A model for how First World wages are based on Third World exploitation

Days before his first trip to Cuba, Pope Benedict XVI stated that “Marxist ideology [sic] in the way it was originally conceived no longer corresponds to reality.”

Left-leaning commentators concluded with, “says man in giant hat who speaks to invisible cloud people.” It is easy for leftists to poke at the pope’s archaic religious views and supposed authority. Yet the pope’s criticism shouldn’t be dismissed outright, especially because it has some truth to it.

Marxism as it was expressed in the 1800’s doesn’t correspond to material or social conditions today. However, Marxism as methodology necessarily changes its outlook according to changes in material conditions and shifts in class struggle. But this doesn’t entirely cut to the matter either. The pope didn’t need god to tell him what most people realize: that there are significant deficiencies and dogmatisms in mainstream Marxism today and that much of what is called ‘Marxism’ does not fully represent today’s reality. The pope didn’t say anything profound or deep. He was speaking to common perception.

There is one particularly deficient area where most Marxists fail in accounting for modern material conditions. In much of typical Marxism, there is consistent aloofness regarding the significance of the divide between rich over-developed countries and poor maldeveloped countries. 1 Given that the global divide is so basic and long-standing and that many contemporary Marxists continue to overlook the disparity, it is understandable how someone like the pope could call out such ‘Marxism’ for not corresponding to reality.

So the question remains, how can the gap between a handful of wealthy countries and a majority of poor ones be accounted for under a Marxist paradigm? How can Marx’s methodological approach account for the world today?

In some ways, coming to a Marxist understanding on the global gap requires us to toss out much of Marx’s specific conclusions. While some mainstream Marxists resist this, it is necessary if we are to realistically grasp and explain current phenomena.

One of the long-held conclusions in mainstream Marxism is that workers are necessarily exploited under capitalism. This is one of the conclusions which must be reevaluated if Marxism is to come to terms with the world as it actually is today.

The Numbers

The following examples provide an abstract model, based on the labor theory of value, of the mechanism by which value can be transferred between workers themselves. What is shown is how some workers can earn above the value of labor with part of their wages being drawn from the exploitation of others’ labor.

[The following examples refer to the illustration above]

Example 1, Simple Aggregate Model: This is the easiest way to demonstrate this model of aggregated capital accumulation under conditions with steeply tiered global labor markets. For the sake of ease of clarity, fixed capital is ignored in most of these equations. In example one, a capitalist takes $21 to pay for one hour of labor from worker A at $1/hr and one hour of labor from worker B for $20/hr. The end result is a commodity which the capitalist sells for $36 dollars, yielding a profit of $15. In this case, labor in its abstract (or ‘socially necessary’) form creates $18/hr in value [the full value of the commodity ($36), divided by the two hours which produced it], and this represents the value of labor.

In this example, worker B is paid $20 for an hour of labor power: this price of labor power is higher than the value of labor. In this case, for one hour of work worker B is able to purchase 1.11 hours of abstract labor. Consequently, worker A must work 18 hours to purchase the one hour of abstract labor. To clarify further: in this example, $17 in surplus value is exploited from worker A [the abstract value of labor ($18) minus the price of labor power paid as wages ($1)]. Of this $17, $15 is kept by the capitalist and $2 is handed to worker B on top of the full value of labor. Functionally, worker B is an exploiter.

Example 2, Simple Segment Model: This example demonstrates how the system appears and operates at the single-enterprise level. Specifically, it begins to demonstrate how the surplus value rendered through labor can be distributed to other workers. It also demonstrates how this system can operate from the standpoint of individual capitalists who are only directly employing one or the other worker.

In this example, Capitalist A buys one hour of labor from worker A at a price of $1/hr. Capitalist A then sells the commodity to capitalist B for a price of $1.71. In this segment of the capitalist process, it appears the capitalist drew .71 cents of surplus value and the total value of labor for worker A is $1.71. The commodity which passes through the initial (capitalist/worker A) circuit necessarily passes through a second (capitalist/worker B) circuit. 2 In the second part, worker B is paid by capitalist B $20/hr to further handle (e.g., transport, market, account, repackage, shelve, draw up a receipt for, etc) the commodity, after which it is sold for $36. In this case, the final price of the commodity ($36) includes both the ‘raw material’ provided at a price of $1.71 and $34.29 (which appears to be the value of labor for worker B), and it appears $14.29 is the surplus extracted by capitalist B from worker B. This example illustrates how under conditions of disparity wage strata, rates of segmental exploitation can remain fairly constant throughout. In a manner, this model demonstrates how the global economy works from the perspective of the individual capitalists. This is a narrow view also encapsulated by much of what is currently (erroneously) thought of as Marxist class analysis.

