Politics/Economics

Why Entrepreneurs Deserve The “Surplus Value of Labor”

The completely just proposition that the worker is to receive the entire value of his product can be reasonably interpreted to mean either that he is to receive the full present value of his product now or that he is to get the entire future value in the future. But socialists interpret it to mean that the worker is to receive the entire future value of his product now. – Eugen Böhm von Bawerk

When a worker is hired, wages and factors of production are loaned to him by an entrepreneur at the present value of the product of the worker’s labor. The worker profits in the present because he enjoys the present value of his wages without having to incur liability for the success or failure of the business. He even gets paid before the product of his labor fetches a return.

This is not “exploitation” or theft; it’s an inter-temporal exchange that satisfies the time preference of the worker. Accurately predicting the future preferences of other people to such a degree requires quite a bit of economic calculation but is not a science; it’s an art. It requires talent, skill, and drive.

The entrepreneur only invests in the business (thereby incurring uncertainty, risk, liability, and the deferment of gratification) if he expects to profit from such a loan in the future. Profits are not guaranteed to the entrepreneur; they are only reaped if he accurately predicts the demand for and future value of the goods produced by his workers and satisfies the time preferences of everyone involved in the production process such that production costs don’t outpace the rate of return.
The difference between the wages paid to the worker and the final price of what the worker produces rightfully belongs to the entrepreneur and/or the investors to which he’s beholden. Profit is the entrepreneur’s due reward for deferring gratification he could have otherwise derived from the use of his previously invested money/resources and configuring/combining them in such a way that they are valued more than the sum of their constituent parts. Conversely, loss is his due punishment for ineffectively allocating such resources.

If the worker wants his wages to reflect the future value of the product of his labor, he can always reinvest his wages in the business, thus allowing him to reap dividends later. Of course this involves risk, uncertainty, liability, and the deferment of gratification. However, depending on the viability of the business model, the worker’s investment could result in lower returns than if he took his wages in the present at the present value of the product of his labor — especially once his opportunity costs are factored in. Most workers choose to forego such risks/opportunity costs and instead opt to take their wages in the present at the present value of the product of their labor.

This is precisely why workers agree to work for entrepreneurs in the first place.

The only other way for the worker’s present wages to reflect the future value of the product of his labor is for the worker to exploit the entrepreneur by later stealing the profits to which the entrepreneur is entitled. The worker wouldn’t defer gratification in order to work for free, so why should he expect the entrepreneur to defer gratification just to break even?

He shouldn’t. No one defers gratification unless they expect to benefit from doing so.

The “exploitation theory of profit” is thus Orwellian newspeak put forth by professional victims who wish to obtain the future value of present goods without deferring gratification or incurring the corresponding opportunity costs.

Marxist redistribution is theft; profit is not.

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