Capitalist exploitation without capitalist production: The consequences of imperfect contracting

On the basis of a static general equilibrium analysis premised on frictionless exchange conditions in competitive markets, John Roemer’s General Theory of Exploitation and Class challenges the canonical Marxian account of capitalist exploitation by arguing that unequal distribution of economically scarce productive assets suffices to enable the exploitation of labor by capital. Marxian critics have dismissed Roemer’s characterization partly on the presumption that capitalist exploitation requires direct capitalist control of the labor process, but offer no rigorous theoretical or empirical basis for this categorical claim. This paper seeks to advance the debate by considering conditions enabling equilibrium exploitation in capital–labor transactions for which workers control the production process and, as a consequence, capital suppliers cannot directly observe either labor effort or the product of that effort. The formal argument of the paper is animated by reference to the historical literature on proto-industrial forms such as the Kauf (artisanal) and Verlag (putting-out) systems of production, as well as Marx’s own analysis of pre-industrial capital relations in drafts of Capital preceding his publication of Volume I.