This is Argyn's blog. I comment on topics of my interests such as software, math, finance, and music. Also, I write about local events in Northern Virginia, USA and all things related to Kazakhstan

Friday, February 29, 2008

3 Steps to understand Capital and Labor issues in Marxism

Huh... Isn't this a pretentious title for a blog post?

Step One. We have to understand that Capital or Assets don't generate income or revenue. You may have as much land or oil or factories as you wish, but you won't get a penny out of them without Labor. Someone has to operate trucks, collect cash or serve a dinner in restaurant. In Marxism, the plants and machinery are called "means of production". You need people to operate them.

Step Two. Once we figured out that we need both Capital and Labor to get income, the next step is to understand that Labor creates Value. Suppose, you own a restaurant. You hire a waitress. She serves me a dinner, I pay her 20$ for it. The cost of goods in my dinner is $10. The additional $10 is the value added/created by the waitress. It's important to note that she doesn't own the restaurant, you do. However, she creates the value.

Step Three. Suppose, that a waitress serves 5 dinners in hour. Hence, she creates $50 value. You, the owner, "expropriate" $40 of this added value, and leave her with $10. That's her hourly wage. "Expropriation" of added value is a central theme in Marxism.

If you were not exposed to Marxism before, then it takes a leap of thought to comprehend this all and appreciate the new (to you) methodological approach to Labor and Capital issues. In non-Marxist economy it's all very different.

We talk about "return on assets/invetsment", as if investment may return something. We list wages as merely another operating expense item, almost like a utility bill or rent. In Marxism, as we saw earlier, the wage is what is left after you "expropriated" a part of added value. A capitalist employs workers in order to increase own wealth by means of taking away new wealth created by employees.

In Marxism Labor is a very special subject. Labor is the essential and equal element as Capital. Capital is the same, it's a claim on assets, i.e. means of production. The Labor issue is that those who create value, they don't own means of production, i.e. the separation of Capital and Labor is the issue in Marxism.

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