Example 3, Aggregated Segment Model: This model fully demonstrates the links between the first two models, and demonstrates how the surplus derived from the exploitation in one segment can be transferred throughout the entire process via the structuring of prices.

What is missed by Example 2 is the manner in which the disparity in price in labor is more than incidental. Price itself does not necessarily reflect value. Instead price is a mechanism through which value is circulated. This disparity between prices of labor didn’t magically happen. It is historically formed, deeply part of the modern system, and militantly enforced by imperial and neo-colonial regimes. This divide is structurally significant. It effects class alignments and the development of class struggle.

Where example 2 falls short is that is sees the process of capital accumulation as random forms of segment labor, not specific forms of labor abstracted as part of a general aggregated process. It fails to define abstract labor within the context of an interconnected historically-formed global economy. There are not multiple separate economies and societies under which production and accumulation are happening ignorant of each other. In the model, the roles that circuit A and B play represent historically-created relations based on power within a larger system of general capital accumulation. Indeed, capital can move around the world with little restriction whereas borders merely serve to bar Third World workers from the status of the hypothetical worker B.

In example three, worker A is paid $1 to work for an hour for capitalist A. From this labor, $17 is rendered as surplus. Capitalist A, in selling the commodity to capitalist B for $1.71, keeps $.71 of this surplus. Capitalist B pays worker B $20 for an hour of work with the commodity, then sells it on the market for $36. In doing so, part of the surplus drawn from worker A goes towards paying worker B $2 above the value of labor, and the remaining $14.29 of surplus is kept as profit by capitalist B. This is basically how example one was illustrated, only in a manner that is an aggregate of two connected processes.

Example 4, Socialist Revolution: In this example, the capitalists have been done away with and exploitation no longer exists. Worker A and B both work for a hour to produce a commodity with a value of $36. In this case, each worker keeps the full value of labor ($18). Yet curiously, for worker B this amounts to a $2 decrease in pay from the previous examples.


This abstract model is significant for a few particular reasons. First, it shows that in a system of drastically disparate wages, some workers can actually receive wages based on the exploitation of others. This raises an interesting notion. Insofar as the hypothetical worker B actually benefits from the system of accumulation, its class interest is different than that of worker A. The demand of worker A to end the system of exploitation implies a lowering of price of labor power for worker B. The higher wages demanded by worker B would necessarily be drawn from the surplus value created by worker A, even if it appears to come from the pocket of capitalist B.

The reality of global disparities between workers themselves, its significance for class struggle, and the further questions it raises are things Marxism must account for if it is to remain relevant and incisive today. Dogma and “Marxist ideology” explain little about the modern world. However, the methodological approach based on Marx’s own has not ceased to be paramount to understanding and changing the roots of today’s common phenomena.


1: That is not to say all Marxists have been silent or ignorant on this contemporary phenomena, but generally, mainstream Marxism has not included a serious evaluation of this phenomena.

2: This is just a simple model which uses individual workers to illustrate regionally specific hierarchies in the price of labor power and a single commodity to represent a wide range of economic exchanges. Under actual conditions of global economy and due to the function of prices, this basic principle regarding the the origin and distribution of surplus value applies to all workers even if their labor doesn’t involve commodities exchanged internationally. This is because price, in varying from value, allows for the equalization of the rate of profit.

Join the conversation! 17 Comments

  1. All well and good but this depends on the LTV which is highly controversial. Namely, in Marx’s model value is determined by the market (price of a good, in your model) and so presupposes them, and therefore capitalism is intrinsic to and in fact defines the value of labor. This is problematic from the moral side in that you cannot decry capitalism as theft of labor when the market itself (i.e. the heart of capitalism) is necessary to quantify exploitation. Labor becomes nothing special – nothing more than another market commodity to be bought and sold. Secondly, this is problematic because you have no actual standard to value labor upon, it becomes arbitrary…

    And there are many many other problems.

    see http://en.wikipedia.org/wiki/Criticisms_of_the_labour_theory_of_value

    • LTV is not controversial but foundational within Marxism. Part of the intention of this essay is to apply LTV to modern conditions and show how it can be used to explain dynamics between different groups today.

