The Nature of Labor Exchange and the Theory of Capitalist Production* HERBERT GINTIS ABSTRACT: This article compares the neoclassical and Marxian theories of the firm. The neoclassical, interpreting the social relations in the production process, in particular the relations of authority and inequality, as flowing from the nature of technology and atomistic preferences, is shown to be incorrect. The Marxian theory which interprets the social relations of the production process as the outcome of class struggle, is supported theoretically and empirically. The Marxian analysis presented herein starts with the labor/ labor-power distinction, and derives the relations of authority, control, al forms of inequality in the capitalist firm from the dynamic of extraction of surplus value. ***** Introduction tions and preference structures) are determined outside economic theory by the state of science and the psychology of the individual. Thus the neoclas- This paper contrasts two perspectives on the sical analysis of capitalism reduces to the examina- organization and structure of the production pro- tion of market relations among technologically and cess, neoclassical and Marxist, defending the latter psychologically determinate actors. Were this as a more accurate portrayal of capitalist produc- valid, the neoclassical of tion. Neoclassical theory, in capsule form, views the methodology theory production would follow as a matter of course. organization of the capitalist enterprise as the In Marxist theory, however, the social rela- solution to the problem of finding a least-cost tions of capitalism cannot be reduced to technique of production given an array of factor exchange relations. The essence of prices. Marxist theory views this capitalism is the exploi- organization, tation of labor the and rather, as the outcome of a struggle (albeit an through private ownership control of capital on the one hand, and the system unequal struggle) between capital and labor over of on the other. The in the rate of exploitation of labor. wage-labor key concept Marxist the essential non- For neoclassical economics, the essence of theory delineating capitalism is its sphere of exchange relations. exchange relations of the capitalist economy is the Capitalism reduces all essential economic relations labor/labor-power distinction. This concept is the basis of Volume One of to independent exchanges among freely acting and methodological Capital mutually benefitting firms and households. These and was developed by Marx in Theories of Surplus Value as the in the of clas- firms and households are in turn treated as &dquo;black prime weapon critique boxes&dquo; whose internal structures (production func- sical political economy. According to this conception, there is no * I would like to thank Samuel Bowles, Richard Ed- quarrel with treating goods, services, raw materials wards and Stephen Marglin for their help in preparing and capital goods as commodities. But labor this paper. cannot be so treated: the commodity which is 36 Downloaded from rrp.sagepub.com by guest on July 16, 2012 exchanged on the market (labor-power) is not the The Marxist theory of work organization, entity which enters into the production process which in modern corporate capitalism shades into a (labor). Labor-power is a commodity whose mate- theory of bureaucracy, is by no means adequately rial attributes include the capacity to perform developed. In addition to Chapters 13-15 of Marx’s certain types and intensities of productive activity. Capital, there have been several important contri- Labor itself, however, is the active, concrete, living butions, historical, heuristic, or speculative in na- process carried on by the worker; its expression is ture [12, 21, 28, 29, 32, 33, 45, 51, 64]. What is determined not only by labor-power but also by the needed as well is a structural theory which explicit- ability of the capitalist to exploit it. Surplus value ly links the development of worker consciousness at appears when the capitalist is able to extract more the point of production to the organizational means labor from the worker than that embodied in the of reproducing capitalist hegemony. I shall here value of labor-power (the wage). offer such a theory by introducing two conceptual If labor cannot be analysed as an exchange elements: the structure of influence in work rela- relation, neither can it be subsumed under the tionships and the dynamics of legitimation. category of technological data. The labor forth- The Marxist approach begins by affirming coming from a worker depends, in addition to that we cannot abstract from labor as a social his/her biology and skills, on states of conscious- process. From this critical perspective, the neoclas- ness, degrees of solidarity with other workers, labor sical theory is a failure indeed. The order it imposes market conditions and the social organization of on reality is a reification of human relationships the work process. Thus labor can be reduced which reduces the rich variety of social relations in neither to commodity relations nor technology production to triviality and assigns to residual alone; rather it must be accorded a separate status categories fundamental aspects of modern society as a social relationship. Thus there is a funda- whose understanding is crucial to the prospects for mental gap in any economic theory which attempts human liberation. The reification imposed in neo- to abstract from productive relations in an effort to classical theory is not simply arbitrary and short- comprehend capitalist development. Nor can the sighted, but rather follows the actual process of dynamics of class struggle be relegated to the reification imposed by the capitalist mode of political sphere, however extensive the impact of production - the reduction of all social relation- state activity or the cohesiveness of the workers ships to exchange relations. In the words of Marx movement. [47, p. 120]: Indeed, Marx argues, the basic categories of The value of the worker as rises ac- profit and wages cannot be understood outside the capital social relations between capitalist and worker in cording to demand and supply, and even phys- his existence, his life, ... is looked the production process itself. The sphere of ex- ically as the of a like change, which appears to condition all economic upon supply commodity any activity, actually masks the underlying structural other. relations embodied in the social relations of pro- Marxist theory recognizes at the same time, duction. however, that the worker is not a commodity, and From the labor/labor-power distinction, it that the contradiction between worker as commodi- follows that the organization of production in the tized object and conscious, human subject is the capitalist firm must reflect essential elements of driving force of class struggle in capitalist society. class struggle. Work organization is the historical Thus the capitalist economy both is and is not product of a dynamic interaction between tech- reduced to exchange relations, in a dialectic we nology and class relations. Not only must such must capture. The principal contradiction in capi- traditional issues as the length of the workday and talist production is between capital and labor, the division of revenue between capitalist and between labor as the object of profit and domina- workers be understood in terms of the extraction of tion and labor as self-actualizing subject. The firm surplus value, but also the structure of hierarchical as an organization can only be understood as an authority, job fragmentation, wage differentials, institution mediating this contradiction in the racism and sexism as basic characteristics of the interests of profit, and reproducing when possible capitalist firm. In this paper I shall sketch such an the forms of consciousness and social relations analysis. upon which the integrity of capital is based. 37 Downloaded from rrp.sagepub.com by guest on July 16, 2012 The Neoclassical Description of Production: comes across ascriptively distinct groups are due to Empirlcal Anomalies differences in tastes, abilities, or opportunities of skill-acquisition. The third implies that the histori- The neoclassical theory of capitalist produc- cal development of work corresponds, within the tion views each worker both as endowed with a limits imposed by science and technology, to the preference ordering over all jobs in the economy preferences of workers. If work is less than satis- and as capable of performing at higher or lower fying, it is because most workers prefer higher levels of productivity in each. These preferences are incomes to more satisfying jobs. aggregated into supply curves for each possible job, Is the capitalist firm technically efficient? A in terms of which the entrepreneur chooses a cost- fundamental characteristic of modern capitalist minimizing job structure using one of the available production is the hierarchical division of labor, techniques of production. Labor is thus treated as a according to which ultimate power is vested in the commodity like any other factor of production. apex of the organizational pyramid and radiates Through the consequent blurring of the labor/ downward. Associated with this is the specializa- labor-power distinction, three implications are tion, fragmentation, and routinization of tasks, and derived of basic socio-political importance. First, the development of a finely articulated pattern of the resulting job structure will be efficient. That