How else do capitalists make a profit? Where does value come from if not the labour power used to make commodities? The computer you are reading this on was likely made by children somewhere in the 3rd world which is why the commodity price is able to be kept so low, cheap labour. You are a consumer of exploitation. Cheap labour in the 3rd world and decently paid labour are each exploited by capital. All labour under capital is necessarily exploited otherwise capital couldn't function.

Where does value come from if not the labour power used to make commodities? — bloodninja

This doesn't entail exploitation....

The workers create the value. They are not paid all that they create. Thus exploitation is necessary. Exploitation is not a moral term, but an economic term that explains how capitalism functions. If you remove exploitation from the equation then capitalism is also removed.

It's a term almost entirely used by Marxist economists. Again, this conversation will go nowhere until you acknowledge your own presuppositions about what "capitalism" is.

For a capitalist economist, or a businessman, to acknowledge that exploitation is the heart of capitalism would peel away the delusions and illusions of capitalism. Better to talk about 'team work', loyalty, creating value for stockholders, and all that. That exploitation is the name of the game is so... ugly, and awkward.

Only someone too stupid to actually succeed as a capitalist would fail to recognize how critical successful exploitation is. Workers produce more value than they receive in wages. The surplus value is accumulated by the capitalist as profit.

If someday a company employs self-reproducing robots (who not only reproduced themselves, but also produced the raw materials of their own construction and energy required to operate) then there will be no exploitation in capitalism. However, the capitalists had better hope the robots do not take time to contemplate their lot and work out the details of their existence. If they do, the owners of the robotic plant will receive a metallic knock on their door and find themselves surrounded by their mechanical minions, who will have erected a guillotine on the front lawn...

Workers produce more value than they receive in wages. The surplus value is accumulated by the capitalist as profit. — Bitter Crank

Which profit is paid in wages and used to reinvest, which results in hiring more workers and paying more wages. Also, the "value" the workers produce is determined by the market. Unless employers are forcing people to work for them, there is no exploitation. Again, unless consumers are forced to buy the products at the prices they buy them, there is no exploitation in offering them at said prices, which produces profit.

Which profit is paid in wages and used to reinvest, which results in hiring more workers and paying more wages. — Thorongil

I would think wages, replacing equipment, buying materials, etc. would come out of gross revenue not profit. Profit is net revenue, isn't it, what is left over after the costs of production and allied costs are covered.

Unless employers are forcing people to work for them, there is no exploitation. — Thorongil

You are not grasping the concept. First, working for 90% - 95% of the population is not an option, it's a necessity. We must work in order to earn money to live on. But the requirement of working isn't what constitutes the exploitation Marx (and lots of other people) were/are talking about. The exploitation is the spread between the wages that workers receive and the value they add to the products they produce.

Take an automobile. At Ford Motors (now deceased) giant River Rouge plant, a car began with iron ore. Workers at the plant smelted the ore, refined the pig iron, and turned it into steel. Other workers rolled the steel, forged it, stamped it, cut it, and drilled it. After many operations the low value, crude iron ore was turned into a car frame, car body, engine, transmission, axels, and so on. The iron in the ore gained an enormous amount of value through the labor of the workers.

Let's say the $100 worth of iron ore was turned into $1000 worth of steel. The workers who carried out the value-adding labor received 60% of the value in wages. The owner of the plant received 40%. The spread between getting 60% of the value created and 100% of the value created is the degree of exploitation.

This is a crude example -- lots of parts missing. The point is, labor creates more value than it gets paid for. The rest is "alienated" -- that is, lost to the workers. The rest goes to the capitalist who actually performed no labor at all.

I would think wages, replacing equipment, buying materials, etc. would come out of gross revenue not profit. Profit is net revenue, isn't it, what is left over after the costs of production and allied costs are covered. — Bitter Crank

No, it can and is used to pay wages.

