One of the central tenants of Marxism is that capitalists “exploit” workers by paying them less than the “full value” of their labor. See this excerpt from the Stanford Encyclopedia of Philosophy.
By far the most influential theory of exploitation ever set forth is that of Karl Marx, who held that workers in a capitalist society are exploited insofar as they are forced to sell their labor power to capitalists for less than the full value of the commodities they produce with their labor.
This notion of exploitation is simply an amalgam of multiple distinct economic fallacies.
Imagine Alice trades an apple to Bob for an orange. In order for this transaction to occur voluntarily, both parties must by definition agree that the other item is more valuable than the one they begin with. In other words, Alice thinks the orange is more valuable than the apple, and Bob thinks the apple is more valuable than the orange. This subjective value is what allows both parties to simultaneously profit.
But now suppose instead of trading apples, Alice trades her labor for the orange. Let’s say she sweeps Bob’s porch for the orange. Is this exploitation?
Now let’s go one step further and imagine Alice trades her labor for dollars instead of oranges. Is this exploitation?
A Broken Mental Model
In all of these cases, Alice is ending up with something that is, in her subjective assessment, of greater value than she started with. This improvement in her welfare cannot be seen as an offense against her. But what if she is very poor and suffering? Well, then the actual problem is that her initial state was already one of poverty. The broken Marxist mental model essentially blames the antibiotic for the infection. It blames Bob for not paying her above what she’s willing to take (i.e. charity).
If the real problem is that Alice is too poor, then the solution is to give her money. This can be accomplished with something like a Negative Income Tax (NIT) or Universal Basic Income (UBI). But note that the source of that additional money, beyond the agreed upon market price of her labor, shouldn’t come from the person buying her labor. It should come from the general fund. A tax on the random individual who happens to be buying her labor is suboptimal—buying labor isn’t a negative externality! Instead we want to tax the wealthiest individuals, because it hurts them the least (since wealth has decreasing marginal utility).