This essay discusses the following:
The value of a commodity is determined in relation to other commodities. A commodity's greatness of value is dependent on the relative mass of labor necessary for its production.
Reward for labor and quantity of labor are different things. Wages can not exceed the values of the commodities produced because then there would be no profit. This means wages are limited by the values of the products, but the values of the products are not limited by wages. The values of commodities are settled without any regard whatsoever to the wages paid for the labor.
Quantity of labor is measured by time. The longer it takes to produce something, the higher its value; the shorter the time, the lower its value. The faster something is produced, the more is finished in a given time of work; the slower something is produced, the less is finished in the same time. The greater the productive powers of labor are, the less work is required to perform the labor. The smaller the productive powers of labor are, the more work is required to perform the same amount of labor - hence the greater is its labor value.
Price is nothing but the monetary expression of value. The value of money is regulated by the quantity of labor necessary for earning it.
Consider the concept of a natural price, which is when a supply of a commodity is equal to its demand. If supply exceeds demand, it will fall below its natural price. If demand exceeds supply, it will rise above its natural price. A rise in market price is compensated by its fall and vice versa.
The existence of profit cannot be explained solely by selling a commodity at a higher price than its market value (such as via high markup). Profit must always take wages into account.
The value of labor power is quantity of labor that is socially necessary to produce labor power that determines its value in exchange. The costs associated with labor power are the costs of maintaining one's capacity to work through consumption of the necessities of life.
The value of labor power is determined by the value of the necessaries required to produce, develop, maintain and perpetuate the laboring power.
Surplus value refers to the difference between the amount of wages paid to workers and the amount kept as profit by capitalists.
How much value do workers produce in an 8 hour working day? To say the value is equal to 8 hours labor would be nonsensical in many jobs, especially for white-collar workers who do not put in a full 8 hours of work every day.
Let's say we are paid $15/hr. Are we consistently providing exactly $15 or less worth of value per hour? Could it be possible we are giving more value than we are being compensated for? This is surplus value.
It is easier to understand this concept in the times of more simplified economies: A spinner is being paid $3 daily to produce yarn. In six hours, he makes $3 worth, but he is required to continue working until the end of his shift (six more hours) which means he can produce $6 in a day. His wages do not change and he is never compensated for the surplus product.
It is this sort of exchange between capital and labor upon which capitalism is founded, and which constantly results in the perpetuation of the 'working class'.
To the wage laborer, even unpaid labor seems to be paid labor.
To the slave, on the contrary, even the part of his labor which is paid appears to be unpaid. In order to work, the slave must live. But because no bargain is struck between him and his master, all his labor seems to be given away for nothing.
The nature of the transaction of wage labor is completely masked by the intervention of a contract and the pay received at the end of the week. Labor appears to be voluntarily given in the one instance, and to be compulsory in the other. That makes all the difference.
The capitalist makes a profit by selling the product of labor at a price equal to its value. The value of a material object is equal to the total quantity of labor that is realized within it. The quantity of labor (a full workday/week) is a combination of paid and unpaid labor. In this way we must acknowledge the surplus value intertwined within every working day.
Wages and prices are inversely related - as wages rise, the rate of profit falls and vice versa.
Take a situation where a worker spends 12 hours to spin 12 lbs of yarn. The employee receives a daily wage of $6.
On the other hand, a worker at another company may use older, slower machinery and is only able to spin 2 lbs of yarn within 12 hours. This employee also receives a daily wage of $6.
The price of yarn is regulated by the total amount of labor spent on it (12 hours) and not by proportional division of the total amount into paid and unpaid labor.
The general consequence of the development is capitalism is the tendency for the price of labor to fall more or less to its minimum limit.
The highest motivation for keeping wages low is to keep profit high. This is because by design, a high profit margin depends on keeping wages as low as possible. Wage labor was never designed or implemented as a 'fair compensation for fair labor'. For as long as wage labor exists, it will do so at the expense of the exploitation of the working class.