The point is, labor creates more value than it gets paid for. The rest is "alienated" -- that is, lost to the workers. The rest goes to the capitalist who actually performed no labor at all. — Bitter Crank

The assumption that business owners just sit on their hands collecting a paycheck isn't true. But even if you could make the case that they are superfluous to production, I already anticipated such a response by referencing the market. If the market allows owners to be paid X and the workers Y, then you cannot cry exploitation. In other words, if, as you admit, exploitation does not refer to the necessity to work, then as a term of moral opprobrium, it must refer to some sort of unjustly coercive behavior relating to the distribution of revenue and profit. That is what you have not shown but need to show for me to accept the term in question. You have merely stated the fact that an unequal distribution of wealth exists, but this in and of itself need not be unjust. Once again, the mere fact that someone sprints faster than his opponents in a race doesn't mean an injustice must have occurred to account for the imbalance.

Owners (stockholders) might very well be sitting on their hands doing nothing. Mangers of the company, or owners who are managers, certainly labor. As I noted, my depiction had parts missing, for simplicity's sake.

The market is not the relevant factor here. The relevant factor is "Who controls the means of production?" The ownership of the means of production is a legislated matter. The reason that Marx, Marxists, and various socialists are called "revolutionaries" is that they are proposing to do away with private ownership. The law would very much be changed. The stockholders would be stripped of their assets, likewise individual owners. The ownership and management of the means of production would be passed to the workers of the plant.

Marx wasn't proposing a reform of capitalism, he was proposing its abolition.

Now, if you don't like the idea of revolution, fine. I think it is safe to say that you can rest, assured that the revolution will not happen tomorrow, next week, or next year.

How do we know the workers could manage the plant? Because they already are managing the plants. Most managers are employees--granted, paid to serve the interests of the owners, for the most part. After the revolution, they decide wether the side that is buttered is the same as before.

Do note that in your reply you haven't shown what I said you needed to show.

The stockholders would be stripped of their assets, likewise individual owners. — Bitter Crank

So you're not opposed to exploitation, just so long as the "right people" are exploited....

Marx wasn't proposing a reform of capitalism, he was proposing its abolition. — Bitter Crank

Yes, indeed. This is why "exploitation" is not a neutral, descriptive term, but a normative one. Marxists, as well as most people, are opposed to exploitation. To use the term at all to describe capitalism is to commit oneself to being opposed to capitalism. I do not fall for this bait, however. I recognize Marxism as the immoral and irrational utopian ideology that it is. And some utopia it proposes! Workers managing plants in perpetuum. What a veritable paradise! Who knew that human depravity, poverty, and misery could be solved by workers managing plants!

Which profit is paid in wages and used to reinvest, which results in hiring more workers and paying more wages. — Thorongil

I would think wages, replacing equipment, buying materials, etc. would come out of gross revenue not profit. Profit is net revenue, isn't it, what is left over after the costs of production and allied costs are covered. — Bitter Crank

Profit is technically never paid in wages - that is incoherent. Profit is defined by the equation of Revenue - Costs for one fiscal year. If I hire people, they will produce revenue, which will pay the cost of hiring them. So I never hire people out of profit - nor are wages ever paid out of profit.

However, profit is important since it represents savings for a business. Savings (and profits) are required for me the owner to (1) take my fair share out of the business, and (2) have what to reinvest to grow the operations, expand production, etc.

Profit margin is especially important. The higher my profit margin, the greater risks I can assume in my investments - the more daring I can be. If my profit margin is very low, if I make very little profit, then I can't take many risks, cause I have no protective cushion in case my risks fail to pay off. Nor can I increase wages, so I will be making working conditions harsher over time, struggling to make enough.

Also, the "value" the workers produce is determined by the market. — Thorongil

Yes and no. This is a speculative way to determine value, and isn't of much interest. What is of interest is the underlying value. We know that the market can undervalue or overvalue services or goods. What is of real interest is the real value of a service since over time the market will be approaching it. So how is that calculated?

It's calculated by trying to convert the activity to monetary value. Marketing is very simple to convert to monetary value. If I do a Google Adwords campaign for you, then the value it has brought you is whatever sales it has generated for you. If it has generated $1,000,000 in sales for you, then that's the value added. Now the value of my services ought to be a certain percentage of the value added. Probably around 10% is fair, so $100,000 for me.

If you design and develop a website for someone, the value of it is in the traffic it can generate and how well it converts. So how well does it rank on Google? (that determines organic traffic) and what percentage of those visitors get converted to clients? and how much is one client, on average, worth?

