage. Burgis’s claim is that the wage is less than equivalent to what they produce.
But there’s a huge amount of conceptual plumbing under this claim (to use Mary Midgley’s term), and when you dig into it, things get very hairy (I learned about Midgley’s term from Ellie Robson’s excellent recent piece in The Philosopher, and I’m sorry for making it disgusting).
Two big questions here are:
- What makes a wage equivalent to a certain portion of output?
- What portion of output is produced by each worker?
Let me deal with these in turn.
1. What makes a wage equivalent to a portion of output?
Marx’s answer to 1, famously, appeals to the Labour Theory of Value (LTV). I’ve written enough about that for now. The idea is that the value of anything is the labour that went into producing it and any inputs used in its production.
Burgis, however, appears to reckon in terms of money: “part of the money generated by the activity of workers in Amazon warehouses”. Ok, how do we calculate how much money is generated by the activity of the workers? Burgis presumably wants to answer: all the money Amazon makes in sales. But we need a reason for that answer; it’s not at all obvious.
2. What portion of output is produced by each worker?
Surprisingly many economists think that the answer to the question was provided by John Bates Clark’s version of Marginal Productivity Theory (MPT). Clark showed that, under certain “ideal” conditions (efficient markets, etc.), the rate of profit should equal the marginal product of capital and the wage should equal the marginal product of labour. As he puts it, at one point:
Each man gets what one unit of labor, under fair conditions, creates; while capital gets what is imputable to it.
The marginal product is the difference to the total (money) value of output made by the addition of one extra unit of labour or capital. If hiring another worker means that the company makes another $25 per day, then that’s the marginal product of labour. Clark argues that the wage under ideal competitive conditions should then be $25: the worker is paid precisely what they contribute to the company.
If this is right, then Burgis is wrong to say that some of the money generated by Amazon’s warehouse workers goes to Jeff Bezos. Where does Bezos’s money come from? From the capital he contributes to the company. But what is capital?
Let’s take the simplest case, where there is only what Marx calls “variable capital”: basically, advance wages. I pay workers $75, they work for a few weeks and produce goods, which I then sell for $100. Have I snatched $25 worth of output from the workers? Well, they couldn’t have produced those goods without my capital, which kept them alive during the production period. On the other hand, I couldn’t have turned my $75 into $100 without their labour. Both the capital and the labour were causally necessary to produce the effect.
The question is how much responsibility does each of these joint causes have for the effect? If labour is 75% responsible for the creation of the product, then the wage precisely equals their contribution. If it’s 85% responsible, then the workers are being exploited. If it’s 60%, then it’s me the capitalist being exploited.
Clark’s answer is that the wage must be proportionate to “what one unit of labor, under fair conditions, creates”, because the wage equals the marginal product of labour. But this is bad reasoning. The marginal product of a factor need not equal what it, under fair conditions, creates. In the first place, why not use the average product rather than the marginal product? Secondly, what are fair conditions? And thirdly, the fact that hiring one more worker adds $25 to the company’s daily revenue doesn’t mean that that worker has created $25 worth of value, since the worker works in combination with all the other workers and capital already there. This point was clearly explained by Amartya Sen, but most sophisticated economists will concede it (Paul Samuelson, for example, was baffled by how many of his colleagues had failed to spot Clark’s fallacy).
But not knowing whether Clark is right means also not knowing whether Marx is right. The wage need not, even under “ideal” conditions, equal the value created by the worker. But nor is it obvious, as Marx proposes, that capital adds no value whatsoever, so that all I would be entitled to if everyone got the value they contributed is $75 worth of the final revenue, if I advanced $75 of wages. All we know is that without labour and capital, you get no product. We don’t know how much of a difference each makes, because we never have one without the other. Capital without labour sits idle; labour without capital starves to death.
The question: “how much value does each factor of production add to output?” is the sort of question that Joan Robinson called “metaphysical”, and she meant this in a bad sense. Certainly, it’s hard to see how you could answer it in any scientific way. Metaphysical claims, Robinson warned, are open to ideologically biased answers, since the bias can’t be countered by scientific evidence. If you’re convinced that labour is responsible for all the value-added then you’ll see capitalism as nothing but brutal exploitation. If you’re convinced that the wage corresponds precisely to the value added by the worker, then you’ll see capitalism as a system of fair exchange. But what convinced you of these things? Probably the conclusion you wanted to get to.
One final warning about a confusion to avoid. Opponents of capitalism often bundle together the claim that workers receive less than the value they add with an explanation of this alleged fact: the workers are proletariat who have no choice but to accept whatever wage-contract is on offer. But this issue is separate from the metaphysical question of how much value labour and capital contribute respectively to output.
In my example above, suppose the workers already had $75 and didn’t need my variable capital. They could then work, produce goods to sell for $100, and keep the profit. It might still be true, however, that the profit came from the $75 worth of capital they advanced to themselves and not from their labour. If you think this is a situation we should try to bring about, then what you are proposing is a redistribution of capital to workers, not the overthrow of capitalism and not an answer to the metaphysical question about the respective contributions of labour and capital to the final value of output (this is, sort of, John Roemer’s point).
You might still need an answer to the metaphysical question, however. Different workers will likely contribute different amounts of their capital to a collectivised process of production, and a decision will have to be made about what proportion of the final value of output this entitles them to. It doesn’t matter to this whether we abolish money or markets: if a farmer, in some way or other, contributes food that is eaten by a factory worker, there is the question of how much of the factory worker’s output the farmer should therefore be entitled to. Of course, “from each according to ability, to each according to need” would obviate any need to consider this. But preserving any degree of reciprocity in the system would require us to have a sense of “equivalence” and therefore an answer to the metaphysical question.
In any case, the crucial point that seems to go missing from the debate is that there is an unresolved metaphysical question right at the heart of it. Each side nimbly draws out consequences from its preferred answer and then berates the irrationality of those who disagree. The premise is buried so deeply that people don’t realise they disagree on it. They think they’re arguing over the reasoning, or, as a famous philosopher allegedly said, they think that they’re thinking.
