As far as I understand, wage labor, according to Marxism is thus: that a worker for a company develops a product that is worth more than he is paid. Is this a correct definition?
How do capitalists usually approach this argument from Marxists? I would respond by saying that one, nobody is forcing the worker to work there. If workers voluntarily work, there is no slavery (despite what the Marxists would qualify as slavery being that in a capitalist system, one must work for a business owner or starve, which is stupid reasoning because no product creates itself). Two, nothing is keeping the worker from developing his own product on his own.
How would you approach this?
You have to be really careful when addressing the matter of wage slavery. Marxist deny that the capitalist has any useful role in society and therefore that he is implicitly exploiting the workers by receiving any share of what they have made. The capitalist, in the Marxist model, is literally nothing but a parasite. He has no role in the structure of production, he could be cut out entirely and things would only be made more efficient. This means that the argument has to be made into whether or not the capitalist actually contributes anything to the production process. The answer is, of course, yes, because otherwise communes and worker run industries would be infinitely more efficient and this is the prevailing method of action which would emerge on the market.
This means, then, that because the capitalists are, usually, responsible for output being what it is they are entitled to the degree of profit or loss which they receive on the market from selling the products which are physically produced by the worker. If the capitalists were entirely unproductive then you could make a definitive case against the existence of private property of the means of production and you could, pradoxically, argue against capitalism from the standpoint of property. This is where many free market supporters run into trouble when discussing things with hardcore socialists, particularly anarchists. It's not that socialists want to steal the property of the capitalist, it's that they deny that the capitalist claim to property is a legitimate one. It's akin to the argument a Rothbardian might make against a supporter of slavery or a supporter of IP laws. It's not that Rothbardians oppose property, it's that they oppose a type of property.
From this we can see where the Marxists are coming from. If the capitalist is just a drain and not a creator, then why is he entitled to what is produced by other people? If the workers had just been granted control of the means of production then they could have produced just as efficiently as they are responsible for every dollar received by the exploiting capitalist.
Furthermore the concept of wage slavery is actually a real thing, the "work or starve" argument. Especially in the past, and in the society that libertarians propose now, one must work or starve to death, and therefore there is an implicit threat. While everything with this argument is flawed all the way down to the definition of what constitutes a "threat", you can at least see where they're coming from.
Now, to address the original question :) All of the above is good background information and deals with exploitation and the Marxian perspective but it does not actually answer the first part of your question.
In the Marxist perspective, as I've said twice now, everything is created by the laborer, the LTV is not only an explanation of price determination but also of very source of worth. Capitalists will pay laborers based primarily upon social factors such as customs and what it takes to allow the laborer to live. This conclusion makes sense as Marx came from more of a sociological perspective and looked a lot more at production than the behavior of any actual market place. As far as I know Marx had no actual understanding of how wages have to be set, there is no Marxist law of wages, besides the fact that they will inevitably be less than the actual value of labor (it's ironic that this is the opposite of practically everything modern economics states).
So at any rate, to sum up Marx's understanding: Wage labor is a fraction of what labor actually produces which is the whole value of what is sold. Wage labor is determined by customs, laws, and what it takes to allow a laborer to live.
Capitalist Refutation: Labor is bid up to its marginal value over time because of competition between firms. It makes rational sense for each capitalist to do this and it can be seen quite clearly in an empirical sense. Furthermore private ownership of the means of production (capitalism) is justified, as is the existence of the capitalist, because of the increase in productivity and wages he provides. If laborers want more control and a smaller paycheck then they're free to make their own factories. Wage slavery is irrelevant if not nonexistent because it is a fact of human nature that people, workers and capitalists alike, don't want to pay people for doing nothing. Furthermore no one in the modern world today suffers from wage slavery because they can receive welfare without working.
No Austrian's going to argue that labor is not paid less than its value, because this is a necessary condition of any exchange. There is no equal exchange. Sellers will always receive more for what they sell than it is worth to them, otherwise they would not have sold it. Buyers will always pay less for what they buy than it is worth to them, otherwise they would not have bought it. Labor is bought and sold in the same way. So who's exploiting whom?
Neodoxy:If laborers want more control and a smaller paycheck then they're free to make their own factories.
I think Marxists would object to this, arguing that it is the lack of capital that prevents them from doing this in the first place. They'd have to seize capital from the capitalist class before worker-run factories would even be possible. Perhaps it would be easier today, but at the time Marx was writing it would certainly be difficult to just run off an start a factory, for numerous reasons important to Marxist theory (including the work-or-starve argument you mentioned). People living from paycheck to paycheck have neither the time nor the means to undertake such an endeavor.
