Karl Marx’s Management Theory

Karl Marx hated capitalism - and capitalists.

One of his biggest gripes was the way he felt that the holders of capital exploited the holders of labor by selling the fruits of that labor for much more than they paid their workers. He referred to this as the “Surplus Value of Labor Theory” and postulated that this was the primary way that Robber Barons and successful industrialists like Henry Ford built their fortunes.

I can’t disagree with his analysis, but I do take issue with his perspective. The Surplus Value of Labor is the only reason why jobs are created. By combining plant, equipment, knowhow and marketing with labor, business owners are sometimes able to charge their customers more than the cost of all those inputs. Sometimes. This is what we call profit.

Other times they lose part or all of their capital - and their own labor investment - in the process. That is what we call risk.

The Surplus Value of Labor theory came to mind when I was giving a seminar on entrepreneurship to a group of prospective business owners last weekend. I used it to explain why businesses hire workers and to discuss my belief that one should always “measure twice and cut once” when it comes to hiring. Just like marriage, an employment relationship can be easy to enter into but difficult - and expensive - to get out of.

The important point is that leveraging the value of employees is only one way to build a fortune. Other inputs such as creative marketing, innovative products and services, great customer service, high-value partnerships and intellectual property can also create above-average profit levels. Which will work best for you depends upon the specifics of your industry, your firm, your target market and your competiton.