A Simple "Neoclassical" Model of Marxian Exploitation

Jim Devine, a.k.a. James G. Devine

Professor of Economics

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Loyola Marymount University

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22 August 2006

Abstract: This paper presents a “neoclassical” model of Marxian exploitation, making the canonical (but quite doubtful) neoclassical assumptions of the existence of an aggregate production function characterized by constant returns to scale, decision-making by a representative agent (a capitalist), atomistic competition, and the ubiquity of equilibrium. But non-standard assumptions, especially those of variable worker effort in production and the rejection of Say’s Law, allow the creation of a model in which involuntary unemployment and exploitation can exist in equilibrium.

The model is on both the macroeconomic and microeconomic levels. Microeconomic decisions by the representative capitalist have macroeconomic effects which cannot be seen ahead of time or acted upon by the capitalist. These in turn feed back to affect the representative capitalist’s profits on the microeconomic level. This implies a difference between what’s good for the capitalist and what’s good for its class.

In the model, accumulation is encouraged by rising profit rates, while accumulation (eventually) leads to lower profit rates. The equilibrium resulting from this mutual interaction determines the levels of employment and unemployment, along with the wage and the degree of effort. This appears in both static equilibrium and in steady-state growth.