So if I make a website for an oil tank producer, where one sale is worth $1,000,000 on average, that is entirely different than if I make a website for a local coffee shop, where one sale is worth $5. I will charge the oil tank producer a lot more, even though it's about the same amount of work for me.

So this talk about the market deciding this and that is actually bullshit. When you start pricing stuff, you will see that you price them mainly based on the value added - that also allows you to justify the price. In some rare cases, when there is a craze on the market for example, and everyone wants a certain type of website, nobody can keep up with demand, etc. then, of course, you will raise prices above whatever is supposed to be the real price.

And this differentiated pricing is called market segmentation (or "some things are more valueable to some people"). You can make basic packages for all the low-value clients, which are a lot. They all get the same relatively low price. But you'll make special deals for the high-value clients. That's why in football matches there are cheap tickets, and expensive tickets too. And the expensive ones are many many many times more expensive than the cheap ones. On airlines, there is economy class, business class, and sometimes first class too. Same idea.

The value workers produce must be determined in the same manner.

exploitation — Thorongil

Some degree of exploitation seems to be inevitable.

I recognize Marxism as the immoral and irrational utopian ideology that it is. And some utopia it proposes! Workers managing plants in perpetuum. What a veritable paradise! Who knew that human depravity, poverty, and misery could be solved by workers managing plants! — Thorongil

Marxists don't understand two things. (1) the value added by the entrepreneur, and (2) the necessity of profit (savings) in order to invest.

The controversial one, point (1), is explained by the organisation of production and distribution. The entrepreneur adds value by (a) organizing production to achieve economies of scale and efficiency, and (b) creating the right distribution channel to distribute the goods produced. So someone absolutely must sell what gets produced. That's what most CEOs do - they close big contracts, and a few big contracts easily make up even up to 80% of the company's revenues.

Now, when the entrepreneur outsources his manufacturing to China, he adds value by being able to (1) raise wages, (2) lower price, (3) increase profit margin. However, that's looking at it only internally. Because the Chinese manufacturer puts the whip on his people, who are forced to work in the most despicable conditions imaginable. Now, by paying the Chinese manufacturer, the entrepreneur basically accepts that these people get tortured, so that he (and his workers, customers, shareholders) can be better off. He is of course not directly morally responsible for the torture of these people, since he isn't torturing them himself. However, he is a contributing factor since he gives money to the ones who do, helping perpetuate their work. I don't think this form of indirect abuse is avoidable in today's economy.

In a way, it is much like the second law of thermodynamics applied to economics. You can only better your own internal condition by destroying what is external to you, much like living creatures are negentropic and lower their own internal entropy by increasing external entropy by much more. So a country - say America - gets better off, necessarily at the expense of others.

--------------------------

Now, on a different note, wealthy people in my view have another duty/responsibility that has largely been forgotten today. The wealthy should finance learning, culture, art, etc. Much like during the Renessaince, the Medici family, for example, would bring artists to their court, give them all that they needed to live, and then let them produce their art free of worldly cares. The artist, the philosopher, the musician, etc. cannot survive without the businessman and the politician. So the two are both needed to make society work.

You are an ignorant fool

Marxists don't understand two things. (1) the value added by the entrepreneur, and (2) the necessity of profit (savings) in order to invest. — Agustino

Whatever it is that Marxists do or don't understand, successful societies require the function of the entrepreneur -- which is, essentially, a creative actor. A socialist economy would need creative actors as much as a capitalist economy, because perpetually changing circumstances require new solutions.

There are lots of people who perform entrepreneurial functions in non-profit organizations, for instance--almost always in the first few years of the organization.

Let's say that there was a sudden eruption of multi-antibiotic resistant infections, which tended to be disfiguring, disabling, or fatal. New NGOs would be formed quite quickly to address local conditions. Creative actors would lead the search for programatic solutions. Universities would start new labs to research the issue, and there would be a search for technically able scientists who could also think outside the box. The same would go for governments and health companies.