"I think Marxists would object to this, arguing that it is the lack of capital that prevents them from doing this in the first place. They'd have to seize capital from the capitalist class before worker-run factories would even be possible."
Neodoxy: Capitalist Refutation: Labor is bid up to its marginal value over time because of competition between firms. It makes rational sense for each capitalist to do this and it can be seen quite clearly in an empirical sense. Furthermore private ownership of the means of production (capitalism) is justified, as is the existence of the capitalist, because of the increase in productivity and wages he provides. If laborers want more control and a smaller paycheck then they're free to make their own factories. Wage slavery is irrelevant if not nonexistent because it is a fact of human nature that people, workers and capitalists alike, don't want to pay people for doing nothing. Furthermore no one in the modern world today suffers from wage slavery because they can receive welfare without working.
Thank you for the detail, it helps me put things in proper context.
Whenever I speak with a Marx empathizer, I always think of Milton Friedman saying that "One of the great mistakes is to judge policies and programs by their intentions rather than their results." I have always approached economic systems with this in mind as it most certainly makes sense.
Marxism, as I see it, is one such economic system. The illogical part comes when these people think things will naturally appear, but how? The communist dream of people doing only what they love? Who loves taking out the trash? Who loves cleaning bathrooms? Without any sort of payment to offer incentive, I believe that nobody would do these things.
Reading the Communist Manifesto, Marx makes it clear that he wants to bring about socialism in order to result in an ultimate goal of communism.
The heart of the Communist Manifesto, in my opinion, is in the following selection at the end of chapter 2. I've highlighted the copy and pasted words to distinguish from my own:
"[T]he first step in the revolution by the working class is to raise the proletariat to the position of ruling class to win the battle of democracy.
The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total productive forces as rapidly as possible."
This is the basis of socialism: state controlled production and property by way of theft--that is, stealing from the actual owners of the property, whether through their own production or voluntary exchange.
"Of course, in the beginning, this cannot be effected except by means of despotic inroads on the rights of property, and on the conditions of bourgeois production; by means of measures, therefore, which appear economically insufficient and untenable, but which, in the course of the movement, outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionising the mode of production."
Here, I believe that Marx is saying that government participation is needed in this takeover of property. He goes on to give a template, I'm sure we're all familiar, about how exactly the state can initiate the process of taking property from its rightful owners.
"These measures will, of course, be different in different countries.
Nevertheless, in most advanced countries, the following will be pretty generally applicable.
1. Abolition of property in land and application of all rents of land to public purposes. 2. A heavy progressive or graduated income tax. 3. Abolition of all rights of inheritance. 4. Confiscation of the property of all emigrants and rebels. 5. Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly. 6. Centralisation of the means of communication and transport in the hands of the State. 7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan. 8. Equal liability of all to work. Establishment of industrial armies, especially for agriculture. 9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country. 10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c, &c."
Sadly, we have all but completed each of these planks here in the U.S., and this is why I hate socialism: it steals the property of rightful owners through central government takeover. It is the antithesis of freedom, in my estimation.
"When, in the course of development, class distinctions have disappeared, and all production has been concentrated in the hands of a vast association of the whole nation, the public power will lose its political character. Political power, properly so called, is merely the organised power of one class for oppressing another. If the proletariat during its contest with the bourgeoisie is compelled, by the force of circumstances, to organise itself as a class, if, by means of a revolution, it makes itself the ruling class, and, as such, sweeps away by force the old conditions of production, then it will, along with these conditions, have swept away the conditions for the existence of class antagonisms and of classes generally, and will thereby have abolished its own supremacy as a class."
In this paragraph, Marx makes it clear that class warfare is bad, unless you are on his side. He says it's ok to form a "political power state" that wrestles the property from the grip of the bourgeoisie (rightful property owners in the form of producers or beneficiaries through exchange). It's the classic "the end justifies the means" that Marxists frequently identify with.
"In place of the old bourgeois society, with its classes and class antagonisms, we shall have an association, in which the free development of each is the condition for the free development of all."
Here, he's saying that by forming central ownership of all property and eliminating private ownership of property, that freedom will reign. It's pathetic.
So this is my basis for understanding socialism, and why it must be opposed. As I understand it, ushering in this overthrow of private ownership of property by central government takeover, communism will naturally unfold as there are no more class distinctions, no more desire by the populace to own property, and then sunshine and rainbows will appear and all the "liberated" bourgoisie will fly away on their unicorns.