Marxists don't realise labour is a commodity
A lesson in supply-and-demand for adults who still believe in fairy dust.
I recently watched a video online of someone complaining about the existence of millionaires and billionaires. I commented with the realistic and optimistic message that anyone has the ability to become a multi-millionaire, even if just through supplying a silly backend commodity like toilet rolls. Then, all hell broke loose.
- The little man can’t get ahead.
- “Wealth is zero-sum”
- Why should there be profit?
- The Marxist view
- A better view
- Inherent value of labour?
- Material vs. labour in a service economy
- “Stop dickriding billionaires”
The little man can’t get ahead.
A quarter of a thousand comments later (that’s not a joke), filled to the brim with economic fallacies, here we are. You see, hope is the Kryptonite of cynical losers. It’s apparently much nicer (at least for some) to live a miserable life convinced that there is nothing to be done about it, with a completely external locus of control, clinging onto the belief that you’re oppressed by your circumstances and a victim of existence, where “the little man can’t get ahead”, rather than to be judged every day by them falling short of the potential they can see in themselves. I find this extremely comical: I’m telling you that “if you find the right service to provide, you too can generate wealth” and you reject this with the same frustrated flailing you would get from a tired child refusing to go to bed, as if telling me that “no, just to spite you and your sensible idea of moving up, I will stay down and I vow to never become wealthy!” is supposed to make me feel bad. “I’m broke and I won’t change it, ha!” is not the win you think it is. If I was just slightly more evil, I’d encourage them in their self-limiting delusions.
Apart from this, I was also sent a bunch of fallacies concerning free-market economics. Out of all the poorly thought-out talking points my pitiable eyes had to endure reading in the mornings this past month, one in particular kept reappearing: the classical Marxist lie that wealth (profit, say) is only created through “exploitation of the workers”. Let me first go through some free-market basics before we return to this point.
“Wealth is zero-sum”
Let’s first clear up one related fallacy, which is that economics is a zero-sum game: “for every dollar somebody gains, somebody else loses a dollar”. The proposition is that wealth follows the first law of thermodynamics. And whilst this case might be made for currency within the economy (at least if the fed didn’t keep printing extra), it is clearly wrong for personal wealth. First of all: in a transaction, capital is exchanged, not just given away. If I buy a TV from a local retailer, I now have less money but more TV. In fact, if I leave it in the box, my net worth has stayed the same since the TV hasn’t lost any resale value. My money just comes in a different form. Furthermore, since I can watch my favourite show on my new TV but I can’t watch it on my money, the TV to me is more valuable than the money I paid for it. It is for this reason that I’m willing to pay more for the TV than it cost to make it: as a customer, I am willing to decouple the price from the cost. This now opens the door to a bidding market, where the price is low enough for consumers to find it worth it, but high enough so that the suppliers couldn’t raise the price and still make the same volume of sales.
Why should there be profit?
Why shouldn’t the supplier be “charitable” to the consumer and charge just enough to break even – in other words, be a non-profit? For two main reasons: because owners (those who forfeited capital to the company rather than loaning it) are not salaried and receive dividends from profits as repayment, but more importantly, because profit is “free money” which the company can take new risk with without worrying about how sustainable it is. For example, you can temporarily recruit product researchers to try to improve an old product or make a new one. If that fails, no problem, because all the bills were already paid. Succeeding means that this generates more profit in the end than was put on the line for it, and that newly generated profit implies that customers got to enjoy a previously non-existent product. If the company’s profits never fall below a certain level, that recurring free money can be used to expand the company, e.g. to hire salaried employees, rent a bigger space, and so on. This increases supply, which customers should be delighted about since it means the company will drop its prices to push more sales. This is given that it didn’t undersell its products to begin with, i.e. that at the previous price, not one extra consumer could be found to buy the product; if they did undersell, consumers should still be delighted, because now more of them get to purchase what they wanted to.
The Marxist view
As we can see, fundamentally, the reason price is decoupled from cost is that (1) consumers find a product or service more valuable than the money they pay for it, and (2) it gives the grace to suppliers to grow.1 Because of bidding, price can have very little to do with cost, which is why profit margins vary massively across industries. All that matters for a price to be acceptable is that enough customers are willing to pay it.
