Read Online Rectifying the Greatest Error in the History of Economic Thought: "Demand for Commodities Is Not Demand for Labor" Versus the Marxian Exploitation Theory Kindle
Adam Smith and Karl Marx claimed that originally all income was wages and that profits appeared only later, with the coming of capitalists, who deducted their profits from what until then had been wages. The unmistakable implication of this claim is that profits constitute a theft of part of wages. This belief, that profits are stolen from the wage earners, has been almost unchallenged and has been a continuing source of civil discontent, hatred of businessmen and capitalists by wage earners, violent revolution, civil war, enslavement, and mass murder. Literally, scores of millions have suffered and died because of the belief in the inherent injustice of profits. It is the foundation of the support for socialism and communism.To my knowledge the claim that profits are a deduction from wages has been accepted universally, with the single exception of the present author. It has been accepted even by the leading critic of the belief that profits are stolen. That critic, the great Austrian-school economist Eugen von Böhm-Bawerk, believed that even though profits were a deduction from wages, as Smith and Marx had claimed, they were nevertheless a justified deduction. The deduction, Böhm-Bawerk argued, arose from the fact that, other things being equal, present goods are more valuable than future goods. As a result, Böhm-Bawerk held, wage earners themselves, each performing an equal amount of labor, but working in a sequence over a period of years, would not divide the value of their ultimate product equally. The last worker in the series, who was paid virtually immediately after the completion of his work, would be paid less than the first worker in the series, who might have to wait several years after the completion of his work before being paid. The same principle would apply mutatis mutandis to all the workers in between.Capitalists, according to Böhm-Bawerk, made it possible for all the workers in the series to be paid as quickly as the last worker in the series, indeed, even more quickly; for example, after the lapse of just a week, however long the total productive process might take. In sum, the capitalist buys the workers’ claims to the receipt of wages in the future for smaller payments of wages in the present, payments which, dollar for dollar, are more valuable than the larger future wage payments given up. Böhm-Bawerk’s critique is certainly ingenious. However, it is wrong in an essential respect. Namely, it shares with Smith and Marx, the belief that workers producing and selling the products of their labor are paid wages and that profits are a deduction from wages, even if a justified deduction.The truth is that if there ever was a time, such as allegedly existed in Adam Smith’s “original state of things,” when there were no capitalists but only manual workers, who produced products and who were able to keep all of the proceeds, the money those manual workers received was not wages but SALES REVENUES. As the great classical economist John Stuart Mill pointed out, "demand for commodities is not demand for labor." What this means, for example, is that when someone buys a loaf of bread, he does not pay the wages of bakers. He buys only the loaf of bread, which means that he pays a sales revenue to the seller, who, of course, receives a sales revenue, not a wage. Not only did the manual workers in Smith’s “original state of things” earn sales revenues rather than wages but the fact that no capitalists were present, means that there was no capitalistic spending, i.e., no buying for the sake of selling. The implication of this is the there were no money costs of production to deduct from sales revenues. And the inescapable implication of this is that the sales revenues were PURE PROFIT. Thus profit, not wages is the original, primary form of income, the actual income in Smith’s “original state of things.”For elaboration and the development of further major implications, it is necessary to read this book.
