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The owner of the means of production is in a position to purchase the labor power of the worker. By using the means of production, the worker produces new goods which become the property of the capitalist. The essential point about this process is the relation between what the worker produces and what he is paid, both measured in terms of real value. In so far as the labor contract is free what the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists' requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product.

Albert Einstein#151

WorkCapitalismEconomics

About this quote

What does it mean?
Einstein explains the economic relationship in capitalism, noting workers produce value but are paid based on needs and labor supply rather than the value they create.
In plain terms
Wages depend on needs and competition, not what workers produce.
What can you take from it?
Understand how market forces determine wages.

Where it applies

  • labor discussions
  • economics class
  • policy debates

Putting it to work

  • analyzing labor markets
  • understanding wage structures

Questions to consider

  • What determines a fair wage?
  • Is labor a commodity?

Another view

This view ignores voluntary exchange arguments in free markets.

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