Reisman’s (Counter)revolutionary Inversion: Profits Precede Wages!

George Reisman executes the most devastating ontological strike against Marxist exploitation theory by inverting the fundamental relationship between profits and wages.

The Orthodox Error: Adam Smith and Karl Marx assumed wages represent the primary form of income, with profits emerging as deductions from workers’ product. This framework enabled the entire edifice of exploitation theory—capitalists as parasitic extractors of surplus value.

Reisman’s Radical Correction:

 Profits constitute the primordial economic category. Consider Robinson Crusoe alone on his island—everything he produces represents pure profit. No “wages” exist because no employment relationship exists. When Crusoe hires Friday, Friday’s wages become deductions from Crusoe’s original profit stream, not the reverse.

This inversion annihilates Marxist theory at its foundation. Capitalists don’t subtract profits from workers’ “rightful product”—rather, workers receive wages that entrepreneurs must deduct from what would otherwise be total profit. Capitalism doesn’t create exploitation; it creates wages as advances against future production. 

The Productivity Mechanism: Real wages rise through elevated labor productivity, which increases via capital accumulation, itself driven by saving and technological progress.   Intensifying capitalism generates competition for scarce workers relative to expanding production—the sole reason wages systematically increase in capitalist systems. 

Workers do receive their product’s “full value”—their contractual wage—while capitalists earn returns for advancing capital, absorbing uncertainty, and coordinating temporal production structures. Value resides not in labor hours themselves, but in creative time dedicated to producing goods that enhance human welfare—a fundamentally subjective valuation (via brands and reputations in any kind of markets). 

Reisman doesn’t reform labor theory; he replaces it entirely with a capital-productivity synthesis.