Before going deeper, let’s introduce the strongest possible case for the Marxist view. It goes like this: given is a physical product. The physical product was manufactured by transforming raw physical materials. The mediating force to do so is the labour of workers. The materials cost is \(C_m\) altogether. The product is sold at a price \(P\). That means that “inherent to the labour” is the added value of \(V_L = P - C_m\) to the raw materials. The value was not there before the labour and appears to be there after the labour, so the labour must inherently be worth this much. Hence, paying the labourers only \(C_L\), making a profit of \(R = P - C_m - C_L = V_L - C_L\), means stealing exactly that much from the labourers. Instead, the labourers should (presumably, although I have never heard this articulated as a proposal) be paid all profits, making every company a de-facto non-profit, except it’s worse than that since a non-profit can make immediate costs to expand (rather than keeping profit aside for future costs) whilst now all surplus above costs belongs to the labourers.
I think this is a fair way to articulate the position, because when presented like this and without any further questions, I myself find it believable at first glance. Yet, with some slight scrutiny, we can reveal several sleights-of-hand in this story.
A better view
Here is a different view of the situation: to manufacture the product, we need to pay supplier 1 a price of \(C_{m_1}\) for material 1, pay supplier 2 a price of \(C_{m_2}\) for material 2, pay labourer 1 a price of \(C_{L_1}\) for labour 1, pay supplier 3 a price of \(C_{m_3}\) for material 3, pay labourer 2 a price of \(C_{L_2}\) for labour 2, and so on. In all of these payments, a mutual agreement is made for the price: if I attempt to pay too little for material 2, then supplier 2 will reject my offer and I won’t have his product available to use. It is “too little” when enough people will pay him a higher price than I’d like to. Now, from this list of all requirements emerges the product sold for price \(P\). The difference between the cost \(C_m + C_L\) and the profit is a surplus on all the elements in this list, since it took all of them to make the product. One could imagine equally well that actually, we are exploiting e.g. supplier 2, because all the surplus could be generated by the inclusion of his particular material. Our profit \(R\) actually reflects that the real value of supplier 2’s material is not \(C_{m_2}\) but rather \(C_{m_2} + R\). We stole \(R\) from him by sneakily underpaying him, knowing in advance that his material is worth more than he’s agreeing to sell it for. This is not unrealistic: take a car with no doors. Now mount the four doors into the hinges. Consumers would pay much, much less for the car before, because they have little use for a car with no doors. An aluminium door, assuming it has a window crank, does not cost that much to make, but once that comparatively cheap component is mounted to the rest of the car, its value shoots up by way more than the value of the doors: suddenly everyone wants to buy this car. Arguably, we are exploiting the manufacturer of the chassis and/or the manufacturer of the doors: we have found a way to add a disproportionate surplus on top of either the chassis or the doors, which those manufacturers did not see a penny of. We ripped them off. Scammed them. Robbed them. A priori, it should really be unclear how much value we are stealing from each supplier. We could really decompose the price into what we paid each supplier, plus our exploitation of that particular supplier: \[P = \sum_{i} (C_i + V_i) = \sum_{i} C_i + \sum_i V_i = (C_m + C_L) + V \geq (C_m + C_L) + V_L.\]
Any sane person will agree that once a commodity has been traded for an agreed-upon price, the supplier has no right (unless in the case of royalties) to any of the profits made from selling a derivative of that commodity, or even reselling the same thing. The tire and window and door manufacturers, once they have been paid, do not get to claim any of the profit that sits between the downstream price and costs of the car. This is obvious. So then, if an assembly line worker agrees to trade his labour for a given amount beforehand, why should he have any claim to the downstream products and profits from them?
So here we have uncovered one baseless (and clearly wrong) axiom of Marxism: no component of a product adds to its value more than its cost. It must be the magical fairy dust of labour. And, because it is so magical, it is only possible to license the usage of this fairy dust under royalty, rather than being purchased like all other traded commodities.
Inherent value of labour?
