Here’s a lecture that will help some for understanding the last two lectures, as well as being vital for understanding the next.

How many people in this room are aware that sweatshops are evil? Sweatshops, as in overseas factories where big evil clothing corporations like Nike pay workers hardly anything and force them to work in conditions where… they get really sweaty, I guess. Sweatshops also steal jobs from hardworking American workers. Liberal student groups like holding protests to make their universities stop having university gear–stuff with the sports team mascot or whatever on it–made in sweatshops. Then their members grow up to be adults who try to get the entire country to boycott stuff from sweatshops, and of course they don’t succeed in that, though they may create a market for companies to sell more expensive clothing to them by announcing that they don’t make their clothing in sweatshops.

Okay, so that was a bit tongue-in-cheek, but is that roughly the image most people still have of sweatshops? Has the basic image of them among students changed much since my college days? Thought I’d ask.

Anyway, many people may naturally sympathize with the sort of picture of sweatshops I painted, but they don’t have a worked out argument for why it’s wrong to pay workers low wages, and especially why they would like to get governments involved to stop that, which is the end goal for a lot of organizing against sweatshops. Some do have detailed arguments, though. I’m going to focus on an argument that comes down from Karl Marx, which you can still hear people making today, or at least you could when I was an undergraduate at the University of Wisconsin, where there was a reasonably strong International Socialist Organization presence. Maybe you can find people making that argument here in, say… the literature department. Anyway, here it goes:

Marx proposed what’s called the Labor Theory of Value, which says that all value in a product, such as a team hoodie that comes out of a sweatshop, comes from the labor used to make it. Of course, this doesn’t mean that all the value of a product comes out of the labor that takes place in the factory where it’s made, since you also need the labor to extract the raw materials and such. But all value comes from labor.

This theory naturally strikes many people as very intuitive. In fact, it hasn’t just been used by Marx, but was used before him by people like John Locke back in the 17th century to justify property rights. You read in the Declaration of Independence about “Life, Liberty, and the Pursuit of Happiness,” and that comes from Locke, with the exception of “Pursuit of Happiness,” which was a substitution for “Property.” Locke thought property was a fundamental right up there with life and liberty, and he justified that with the claim that if you labor for something, you have a right to it.

So, given this Labor Theory of Value, Marx asked: how do we explain the fact that capitalist businessmen make such fantastic amounts of money? It has to be due to a difference between the wages being paid workers and the amount of income the capitalist can get from their labor. Marx defined this difference as exploitation. Here’s how Marxist writer Alex Callinicos illustrates the principle:

For example, let us assume that in a working day of eight hours, four hours labour replaces the value of labour power advanced by the capitalist in the form of wages. The other four hours is pocketed by the capitalist. Surplus value, or profit, is merely the form of existence of surplus labour peculiar to the capitalist mode of production.

The significance of this analysis of the purchase and sale of labour power is that it enables Marx to trace the origins of surplus value to the exploitation of the worker by capital.

As you may have suspected, I think there’s something fishy about this. Talk about the labor theory of value makes it sound as if this it what’s happening under capitalism: the worker comes over to the factory and works for eight hours, and then the factory own comes over to the workers house and works in his garden for four hours. Obviously, that isn’t what’s happening.

The problem, I think, is that the labor theory of value is wrong. Commodities, from food to clothing to automobiles, are what they are. They aren’t imbued with some inherent amount of value by the labor put into them. There isn’t the sort of inherent value that Marx believed in.

Now, later in the course we’ll talk about the question of various kinds of truths, including whether there are any absolute moral, or perhaps artistic, value. That, however, isn’t what I’m talking about when I deny the existence of the sort of inherent value Marx believed in. Suppose, for the sake of argument, that having fun playing basketball is an absolute, objective good. Now imagine you have a basketball. In spite of having a basketball, though, your ability to have fun playing basketball is limited in other ways: maybe you don’t have access to a basketball court, or maybe you aren’t very good at basketball. Your basketball, then, will be more valuable to someone who is more able to have fun playing basketball. We’ve shown that by assuming one thing, having fun playing basketball, has absolutely objective value, we know that another thing won’t have value, only value to different people.

Now imagine you meet someone who is more able to have fun playing basketball than you. That person, say, has a chess set. And he isn’t very well able to have fun playing chess, but you like chess. In that situation, if you give him your basketball for his chess set, you’ll both be better off. That is the core idea of free markets. When you own property and have the choice to trade it or keep it to yourself, you can trade when it will benefit you and not when it won’t. Free markets almost automatically make everyone better off. Though the reasons for this are easy to understand, it can seem magical at times, which is why the 18th century economist Adam Smith talked about the “invisible hand of the market.”

You might say, “well, couldn’t somebody still get ripped off?” In a sense. Obviously, it’s possible to lie about the nature of the goods you’re selling, to defraud someone, and we need laws against that. That’s not the only thing people talk about, though, when they talk about getting ripped off. Part of the reason it makes sense to talk of getting ripped off is that free markets never just involved two people. You might have twelve people wanting to trade you for your basketball, and you want to trade with whoever will give you the most. That’s how prices get negotiated on the free market, not just by interaction between two people, but based on what everyone does and is willing to do. The law of supply and demand is thus generated, because the more people you have that want something, the more likely it is that someone will be willing to pay a lot for it.

