The Basic Error, Begetting All Other Errors in the Marxian System, Consists in the Implicit Equivocation between Manual Labor and Wage Income

From the essentially correct fact that productive and purposive human labor is the primary means to transform nature-given resources into physical means to sustain and improve material conditions of human life and well-being, Marx, following Smith, impermissibly concludes that the wage income is the natural and primary income category of (manual) labor and that all other categories of income (profits, interest, dividends, rents) existing under capitalism are by necessity deductions from what naturally and rightfully should belong to the wage earners. And so, if it were not for the “appropriation of land and accumulation of stock” by a few, so Smith and Marx, the total value of products would exhaustibly be all wages and really belonged to the wage earners. The ascendancy of the marginal utility theory of value did not materially change this understanding. Reisman openly declares and provides a proof of his case that the Smith-Marx framework is actually fully in accord with the otherwise quite different positive theory of interest of Marx’s strongest 19th century critic—Eugen von Böhm-Bawerk. Böhm-Bawerk merely provided a strong critique of some aspects of Marx’s theory, not the whole of it. The legacy of Smith and Marx on the subject of profits/interest and wages continued to live on totally unchallenged even in the writings of Marx’s staunchest critics, including Mises, Hayek, and Rothbard.

What is wrong with Marx’s conceptual and substantive description of capitalist economic reality? The basic error, begetting all other errors in the Marxian system, consists in the implicit equivocation between manual labor and wage income.

It should be obvious that merely to work and produce things is not the same as to work for money and receive wages for the work performed. The two pairs are brought into a definite relation only if there is someone willing and able to invest the necessary money funds as wage payments. Furthermore, the more capital is invested in form of wage payments and/or acquisition of capital goods the greater is the extent of the division of labor, the greater is the productivity of labor and thus the higher will be the standard of living, above all of the wage earners. In no way can profit be attributable to the exploitation of labor (let alone manual labor) by capital and capital accumulation. To the contrary, with respect to the process of (nominal and real) income formation, Marx attaches to the accumulation of capital a role which is exactly opposite to the actual one.

--Wladimir Kraus, review of Capitalism: A Treatise on Economics, by George Reisman, Libertarian Papers 1, art. no. 14 (2009): 5-6.