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Unit 3: Theories of Income, Output and Employment: Classical Theory

carried out without the aid of the employees of the State Department. The help these Notes
people provide, is perceived as the means by which those who supply the guiding and
directing intelligence at the highest level accomplish their objectives. The intelligence,
purpose, direction, and integration flow down from the top, and the imputation of the
result flows up from the bottom.
By this standard, the product of the old Ford Motor Company and the Standard Oil
Company are to be attributed to Ford and Rockefeller. (In many cases, of course, the
product must be attributed to a group of businessmen and capitalists, not just to a single
outstanding figure.) In any event, labor's right to the full value of its produce is fully
satisfied precisely when a Rockefeller or Ford, or their less known counterparts, are paid
by their customers for their products. The product is theirs, not the employees'. The help
the employees provide is fully remunerated when the producers pay them wages.

This view of the nature of labor's right to the full produce leads to a very different view of
the payment of incomes to capitalists whose role in production might be judged to be
passive, such as, perhaps, most minor stockholders and the recipients of interest, land
rent, and resource royalties. If the payment of such incomes did represent an exploitation
of labor, it would not be an exploitation of the labor of wage earners. Such incomes are
paid by businessmen-by the active capitalists; they are not a deduction from wages but
from profits. If any exploitation were present here, it would be this group, not the wage
earners, who were the exploited parties. What this would mean in practice is that individuals
like Rockefeller and Ford were exploited by widows and orphans, for it is such individuals
who make up a large part of the category of passive capitalists.
In fact, however, the payment of such incomes is never an exploitation, because their
payment is a source of gain to those who pay them. They are paid in order to acquire assets
whose use is a source of profits over and above the payments which must be made.
Furthermore, the recipients of such incomes need not be at all passive; they may very well
earn their incomes by the performance of a considerable amount of intellectual labor.
Anyone who has attempted to manage a portfolio of stocks and bonds or real estate
should know that there is no limit to the amount of time and effort which such management
can absorb in the form of searching out and evaluating investment possibilities, and that
the job will be better done the more such time and effort one can give it. In the absence of
government intervention in the form of the existence of national debts, loan guarantees,
and deposit insurance, (not to mention "transfer payments"), the magnitude of truly
unearned income in the economic system would be quite modest, for almost every other
form of investment would require the exercise of some significant degree of skill and
judgment. Those not able or willing to exercise such skill and judgment would either
rapidly lose their funds or would have to be content with very low rates of return in
compensation for safety of principal and, possibly, reflecting the deduction of management
fees by trustees or other parties.
It should also be realized that in a laissez faire economy, without personal or corporate
income taxes (a real exploitation of labor) and without legal restrictions on such business
activities as insider trading and the award of stock options, the businessmen and active
capitalists are in a position to own an ever increasing share of the capitals they employ.
With their high incomes they can progressively buy out the ownership shares of the
passive capitalists.
In this way, under capitalism, those workers-the businessmen and active capitalists-who
do have a valid claim to the ownership of the industries in fact come to own them. Again
and again, penniless newcomers appear on the scene and by virtue of their success secure
a growing influence over the conduct of production and ultimately obtain the ownership
of vast personal fortunes. An ironic consequence of Adam Smith's errors in this area, to be

Contd...

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