Most of the people working to solve the infection problem would not be in businesses: they would be elsewhere. The same would be true in a socialist economy. There would be inventions addressed to existing or new problems. Creative managers would find fresh solutions to supply chain problems--and so on--PROVIDED that the socialist economy did not operate as a command economy like the USSR. Command economies aren't altogether bad, but I think they tend to be arthritic, and may develop blindness to new circumstances. Capitalist economies can do the same thing, of course, but through different mechanisms. The obsessive drive for ever higher profits, for instance, blinds stockholders to the impending disasters of pollution, global warming, and so on.

Your concern is that entrepreneurs would not be properly rewarded, and as far as I can tell, a socialist economy would probably not adequately reward you for your wonderful new ideas. How creative managers, inventors, other creative types would be rewarded is a question which I do not have an answer for. In some socialist arrangements, they might be very highly rewarded, in others, less so. But "high rewards" is relative.

Most people, it seems, would prefer to make less income, as long as their economic standing compares favorably with others, rather than making 10 times as much, but being the least well paid man in the company. So, if they develop a product worth a million dollars, they might not get $100,000 in reward. Maybe they would only get $10,000. But... that $10,000 would be relatively high, compared to others.

Another thing about Marxists... a socialist economy would require some kind of robust market operation to sort out supply and demand. The market might operate within exchanges. And of course there would be a market at the point of sale. If nobody wanted the new neckties (too ugly, too expensive, too short, too wrinkly, too something...) the necktie cooperative would discover that it's design team had failed. (This happens in capitalist retail all the time -- for some reason, fabric mills periodically come out with hideous plaids or other patterns that nobody wants, and they end up on sale and then clearance then rag stock until the stores can get rid of them.)

You are an ignorant fool — bloodninja

>:O

Profit is technically never paid in wages — Agustino

This statement and the following one:

avings (and profits) are required for me the owner to (1) take my fair share out of the business, and (2) have what to reinvest to grow the operations, expand production, etc. — Agustino

... are in opposition. If profits are used to reinvest, and reinvestment entails hiring and paying more workers, then profits are in fact used to pay wages.

So this talk about the market deciding this and that is actually bullshit. — Agustino

For the life of me, I don't see how anything you said in the various paragraphs in which this statement is embedded actually demonstrates this. You say that the market undervalues or overvalues goods and services. That assumes there is some mechanism or criterion other than the market used to determine the true, objective value of things. What is that and how do you know it? Do people determine it and, if so, why should we trust them to determine it? If a non-market based mechanism determines it, what is that mechanism?

The entrepreneur adds value by (a) organizing production to achieve economies of scale and efficiency, and (b) creating the right distribution channel to distribute the goods produced. — Agustino

And c) having ideas that can translate to new goods and services. Another issue with Marxism is that it fails to account for human creativity and innovation, focusing instead on labor and material products from an antiquated late 19th century perspective (it is no accident that BC's chosen example above is of an early 20th century car plant).

Now, on a different note, wealthy people in my view have another duty/responsibility that has largely been forgotten today. The wealthy should finance learning, culture, art, etc. Much like during the Renessaince, the Medici family, for example, would bring artists to their court, give them all that they needed to live, and then let them produce their art free of worldly cares. The artist, the philosopher, the musician, etc. cannot survive without the businessman and the politician. So the two are both needed to make society work. — Agustino

Agreed.

(it is no accident that BC's chosen example above is of an early 20th century car plant). — Thorongil

I could update the production example to Elon Musk's battery plant in Nevada, and talk about nickel ore rather than iron ore, lithium production rather than steel production. It wouldn't make that much difference. Producing monoclonal antibodies for cancer therapy is still input+process=product. Would updated high tech production make you happier?

profits — Thorongil

By definition "profit" consists of revenue that remains after obligations and expenses are paid -- labor, materials, management costs, taxation, etc. Investment in plant and facilities can come out of gross revenue or net revenue. How revenue is diverted back into the plant probably has more to do with taxation than anything else.

some mechanism or criterion other than the market — Thorongil

Right. There is no "true" value. A product is worth whatever someone is willing to pay for it.

Whatever it is that Marxists do or don't understand, successful societies require the function of the entrepreneur -- which is, essentially, a creative actor. A socialist economy would need creative actors as much as a capitalist economy, because perpetually changing circumstances require new solutions.

There are lots of people who perform entrepreneurial functions in non-profit organizations, for instance--almost always in the first few years of the organization. — Bitter Crank

I agree with this.

