It has been claimed by many socialists and communists that workers are owed a company by the boss because they are doing the majority of the labor, while they may be doing the majority of the labor, they neglect the existence of contractual agreements. They may be easy to dismiss when faced with emotional arguments, but they still exist and nonetheless should be addressed.

History

The first noteworthy mention of contractual agreement in relation to capitalism comes from the cottage industry in Europe. Normally, someone with a craft would make a good and then sell it at a marketplace to receive their income. This worked for a very long time, but eventually it was worked out that things could be improved. Instead of selling their goods at the marketplace, traveling merchants would come around and pay individuals or families to make goods for them, for which they would then sell at a higher price. In addition, the merchants would only request materials to be made, or part of the finished product. This meant that they would receive an income and have to do less work for it. The merchants also would sometimes pay individual family members for their efforts, meaning women now had more of their own money. In this scenario, the merchants weren’t just organizing peoples labor and demanding compensation for it, but they were asking for a service from people and paying them for it, not dissimilar to paying a plumber for fixing your pipes.

From the cottage system, workers moved toward semi industrial capitalism that we know today. The merchants decided that the cottage system was inefficient, as it took a long time to actually get a finished product to the market. They decided that it was best if they had all the workers together in one space, working together to make a finished product. Many workers rejected the idea of having to leave their homes to do work, so the merchants went to the city, where markets and people lived very close to one another, and they largely agreed to join into the new plan. It was the same notion, you do work and I will pay you for it.

The Capitalist Contract

What socialists don’t understand in their criticisms of capitalism is the contract. The contract is the agreement between two individuals, an individual and an organization, or two organizations to mutually benefit one another. These agreements are what the economy is based off of, capitalism is a contract system of economics. One of the systems that disregards contract is the labor theory of value.

The labor theory of value summarizes that all value of goods comes out of the workshop and the labor it took to produce them. This can immediately be disputed by merely producing examples of items which are low value yet labor intensive, and vice versa. The issue though is that the contract all together negates any labor value issues. When a contract is agreed upon, the laborer and the employer agree on a value for the labor. Not only does it set a value on the labor, but in addition it prevents the employee from claiming (what marxists would refer to as) “surplus value” on goods.

Surplus value is a Marxist term to describe the value of the good after laborers have been compensated. Though this clearly contradicts the labor theory of value altogether, because if labor value equals the value of the good, then surplus value does not exist. By accepting surplus value, marxists are instead accepting the market theory of value. The market theory of value holds that the value of a good is determined by market forces, supply and demand. When a Marxist accepts that surplus value exists, they must recognize that the market produced the supposed surplus value.

If the market theory of value is correct, as it has even been somewhat accepted by Marx, who coined these terms, then this changes how we are too look at things. Now, contracts need to be considered, as this is how capitalism functions. As stated earlier, the employer-laborer contract sets a value on the labor. This means that if the laborer and the employer agree the value of one said job is worth $50,000 dollars per year, the laborer has exchanged any claim on the product produced for the $50,000. While the laborer could theoretically get their own tools and produce the good on their own, and then sell them for a profit, but this would be likely too time consuming and unprofitable for the laborer, therefore, they are benefitted when an employer offers to purchase their labor.

Because labor is both a good and an investment, it’s important to look at what a wage really is. As stated previously, a wage is a supplement for the laborers claim on any good they produced, in addition, a wage is also the price at which an employer will buy labor, this depends on how much labor the individual being paid will produce and how effective they will be at their job. Another important aspect is if the employer is “stealing” from the employee by buying their labor instead of including them as an equal partner, this is also where contracts become a key issue.

The best way to explain this is with an example. Let’s say an individual starts a company with their own money, and this new company buys a land known silver reserves. The company owner cannot efficiently run a mine alone, so he buys the labor of miners and managers in order to make the mine operational. In addition, the company also buys the machines and tools needed for the workers to be able to work. The workers cannot exercise a claim to the profits of the mine (beyond what they agreed to make as a salary) or the business itself, for a few key reasons. The person who started the company contributed the most to its founding, therefore it would only make sense it belong to him, in addition, the mine is owned by the company he owns, the workers never purchased the mine. In addition to this, the company owns the tools the workers use to work, meaning any labor they produce is in part because of company tools.

Fair and unfair wages can only be determined by the parties involved and the market, as labor is a good. If the market deems a job to be worth $75,000 per year, then that is because of supply and demand at work. Workers compete to sell their product, labor, much like how companies compete to sell their goods and services. Because of the nature of labor contracts, an employer at any time can decide to no longer purchase the labor of the worker, and the worker can decide to no longer sell their labor to the employer.

To conclude

To conclude, the labor theory of value is false, it’s very existence relies upon the market theory of value being correct. Furthermore, laborers have no claim over the company or the supposed “surplus value” because they have agreed to supplement any claims over the goods for an exchange of monetary value. A contract between an employer and a laborer is merely a contractual exchange of goods, money or some other payment in exchange for labor, which is a good. Because labor is a good, the price of it is determined by market forces. I hope you found this discussion on the labor theory of value, contract theory, and mutual exchange to be informative and beneficial.