This extract is from Ronald Nash’s book, “Social Justice and the Christian Church.” All attempts have been made to reach the copyright holder, this content is used without permission.
Capitalism is often thought to be immoral because it exploits, cheats and robs its own workers. Probably every adult American has heard this charge some time or other. Possibly many unhappy employees have believed that the claim was true, at least in the case of their employer. No one in his right mind would suggest that examples of money-grubbing capitalists cheating their workers cannnot be found.
But that does not happen to be the question. The problem is whether such exploitation is endemic to the system, whether there is something inherent in the free market system that makes such exploitation necessary and unavoidable. Also relevant is the issue of whether it is possible for the free market to adopt measures that would allow workers to have a greater share of the profits. As we shall see, such policies are available, but frequently dismissed by the workers themselves.
The charge that capitalism entails the exploitation of the worker has been advanced in two different forms. In the first, it appears in classic Marxist thought in the guise of the famous labor theory of value. Many Marxists have believed that the profit of the capitalist results from his paying his workers less than the true value of what their labor produced. The theory has never commanded much respect because of its gross over-simplification of the worker’s true situation. The theory, for example, ignores the extent to which machines multiply the value of that which human beings produce. A solitary worker using only his own raw materials and his own tools might have some justification for believing that he deserved the full value of the labor he expended on the product. But even this claim would overlook the contribution made to a product’s value by the exchange process.
The laborer could not be paid for his product until it is sold or exchanged. If the worker is forced to take time off from his manufacturing activity (we might suppose he is making the tables) while he seeks a buyer for the table can make only one table a day, or five a week, for which he receives forty dollars. Some people are better at different tasks than others.
If the worker can entrust the selling of his tables to someone who is a better salesman (who can, let us say, sell the five tables in half a day), a division of labor is obviously to the worker’s advantage. But it also seems clear that the value of the table (that for which it is exchanged) does not result exclusively from the labor that produced it. The exchange process affects the table’s value as well. Therefore, even in the most primitive situations, the labor theory of value is over-simplified because it ignores other factors that affect the value of commodities.
But what about a more complex and realistic situation where a worker, using raw materials purchased and transported to him at someone else’s expense and using machines purchased at some risk by the enterprising entrepreneur, is enabled to make ten tables a day? Does his increased productivity entitle him to ten times more pay? Mark’s labor theory of value ignores the extent to which machines multiply a worker’s productivity.
Certainly, someone had to pay for the machines; someone had to invent them. Someone had to have the initiative to take the risks involved in investing money for the whole enterprise. What is so immoral about the fact that the person who made these investments and took these risks receives a return from the added productivity of the workers who use his capital? It seems clear that if capitalism is to be condemned for robbing its workers, it must be on some basis other than the labor theory of value.
But the claim of worker exploitation might be made in a different way. Perhaps it can be argued that capitalists exploit their workers by claiming excess profits.
That is, even if it is conceded that the capitalist is entitled to some return from his risk and investment, there is a line between a fair return and obscene profits. In most cases )except those in which the intervention of a state has given some corporation a marked advantage over its competition), excessively large profits would be a temporary circumstance. If some company through insight or luck were fortunate to gain such dominance of a market as to produce huge profits, this fact would quickly lead other entrepreneurs to enter the same market.
The history of American business is full of companies that gained an uncommonly large share of a market for a time, only to lose it. Many of those companies no longer exist.
Perhaps it is only fair that the workers in such a company receive a share of these larger profits. But fairness would also seem to require that they be willing to share in some of the losses and sacrifice that often precede and follow the unpredictable periods of prosperity.
Many businessmen would not object to their employees participating in a profit sharing plan. But it would seem fair to require that if the employees of a particular company want a guaranteed share of the profits, they should be willing to share some of the risks. Robert Nozick has addressed this question. He notes that whatever the lot of the working class in the past may have been, many members of the working class today have access to cash reserves. Large cash reserves also exist in union pension funds. According to Nozick, the fact that large segments of the working force in America could invest “raises the question of why this money isn’t used to establish worker-controlled factories. Why haven’t radicals and social democrats urged this?” If the reply is given that workers themselves “lack the entrepreneurial ability to identify promising opportunities for profitable activity, and to organize firms to respond to these opportunities,” then why don’t the workers “hire entrepreneurs and managers to start a firm for them and then turn the authority functions over to the workers (who are the owners) after one year?”  Nozick thinks the reason is obvious.
It’s risky starting a new firm. One can’t identify easily new entrepreneurial talent, and much depends on estimates of future demand and of availability of resources, on unforeseen obstacles, on chance, and so forth. Specialized investment institutions and sources of venture capital develop to run just the risks. Some persons don’t want to run these risks of investing or back new ventures, or starting ventures themselves. Capitalist society allows the separation of the bearing of these risks from other activities. The workers of the Edsel branch of the Ford Motor Company did not bear the risks of the venture. In a socialist society, either one must share in the risks of the enterprise one works in, or everybody shares in the risks of investment decisions of the central investment managers. There is now to divest oneself of these risks or to choose to carry some such risks but not others . . . as one can do in a capitalist society.
Nozick points out how often some people who are unwilling to assume risks “feel entitled to rewards from those who do and win; yet these same people do not feel obligated to help out by sharing the losses of those who bear risks and lose.” He asks, “why do some feel they may stand back to see those ventures turn out well . . . and then claim a share of the success; though they did not feel they must bear the losses if things turn out poorly, or feel that if they wish to share in the profits or the control of the enterprise, they should invest and run the risks also?” Capitalism affords a significant advantage to those people who would shift the risks to others and prefer the security of a fixed income. They can have the security they want. But they should not begrudge the individual who shouldered the risk any profit he might be fortunate enough to receive from his investment.
In summary, the argument that capitalism is immoral because it necessarily exploits the worker by allowing the capitalist excess profits at the worker’s expense is a mixed bag. It is perfectly consistent with a market system to defuse this possibility by offering the workers a chance to share in all the “excess profits,” whatever this might be taken to mean. But why should workers be given an opportunity to share any winnings without also bearing an equal responsibility to share the risks and possible losses? Thus, it is clearly false that capitalism necessarily involves the exploitation of the worker.
Ronald NashSee More Essays
Ronald H. Nash was a philosophy professor at Reformed Theological Seminary. Nash served as a professor for over 40 years, teaching and writing in the areas of worldview, apologetics, ethics, theology, and history. He is known for his advocacy of Austrian economics, and his criticism of the evangelical left.