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Critically analyse and compare the views of Neoclassical and Marxist economists regarding
the value of labour. How would each school of thought explain and respond to the recent
actions of P&O Ferries in laying off 800 staff to be replaced by cheaper agency workers?
M25862 Issues in Economics
1st Year
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Introduction
The value of labour is perceived differently by many economists and its importance in how
an economy functions. The labour theory of value was first formed by many philosophers of
the seventeenth and eighteenth century, including Adam Smith (Dooley, 2005). His work
‘The Wealth of Nations’ explains this theory as labour being the original money exchange for
all commodities, and the more labour used in production the greater the items value was in
exchange for other items (Smith, 2000). Over the year’s economists have interpreted this
theory into their economic thoughts and have adjusted it accordingly. Furthermore, this
essay will compare the alternative views of two major economic school of thoughts,
Marxism and Neoclassical. Marxism economics was based around the ideas of economist
Karl Marx, with his key work being The Communist Manifesto (1848) and Das Kapital (186783). Whereas, Neoclassical economics emerged in the early 1900s (Colander, 2000) primarily
focusing on classical economic ideas and competing against this, introducing key ideas like
marginal utility and a greater focus on consumer demand. Following the recent actions of
P&O Ferries in 2022, this essay will also examine how these two school of thoughts would
respond to this by focusing on their key economic principles such as workers’ rights, means
of production and its adherence to the labour theory of value.
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Means of Production
The means of production is an important part in an economy and especially in regards to the
value of labour, determining the way production is handled and distributed within a society.
In Marxism economics, the means of production is formed more around a classical economic
approach before the eruption of capitalism and how there was universally no private
ownership (Barber, 2009). Marx suggested the means of production would be owned
collectively, eliminating class conflict due to the very basis of class divisions (Barber, 2009).
This would result in a more equal distribution of production and less chance of the working
class being exploited from owners and people of higher class. Overall highlighting the value
of “labour-time necessary for the production and valuing the working-class people’s time
and effort that goes into production” (Barber, 2009). Furthering this point, Marxism
economics faced the problem of value in terms of labour and regarded only physical objects
as embodiments of value, with a scheme of income distribution set around social class
categories (Barber, 2009). Inevitably creating a more equal society. In comparison, neoclassical economics has formed and developed this idea of capitalism. Predominantly being
driven by the supply and demand model and introducing key ideas like utility maximisation
and a focus on marginal trade-offs (Colander, 2000). Neo-classical economists perceived the
point of an economic system as the production of satisfaction and not the production of
commodities (Barber, 2009), valuing the satisfaction of consumers over the value of labour
of workers. Fundamentally creating an issue, with the measure of value being what the
public would buy, instead of the labour-time used for its production (Barber, 2009). As neoclassical economics follows a supply and demand model, when the quantity that was offered
increased, this would indirectly cause the involved costs and sacrifices in production to rise
such as labour. This inevitably can cause working class exploitation and potentially a rise in
unemployment, creating a redundant population from factors like industrialisation (Barber,
2009). In regards to the recent P&O crisis, neo-classical economists would evaluate their
actions as justifiable in comparison to their key values of means of productions within the
industry. In March 2022, executives of P&O Ferries had decided to lay-off 800 sailors and
crew from the company with immediate termination of contracts, based off 2 consecutive
years of heavy losses from coronavirus’s effect on the company’s revenue (Georgiadis, et al.,
2022). Neo-classical economists would evaluate their actions as justifiable in regards to the
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way they view means of production, for example the firm (P&O Ferries) seeked to get the
highest satisfaction from their economic decisions by saving money on labour. The RMT
union claimed, P&O Ferries immediately replaced UK staff with Indian agency workers who
were getting paid as little as £1.80 an hour, as they now only had to abide by the foreign
country employment laws (Glover, 2022). Again, neo-classical economists would justify this
as an act of marginal trade-offs. The opportunity cost for the executive was to sacrificed the
loss of jobs for UK crew to benefit the company saving money for cheaper labour. On the
other hand, Marxist economists would see this as a violation against means of production. In
this case, P&O Ferries is privately owned by the company DP World who had bought it in
2019 and has links to the Dubai government (Georgiadis, et al., 2022). This enhances the
class division of people, completely disregarding the value of labour-time and instead
exploits the working class, with low wages and more hours. Specialisation of the labour
force, through acquiring agency workers, creates higher amounts of unemployment and not
adherent to the value of labour.