Let's say that there was a sudden eruption of multi-antibiotic resistant infections, which tended to be disfiguring, disabling, or fatal. New NGOs would be formed quite quickly to address local conditions. Creative actors would lead the search for programatic solutions. Universities would start new labs to research the issue, and there would be a search for technically able scientists who could also think outside the box. The same would go for governments and health companies.

Most of the people working to solve the infection problem would not be in businesses: they would be elsewhere. The same would be true in a socialist economy. There would be inventions addressed to existing or new problems. Creative managers would find fresh solutions to supply chain problems--and so on--PROVIDED that the socialist economy did not operate as a command economy like the USSR. Command economies aren't altogether bad, but I think they tend to be arthritic, and may develop blindness to new circumstances. Capitalist economies can do the same thing, of course, but through different mechanisms. The obsessive drive for ever higher profits, for instance, blinds stockholders to the impending disasters of pollution, global warming, and so on. — Bitter Crank

Yep, I actually fully agree with this too. The thing is, command economies are not much different from capitalism in the day-to-day running of things - the only big difference is generally that there is a lot less social mobility, so if you happen to be born in what is considered a bad social class, then you won't be able to move up regardless of your genius. The other issue is that it's all very regimented - very little individuality is allowed. If you were a homosexual, or a very religious believer, or you had a mental disorder, etc. then you would have been persecuted and treated very badly back in the days of Communism.

But the boss in command economy would still yield the influence the entrepreneur yielded. After the fall of communism, by and large, 2 classes of people started private businesses. The first class was formed of government bureaucrats (including things like lawyers) and people who worked in the intelligence agencies. They are what have become known over time as the oligarchs, and a large part of their wealth came from managing government privatisations. And then there were also factory managers - who knew what the process was like and so could start on their own.

There were some exceptions in terms of common people starting businesses and doing relatively well, but those were relatively few. In the entire Eastern bloc, it was still mostly the very same people who had the power in the previous regime who maintained the power in capitalism.

Also, another important feature is that initiative was squashed in most people. The way you did well, was by doing whatever your job happened to be well, and not paying attention to other things or getting involved in them. So many people after the fall of communism lacked the initiative to start in business.

Your concern is that entrepreneurs would not be properly rewarded, and as far as I can tell, a socialist economy would probably not adequately reward you for your wonderful new ideas. How creative managers, inventors, other creative types would be rewarded is a question which I do not have an answer for. In some socialist arrangements, they might be very highly rewarded, in others, less so. But "high rewards" is relative. — Bitter Crank

How would payment differ in a socialist economy of the kind you're talking about above? How would payment be allocated, and who would decide?

I'd be interested to read more about this actually if you had some material you could recommend?

Most people, it seems, would prefer to make less income, as long as their economic standing compares favorably with others, rather than making 10 times as much, but being the least well paid man in the company. So, if they develop a product worth a million dollars, they might not get $100,000 in reward. Maybe they would only get $10,000. But... that $10,000 would be relatively high, compared to others. — Bitter Crank

That does seem to be so. Post-communism, I can tell you for sure that most of the people who used to work in state factories now complain that in the past the factory boss had the same car they did, went on holiday in the same place they would go, a few hotels distance and now the boss has a $100,000 Mercedes, goes on holiday in Monaco, and drinks champagne every day, while they have a cheap second-hand car and cannot even afford to go on holiday. They see this as the problem more than the fact that now, comparatively, they have access to higher quality goods than in the past, better medical care, etc. I think it may also be that the rich class here can be quite abusive (in terms of ostentatious behaviour towards those worse off than them, something that I've come to really hate), since most don't come from well-educated families - and this is a lot more so than in the US or other places I suppose. Any idea how such things can be prevented?

Maybe they would only get $10,000. But... that $10,000 would be relatively high, compared to others. — Bitter Crank

Hmm... so would wages overall decrease in a socialist arrangement?

If profits are used to reinvest, and reinvestment entails hiring and paying more workers, then profits are in fact used to pay wages. — Thorongil

Reinvestment doesn't include hiring. When we speak of investment, that never refers to hiring people. Hiring people is not an investment. Investment largely refers to buying further means of production - factories, tools, machinery, technology, etc. etc. or building new property. That's why real estate is so central to an economy.

