The real dynamics of “fortunate” capitalist countries have been very different. The share of wages in national income has tended to increase rather than decrease. In the United States, for example, it was probably less than 50 percent in the 19th century; today it is 75 percent, and any theory of subsistence wages is plainly absurd.
Marx’s theory of subsistence wages implies a degree of monopoly power on the part of capitalists that they do not usually enjoy, except in the very unusual case of slave societies, or perhaps in states with large landed estates and peonage. Consequently, the very operations of the market economy and competition among capitalists for labor, in a society in which productivity is increasing and per capita incomes are rising, push wages upward, to the point that the real share of national income going to workers increases.
The real mechanism driving this process is complex, and there is no agreement among economists about it. However, the facts are indisputable, and whatever the possible virtues of Marxist analysis may be, it must be regarded as an extremely special case.
Nevertheless, even if it does not provide the correct answers, Marxist analysis raises some important questions that remain surprisingly persistent, so that all the efforts of “bourgeois” economists, from Nassau Senior to Böhm-Bawerk and Milton Friedman, have not managed to make those questions disappear completely. We may have our foot on the head of the Marxist dragon, but it still manages to breathe a certain amount of smoke and fire.
The question relevant to our analysis is whether there is an element of grants in incomes derived from non-human property, that is, profit, interest and rent. Even from the narrow point of view of the accounting concepts we use to distinguish grants from exchange — grants being relations in which there is a redistribution of net value — interest and profit have a somewhat ambiguous status. Accounting conventions actually imply that exchange takes place between equal values, whether in trade or in production.
Thus, from the point of view of the firm, the purchase of raw materials worth 100 dollars is entered in the books as a decrease of 100 dollars in the cash account and as an increase of 100 dollars in the raw-materials account. This is the essence of double-entry bookkeeping.
Likewise, with the principle of valuing stocks or inventories “at cost” — leaving aside the traditional accounting rule of “cost or market, whichever is lower,” and the FIFO-LIFO controversy — it is inferred that a given quantity of finished product is valued according to the dollar value of other assets that have been sacrificed in order to produce it.
If raw materials valued at 100 dollars, labor worth 200 dollars and depreciation of plant and fixed equipment valued at 100 dollars have been used in the production of a given quantity of finished product, that product is conventionally valued at 400 dollars.
Profit arises in the process of revaluation of assets rather than in exchange, although revaluation and exchange often take place simultaneously. Thus, our finished product valued at 400 dollars may now be sold for 500 dollars, in which case the firm increases its net worth by 100 dollars. This latter amount may hypothetically be divided into a revaluation, at the moment of sale of the finished product, from 400 to 500 dollars, and its subsequent exchange for an equal amount of money.
The origin of profit in revaluation gives some plausibility to the Marxist argument that, if exchange is between equal values, how can profit arise without some form of exploitation? That is, the revaluations that actually constitute profit appear as a grant, since they seem to represent at least an increase in the net worth of one party.
The critical question is: “Do they represent a decrease in the net worth of some other party?” If so, Marx was right: profit is a grant, not something that arises from exchange. Under certain circumstances, it could be argued that it is possible to identify the parties that lose net worth as a result of another party gaining it, that is, making profits.
In general, however, it is virtually impossible to do so, not only because of the general difficulty of incidence theory and of discovering the real structures of the circuit of implicit grants, but also because in many cases what has taken place in the profit-making process is not merely a redistribution of net values but a creation of net values.
That is, the revaluation of the finished product when it is sold represents a net addition to the total net worth of society, which is a contribution of the profit-making process through which the owners of capital exchange assets and reorganize them in the course of the production process.