      In this case, there isn’t much of a moral argument being made. Capitalism, from a Marxist viewpoint, is ‘immoral’ not because labor is exploited under it but because a host of other problems are inherent to its continued existence (wars, ecological destruction and metabolic disruptions, population displacement and genocides, the inherent limiting of freedom and civil liberities, the depoliticization of society, militarism, genetic manipulation, patriarchy, etc.).

      Under capitalism, labor becomes a commodity which is bought. Yet it is the sole commodity which has transformative power, i.e., it adds surplus value above its cost.

      The only standard to really use is labor itself. The prices make things tricky in this regard, the most basic qualities of an object are its use value, which is unquantifiable in many cases, and exchange value, which flucuates around its labor value.

      • I will refer to each of your four paragraphs 1-4 with responses labeled a,b,c,d accordingly.

        a. The LTV is a flawed aspect of Marxism. There are other ways than orthodox Marxism to be anti/post capitalists. Did you even read the critques of the LTV that I linked to?

        b. On your reading of Capitalism, it is not inherently flawed, just produces bad results. So if a friendly form of capitalism (read reform-liberal wet dream) were implemented then you have no critique. Fuck that.

        c. Cost of labor is dependent upon the labor market, dependent on capitalism. You can’t even think in non-capitalist terms with your reading of the LTV.

        d. You are getting closer here. I agree with objective (however complicated) valuation of labor in itself and objects as use-value (not to be exclusionary to other measures of value as well) but again not exchange value, which cannot exist without a market – capitalism… and which you use to define the value of labor.

      • I read it some time ago. Pardon me for not instantly rereading a wikipeadia article.

        a) That’s a great assertion and all (and certainly may be true in so respects), but you don’t provide another method of accounting for the exploitation of labor under capitalism.

        b) That’s a pretty shallow reading of my view. I suggest you go through some of my other writings (or my last comment in this thread) before you attempt to summarize my view.

        c) The LTV is a part of a critique of capitalism. It’s not meant to applied to non-capitalist situations.

        d) labor is defined through the particular mode of production in which it exists. I’m not sure what you are looking for here, but it sounds like you want to see how labor might be accounted for in non-capitalist ways. That’s great, and I’m the first to admit you should probably look outside of LTV for such. But under capitalist modes of production, value can ultimately be equated to labor more than anything else.

  2. Fuck capitalism! Fuck capitalism fuck capitalism capitalism is stupid capitalism is NONSENSE

  3. The first assumption to reach the conclusion that each worker’s labor value is $18/hour means every laborer’s contribution is identical. Do you feel this is really a viable thing that could be implemented in the real world? Also, the capitalist’s role is just as the name describes, to provide capital (ie machinery, land, equipment etc).. but he gets nothing in this model, something must go to the capitalist for capital to be accumulated in the first place, how does that work?

    • Are different workers’ contribution identical? Obviously not. There’s a pretty big difference between working 15 hour shifts in a Nike-contracted sweatshop and cleaning floors at Niketown. But any attempt to assign quantifiably different values to different types of such labor is either subjective or part of historic constructions created through different power dynamics. Different productivity levels between ‘developed’ and ‘developing’ countries (besides being overblown) is something that are imposed under, not something that dropped from the sky and intrinsic to economics.

      In the essay’s model, except example 4, the capitalist is making a hefting profit of .71 on the dollar. I think you are misreading it.

      • But are you saying that all people if raised in the same situation would result in the same productivity, in other words all people are identical. Because if the only differentiators in productivity come from someone’s environment, then all people must be equally talented. Do you think its a fair argument to say that everyone must be inherently equal for this model to apply? Or, if everything is subjective.. how do we decide who deserves what to calculate the surplus?

      • No, what I’m saying is that for the purposes of determining one’s material contribution under capitalism, inherent differences (and here I have in mind something like the natural ability to work faster, more efficiently, lift more, etc) are largely irrelavent in the face of inqualities which have been imposed through the process of accumulation.

