2010s >> 2019 >> no-1377-may-2019

Cooking the Books: How much are you worth?

Alexandria Ocasio-Cortez, the Democrat member of the US House of Representatives who calls herself a socialist, tweeted in February:

‘Workers are often paid for less than the value they create.’

The American financial magazine, Business Insider, picked this up, commenting ‘this is essentially a restatement of Karl Marx’s “Labour Theory of Value”’. But was it?

Ocasio-Cortez doesn’t claim to be a Marxist – claiming to be a socialist is shocking enough for mainstream America – but her tweet is in the language of Marxian economics: workers create value and are paid less than the value they create. However, a further tweet suggested that she has a different theory of worker exploitation:

‘In fact, wages are so low today compared to actual worker productivity that they are no longer the reflection of worker value as they used to be. Productivity has grown has grown 62x more than wages.’

Since productivity is output per worker measured in money, ‘output’ can be very crudely – very crudely – interpreted as ‘value’, so what she is saying is that value created has increased faster than the value of what workers have been paid as wages.

Her beef is not that workers are paid less than the value of what they produce, but that they are not being paid enough of this value. On this theory, workers exploitation ‘in the economic sense’ is, as Paul Johnson put it in the Times (18 March), ‘being paid less than their productivity would warrant’. This was not Marx’s theory. He regarded all workers who produced value (and, for him, not all workers did) as being exploited in the sense that they always created a greater value than they were paid.

In its attempt to explain Marx’s theory, the Business Insider wrote:

‘Workers in a shoe factory are paid far less than the value they create. They have to be. If 100% of the money from shoe sales were paid directly to the workers then the factory would go out of business … But that raises a contradiction. If all workers are paid less than the value they create, then there will never be enough workers to buy the things they make.’

This is obviously true, but the article went on to misinterpret Marx:

‘Marx thought capitalism was inherently unstable precisely because workers are not paid the full value of their labour, and precisely because it is impossible for capitalists to pay them the full value without going bankrupt. It’s one of the internal contradictions that capitalism cannot resolve.’

There is a whole school of economics which argues this. But not Marx. The obvious flaw in this ‘underconsumption’ argument is that the part of the newly created value that the workers can’t buy back can be bought by the capitalists out of the ‘surplus value’ they receive. Not so much to buy shoes and other consumer goods but producer goods like factories, machines, parts, materials and power. However, they will only re-invest profits in expanding production if they judge there is a prospect of making further profits by doing so. It is this that makes capitalism ‘inherently instable’ as this condition is regularly not met, meaning that capitalism continuously lurches from boom to slump and back again.