Understanding Wage Labor and Capital

17 June 2021

Title: Wage, Labor and Capital

Author: Karl Marx (economist & political theorist)

Published: 1847

Description: An economic and scientific observation on how capitalist economy works, why it is exploitative, and ultimately why it will eventually implode from within.

Why it's important: Even though this text was written long ago, I was struck by how much it has in common with the systems we live in today. Anyone who has ever held a job in the U.S. will be able to see these factors still at play in our current economy.

Wage Labor & Capital

Labor Power

When we are hired at a workplace, we exchange our labor for wages. On the surface, it may appear that we sell our labor in exchange for wages, but we actually sell our labor power.

The system of labor power relies on the belief that the we choose freely to enter into a contractual relationship with an employer. That employer purchases our labor power as a commodity and owns the goods or services we produce. We are exploited because we have no other option if we don't want to starve.

Additionally, the work we produce and the compensation we receive in exchange are not equivalent. It would be impossible to assign a monetary value equivalent to someone's time, because they money and time are not equal.

For example, imagine we are employees whose job it is to make clothes to be sold. Long before the clothes are sold, we receive our paychecks. Our boss does not pay our wages with the money he receives from the clothes, but with money that is held in reserve. The clothes may not sell for the price of wages. They may sell profitably or not at all. None of this concerns us.

We sell our labor power in order to live: to pay bills and buy necessities in order to keep us consistently able to work. If you are not 'able' to work, you are considered disabled. The success of rehabilitative care of all varieties depends on the individual's ability to 'participate in society' by holding a job.

The vast majority of us don’t consider our jobs and the work we do to be a manifestation of our livelihood. Our lives begin when we get off of the clock.

Determination of Wages

In our economy there is the concept of supply and demand: when demand is higher than supply, it enables businesses to sell as highly as possible since the product is in short supply. When supply is higher than demand, it enables business to lower their prices.

If demand is high but there is a limited amount of space, it means people are willing to pay more to get in. For example, demand for hotels rose in Washington State as a result of record-setting heat leaving many without power and electricity. The response to this was that hotels listed rooms at nearly triple their regular price.

Supply and demand affects the rise and fall of wages, even though how much we're paid is meant to reflect the costs required for training & compensating us for our time and effort. The less training and education that any work requires, the smaller is the cost of production and the lower os the price of our wages. In jobs where little to no training is required and our mere bodily existence is good enough, the cost of labor power is confined to the commodities necessary for keeping us alive and capable of working.

"Capital" refers to everything that is required for production: raw material, instruments, and wages to pay employees. It also refers to the power that is gained by the accumulation of capital. This power might allow us to choose to refuse work (or a certain kind of work) and to focus on other endeavors instead. The production of capital creates the existence of a class which chiefly possesses its capacity to work (the "working class").

When we go to work, we receive wages in exchange for labor and the businesses we work for receive our productive activity. The work we produce gives the product of labor a greater value than it previously had. Although we are technically being compensated for work, it is not an equivalent exchange.

We pay bills and buy food with our paychecks. With what's left over, we spend on recreation and perhaps a meager savings. When we spend this money, it's gone forever. In order to continue earning money (and paying bills) we must continue to work.


Capital cannot accumulate if it does not exploit our labor power. Capital depends on our labor - one cannot exist without the other.

When capital grows, the need for wage labor grows and the number of workers increases. Rapid growth of capital brings growth of wealth, luxury and social enjoyments. Despite this, our social satisfaction falls in comparison with the increased enjoyments of the business owners.

The price of labor does not coincide with wages. This can be seen when the price of goods rise while wages stay the same. When wages stay the same over a long period of time, the value of those wages decreases because we are unable to use the same amount of money to purchase the same amount of good, therefore we have less. Businesses must set wages in a way that remains a surplus over the cost of production or else they lose money.

Labor power is not equivalent to amount of efficiency of production. This can be seen by looking at the following scenario: Imagine an instrument that allows us produce five items at a time. As technology improves, a better instrument is implemented which allows us to produce ten items at a time. Production has now doubled, which doubles the profits of the business - however our wages have not increased proportionally.

Stores like Amazon and Walmart have wildly increased in profit over the years, but they are still known for lowest paying wages and worst treatment of their staff.

Profit can only increase rapidly if the relative wages decrease just as rapidly. For example if wages increase by 5% but profit increases by 30%, the relative wages have not increased but decreased. In this way, profit and wages are inversely proportional.

A common misconception is the idea that the richer our bosses get, the better we will be paid. As experience shows, this is not the case.

Factored into the cost of production are the wages we are paid. The best way to get the highest margin of profit is by paying us less. A competitor can drive another from a competitive field by selling their commodities at low prices. In order to continue selling cheaply, he must produce more cheaply, by keeping wages as low as possible.

Division of Labor

The concept of "division of labor" is defined as the splitting up of an activity into a number of parts or smaller processes. The smaller processes are undertaken by different groups, thereby speeding up the performance of the activity. Like workers in an assembly line, we have our own specific responsibilities and duties.

The greater that labor is divided, the cost of production decreases because the business can produce more with less. If one business is able to produce goods twice as quickly as another for the same cost, it can sell those goods more quickly and in higher quantities by lowering the prices. Low prices are what makes commodities available and enticing to the working class - and the larger the working class is, the more will strive to purchase goods at low prices because it's what they can afford.

Businesses compete to have the lowest cost of production with the highest profits. The bigger the division of labor is, the more it enables one worker to do the work of give, ten or twenty. Workers compete by selling themselves cheaper than another.

As this division increases, labor becomes simplified and our specialized skills become worthless. We are transformed into simple, monotonous workers who do not have to bring bodily or intellectual faculties into play. Our work becomes work that anyone can perform.

The simpler and more easily learned the labor is, the lower the cost of production is needed to master it, and therefore wages decrease. This means it is in capitalists' best interests to find ways to (through implementation of advanced machinery and technology) create labor simple and easily learned.

The same way machinery results in companies to paying us less (justified by the fact that we aren't doing the hard work - the machines/technology are), a similar outcome is achieved by replacing skilled workers with unskilled workers where they can, to 'cut costs'.

We are told that workers who are displaced can simply find a new occupation, but this logic is flawed. Displaced workers become unemployed. Can we expect their new job will be as highly paid as the one they lost? No - especially not if the displaced worker has specialized knowledhge in an industry that is obsolete. At least not without specialized experience in a different industry. If their original industry collapses, then the experienced worker is reduced to an unexperienced one and can only earn the wages of such.

As a result of these factors, economic crises happen more frequently and violently. As the mass of products and the need for extended markets grow, the world market becomes contracted and fewer new markets remain available. Competition among regular people looking for work increases while the wages they pay us decrease.


To read the original work that has been summarized above, see here.