The Benefits of Being Exploited

Admittedly, the title is tongue-in-cheek. I don’t believe that there are any benefits of being actually exploited. It is a reference to Karl Marx’s mistaken theory of exploitation, which holds that the full benefit of the produce of labor rightfully belongs to the laborer. As the theory explains, owners of the means of production (who are purportedly always in the dominant contract negotiation position) are able to withhold a portion of the laborer’s just wages as profit. In response, state socialists (and some libertarian socialists) promote governmental controls that have the intention of increasing labor rates. The idea is that increased labor rates will reduce entrepreneurial profits, weakening the predatory capitalists (who live off the residual “social surplus”) and eventually emancipating wage slaves.

Evidently, this theory is founded on the false premise that a rational individual could not willingly benefit by receiving less than the full produce of his or her labor. Please understand, I agree that exploitation is a real phenomenon, which is what takes place when someone without consent expropriates the benefits of another’s property rights. With that said, workers are facing actual exploitation by government controls that restrict the rights to collectively organize, that reduce opportunities for entrepreneurship and that push people into the labor market in the first place.

To that end, I have said:

Communists are right in viewing the state as exploitative, but not because it upholds property rights, but because the state exists only by systematically usurping those rights. What would prevail in a stateless society — one without government propaganda championing that “taxation is voluntary,” “voting is freedom,” and “government is security” — is a strengthened sense of property rights and individual autonomy.

So I also support higher wage rates, but I would rather reduce the dead-weight loss of existing government controls instead of trying to counter-balance them with new government controls.

Why Agree to ‘Exploitation’?

This is not an exhaustive list, but there are a number of reasons why accepting less than the full produce of one’s labor would be sensible.

  • Higher time preference — The premium someone places on the earlier satisfaction of a goal rather than a later satisfaction is called time preference. Someone with a higher time preference would value immediate gratification to a greater extent than a person with a lower time preference; someone with a lower time preference would still more greatly value immediate gratification, just to a lesser extent. A laborer who had a higher time preference might very well agree to accept reduced wages now instead of waiting for greater returns in the future, when a product’s purchase is completed by the final consumer. An employer facilitates the demand for earlier gratification by paying wages in the present and waiting for compensation from consumers in the future. The more distant the span of time between when the labor was performed and when the product’s purchase is completed by the final consumer means that the discount in wages would be more prominent. That is because a future good has less value than that of an otherwise identical present good. A dramatic contrast of a difference in time preference might be someone who has been diagnosed with a terminal illness compared to a young, healthy adult. The one does not have much longer to enjoy the benefits of his or her labor and may accept reduced wages that were paid immediately, while the other has a long life ahead of him or her and may be willing to wait until the final consumer has purchased the good produced. In an environment where savings were not eroded by money inflation, market-based interest rates encouraged savings, economic conditions were more stable, it was easier to start a business and people’s incomes were not confiscated through taxation or destroyed by coercive regulatory controls — anxiety about the condition of the economy would diminish so that people would be more inclined to adopt a lower time preference and demand a higher portion of the produce of their labor.
  • Reduced risk — Even if time were not a factor in a decision, some people are less averse to risk than others. As the saying goes, “A bird in the hand is worth two in the bush.” The sentiment of that saying is that it is better to have a guaranteed reward than risking the possibility for even greater reward. That is an accurate statement for some people, but not all. Depending on the circumstances, which is practically impossible to share in common identically with another person, it could be more prudent to run the risk. A laborer with the resources to open a business could find it more sensible to continue working for a lower wage than possibly reaping greater rewards by opening a business and putting those resources at greater risk of loss. Here again, discriminatory tax policies and regulatory controls (like licensing laws and capital requirements) have made it is costlier and thereby riskier to go into business for one’s self, and the state’s crowding out of demand, like in the education sector, makes it more difficult to earn a return on investment. One of the reasons that large businesses favor greater regulatory controls is because those controls stymie competition from small businesses struggling to afford the added costs of regulatory compliance. Abolishing occupational licensing laws and zoning controls against mixed-use property would lead to a flurry of home-based, low-overhead enterprises, which are less risky and less costly to operate than store-front operations.
  • Charity — It is pretty common for people to volunteer their time or offer special rates for their work if they know those savings are going toward a good cause. The social anarchist band Anti-Flag regularly plays at charity event, for example, and I do not ever recall its members mention they had been exploited by playing a charity event.
  • Prevent competition — One of the reasons that profits tend to minimize over the long term is that profits signal that more resources need to be devoted to that good, which stirs competition. One way of preventing the rise of competition is to deliberately price a product or service for significantly less than its anticipated value to the consumer. The strategy is founded on the idea that resources will be devoted to more profitable investments first. The resulting diminished profit dissuades new competition from forming and may drive out old. In that way, businesses are also looking to build customer loyalty in case competition does arise. This works both ways. Purchasers, including purchasers of labor, have to be weary that paying too little will lead the seller of the labor to look more vigorously elsewhere for employment.
  • Volume discount — One of the reasons that stores like Sam’s and Costco exist is because customers can save quite a bit of money by purchasing in bulk. The same principle holds for purchasing labor in bulk. To hire someone occasionally to make repairs around the house, the homeowner would expect to pay a higher price per hour than if he or she had agreed to pay a regular salary to work a set number of hours indefinitely or for some longer period of time. The person making repairs would benefit from having a steadier stream of income and reducing his or her time and expenses associated with recruiting prospective customers.
  • Good will — Someone just entering a trade has a few disadvantages. One is that a potential employer is not quite sure of the laborer’s professional and personal skills. In order to entice a potential employer to accept the added risk of hiring someone without a known reputation, the laborer can improve his or her prospects by temporarily accepting reduced compensation. The same could hold true for someone wanting to improve a tarnished reputation. That is common for professional athletes, who might sign a short-term contract in hopes of displaying their skills for other potential employers.
  • Experience — For people learning a trade, apprenticeships can be an important step to becoming an experienced professional. An ironic note is that Marx himself served as an apprentice for a German newspaper. By requesting a lower wage rate, more employment opportunities arise, which can provide a springboard to increased experience and higher compensation in the future, the same as what happened to Marx after attending college.
  • Reduced warranty — One last scenario is that an agreement could be made that an employee would not have to guarantee his or her work. This arrangement is made less often, if only because one’s reputation typically is regarded as more valuable than any short-term benefit of avoiding the inconvenience of correcting a mistake. An example could be where a customer, over the objection of his or her car mechanic, insisted on having some mechanical repair or alteration made. An agreement might be reached that, for agreeing to a reduced fee, the mechanic is released of responsibility for warranting the work.

