Alexandria Ocasio-Cortez’s tweet about employees being paid ‘less than the worth they produce’ is basically a restatement of Marx’s Labour Theory of Value– here’s why that’s fascinatingBy Blair Morris
June 18, 2019
Late last month, US Rep. Alexandria Ocasio-Cortez tweeted a criticism of Ivanka Trump, who had stated she is versus the idea of a guaranteed minimum wage since she does not “think a lot of Americans, in their heart, wish to be given something.”
“Individuals want to work for what they get,” Trump stated. “So I think this idea of an ensured minimum is not something a lot of individuals desire.”
Ocasio-Cortez reacted: “A living wage isn’t a gift, it’s a right. Workers are frequently paid far less than the value they produce.”
That caught my eye because it is essentially a restatement of Karl Marx’s Labour Theory of Value, and it’s seldom you see that talked about in the mainstream media.
If all employees are paid less than the worth they create, then there will never suffice employees to buy the important things they make
Before Marx, the “worth” of any item was considered basically the like its price in the market. It’s just how much you would pay to prevent making the product yourself, according to Adam Smith (1723-1790). The factor you may spend $100 on a pair of shoes is that despite the fact that $100 is rather pricey, it’s a lot simpler than making a pair of shoes by hand, yourself, Smith stated.
Marx (1818-1883), who was a huge fan of Smith, was more interested in how products obtain worth as they come into existence. A cow doesn’t slaughter itself and magically transform into a set of leather shoes– that takes place only since employees apply labor to the cow’s corpse, turning its skin into leather and then sewing that leather into shoes. Just after labor has been applied do shoes have any worth. It’s the labor that produces the worth, not simply the fact that the shoes can be traded for cash.
If you accept that, then it ends up being immediately apparent that what Ocasio-Cortez said is correct. Workers in a shoe factory are paid far less than the worth they create. They have to be. If 100%of the loan from shoe sales was paid directly to the workers, then the factory would go out of company– there would be no money delegated spend for electrical energy, and there would be no earnings to invest in more efficient shoe-making makers to assist the factory contend in the future.
However that raises a contradiction: If all employees are paid less than the worth they develop, then there will never be enough workers to buy the things they make.
Let’s say our shoe factory has one worker who each day makes five sets of shoes, which sell for $100 each. The factory makes $500 a day in sales. The worker’s wage is $10 an hour for a 10- hour day. So the employee is paid $100 a day. The employee can pay for to buy only one pair of shoes, despite the fact that they have made five.
In the beginning this doesn’t feel like an issue, because, clearly, there are billions of people on the world who require shoes– the factory can sell those other four sets to someone, someplace. What concerned Marx was that eventually each and every single employee on earth, in every workplace and factory, is paid less than the worth of the products they produce. It is not possible for all the products being produced to be bought by all the employees making them. Furthermore, there is usually a reserve army of out of work people who can’t afford to buy anything, worsening the problem.
The tendency is for the system to collapse, Marx believed
The propensity is for the system to collapse and for recessions to damage shoe factories whose consumers are too poor, or not numerous enough, to purchase all the shoes, Marx thought. This collapse can be staved off, he argued, if the shoe factory goes to terrific lengths– for example, by purchasing brand-new technology allowing that shoe worker to double their efficiency and make 10 sets of shoes a day, or possibly the same variety of shoes at a lower price.
However the collapse is just pushed into the future. New innovation will likewise be obtained by all the competing shoe factories, squeezing earnings– and squeezing some factories out of service. And if the factory buys shoe-making devices instead of working with brand-new workers, it still deals with the issue of producing more shoes than can be purchased by the employees making them.
By a fantastic coincidence, Ocasio-Cortez also tweeted a chart of workers’ pay increases compared to their efficiency increases to make the point that even when labor becomes more important, it does not share the rewards:
It is difficult for capitalists to pay employees the full value of their labor without going bankrupt
That is a huge oversimplification of Marx’s analysis, but you get the gist.
Marx believed industrialism was naturally unstable specifically since workers are not paid the complete value of their labor, and specifically due to the fact that it is difficult for capitalists to pay them the amount without going insolvent. It’s one of the internal contradictions that capitalism can not deal with.
