Before turning to Marx's real explanation for capitalist exploitation of labor, let me spend a few minutes talking about what has just happened, for it may not yet be entirely clear. Marx undertook to explain the exploitation of the working class by drawing a distinction between labor and labor power, a distinction he claimed was unique to the labor inputs into the production process. But as I showed in the journal article to which I referred, the same calculations by means of which one shows that the surplus labor extracted from the workers ends up being appropriated by the capitalist in the form of surplus labor value can be duplicated for any basic input simply by computing the quantity of that input directly and indirectly required for the production of each of the other commodities in the system, and then comparing the quantity of surplus A-value [for the chosen commodity A] with the A value of the physical surplus.
To put the point succinctly: the story Marx tells is not reflected in the model he [implicitly] constructs. I am reminded of a famous remark made in 1957 by Paul Samuelson, the first person ever to win the newly established Nobel prize in Economics, and widely considered the greatest living economist. Samuelson observed that in a General Equilibrium system with perfect competition, it does not matter whether capital hires labor or labor hires capital. He was quite correct about his model, as we would expect him to be, and generally speaking, folks who heard or read this remark took it as evidence of the irrelevance to economic theory of any moral condemnations of exploitation or of the tyranny of capital over labor.
But I read the remark quite differently. That capital hires labor is the simplest, most obvious, most universal, most indubitable fact about capitalism. Any model that purports to reveal the structure of capitalism and yet fails to capture that elementary fact is obviously completely inadequate! One might as well offer a model of American politics that has no place in it for the fact that periodically Americans hold elections.
Well, it is time to take a look at Marx's real explanation of the fact of exploitation. After I have reviewed it [briefly, since I am sure you all familiar with it, whether you realize it or not], I shall suggest an alternative little model of a capitalist economy that does actually identify formally, not merely anecdotally, the distinctive feature of labor that distinguishes it from all other inputs.
Marx begins by observing that in every known economic order, a small group of people take legal, military, and ideological control of the means of production, excluding others from what they need to live unless they yield up some tribute, be it in the form of a share of the crop, or taxes, or labor services, or money. Land is the first and most important productive force to be thus seized and controlled, but eventually all of the means of production, and of their monetary representation, comes to be controlled by one class, which is thereby enabled to rule the society. Using military force when they must and law when they can, and always appealing to theology, philosophy, or ideology to justify what they have done, the takers, as Mitt Romney likes to call them [even though he misidentifies them] force the makers -- the farm laborers, the miners, the machine operatives -- to turn over much, if not most, of what they have produced by their labor, allowing the workers to keep barely enough to survive so that they can continue to labor.
Marx was the first great economic historian, and he gave a classic account of the centuries long process by which farmers, miners, and craftspeople were reduced to a propertyless proletariat, forced to sell their one remaining possession, their labor, to those who had monopolized the means of production. In Marx's day, even the specialized skills of the traditional crafts -- weaving, spinning, metalworking, and the like -- were being embodied in machines, so that over time workers ceased passing them on through apprenticeships. Skilled craftspeople were reduced to machine operatives, and then replaced by their own children, who could run the machines just as well and do it for a good deal less money.
It is this fact -- the complete separation of the workers from effective access to or control over any means of production at all save brute labor -- that is the condition and explanation of their exploitation.
Thus we must ask: How can this fact be represented formally in the equations that capture what happens in the spheres of production and market exchange [or circulation, as Marx calls it?] To find an answer to that question, we need to be very clear about just how the worker's divorce from the means of production affects his or her economic position.
Let us start by looking more closely at the situation of the capitalist, the entrepreneur. He possesses or can lay his hands on capital in the form either of money or of land, tools, machinery, patents, raw materials, and so forth. His economic activity is regulated solely by a search for the highest rate of return, and it is his fact, which leads him to transfer his capital from one sphere of production to another, when he sees that he can improve his rate of return, that equilibrates the economy wide profit rate. As he shifts into a more profitable line, the total output in his old line drops, because he is no longer producing. That drives up prices, and raises the profit rate a bit in that industry. Meanwhile, he starts producing in the industry with the higher rate of return [remember that we have assumed perfect information], and by doing so he increases the quantity in the market of the commodity he is now producing, and that has the effect of lowering prices and thereby reducing the rate of return. Thus, by the "higgling and jiggling" in the market, in Smith's lovely phrase, a single economy wide profit rate emerges.
Now the worker is conceived, in the economic theories that are out forward to rationalize capitalism, as a small businessman or woman who produces a commodity -- labor power -- and sells or rents it out in the market, just like any other capitalist. When there is a shortage of this commodity, labor power, the price, or wage, goes up. When there is a glut [as is usually the case -- see once again Marx's reference to the "reserve army of the unemployed"], the price falls.
But the worker, along among all the capitalists in this system, is unable to shift his capital into a more profitable line of production, for his capital is his body, and the only way he can cash that in is -- by cashing it in, which is to say, by dying.
This is what it means to be a propertyless prole. The maker of buggy whips can shift to carburetors when the horseless carriage replaces the horse. The owner of Sears Roebuck stock can sell as it starts to fall on the exchange and buy Gap stock instead. But the worker is, by a mere metaphysical accident, tied to her capital, and forced therefore to continue production in a line that is earning little or no rate of return over and above mere replacement costs.
Now, is there some way to capture this central fact of capitalism in a set of equations? Indeed there is, and tomorrow I will indicate how I attempted to do just that in the article to which I have several times referred.