I am sure this does not include every scenario in which an employee could benefit from accepting a reduced wage. In a genuine free market, I think there would be fewer people working for a wage. More people would be able to afford to run their own business from their homes, or they could share spaces and tools at community-managed workshops. Self-organized, low-overhead market forces would be in a better position to rebuff widespread economic downturns, should they occur.

In an open market, two people are likely to have fewer mutually beneficial trading opportunities as their circumstances become more aligned, so they would not exchange at all if they assigned the same value to the items being exchanged. The noteworthy think about exchange is that it allows for people of distinct backgrounds and circumstances to flourish instead of conflict. Catallactic competition means that people with identical demands can more affordably satisfy those demands. The more people who have that same demand means that satisfying that demand can become less expensive. When a trade does occur, it does so because people in different circumstances have different values to satisfy. With that understanding, it becomes understandable why individuals would give greater importance to some values than they otherwise would for certain circumstances and why people in different circumstances perceive the benefits of achieving certain values differently.

Marxists and opponents of monied exchange are mistaken and do a disservice to alleviating actual exploitation in that they do not distinguish the one-sided nature of state privilege from the mutual benefit of consensual exchange. It is not only that they have a misunderstanding of the nature of property rights; they believe that the measure of an individual’s value exists independent of his or her unique circumstances (or context). To an opponent of the private ownership of property, an exchange involving money would be prima facie evidence of exploitation, since the measure of a value being equal across society, they believe one party’s benefit comes at the expense of the other. This is what leads them to believe that working for a wage is necessarily exploitation, claiming that workers are in a position of either receiving less than the value of their labor or starving. Besides being a false dichotomy and full of hyperbole, this is a fundamental misunderstanding of the nature of value. A self-interested person would not act at all unless he or she expected to gain or keep more than the value of the labor expended. Because of opportunity and transaction costs, acting to gain or keep less than or equivalent to the value of the labor expended would only hasten death. From the circumstances of the laborer, the wages received in return are more beneficial than the benefit that could be have been received by working elsewhere or taking leisure instead. It could still be the case that exploitation is taking place, that better opportunities were never available because of a systematic violation of property rights, but working for wage labor is not a sufficient condition of it.

Image credit: ®Dave, with a Creative Commons license

4 thoughts on “The Benefits of Being Exploited

  1. It strikes me that all of those reasons why one might "agree to exploitation" function just as well as reasons why one might enter into a cooperative economic relationship with others.

  2. I agree with your thoughts here and I categorically love your blog! I’ve bookmarked it so that I can come back & read more in the future. Your post is very interesting. I’ve read your blog for few days now and I truly enjoy your blog. Thank you for your great work!

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