About Waged Labour: From Monetary Subordination to Exploitation

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Disagreements amongst economists are more important about the rate of wage than about commodity prices. These divergent theories of wages reveal a deep disagreement about the status of labour in political economy. They are not only analytical; three more general considerations are implied:

  • From the point of view of economic theory, the question is whether there are or not fundamental qualitative differences between a pure market economy (populated by independent producers only) and a capitalist one (populated by entrepreneurs and wage-earners)?
  • From the point of view of economic philosophy, the question is about exploitation, are wage-earners exploited by capitalists?
  • From the point of view of political philosophy, does it make sense to criticize modern societies as market or as capitalist economies?

The paper addresses the two first issues.

The presence of “labour services” in the commodity-space in mainstream theory is ill-founded; it is the result of a social prejudice – which takes the form of a “natural” assumption – and not of a consistent reasoning. The wage relationship has nothing to do with an exchange rules by equivalence since wage-earners are such as a consequence of their inability to produce for the market. They cannot produce for their own account but for the account of entrepreneurs.

The employment contract is illegitimate as contrary to the fundamental values of the social philosophy inherent in a market economy. Wage-earners are exploited by entrepreneurs not because wages do not respect a norm (a natural price or a marginal productivity) but because wage-earners are a means for entrepreneurs. In the terms of mainstream theory, the exploitation shows off as a difference between the arbitrages open to entrepreneurs and wage-earners: the former compare disutility of the effort with the utility of the reward given by the market; the latter compare the utility of the deviation of the effort imposed by entrepreneurs with the risk of being fired. The first arbitrage refers to the market, the second to the firm. The gap between these respective optimal efforts measures exploitation.

Posted for comments on 24 Mar 2017, 10:59 am.

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  • David Ellerman says:

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    About Waged Labour: From Monetary Subordination to Exploitation
    by Jean Cartelier

    David Ellerman
    University of California at Riverside

    To analyze this paper, I have to alternatively wear two hats: first, as if I were a defender of neoclassical orthodoxy against attacks, and second, as a critic of waged labour from an alternative perspective [Ellerman 1993, 2015, 2016]. From the first point of view, I do not think that Cartelier has successfully breached the neoclassical fortress—although there are some promising beginnings.

    In the Introduction and elsewhere in the paper, Cartelier states that neoclassical theory views the wage relationship as ‘exchange relation ruled by equivalence’ and then argues in various ways that there is no ‘equivalence.’ However, ‘equivalence’ is never defined but it seems to be a paraphrase for an ‘exchange relation in a competitive market,’ e.g., as in the Arrow-Debreu model. But neoclassicals are, of course, aware that labour markets are often noncompetitive and imperfect in many ways and they even have their own theory of ‘exploitation’ when workers are paid less than the value of their marginal productivity in noncompetitive markets. In any case, a critique based on ‘inequivalence’ or noncompetitiveness of wage labour markets is not even close to a critique of wage labour per se, but a call for greater ‘equivalence’ or competition.

    In the Introduction, Cartelier also makes the statement repeated later in the text that ‘wage-earners are not responsible for the consequences of their activities when they comply with entrepreneurs’ orders;’ [p. 2]. It is a promising beginning to mention the word ‘responsible,’ but there is no hint of the crucial distinction between factual/de facto responsibility and legal/de jure responsibility. Wage earners (in a non-criminous activity) have no legal or de jure responsibility for the positive and negative results of production [Ellerman 2016], but they still have the usual factual or de facto responsibility that is the usual basis for juridical imputation. That is the conceptual battering-ram to breach the neoclassical fortress using the labor theory of property (not the fallacious ‘labor theory of value’), but Cartelier shows no awareness of that whole tradition. Even within the narrowly French tradition, it might be noted that Pierre-Joseph Proudhon’s main work was not entitled ‘What is Value?’.

    Section 1

    After the Introduction, Section 1 of the paper is entitled: “Human labour” does not belong to the commodity space if not with human beings who perform it. Cartelier takes the Arrow-Debreu model (which has a whole set of problems of its own [Ellerman 1993, p. 188]) as the standard of neoclassical thought which accounts for the over-stylized question of whether or not human labour belongs to the ‘commodity space.’ Why not just formulate the question as to the legitimacy of the market for wage labour or the employment contract or the human rental relationship instead of a question of what can or should be represented in an l-dimensional Euclidean space, the ‘commodity space’?

    Cartelier makes a promising beginning by considering the difference between a person as truck-owner, a truck, and truck-services bought and sold in the rental market for trucks. In the employment relation, there is the worker as a ‘self-owning’ person, the worker as the asset like the truck providing the flow of services, and the person’s services that are bought and sold in the rental market for persons. In the case of trucks, there is both the market for the trucks as assets and the market for the flow of truck-services. In the case of humans, if there was a market for the underlying asset, that would be a slave market, which is assumed to be ruled out in neoclassical economics. Instead of delving deeper into the difference between trucks and persons focusing on the capacity for imputability or responsibility, Cartelier just falls back on an obiter dicta that if the humans cannot be marketed like trucks then human services don’t fit “in the commodity space.”

