Where does profit come from?

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The work of employees, who are paid only a fraction of the value that they produce, is the source of profits for capitalists. Those astronomical salaries and bonuses enjoyed by executives and speculators come on the backs of the company’s employees.

The question “Where does profit come from?” initially seems as if it has an easy answer, but on closer inspection is a matter of considerable controversy. Ordinarily, we are given simple answers such as “buy low, sell high” or, that favorite fallback position, “the magic of the market.” Standard answers such as these rest on a presumption that circulation of a commodity is the source of profit.

But the value of a commodity would be the same if the workers sold the commodity themselves, thereby retaining the full value of what they produced rather than having much of it taken by the capitalist. The portion taken by the capitalist therefore is the source of the capitalist’s profit and not the circulation of the commodity.

Surplus value is the difference between the value of what an employee produces and what the employee is paid — the surplus value is converted into the owner’s profit.

Why shouldn’t the people who do the work earn the rewards? Why should bosses, shareholders and speculators accumulate so much at the expense of so many? Why should those who dedicate their lives to accumulating so much be anointed the guardians of morality and ethics when their ability to acquire money does not make them experts at anything other than greed?

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First off,

I don't agree that management adds nothing to the value of a product. Jay Rockefeller's Standard Oil was managed in such a way as to eliminate quality differences between individual cans of Standard Oil. To standardize and regularize one's product was something that Gorbachev admitted the Soviet Union had not learned how to do a century later. Customers found it to be of enormous value to them to be able to buy a can of Standard Oil and to know what that can would do and how much value it would provide.

As my father said about a chain restaurant "You know you'll be underfed and overcharged and underloved, but you'll know by how much you'll be underfed and overcharged and underloved. With individually-owned diners, you'll be getting inconsistent, unpredictable dining experiences." It wasn't the workers of Standard Oil, but the management that made an enormous difference to the value of a can of Standard Oil.

Several oil company owners were infuriated by Esso's addition of a cartoon tiger to their product ("Put a Tiger in Your Tank!"), but for some odd reason, customers considered that the cartoon tiger added to the perceived value of a tank of Esso gas. Workers had nothing to do with that, that was a management decision. Likewise, the Edsel was a perfectly good car, but customers assignd a very low value to it and it was soon taken off the market. Like soldiers who fight valiantly in a lost cause, the workers did their jobs as well as could be expected, but the managers/entrepreneurs who made the high-level decisions were the ones who goofed up.

Check out the second chart in this piece. Wages tracked very closely with productivity from 1945 right up until the early 1970s. A wag suggested that Deng Xiaoping was the one who convinced capitalists that they didn't have to pay American labor what they were paying, they could use the much cheaper Mexican or Chinese labor to do the same jobs. I'm not sure that the separation of wages from productivity is a commie plot as much as it reflects the growing ease and convenience of transporting unfinished goods to Third-World countries and finished products back to the US. So yes, workers did, for at least a considerable period of time, receive a predictable percentage of the value that was added to a product via productivity gains. Obviously, capitalists would fight doggedly to keep the system the way it is, but I see no reason that America can't return to having a close connection between wages and productivity.

I don't think your theories are completely wrong so much as I think they're too simple and need to be updated to modern, post-Marx times.

Rich Gardner