Let’s take another angle. Price is not determined by “inherent value” but by those who demand the product. Assuming that the price was purely determined by the company without feedback from consumers, and it set the price equal to exactly how much “value” went into it, that would mean the company secretly knows exactly what the monetary value of the labour is, which is of course impossible to know because no commodity has inherent value that can be read from tea leaves.2 Here’s one way to see why it is demand that sets price and not added value by labour: most SUVs take roughly the same materials and the same skillset to assemble. Yet, prices vary wildly across brands: to take one example, these two cars have virtually identical specifications and look, so the necessary labour to assemble them (or manufacture the parts, or market them, …) could hardly differ by a lot. Magically, however, the Honda costs about €8500 (41%) more than the Kia. If the latent value of labour was what determined the gap between material cost and price, then the Honda assemblers must be putting some kind of fairy dust inside the car to make their labour worth so much more inherently.
The most ironic consequence of treating price as a reflection of inherent labour value rather than just the market equilibrium reached with consumers, is that different prices in the same industry can no longer be blamed on consumers, and instead become a direct reflection of the value of the labourers. In a sane world, labour is a fungible commodity (i.e. the same labour performed at Kia could be performed at Honda; as long as the actions are the same, they trade for the same monetary value), meaning the Kia and Honda assemblers will make about the same wage, showing that both have an equally respectable contribution to the economy. Meanwhile, if price reflects the latent value of labour, the Kia labourers are just not as significant as the Honda labourers. Their work is lesser, and perhaps they themselves are lesser too, because they didn’t get a job at the company where the more prestigious assemblers work. It must be that their assembly work is sloppier, otherwise the prices would have been equal.3
Perhaps this view of “latent value” comes from the equally misguided idea that labour is worth at least as much as minimum wage, which it obviously isn’t. If minimum wage was set to $100/hr, everyone whose work was not worth that would just be fired instantly. They would receive $0/hr and society would lose out on the maximal work they could do.
Material vs. labour in a service economy
The radically materialistic view of distinguishing physical materials from labour, even though both are supplied and have a price agreed on for them, becomes even more absurd in our modern economy that is more service-based than product-based, where often no physical product is delivered by a “labourer”.4 And indeed, more than one commenter came to precisely such an absurd conclusion by following through on the materialist view, stating that “landlords provide nothing and are the parasitic class” (which, like slogans such as “eat the rich”, reveals that the bloodthirst of communists never went away despite the bloodshed their forebears perpetrated in the 20th century: indeed, parasites are to be exterminated, as was done to the kulaks in Soviet Russia). And indeed, again, someone whose thoughts end at the end of that sentence would believe that landlords “just own” real-estate and dare to exploit others while “doing nothing”. One must imagine the landlord in a hammock, grinning because he won’t let people stay in his properties for free (although then there’s no point owning the properties because he himself can’t use them then) nor sell them.
Yet, a landlord doesn’t “just own”. He provides an extremely valuable service aside from the arguably material roof above the tenant’s head. The service he provides is that he takes out a loan and the tenants don’t. He takes on all the risk. If the building is worth a million, the landlord does not “just own” a million when he buys it: if he takes out a loan for the full amount, he owns a million in assets, but also owes a million, plus interest, in debt, making his net worth negative. He now has a 20-year loan to pay off if he wants to keep his other assets. Doesn’t matter if there occurs a period where nobody rents his property, or if his tenants make unreliable payments, or if the government decides to insert itself into his pricing: his monthly payment must come from somewhere. That’s his operating cost, ignoring maintenance of the properties (which is the first to go when the price is too low). He’s not buying materials to manufacture a product, but buying capital so others don’t have to. The tenants don’t go into debt and can move out whenever; the landlord is tied to his property for 20 years and his balance has a gaping hole on the right. He is a slave to the bank.
Similarly, people criticise the concept of a bank because the banks “do nothing” and “just have other people’s money” which you are somehow entitled to at no cost. And yet, as I’ve written about before, you can go to a bank and have them give you several millions in return for a promise you generate on the spot. The bank charges you interest because your promise is less reliable than the money they give you. Imagine if most everyday transactions in the economy happened not by exchanging currency, but by the buyer just making up the arbitrarily valuable promise that he’d eventually repay the seller. The economy would collapse. The bank is doing you a favour by trading your flimsy commitment of hypothetical repayment for hard cash. You can do a lot more with hard cash.
