Are There Laws of Production? The Labour Theory of Value

For some reason, when discussing Karl Marx’s labour theory of value, a very important circumstance is overlooked. If we assume that the value of the end product, aside from the payment for labour, includes payment for the use of capital and a certain profit for the owner of a production facility, then how does it turn out that the end product is bought? It is evident that the total salary of the workers is certainly lower than the cost of end products and services. Who acquires all this and for how much money? Even if we take into consideration that capital is the waged labour of workers engaged in the production of capital goods, salaries are obviously insufficient to purchase all of the goods manufactured. The salary is lower than the cost of the goods by the size of the profit. There are profits, however, we can clearly see them in real economic life. Profits usually go towards acquiring additional capital resources and this means that they are used to pay for labour in the capital production sector. But capital sector enterprises also receive profits. This means that the value of all salaries is lower than the overall cost of the end products. Furthermore, how can we explain the existence of savings and investments? The salaries are not enough to even purchase consumer goods. How can there be savings?
To begin with, let us consider the steady state economy of simple production. In this economy the same number of goods is produced each year. There are no profits, investment or savings. This is due to salaries being equal to the overall cost of all goods and services rendered. All the wages are spent on consumption and the owner of the production facility has to spend all income on the payment of labour. Consequently, nobody has the means to make savings and investments and therefore in an economy of this type there can be no additional capital. A steady state economy is of little interest when discussing the relationship between labour and capital. It is only useful to note that the shares of labour and capital in an economy of this type are constant and do not change at all with time.
Let us digress slightly from the topic of discussion and highlight some of the interesting features of a steady state economy. Firstly, salaries being equal to the cost of all products manufactured make exploitation, which really concerned Marx and his followers, virtually impossible. Individual manufacturers may indeed have an additional product or profit, but only at the expense of other manufacturers. Workers in one industry may suffer while others benefit. On the whole, however, workers receive the full cost of a manufactured product. Otherwise they will not be able to buy back all of the products. Of course, owners also consume goods and services, they need to eat and have somewhere to live. However, in the competitive environment their appetites are very limited. If they expand personal consumption and reduce labour payments they will put their enterprises at risk. More modest entrepreneurs will, for example, have the opportunity to lure the most productive workers and gain a competitive advantage. They may offer their own products at a lower price and in time conquer the entire market. They may improve labour conditions, allocate additional funds for training and raise employee motivation. The outcome of the battle in this case is predetermined. It is a well-known fact that marble stairs and golden toilet bowls are often signs of imminent decline and ruin. It is clear that the fewer owners there are on the market, the more opportunities there are for exploitation. And if, following the recommendations of Marx, all property will belong to the government or to some central authority, then in this case exploitation becomes virtually inevitable. In a centralised economy there is nothing to prevent paying low wages and unjustifiably expanding the army of officials and representatives of the security ministries. By not creating anything of use or creating useless goods and services, some people will spend their salaries on consuming the required products. For this reason a worker’s salary in an economy such as this is not equal to the marginal product and exploitation becomes unavoidable. Some workers will receive a salary that is greater than their marginal product whilst others will have a salary that is much less than the marginal product. Therefore, Marx’s recommendations fall into unwarranted optimism. Only under the conditions of a free market economy are salaries equal to a marginal product, or are at the least similar to one another. Looking ahead, we note that this equality will also be present in a developing economy, regardless of whether there are profits, savings or investments. It is evident that Marx’s labour theory of value is true, but in a free market environment we need to exclude all mention of exploitation.