      • Ah ok, so natural talent is irrelevant in the bigger picture so to speak. Speaking of capital accumulation and disparity our conversation inspired me to post about it. Thanks for replys.

  4. Your point is made! Value transfer from worker to worker occurs, internationally and inside nations.

    Is the $0.71 profit that capitalist A gets proportional to the capitalist B’s profit of $14.29? Shouldn’t they be, according to the law of equalization of the rate of profit (at least in an abstract model)? If not, what are the reasons? Isn’t the first capitalist’s profit (paying TW wages) bigger (more profitable) than the second’s (“exploiting” FW “workers”)? Doesn’t constant capital relate to this gap I presume in the rate of profit?

    Unequal exchange through international imperialist trade is proved, in my humble opinion. However, there is controversy among its proponents. Amin criticizes Emmanuel for not taking into account the difference in productivity of labour among nations. But I think that criticism was made in the seventies of the past century. I think that, as things have evolved since some decades ago, Emmanuel rings truer than ever. I mean with the absolute integration of every country in the world system of capitalist imperialism of generalized monopoly (which is a term and a concept used by Amin).

    Free ride for capitals acumulated in the FW and borders and walls (of very kind) preserve the privilege of FW labour aristocracy and makes possible the perpetuation of underdevelopment or dependent maldevelopment in the TW.

    I don’t agree with you on the question of why capitalism is bad. I mean, it’s true that it’s bad for its consequences, but the little dirty secret that Marx unveiled in the first volume of Das Kapital proves it is also inmoral, because capitalists steal value from workers, pretending they do not.

    I agree with your answer to objections raised in the commentaries.

    Food for thought.

    • Thanks for the questions.

      “Is the $0.71 profit that capitalist A gets proportional to the capitalist B’s profit of $14.29?…”

      In this case, they are nearly identical, but capitalist B’s profit rate is marginally lower (due to the fact that in this case, $1.71 had to be purchased as fixed and not variable capital (from his perspective). Frankly, I’m not entirely sure what to make of it. On its face, it seems to explain a long term trend of so-called ‘outsourcing’ to the third world. Additionally, in the real world, these sorts of things could be corrected in the real world through financial manipulations, etc.

      “I don’t agree with you on the question of why capitalism is bad. I mean, it’s true that it’s bad for its consequences, but the little dirty secret that Marx unveiled in the first volume of Das Kapital proves it is also inmoral, because capitalists steal value from workers, pretending they do not.”

      That’s one way to look at it. Marx however thought that at a specific historic juncture. If I had to describe capitalism in moral terms, I’d probably point to a lot more than simply the exploitation of labor. However, I tend mot to look at capitalism as a static state of things. If I had to summarize my view, it might be something like this: if people aren’ struggle for socialism, they should be preparing for something worse than capitalist-imperialism.

      • Modes of production ever occur in a context of class and national struggle. There’s no static model accounting for a mode of production that is not subject to the changes of class struggle. The history of class struggle and of national and colonial war explain the present state of affairs everywhere. If the proletariat don’t go forward in the global class struggle, they go backwards. But the proletariat advance the most through big explosions of accumulated energy, through Revolutions. Hidden and powerful currents move under the surface of a seemingly stagnant pond. When the bourgeioise realizes them, it’ll be too late. There’s nothing they can do about it, except resort to the most brutal killing campaigns. That discredits them absolutely.

  5. What do you mean by “precedent-setting” in the first line? A precedent of what?

    In the diagram (notebook leaf) of the model, you can read example 1: worker B $21/hr. Shouldn’t it read $20?

    In the 3rd paragraph, you write “profound and deep”. Isn’t the use of both terms somewhat redudant?

    Paragraph 17: you write “example 3, socialist revolution” instead of example 4.

    paragraph 16: you write: “… from worker A is (sic) goes towards…”

    • Thanks for the corrections. The article itself has been editted to reflect the points you raised.

      “In the diagram (notebook leaf) of the model, you can read example 1: worker B $21/hr. Shouldn’t it read $20?”

      Yes. Writing by hand obviously isn’t my strong suit.

      “In the 3rd paragraph, you write “profound and deep”. Isn’t the use of both terms somewhat redudant?”

      Chalk it up to literary effect.

      Thanks again for looking at this so closely. I encourage folks to toy with this model, expand and refine it, etc.

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