“Stop dickriding billionaires”
It is the fate of all defenders of free-market capitalism to eventually be told that they don’t actually believe their own principles. Instead, taking a page out of the book of toxic femininity, we are essentially branded as “pick-me”s secretly hoping to fall into the good graces of our billionaire overlords who will throw us a bone in return for our staunch support. It should be quite obvious that even as an insult rather than an argument, it makes virtually no sense. We are supposed to pretend that this is precisely like when a white knight inserts himself into a conversation online to defend a woman who is part of the conversation from someone else, and is promptly told by others that “she won’t let you hit, lil’ bro” (translation to boomerese: “you are only defending this woman who doesn’t know you because she can see you doing it, and while you expect her to fall in love with you because of this, you are mistaken and a dork for trying”). The quite unfortunate issue is that billionaires are not scrolling through Instagram Reels and are definitely not reading any of those >250 comments. I would be equally rewarded for expressing my views in a private 1:1 chat or even in person – i.e., nobody who could reward me is listening in either way.
I am reminded of that time when a witness in the Depp v. Heard case was accused of giving his witness testimony just for the purpose of getting his 15 minutes of fame, to which he replied that the same could be said about the lawyer interrogating him. If my defence of elementary supply and demand, and my motivating message that anyone can become rich, means I am “dickriding billionaires”, then it must be true that my opponents are dickriding Karl Marx. (Arguably, that’s much worse, because (1) at least there are female billionaires, whilst dickriding Karl Marx is definitely very gay, (2) Marx is dead and so it is necrophilic, and (3) nobody becomes a billionaire without at least spurring the creation of immense value to the world, whereas Marx’s ideas have only destroyed value and lives. Imagine wanting to dickride a quintessentially useless unsophisticated dead guy.)
So why do I joust with dozens of retards on the internet simultaneously? I have two good reasons.
One is that I like to explore exactly what goes on in the minds of people whom I disagree with, since I do not hold their ideas, whilst meanwhile there is something that leads them to believe that these ideas are coherent and true. This exploration is intellectually stimulating to me, I get to practice my writing with it, and it either allows me to fortify my existing beliefs (or, worst-case scenario, learn enough to realise I’m wrong and switch over to the stronger side; either way, I win and get closer to truth, which would not be the case if my intention was purely to disagree with whatever others were saying).
The other reason I do this is not because I want winners to notice me, but rather because I just really get a kick out of dismantling systems of ideas and dunking on midwits who are smug about being losers. It’s like one of those “untie-the-knot” puzzles except fun. Some people solve crosswords. I munch my way through people’s worldviews. We are not the same.
In the case of dividends paid to owners, the consumer still benefits but more indirectly, since, exactly like salaries, those dividends will be spent by the receivers across the economy. ↩︎
In fact, adding up all the “inherent value” that went into a product is even more difficult than knowing the inherent value of the labour that was performed, because the cost of all the materials was set by their suppliers in turn, and since they based it on market demand rather than doing what our hypothetical company wants to do, we supposedly can’t trust the price we paid for our materials either as a reflection of inherent value since it was raised above “real” cost by demanders. ↩︎
There is a comical view among Marxists that labourers should be paid “enough to buy back the product”. It must suck to be told as a Kia assembler that you are entitled to less in this entitlement economy than the Honda assembler next door. You get to drive a Kia, he gets to drive a Honda worth an extra half of your car. You’re just not that guy. ↩︎
This is of course to the detriment of the caricature that Marxists still want you to imagine to this day when arguing their point about profits, which is that an office employee is much like a sweaty factory worker covered in soot and breathing coal dust, working 12-hour shifts with barely enough to eat. In reality, one should imagine the average “labourer” and his white knights to be paper pushers in an airconditioned office with a green plant in his peaceful cubicle next to the water cooler, listening to his lo-fi-beat Spotify playlist through his wireless earbuds. ↩︎