    “The mere fact that it is generally assumed that a choice is open to individuals between buying the “truck” in order to get its services or hiring the “truck” for a given duration confirms their common presence in the commodity space. What is true for “trucks” should be true for “workers” as well.” [Cartelier, p. 4]

    Moreover, neoclassicals are well aware of this peculiar difference between trucks and persons. Indeed, in Alfred Marshall’s list of the peculiarities of labour, it is the very ‘First peculiarity: the worker sells his work, but retains property in himself.’ [Marshall 1961, p. 560] Recent neoclassical texts make the same point.

    “The labour market trades a commodity called ‘hours of labour services’. The corresponding price is the hourly wage rate. Rather loosely, we sometimes call this the ‘price of labour’. Strictly speaking, the hourly wage is the rental payment that firms pay to hire an hour of labour. There is no asset price for the durable physical asset called a ‘worker’ because modern societies do not allow slavery, the institution by which firms actually own workers.” [Begg et al. 1997, p. 201]

    Cartelier goes on to note how the flow of services is inseparable from the underlying asset.

    ‘“Workers” and “human labour” are physically related as are “trucks” and “truck services”. … Mainstream economists not only forbid slavery but they expel “workers” from the commodity space pretending nevertheless to keep “human labour” as an element of it. By virtue of the physical bind alluded above, expelling “workers” means expelling “human labour” as well.’ [p. 5]

    Again Cartelier supplies no argument for his obiter dicta that ‘expelling “workers” means expelling “human labour” as well’ from the commodity space. Indeed, Cartelier has just discovered Marshall’s “Second peculiarity. The seller of labour must deliver it himself.” [Marshall 1961, p. 566] I am afraid it takes a lot more that a few such obiter dicta to breach the fortress of neoclassical apologia.

    Section 2
    The Section 2 entitled ‘Wage relationship is a monetary subordination; means of payment circulation makes it clear’ tries to develop a somewhat bizarre monetary argument against wage labour. Cartelier argues that in some sense (never explained) that entrepreneurs or firms in general have access to a ‘minting process’ and since wage-earners do not have such access, the wage relationship is characterized by ‘monetary subordination.’ Since I cannot make sense out of any such ‘minting process’, I must pass over that part of the argument.

    It is, however, a common critique of wage labour, particular on the basis of civic republican thought, that it involves subordination or domination (‘monetary’ or otherwise). It is hardly a revelation to conventional economists that the employer-employee relation, traditionally called the master-servant relation, involves subordination. The standard response is: ‘Of course, it does; that’s one of the reasons employees are paid for their work.’ They acknowledge that undoubtedly subordination adds to the disutility of labour and that such unpleasantness may account for part of the compensating wage payment. Like in any resource-supply contracts, the original resource owners are free to try to renegotiate the contract, go elsewhere to sell their resources, or to use the resources in their own uses. Thus throwing in the word ‘subordination’ does not really get the would-be critic of neoclassical economics anywhere.

    It might be pointed out that neoclassicals do not argue that being a wage-labourer, particularly in its blue-collar forms, is a desirable position in society. Of course, one might desire some form of non-subordinated work as in being a family farmer, shop-keeper, or independent producer—if not an entrepreneur or employer who could use the voluntary human rental contract to legally appropriate the positive and negative fruits of the labour of the rented people. In the end, neoclassicals only argue that there are no normative grounds to outlaw ‘capitalist acts between consenting adults’ (to use Nozick’s phrase) such as the voluntary human rental contract.

    At least Cartelier does not indulge in the shallow left-wing parlour-game of just escalating one’s own definition of ‘involuntariness’ or ‘coercion’ so that all or most wage-labour is definitionally ‘involuntary.’ For instance, it is argued that most workers are not born with access to some means of production (remember the warhorse examples: clearance of the Scottish highlands and enclosure of the commons) so that they could be independent producers, and thus they are ‘forced’ into wage labor contracts. One might similarly argue that most city-dwellers are not born with access to some means of consumption (unlike those born on a family farm) so they are ‘forced’ into market contracts with grocery stores or supermarkets in order to survive. Indeed, collectively-bargained human-rental contracts would seem more voluntary that the take-it-or-leave-it contracts of adhesion between the consumer and supermarkets.

    Later in the section, Cartelier points out that human labor is represented as a cost in firms and contrasts that with an ‘exchange economy’ (apparently of independent producers with no wage labour).

    “That some human beings – wage-earners – appear (and are) a cost for others – firms and entrepreneurs – is the most significative and specific characteristic of a market economy when embedded in a wage relationship. This is probably the essential feature which distinguishes that economy from an exchange one, where everybody is in a symmetric position vis-à-vis anybody else.” [p. 10, italics in original]

    Yes, human services, like all input services, are a cost item in a wage-labour firm—which only restates that fact that they are purchased as an input by the employer-firm in the wage-relationship.