Of course, not all earnings are bought new equipment. Factory owners take a slice for themselves, and it tends to be a much bigger slice than the employees get. There are factors for this, naturally. It was the capitalists’ cash that brought the factory into existence, and the unavoidable collapse can be prevented if the profits are diverted into a brand-new venture, like a hat factory, that might produce new tasks (for employees who can then buy shoes).
Whatever they do, in charges get richer than the workers. Now you have two sets of individuals, both doing the very same thing (making shoes), but being paid extremely unequal amounts for doing so.
Which is another way of stating that “employees are typically paid far less than the value they develop,” as Ocasio-Cortez tweeted.
AOC and the financial investment banks are on the very same side of the dispute
She isn’t alone in fretting about what workers are paid. Over the past couple of years, an unexpected number of investment-bank analysts at Citi, HSBC, and Macquarie have published research study finding that inequality and low pay may result in economic downturns, or at least keep back economic development (which, paradoxically, even makes the rich poorer).
These people are not Marxists, certainly (though, like Marx, they are economists). But also like Marx, they are concerned that inequality in the US and the West is ending up being so severe that ordinary individuals won’t have sufficient loan to keep the economy going.
The charts in this story all show the exact same thing: The share of nationwide earnings going to the leading 1%of earners is increasing, while the share of earnings going to the bottom 50%of individuals is declining. The rich are getting richer. And the rest of us are sharing an ever-smaller slice of the pie. The bottom 50%of people in the United States and Europe now share simply 13%of nationwide income.
What if we run out of rich people?
The top 0.1%own near to 20%of all household wealth in the United States, according to a paper by Gabriel Zucman, an economics teacher at the University of California, Berkeley.
This is a problem, the investment-bank people state, because there aren’t adequate people with loan to keep commercialism ticking over.
“Earnings inequality is mentioned as another consider the stagnation process as a few rich individuals can not drive an economy by themselves,” the Citi analysts Tobias M. Levkovich and Lorraine M. Schmitt told their clients in2015
2 analysts at Macquarie, Viktor Shvets and Perry Yeung, said something similar in 2015. They pointed out work by Moritz Kuhn and Moritz Schularick released by the Federal Reserve Bank of Minneapolis, and by Emmanuel Saez and Thomas Piketty, which stated:
- The bottom 25%of homes had a negative net worth (i.e., they owe money).
- The population between 25%and 50%owned only 2%of nationwide wealth.
- The share of the “middle class” between 25%and 75%had actually dropped to about 8%from 15%in1989
- The top 10%managed about 77%of nationwide wealth.
- Gradually, the top 1%increased its share to about 40%in 2013 from 27%in1989
“To put it simply, wealth has actually not just accumulated to the top 10%, however it went practically totally to the leading 1%,” they informed customers. “The middle-class production in 1950 s-70 s has clearly been replaced by a middle-class compression over the last 3 years, definitely considering that late 1980 s.”
If the West goes into recession, the fortunes of the abundant might make it worse
Janet Henry, a financial expert at HSBC, informed clients in 2018 that the build-up of wealth by a tiny minority might really hold the economy back.
“Income inequality suppresses usage provided the lower minimal propensity to consume of greater earners and can be negative for development if the cost savings of greater earners do not rise efficient investment costs however get parked in home or government bonds,” she composed.
“Income inequality, which often goes hand in hand with a lack of social movement, likewise creates disparities in life span, education, skills levels and labour mobility that will influence on future productivity and growth capacity,” she included. “This has implications for federal government profits and their ability to fund public services and future liabilities. Given the huge structural factors– from demographics to innovation– that are adding to the growing income polarisation, it is not something that will astonishingly dissipate on the back of one or two years of robust growth.”
Worse, if the West enters into economic crisis, then the fortunes of the abundant will make it even worse, she said, because the bad don’t have sufficient cash to withstand it.
“The depth of any decline, when it lastly happens, might be amplified by this earnings and debt distribution,” she informed customers in a note late last year.
To put it simply, the wealthiest 1%may purchase a great deal of shoes, however they can not possibly purchase enough to keep all the shoemakers used. You require employees with adequate loan to purchase shoes too. Which indicates– as Ocasio-Cortez tweeted last month, and as investment bankers have been fretting about since the 2008 financial crisis, and as Marx composed 200 years ago– that it is very important to consider what workers are paid in relation to the value they develop.