When, through lack of information, you end up not getting the best deal you could get on something, in a sense you’re getting ripped off. However, information about the market you’re working in isn’t something we can expect to magically come to everyone for free. Information takes work to acquire. If I notice that you have a basketball and want a chess set, and that someone else has a chess set and wants a basketball, I can act as the middle man, asking for a little extra on each side as long as the deals aren’t overall unfavorable to either of you. I’m doing both of you a favor, arranging a good deal that might not otherwise happen. Why shouldn’t I get payed for that work?

The situation of the factory worker is like the situation of the person who has a basketball and wants a chess set. If the wage weren’t more valuable to him than the time spent laboring for it, he wouldn’t work in the factory. He’d maybe go work for himself. So if he’s working in the factory, it means he wouldn’t be better off working for himself, so if the factory just disappeared with nothing to replace it, he’d be worse off!

This is something that rarely comes up in discussions of sweatshops. Working in sweatshops might be a step down from working even at a U.S. McDonalds, but it might be step up from being a poor Thai agricultural laborer. This is in fact what you are likely to hear if you were to talk to sweat shop workers. In one of his books, journalist Nicholas Kristof tells of how he and his wife met the father of a girl who was working making clothing for $2 a day under bad conditions–she got a needle through her hand twice. The westerners’ response was “how terrible,” but the father’s response was: what are you talking about? It’s good pay. I don’t know what she’d do if the factory closed.

There’s a temptation to say that workers working in sweatshops don’t have a choice. But I emphasize again: this is only because the choice between starving and working for low pay is so obvious. Simply removing the sweatshop doesn’t do any good, then there’s really no choice, all you might be able to do is starve, or get an even worse job.

Is there any way free markets can hurt? Well, it’s not fun being out-competed by someone else. This is the essence of a lot of fighting over “shipping jobs overseas,” and immigration. People don’t want to have to compete with much poorer people overseas for jobs, and they don’t want much poorer people from Mexico coming here to compete for their jobs. That would mean the supply of labor going up, so wages go down. But wages don’t go down for everybody–they go up for the very poor people from other counties. Opposing “shipping jobs overseas” is essentially saying you’re willing to let poor people in Thailand starve so Yankee factory workers can make much more than the free market price.

Another example: say you’re a skilled craftsman at the dawn of the industrial revolution, who can make an entire product in your little shop with the help of some apprentices and maybe a partner you’re working with. Then the factory owner comes along with his equipment that anyone can operate, and suddenly poor farm hands are coming to the city from the country, competing for your job–with the difference that the capitalist will cut prices below what you can sell at. You can’t keep up your old business model, and if you try to get a job at the factory you’ll work for less because some other people are willing to take the job for less. That hurts, obviously. If you’ve heard the term “Luddite,” you may know it as people who have a vague dislike of technology, but it was originally a term for textile workers who were rioting and destroying the machinery that was putting them out of work.

Know what, though? The industrial revolution was an overwhelmingly good thing, in the long run. Do you really want to think what it would cost to buy a pencil, pen, notebook, or desk from a skilled craftsmen? Once upon a time books cost a literal fortune, they were only for the rich. And the computers some of you are taking notes on aren’t even possible to make without factories. On top of all that, putting people out of their jobs means they can go take other jobs. Once upon a time, nearly everyone was a peasant farmer. In a sense, all you sitting in this class are unemployed farmers, forced to get a university degree so you can work in a non-farm job. But all these non-farm jobs mean we can get a lot more done, mean we can have a lot more in our lives than food. Putting farmers out of work has been the foundation of modern prosperity.

Of course, it’s possible to have a general free market while having limited restrictions, such as minimum wage laws or child labor laws. These can be beneficial, but they interfere with the market, and that carries a price. Minimum wage laws, for example, can act as mandatory price-fixing among workers, allowing workers who’d be willing to work for a very low wage work for a somewhat better one. But there will also be people who would only be able to find a job at below the minimum wage, and who will simply be put out of work by minimum wage laws. Or: child labor laws might, by reducing the supply of labor, raise wages for the parents and give children time to go to school. However, if the parents’ wages don’t rise high enough, and the family still needs money, the children might end up doing things much more dangerous than legal factory work to get money–including prostitution. Yes, there’s a real possibility that enacting child labor laws in a third world country could lead to a rise in child prostitution.

So that is what Marx was wrong and free markets are an almost entirely a good thing. Next time, we’ll talk about some even stronger defenses of property rights given by libertarians, represented in recent times by Robert Nozick.

References:
*Two Cheers for Sweatshops by Nicholas Kristof and Sheryl Wudunn.
*The Revolutionary Ideas of Karl Marx by Alex Callinicos. The relevant quote was from page 68 of the PDF.