    Cartelier also oddly takes Ronald Coase’s well-known idea of the firm as the ‘legal relationship normally called that of “master and servant” or “employer and employee” ‘ [Coase 1937, p. 403] as if that were definitive of firms as opposed to markets. But, here again, there is no recognition of firms such as worker cooperatives or democratic firms [Ellerman 1990] where there is still hierarchy but it is based on a delegation (‘concessio‘) of authority in the cooperative membership contract as opposed to the alienation (‘translatio‘) of decision-making rights in the employment contract [Ellerman 2010].

    Cartelier seems as unaware as neoclassicals of the whole tradition of democratic political theory where the fundamental division is not whether government is based on the consent of governed or not, but whether the consent is to a contract of alienation (traditionally called the pactum subjectionis wherein the citizen explicitly or implicitly voluntarily agrees to be a subject) or to a contract of delegation where the governors/managers only exercise authority delegated to them by the governed/managed [see von Gierke 1966; Skinner 1978]. All the functionaries in the Church of Neoclassical Economists are required by their ‘sacred professional obligations’ to be blissfully unaware of that democratic theory since their most basic defense of the institution of renting of human beings is the fact that it is voluntary—and since even the most slavish of the intellectual ‘Hirelings of the Church’ [Milton 1957 (1659)] would not try to argue that the employer was the delegate, representative, or trustee of the employees.

    Of course, understanding the distinction between contracts of person-alienation—such as:
    • the outlawed voluntary-self-sale contract,
    • the outlawed voluntary Hobbesian pactum subjectionis,
    • the outlawed voluntary coverture marriage, and
    • the not-yet-outlawed voluntary human rental or employment contract
    on the one hand—and contracts of delegation on the other hand, does not yet ‘seal the deal.’ That requires an analysis showing that there is something inherently wrong with those person-alienation contracts. And that requires recovering the largely forgotten or ignored theory of inalienable rights [Ellerman 2010, 2015] that descends from the Reformation doctrine of the inalienability of conscience down through the Enlightenment (e.g., in the Scottish, Dutch, and German variants) to the present day in the abolitionist, democratic, and feminist movements.

    Section 3
    In Section 3 entitled ‘Wage-earners exploitation by entrepreneurs is inherent in wage relationship,’ Cartelier first sets aside the exploitation theories based on some norms of wage payment such as marginal productivity in the neoclassical case of non-competitive payments or such as labour-value expended in the Marxist case. This is another promising beginning since exploitation theories based on the charge that ‘wages are too damned low’ (by whatever account) are not a critique of wage labour per se. Cartelier also applies a few blows to the long-dead horse of the Marxian labour of value and exploitation, but that is overkill since the Marxian theory is at best only a theory that labour ‘is paid below its value’ [Marx 1977, p. 357 fn. or Chap. 10, sec. 3].

    Cartelier goes on to point out a couple of obvious differences between entrepreneurs or independent producers on the one hand and wage-earners on the other hand, and then again simply asserts: ‘In this double difference lies exploitation.’ [p. 13]

    Cartelier is on seemingly more promising ground by referring to Marc Fleurbaey’s notion of:
    the exploitation inherent in wage relationship is the one he calls M-exploitation: is exploited any human being utilized by another human being as a means oriented to his/her own ends. [p. 13]
    Perhaps we have here some substance—at least in the phraseology reminiscent of one form of Kant’s categorical imperative:

    “Act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means, but always at the same time as an end.” [Kant 1964, p. 96]

    Perhaps Cartelier and Fleurbaey will tap into the neo-Kantian tradition of the Marburg School [Keck 1977; Linden 1988; Ellerman 1988] that developed ethical theories for a non-capitalist or ‘socialist’ economy. But that expectation is severely disappointed as Fleurbaey points out that in all market relationships, one party uses the other as a means to one’s own ends since:

    “in standard economic models of trade and strategic interaction, one can think that each agent sees the other agents as means to the pursuit of his own objectives.” [Fleurbaey 2012, p. 15]

    After all, as Adam Smith famously pointed out: ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self interest.’—and the market relationship between the consumer and the butcher, brewer, or baker does not involve wage labour.

    Fleurbaey does not seek any deeper sense in which the renting of human being might be seen as treating persons as things. Indeed, Fleurbaey’s own development of ‘M-exploitation’ has no particular relationship to wage labour at all. It is a species of any ‘situation in which some take an unfair advantage at the expense of others.’ [Fleurbaey 2012, p. 6] In the case at hand of M-exploitation, one party may own a resource like a mine that has unknown or unexpected capacities, and then sell it at a low price to another party who would thus take ‘unfair advantage’ of the original benighted resource owner ‘when the reserves prove to be greater than expected’ [Fleurbaey 2012, p. 15].

    In addition to being trite, this sort of ‘normative’ analysis unsurprisingly has nothing in particular to do with the institution of voluntarily renting of human beings—but is typical of what one finds in the better neoclassical literature on ‘normative economics’ and ‘social welfare analysis.’

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