Hi! Welcome to our store! My name is Kathryn. What brings you out shopping today? Have you tried our new signature scent? It comes in body wash, lotion, fragrance mist, room sprays, candles, foaming hand soap, non-foaming hand soap….If you’ll just give me your hand, I’ll just put a little lotion there…and isn’t that just delightful? No? Not a fan of that scent? Of course you can browse! Take your time. And if you could please just remember to let them know who helped you – no, my name is Kathryn, not Kathleen – just let them know at the register…ok, well, Kathleen works too….”
For many teenage Americans, working a retail job can be seen as a rite of passage, but I was already out of my teens when I ventured into the world of home fragrance and bath and beauty products. An unexpected move had left me low on cash and suddenly eager to try my luck as a salesperson. As you can probably guess, I quickly discovered that selling candles, lotion and soaps was not an easy way to make a living.
But one thing I did find interesting was how the company decided to set prices and when they ran sales. Take, for example, the candles I sold. Now I don’t claim to be a candle connoisseur, but generally speaking, the raw ingredients in these candles cost far less than the actual price they sell for. At my store, a full-priced three wick candle sold for approximately $22.50. A quick look at DIY sites online reveal you can make your own candles for far less – especially if you make them in bulk.
So where was all the money going? (Not my wage – I was pretty sure of that). Were the CEOs sitting in at their headquarters laughing maniacally, twirling their mustaches, and counting their money while I toiled away? Was I being exploited?
Karl Marx noticed that laborers in the 19th century often felt exploited by their employers, a problem he believed would eventually lead to complete social upheaval. A 19th century German economist, philosopher and political scientist, Marx addressed his concerns in his best known works, The Communist Manifesto and Das Kapital. Marx observed the constant struggle between the ruling classes (those who made money by owning capital, or the means of production) and the working classes (those who made money by selling their own labor). To him, capitalism was forcing working people to turn themselves into things instead of people. He viewed this process as alienating workers from their own work, other members of society and even their intrinsic humanity.
Marx – just like me – observed that in almost all industries the cost of inputs to create something were less than the final price that items finally sold for. To correct this supposed problem, instead of relying on capitalists who could exploit laborers, we could all own the the means of production by having the state, or government, own everything. The state could determine what things needed to be made, who would make them and what prices things could be sold for. Problem solved!
The philosophy of Marxism struck a chord with the working class in many countries during the 20th century and revolution did occur in many places such as Russia and China. Unfortunately, they soon ran into economic crisis. Why was this? Well, many of Marx’s economic theories were built on the idea that the price of a good ought to be determined by the labor required to create it. So, that candle I was selling should have been worth the cost of whoever gathered the wax and wicks, etc, and put the candle together, plus a little extra for my charming sales pitch! Selling that candle at a higher price was unfair and abusive.
But a more nuanced way of thinking about prices proved Marx wrong. Here, prices weren’t determined by labor, but by how much a customer valued the item and was willing to pay for it. This doesn’t mean that the price of ingredients doesn’t matter – it wouldn’t take long for a store that sold candles for less than it cost to make them to go out of business. But that gap between the cost of the inputs and the final price reflects how much more valuable that candle is to customers than a collection of wicks and wax. So that $22.50 price tag wasn’t created to exploit young workers but to satisfy middle class homeowners with a passion for sweet-smelling homes. (And can you blame them? If my house smelled perpetually of patchouli and saffron I’d be willing to hand over some cash too.)
Viewed in this light, prices actually convey a lot of useful information about what people want and how much they want it – information Marxists bureaucrats just had to guess (often incorrectly). This lack of information caused all sorts of economic problems in Marxist countries. Marx was right that sometimes there seems to be a big disconnect between the average worker and those at the top running the show. However, when it came to figuring out how to improve the system, he got some things wrong. Luckily, I figured this out before I started a revolution at my local mall. Word of advice: don’t burn down your place of work until after you’ve found a new job!