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Workers’ Rights
Discussing the value of labour, the human rights of workers is also an important issue within
this key idea. The basis of Marxism economics is supporting the working class and removing
this barrier of inequality between other classes and raising awareness of the exploitation of
workers. “In Das Kapital, Marx was known to have explored how workers are exploited
through production and argued that capitalists purchased labourers’ capacity to work”
(Jones, 2017). The Communist Manifesto highlighted how the improvement of machinery
made individual workmen more precarious and created class collisions between them and
bourgeois. From this, workers began to form trade unions in order to keep up the rates of
wages. (Marx & Engels, 1848). Marxism economics tends to make these worker rights issues
more prominent compared to the neo-classical economic school of thought. Neo-classical
economics is known to focus more on the freedom of market mechanisms such as
privatisation, free-trade and property rights compared to the human rights aspect of
workers (Salomon & Arnott, 2014). Neo-classical economics does have its benefits such as
influencing ground-breaking developments in mathematical economics and modern
econometrics (Salomon & Arnott, 2014). However, it is known as a type of market-based
economics, therefore, it is usually used as a base for other slightly adjusted school of
thoughts. Neoclassical economics only identifies the negative freedom such as state
intervention, as opposed to positive freedom which is the freedom to act on one’s will
(Boeger, 2016). Examining this shows a neoliberal outlook through capitalism and to
promote the movement of capital more so than the value of labour. In relation to the P&O
Ferries crisis, Marxism economists would take this level of action a lot more serious than
neo-classical economists. Unions had advised the ferry staff to refuse to leave the P&O ships
to protest this movement. This had forced the P&O to pull all services and with them
accounting for 30-50% of the cross-channel ferry market to France, affected their revenue
and highlighted the importance of this issue (Georgiadis, et al., 2022). Marxism economists
would fully back this movement, as unions and the protection of workers’ rights are
portrayed as a key idea within the value of labour and the working class. However, the
neoclassical economic standpoint would explain how P&O Ferries is a part of a free market
through privatisation and therefore, allow the specialisation of the labour force to
encourage more capital movement. In addition to this, the 2 consecutive years of heavy loss
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in income would be used as a reliable motive to cut UK staff, and seen as a necessary
business movement to save money. This enhances the gap between the classes, negatively
treating the working class, while the executives (representing the higher class) still have their
jobs and live comfortably. A prime example of how capitalism affects the division of classes,
portrayed by the Marxism economic school of thought.
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Conclusion
This essay has identified and compared two economic school of thoughts, Marxism and Neoclassical, examining how the value of labour was perceived differently through the means of
production and workers’ rights. Marxism economics highlighted how labour-time was
necessary for calculating the price of commodities and only assessed physical objects as an
embodiment of value. It also attempts to show the importance of equal distribution of
production and how privatisation affects this negatively, forming class divisions. On the
other hand, neo-classical economics is a more market-based economic school of thought,
strictly following the supply and demand model, introducing key ideas like utility
maximisation and marginal trade-offs. The value of labour is not considered and instead
values the satisfaction of consumers more, which is also prominent in companies, explaining
this as utility maximisation – receiving the highest amount of satisfaction from their
economic decisions. Neo-classical economics promotes free trade and privatisation,
benefiting fewer people but at a greater reward such as focusing more on the amount of
capital one produces. Marginal trade-offs represent this and is present in the recent P&O
Ferries crisis, where the opportunity cost for the executive was to replace UK crew with
cheaper agency workers from foreign countries, allowing for the company to benefit having
less production costs. P&O Ferries acted in their best interest, not considering the lives of
these workers/crew, who was made redundant immediately even after working through the
coronavirus pandemic (Georgiadis, et al., 2022). In a neo-classical economic standpoint, the
value of labour is not considered in comparison to Marxism economics. Within this school of
thought, the value of labour would be considered and would reflect their wages positively,
valuing their labour-time used in the means of production. In addition to this, it’s against any
form of privatisation as this encourages specialisation and eradicates the value of workers,
for example in the P&O Ferries incident where UK crew was replaced by Indian agency
workers at a wage rate of £1.80 an hour (Glover, 2022). To conclude this essay, both school
of thoughts would’ve explained and responded to the 2022 P&O Ferries crisis in very
different ways, with both having its own positive and negatives.
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References
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Smith, A. (2000). Wealth of nations. Generic NL Freebook Publisher.
Marx, K. (2018). Das kapital. E-artnow.
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Georgiadis, P., & Strauss, D., & Pickard, J., & Johnston, I., & Dempsey, H. (2022, March 17).
How P&O’s ruthless decision brought chaos to Britain’s ports. Financial Times.
https://www.ft.com/content/d56d058e-c4b1-41e8-aced-4d1552ad2697
Glover, E. (2022, March 22). P&O Ferries accused of paying foreign agency staff ‘£1.80 an
hour’ following mass lay offs. Independent. https://www.independent.co.uk/news/uk/homenews/p-o-rmt-seafarers-minimum-wage-b2040930.html
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