Thursday, June 9, 2016

Wages and Profits

On pages 478-9 of Capitalism George Reisman says that profits, not wages, are the primary form of income. He argues against the Marxist position, and even Adam Smith's, that profits are deducted from wages. "Thus, in the precapitalist economy imagined by Smith and Marx, all income recipients in the process of production are workers. But the incomes are not wages. They are, in fact, profits."

"In order for wages to exist in the production of commodities for sale, it is first necessary that there be capitalists. The emergence of capitalists does not bring into existence the phenomenen of profit. Profit exists prior to their emergence."

I would go further. Qua money, wages or net wages are profits to an employee even in a capitalist society. I will show this with algebra, all variables denoting money. Revenue - Costs = Profit is a standard formula for a business. For an employee, wages are revenues from selling one's labor. Hence: Wages - Costs = Revenue - Costs = Profit.  If Cost = 0, then Wages = Profit. Even if Cost > 0, Net Wages = Profit. Therefore, Revenue - Costs applies equally well to wages from the employee's perspective. (To an employer wages paid to others are costs, not revenue or income.) Therefore, by algebraic transitivity, qua money, and to the recipient, wages are profits!

The reader might object that wages aren't profits because Revenue - Costs = Profit applied to a business and to wages are different situations. I disagree qua money. 1 + 1 = 2 applied to coins versus toothpicks are different situations, but 1 + 1 = 2 in either case. Also, imagine a worker who switches from being self-employed (with zero employees) to working for an employer for wages, or vice-versa, doing the same kind of work in each case. Wages doesn't apply or fits poorly in the self-employed case. Yet in both cases the worker gets paid for the same kind of work performed. In effect wages are revenues and profits. The income from the customer in the self-employed cases is often more direct than for many employees, but I consider that a minor difference outweighed by there being income in both cases.

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