Marx’s theory of Labor
Before
recommending solution to unemployment problem within EU using the theory of
Marx, let us examine his economic theory (Ekelund, 1997). Marx’s economic
theory was an opposition to the economic theory of capitalism. Capitalism is focusing on free market and
less government control. The capitalists are free to use and invest their money
to produce goods and services as they wish. To pursue their interest, they
control the means of productions and laborers are structured according to their
skills or competencies to improve efficiency.
The main purpose is to maximize profit as Milton Friedman put it. To
maximize profits, capitalists have to identify market demands and produce the
product according to the demand. When the demand is high, the price of the
product is set high; while the workers’ wages are either kept low or high.
In
critical view of such idea, the laborers are just commodity and means for
production. Capitalists value the product more than the person who made the
product (Shane, 2004). In opposition to the capitalist, Marx presented the theory of
labor value. When he talked about labor value, he referred
it to the commodity production. Commodity is anything that possess value namely
use and exchange value and price as its monetary expression of value. However, to produce such commodity, a certain
amount of labor must be involved in the production process. Consequently Marx
emphasized the importance of labor because without labor a commodity cannot be
produced. He recognizes the importance
of labor’s contribution to the development of the economy. Labor is essential
part of the production process because the value of product is related to the
amount of labor which is needed to produce the product. The more productive
labor is the more value the product has (Bottomore, 1963).
In
contrast, the capitalist considers labor a commodity. People sell their labor and power when they
agree to be compensated in return for whatever work they do in a specified
period of time. They are not selling their product but their capacity to work;
they do not own the output. To
compensate their work, they receive money in return which allows them to
survive. Those people who receive money for their labor are called proletarians
(Nebres, 2008). Marx noticed that in
almost flourishing industry, the price for labor was lower than the price of
goods they produced. The capitalist, denied the fact that labor is the ultimate
source of value of the product. Marx argued that the value of any commodity is
ultimately derived from the labor used to create it. The surplus value of product is taken by the
capitalists as their profits. Surplus value is the difference between the value
of the product when it is sold (its exchange value) and the value of the
elements, especially labor, consumed in the formation of the product. To
improve their surplus value, the capitalists have to invest more in
technologies and less in labor. Marx believed that surplus value that is taken
from the labor will gradually fall even as the economy grew. When the rate of
profits declines lower than a certain position, the outcome would be a recession
or depression in which some sector of economy would fall down suddenly. Such crisis would definitely affect the price
of labor. The price of labor would decrease and eventually lay off.
Keynes’
theory of Labor
Marx emphasized on his
theory of value .
Keyness emphasized on theory of aggregate demand (Ekelund, 1997). Keyness argued that demands create its own
supply. Aggregate demand is the total desired purchased by all the buyers of an
economy’s output (Nebres, 2008). According to him the demand would create a
fluctuation in prices, wages, and interest rates. The price goes up when the
demand is high and the price goes down when the demand is low. The fluctuation
of price can affect the fluctuation of wages of laborers; it can go up and
down. Further consequence of demand is interest rates. When the demand is up,
the appetite for investment is up and the need for capital is up, then it
follows the interest rates. As a consequence such demand is employment. The
need for workers is high when the demand is high and unemployment is down when
the demand is low. Definitely, according
to him deficient demand is a sign of recession, economic recession. The fall of
employment and output is a sign of demand deficiency. The push and the pull of
supply and demand determine the price of labor and the continual changing of
its price which translates into wages and allow two forces to become equal. When there is unemployment, it could be
solved by way of wage cuts because unemployment is a result of inelastic wages
providing the quantity of labor supplied is greater than the quantity demanded (Samuelson & Nordhaus, 1995, Sullivan,
Sheffrin and Perez, 2008).
Applying Marx and Keyness theory of labor to solve
unemployment would mean the following:
1.
Change capitalism into socialism system of
economy. In this case, government takes over the means of production. Key
industries that provide big employment should be taken over by the government
for the government to provide jobs and wages should be regulated.
2.
Market
should be regulated. It cannot just be dictated by the market to determine the
supply and demand. The government determines the supply and demand. By
controlling and the supply and demand, the price is steady, employment is
steady.
3.
Under
the theory of Keyness, the wage cut is necessary. The wage cut will reduce the
price of the product and consequently motivate demand. Once the demand increase,
employment demand will surely goes up.
4.
In
line with the theory of Keyness, government subsidy can be provided to
companies that lack of capital to maintain their operation during crisis time.
By providing capital, companies can maintain the employment rate.
5.
Definitely, to prevent such crisis, new investment
in new technologies and the development of new sectors of economy is necessary.
References:
1.
Ekelund, Jr., Robert B. and Robert
F. Hebert.1997, 4th ed. A History of Economic Theory and Method, pp.
239-241
2. Jone,
Shane. 2004. Unemployment: An organic Feature of Capitalism.
http://www.marxist.com/unemployment-feature-capitalism.htm
3. Nebress,
M. Abriel. 2008. Economics: Concepts, Theories and Application. Manila:
National Bookstore
4. Sullivan,
Arthur, Sheffrin, M. Steven, Perez, J. Stephen. 2008. Principles of Economics.
USA: Prentice Hall
5. Samuelson,
A. paul & William, D. Nordhaus. 1995. Economics. New York: McGraw-Hill.
6. Bottomore,
T.B. 1963. Karl Marx: Early Writings. NY: McGraw-Hill.
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