In Marx's critique of capitalism, he starts with the analysis of the commodity. A commodity is a thing with use value and exchange value. Use value means that the thing can satisfy a human want. Exchange value means the thing can be exchanged in the market for another thing that normally involves the same amount of labor power1.
Marx affirmed the value of the commodity is equal to the amount of labor time expended on its production. Labor time is a measure of labor power used in production.
No one worker can claim to have produced an entire commodity. If we were to measure the amount of labor power that goes into the making of one, we have to go into abstracting or averaging the various standards of labor time or rates of productivity that go into the making of the commodity in a given society. We have a determined socially necessary average labor time that goes into that commodity.
Labor power cannot possibly be fairly compensated with a wage. It's impossible and absurd to place a price, a value, on the amount of work that someone creates.
If someone wants to build a shed in order to use it, the value of their labor is seen in the final product. If a business wants to manufacture 1,000 sheds, the workers are laboring to produce those sheds wholly on behalf of the business. The workers who produce do not find equivalent value in their wages.
Workers are required to work for a period longer than it takes to produce the equivalent of the wages paid to them2. The difference between the total value that the workers create and the wages that they receive is what is called surplus value or unpaid labor. To extract a larger amount of surplus value, the capitalists attempt to lengthen the working day and depress the wages. This is called absolute surplus value.
The capitalists can also shorten the workday and raise wages. But they only resort to doing so when it speeds up production. This is seen in extremely high production quota and the non-fulfilment of which cuts into wage and systems of rewards and punishment that motivate the worker to put more work in less time. This is considered relative surplus value.
The larger is the surplus value, the higher is the rate of labor exploitation. The rate of exploitation is arrived at by dividing the amount of surplus value by the amount of wages paid.
Though the capitalist class relies on workers for production, there is always a considerable portion of the working class that is unemployed. These unemployed are called the reserve army of labor (reflected in the unemployment rate3). The reserve army of labor refers those unemployed who are prepared to work for very low wages in temporary jobs. This subset of people – through the absence of any meaningful choice – are prepared to work for very low wages in temporary jobs. The more they are, the more they tend to press down the level of wages and increase the surplus value obtainable from those employed.
Capitalists seek to obscure the process of exploitation in capitalist production and in the whole history of capital. They claim their investment generates employment one-sidedly at a fair price settled in the market, without anything being taken from the workers beyond what has been fairly paid for. They can also use banks scapegoats when an economic crisis sets in.
The trend is to make as much money as possible. Those who succeed swallow up the loser through mergers and other forms of absorption. There's a constant need for competing capitalists to build up constant capital in order to consolidate their position and to raise productivity further.
Under capitalism, competition is won by generating the most capital. This capital is divisible into two parts:
Constant capital is raised at the expense of variable capital. Labor-saving machines displace workers. The capitalists also improve their competitive position and raise their profits by reducing the variable capital, or wages. At first, they lower the wages. Eventually, they reduce their workforce via automation.
The occurrence of the crisis of overproduction exposes the fatal weakness of capitalism. The economy operates far under capacity. Tremendous amounts of human and material resources go to waste. Commodities are even destroyed in order to adjust the supply to the constricted market. The reserve army of labor becomes so large that it no longer lowers wages but cuts down demand. Both employed and unemployed are restless and tend to unite against the capitalist class.