Exploitation Theory

The exploitation theory is the theory, most associated with Marxists, that profit is the result of the exploitation of wage earners by their employers.

It rests on the labor theory of value which claims that value is intrinsic in a product according to the amount of labor that has been spent on producing the product. Thus the value of a product is created by the workers who made that product and reflected in its finished price. The income from this finished price is then divided between labor (wages), capital (profit), and expenses on raw materials. The wages received by workers do not reflect the full value of their work, because some of that value is taken by the employer in the form of profit. Therefore, "making a profit" essentially means taking away from the workers some of the value that results from their labor. This is what is known as capitalist exploitation.

The theory has been opposed by, among others Eugen von Böhm-Bawerk. In History and Critique of Interest Theories (1884). He argues that capitalists do not exploit their workers; they actually help employees by providing them with an income well in advance of the revenue from the goods they produced, stating "Labor cannot increase its share at the expense of capital." In particular, he argues that the theory of exploitation ignores the dimension of time in production. From this criticism it follows that, according to Böhm-Bawerk, the whole value of a product is not produced by the worker, but that labour can only be paid at the present value of any foreseeable output.