According to Marx, businesses pay their workers less than the value of the produ

Question

According to Marx, businesses pay their workers less than the value of the product of their labor in order to make a profit. The businesses then reinvest these profits to be able to expand production. At the same time the workers cannot afford to buy what they have produced. This leads to: (a) the growth of the financial sector as workers borrow more and more. (b) more inflation as the central bank prints money so workers have more money. (c) a process of “creative destruction” where obsolete companies, products, and technology go bust, clearing the ground for innovation and economic growth. (d) crisis of overproduction, or what is known as recessions.

Explanation / Answer

According to Marx, businesses pay their workers less than the value of the product of their labor in order to make profit. They then re-invest this profit and expand their production. However, as workers does not get remuneration equal to the value of the product of their labor, demand made by workers is less than the supply made by businesses. In other words, inefficient compensation make it unaffordable for workers to buy what they have produced. This excess of supply over demand creates situation of over production. This is referred to as crisis of over production or what, in general terms, is called recession.

Hence, the correct answer is option (d).

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