Exploitation

Exploitation is a term normally used to condemn the employer-employee relationship, on the premise that an employer who pays a worker less than the value of what the worker produces has taken something from him. Objectivism rejects the charge, holding that a voluntary trade takes nothing from anyone, and that the concept as commonly used packages genuine coercion together with ordinary exchange.

“The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all of their brains.”
~ Ayn Rand, "Galt's Speech", Atlas Shrugged

The labour theory of value

The charge rests on an economic premise: that the value of a good is determined by the labour embodied in it, so that whatever the employer retains after wages must have been produced by the worker and withheld from him. Marx built his account of surplus value on this and concluded that profit is extraction by definition, whatever the terms agreed.

Objectivism rejects the premise on two grounds.

The first is economic. Value is not a quantity of effort poured into an object; it is the relation between a thing and the purposes of the person choosing it, and the choice is made at the margin. Hours spent making something nobody wants create no value at all, which is enough to show that labour is not what value consists of. This is the marginalist analysis, worked out independently by Menger, Jevons and Walras and directed against Marx in detail by Eugen von Böhm-Bawerk.

The second is philosophical, and it is Rand's distinctive contribution. Production is not primarily physical exertion. What converts raw material into wealth is thought: the identification of what to make, the design of the process, the judgment about what is worth attempting and the assumption of the risk if that judgment is wrong. The muscular component of production is the part that machines took over, and the machines were themselves the product of the other part. See Productiveness and Reason.

The pyramid of ability

Rand's positive claim is stronger than the denial. She argued that in a free economy the flow of unearned benefit runs the other way from what the charge assumes.

A man working with tools, methods and knowledge developed by others produces vastly more than he could alone, and he pays nothing for the inheritance. The originator of a productive idea, by contrast, receives only what he can obtain in trade, which is a fraction of the value it goes on to create for everyone downstream. The higher a man's contribution, on this argument, the smaller the proportion of it he captures. See Trader Principle and Capitalism.

What the concept conceals

Objectivism does not hold that nobody is ever robbed. It holds that the word has been attached to the wrong cases, and that its use is a package-deal: an employment contract, which either party may decline, is placed in the same category as a demand backed by force, which neither may.

The test is the initiation of force. Where a man may walk away, however unattractive his alternatives, the exchange is voluntary and both parties expect to gain or they would not make it. Where he may not, something has been taken from him — and the cases that pass the test are almost always ones involving the state or its favours: conscription, expropriation, the coerced monopoly, the licence that keeps competitors out, the subsidy paid from taxes. Objectivism's charge is that the term is applied to trade and withheld from the transactions that actually fit it. See Statism and Antitrust.

Common misunderstandings

That unequal bargaining power makes an offer coercive. A poor man's alternatives may be bad, but the employer did not create them and is not making them worse by offering one more option. The offer of a job is an addition to his choices, not a subtraction. See Freedom.
That the objection is to sympathy for low-paid workers. It is to the analysis. Objectivism holds that the way wages rise is capital investment raising the productivity of labour, and that measures which discourage investment lower the wages they were meant to raise.
That profit is a deduction from wages. Wages are payment for labour supplied now; profit is the return on judgment, capital and risk, and it can be and often is negative. A firm that fails still owed its wages.
That the word has no legitimate use. It has one, for relationships in which a person is genuinely used against his will — slavery, forced labour, fraud. Objectivism's complaint is that the strong sense is used to borrow moral force for the weak one.

Discussion

References

Rand, Ayn. "Galt's Speech", Atlas Shrugged. Random House, 1957.
Rand, Ayn. "What Is Capitalism?", Capitalism: The Unknown Ideal. New American Library, 1966.
Rand, Ayn. "America's Persecuted Minority: Big Business", Capitalism: The Unknown Ideal.
Böhm-Bawerk, Eugen von. Karl Marx and the Close of His System. 1896.

External links