In my prior post, I pointed out that capital income is paid to non-productive people who don’t, under a labor-desert theory of entitlement, deserve it. In response to this explanation, some commenters have said that in fact capitalists do work in some way. It’s not that they just have capital and then income flows to it: they actually have to do work in planning how to employ it or hire workers to run the machines and so on.
I always thought Marx’s response to this particular argument was rather amusing:
Our [capitalist] friend, up to this time so purse-proud, suddenly assumes the modest demeanour of his own workman, and exclaims: “Have I myself not worked? Have I not performed the labour of superintendence and of overlooking the spinner? And does not this labour, too, create value?” His overlooker and his manager try to hide their smiles. Meanwhile, after a hearty laugh, he reassumes his usual mien.
Of course the planning and deployment of capital involves labor. But, as Marx points out, the capitalist does not do this labor. He hires other people — executives, bankers, and money managers — to do this labor. And, indeed, in the national accounts the money paid out to these kinds of people is scored as labor income. Capital income is thus the amount of money that flows to capital after the managers of the capital have been paid their labor income for managing it.
To be sure, sometimes capitalists are owner-operators of their capital and this ends up mushing together capital and labor income in such a way that makes it hard to disentangle. Someone who owns their own business and all the capital in it receives labor income from their work as a manager of the capital and capital income from the capital itself. Normally, income of this sort (self-employment income) gets portioned out as partially from capital and partially from labor when people are trying to estimate economy-wide aggregates.
What’s remarkable to me about the “have I myself not worked” defense is that, these days, it’s easier than ever to identify people clearly receiving pure return on capital. People who own capital are not generally also managing that capital in any meaningful way. Instead, they are invested in funds that buy up equity (and bonds) in thousands of different companies. They pay a management fee to whoever is running the fund (which is labor income) and the companies they are invested in compensate their executives (which is also labor income). So compensation for the work of managing capital ends up pretty neatly hived off from the pure return on it.
Anyone who is invested in a 401k or IRA should fully appreciate this as well. What production are you involved in when you click the button on the website that puts the money from your checking account into the index fund? Hell, sometimes you don’t even have to do that because your employer just puts the money straight into the index fund on your behalf!