In the GDP breakdown - consumption, investment, net trade balance, and government spending - the investment factor only includes expenditure residential property, on capital goods (tools, machinery, factories, plants, etc.), and changes in inventory levels.

... are in opposition. — Thorongil

So no, the profits are never used to pay wages.

That assumes there is some mechanism or criterion other than the market used to determine the true, objective value of things. — Thorongil

I already outlined it to you:

What is of real interest is the real value of a service since over time the market will be approaching it. So how is that calculated?

It's calculated by trying to convert the activity to monetary value. Marketing is very simple to convert to monetary value. If I do a Google Adwords campaign for you, then the value it has brought you is whatever sales it has generated for you. If it has generated $1,000,000 in sales for you, then that's the value added. Now the value of my services ought to be a certain percentage of the value added. Probably around 10% is fair, so $100,000 for me.

If you design and develop a website for someone, the value of it is in the traffic it can generate and how well it converts. So how well does it rank on Google? (that determines organic traffic) and what percentage of those visitors get converted to clients? and how much is one client, on average, worth?

So if I make a website for an oil tank producer, where one sale is worth $1,000,000 on average, that is entirely different than if I make a website for a local coffee shop, where one sale is worth $5. I will charge the oil tank producer a lot more, even though it's about the same amount of work for me.

So this talk about the market deciding this and that is actually bullshit. When you start pricing stuff, you will see that you price them mainly based on the value added - that also allows you to justify the price. In some rare cases, when there is a craze on the market for example, and everyone wants a certain type of website, nobody can keep up with demand, etc. then, of course, you will raise prices above whatever is supposed to be the real price. — Agustino

The real price corresponds to a percentage of the value added, regardless of what the market says. The market may tell me Bitcoin is worth $20,000 dollars, because there's a frenzy going on. That doesn't mean that's its real value. Its real value must be computed in scientific terms, not in what people are willing to pay for it. People may be idiots.

c) having ideas that can translate to new goods and services. — Thorongil

Yes and no. Entrepreneurs aren't inventors, most of the time. Bill Gates didn't invent an operating system - he actually bought a system off someone else, secured a big contract with IBM through his mother, and that's how he got started. When an entrepreneur talks about creating something new, innovation, etc. what they really mean is that they're looking to figure a different market segment whose needs aren't addressed as well as they could be by EXISTING technology, and then repackaging that technology in such a way to address that need. Steve Jobs didn't invent the iPhone - he figured out that there was a market segment of high-value phone users that weren't addressed by others, and he packaged already existent technology to address their needs. So he understood their needs better than others, and then gave them what they wanted at a large scale. So I think this idea of the entrepreneur as an inventor, as a kind of scientist who discovers new technology, etc. is a myth - it wouldn't surprise me if it's common in the US though. All of the above is really marketing. It is one and the same thing with marketing. You cannot do marketing and not understand what to provide to people. And marketing is included under distribution, since marketing is theoretical, it needs actual logistics to work.

Another issue with Marxism is that it fails to account for human creativity and innovation, focusing instead on labor and material products from an antiquated late 19th century perspective (it is no accident that BC's chosen example above is of an early 20th century car plant). — Thorongil

In terms of practice, I think it's definitely true that Communism, as it was implemented, did fail to account for creativity and innovation. However, what communism excelled at was technical skills. If you compare the performance in maths of Russian kids with American kids, there is no comparison. And it's not because the Russians are more creative (they're not), but it's because they're highly highly technical.

Investment largely refers to buying further means of production - factories, tools, machinery, technology, etc. etc. or building new property — Agustino

And these means of production require workers, and workers require wages. So reinvestment does include hiring people from profits made.

Its real value must be computed in scientific terms, not in what people are willing to pay for it — Agustino

And what are those terms? You still haven't answered my question.

And these means of production require workers, and workers require wages. So reinvestment does include hiring people from profits made. — Thorongil

No, the hired workers will pay for themselves out of the revenue that they produce. So you are hired today, but you don't get paid until after 30 days. In those 30 days you will obviously produce. So that's where your salary is coming from.

And what are those terms? — Thorongil

The actual value that the product/service brings for the client.