The term ‘exploitation' is easily bandied about. All of us know what it means in some intuitive sense. We think we're being treated unfairly, made to work long hours with little job security. And for young people today, it's increasingly difficult to find a job at all. Even middle-class kids with university degrees have to rely on their parents to support them for several years while doing unpaid internships to accumulate sufficient brownie points on their CV to find a job.

Yes, I can hear you say, we know all about exploitation .... But the moment anybody starts talking about the evils of ‘capitalist exploitation', people go deathly quiet. You're looked upon as unforgivably antediluvian, or even some kind of trot or commie like all those dreadful lefties back in the 1970s.

Nevertheless, as John Cruddas asked at a recent public meeting, ‘Why is it always the little guy who ends up getting shafted?' Perhaps it's worth reviewing what Marx said about exploitation.

What is ‘surplus value'?
What Marx had to say is fascinating because he used a very simple metaphor to get across a big idea---indeed, a very big idea.

The metaphor was roughly this. Suppose a worker labours 10 hours a day for his boss to produce £1000 worth of output, and further suppose that he/she's paid the minimum wage of £10 an hour (these could equally well be dollars, euros or pesos; it doesn't matter). Suppose too that he/she needs £30 to feed and house the family. In effect, at £10 per hour, our worker has produced his/her own wage after only 3 hours. The remaining 7 hours of the 10 hour day is used to produce ‘surplus' for the capitalist.

Don't suppose Marx imagined the bosses did nothing with the surplus. They paid ‘other expenses' out of it like raw materials and depreciation of the machinery and plant. (Remember that in Marx's day, just as today, the biggest expense in most industries is the wage bill.) Most important, Marx argued that capitalists used the remaining surplus to invest; ie, to expand the stock of capital so that more workers could be hired, labour productivity could rise and even bigger surpluses be generated.

Accumulate, accumulate ...
Why did the bosses reinvest profits rather than simply buy a yacht and go on holiday? These were ‘real' capitalists; competition drove them to ever greater lengths to accumulate (invest) and to innovate. In Marx's world, capitalists either reinvested or they perished. ‘Accumulate, accumulate; that is Moses and the prophets' as he writes in Capital, Vol 1.

In truth, far from ‘hating' capitalism, Marx was fascinated by the innovative power of capitalism. When one reads his writings on India, the central problem of ‘poverty' in the peripheral countries is not capitalism, but rather its absence.

Unemployment
Back to the story. You may ask, too, why did workers have to work a ten hour day, or for that matter, not demand a much higher hourly wage? For one thing, because workers had only their labour to sell, they had no choice but to work the number of hours the boss demanded (much later in the story, they banded together and bargained collectively). For another, unemployment meant that there were other workers queuing up to replace them---the so called ‘reserve army of labour'. If you demanded a higher wage, you'd get the sack and be replaced that very day.

Still, I sense some readers are not entirely convinced. The economics graduates among you may argue that the wage is determined by workers' ‘marginal productivity'; ie, that hiring goes on until the wage equals the marginal product. Moreover, there cannot be a ‘reserve army' since full-employment must prevail as long as the wage rate is flexible.

There are two problems here. First, much empirical evidence, starting with the famous Hall & Hitch study in 1937, supports the view that capitalists don't obey (or even act as though they obey) marginal pricing principles. Even if they did, there would still be an intra-marginal surplus to dispose of. Secondly, we know since Keynes that the ‘free market' does not automatically produce full employment.

Boom and bust?
Your sophisticated sceptic might still object that Marx failed to foresee that rising capitalist productivity would lead to rising wages. The answer is simply that Marx did indeed foresee that---in a tight labour market (such as existed in the under-populated USA), or even in a market where trade unions became strong---wages might rise nearly as quickly as labour productivity. He also correctly foresaw that this would squeeze the capitalist rate of profit. That is why periodic crises were (and are still) needed to swell the ranks of the reserve army of the unemployed. His ‘expanded reproduction schema' provides an excellent framework for understanding why such crises arise.

But hasn't all that gone away today? Look around and you'll see what Mrs Thatcher did to the trade unions, decent wages and employment protection legislation. Gains in labour productivity are increasingly appropriated by CEOs, not by ordinary workers. You'll also notice that the boom and bust cycle has not been abolished.

Marx may well have been wrong about the unique nature of working-class agency and the ‘inevitability' of workers' revolution, but he still has a lot to teach us about today's world. You may not have time to read Marx, but that doesn't mean you can't appreciate the importance of his main ideas.

George Irvin is Research Professor at the University of London, SOAS, and author of Super Rich: the growth of inequality in Britain and the United States Cambridge: Polity, 2008.