Rectifying the Greatest Error in the History of Economic Thought: "Demand for Commodities Is Not Demand for Labor" Versus the Marxian Exploitation Theory

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Rectifying the Greatest Error in the History of Economic Thought: "Demand for Commodities Is Not Demand for Labor" Versus the Marxian Exploitation Theory

Written by George Reisman
4.85 12,953 ratings
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Adam Smith and Karl Marx claimed that originally all income was wages and that profits appeared only later, with the coming of capitalists, who deducted their profits from what until then had been wages. The unmistakable implication of this claim is that profits constitute a theft of part of wages. This belief, that profits are stolen from the wage earners, has been almost unchallenged and has been a continuing source of civil discontent, hatred of businessmen and capitalists by wage earners, violent revolution, civil war, enslavement, and mass murder. Literally, scores of millions have suffered and died because of the belief in the inherent injustice of profits. It is the foundation of the support for socialism and communism. To my knowledge the claim that profits are a deduction from wages has been accepted universally, with the single exception of the present author. It has been accepted even by the leading critic of the belief that profits are stolen. That critic, the great Austrian-school economist Eugen von Böhm-Bawerk, believed that even though profits were a deduction from wages, as Smith and Marx had claimed, they were nevertheless a justified deduction. The deduction, Böhm-Bawerk argued, arose from the fact that, other things being equal, present goods are more valuable than future goods. As a result, Böhm-Bawerk held, wage earners themselves, each performing an equal amount of labor, but working in a sequence over a period of years, would not divide the value of their ultimate product equally. The last worker in the series, who was paid virtually immediately after the completion of his work, would be paid less than the first worker in the series, who might have to wait several years after the completion of his work before being paid. The same principle would apply mutatis mutandis to all the workers in between. Capitalists, according to Böhm-Bawerk, made it possible for all the workers in the series to be paid as quickly as the last worker in the series, indeed, even more quickly; for example, after the lapse of just a week, however long the total productive process might take. In sum, the capitalist buys the workers’ claims to the receipt of wages in the future for smaller payments of wages in the present, payments which, dollar for dollar, are more valuable than the larger future wage payments given up. Böhm-Bawerk’s critique is certainly ingenious. However, it is wrong in an essential respect. Namely, it shares with Smith and Marx, the belief that workers producing and selling the products of their labor are paid wages and that profits are a deduction from wages, even if a justified deduction. The truth is that if there ever was a time, such as allegedly existed in Adam Smith’s “original state of things,” when there were no capitalists but only manual workers, who produced products and who were able to keep all of the proceeds, the money those manual workers received was not wages but SALES REVENUES. As the great classical economist John Stuart Mill pointed out, "demand for commodities is not demand for labor." What this means, for example, is that when someone buys a loaf of bread, he does not pay the wages of bakers. He buys only the loaf of bread, which means that he pays a sales revenue to the seller, who, of course, receives a sales revenue, not a wage. Not only did the manual workers in Smith’s “original state of things” earn sales revenues rather than wages but the fact that no capitalists were present, means that there was no capitalistic spending, i.e., no buying for the sake of selling. The implication of this is the there were no money costs of production to deduct from sales revenues. And the inescapable implication of this is that the sales revenues were PURE PROFIT.

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Published December 4, 2017
ISBN 37172628
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George Reisman
About the Author
George Reisman

George Reisman is a writer and avid reader based in the Pacific Northwest. Before pursuing writing full-time, they spent over a decade working in education. When not working on their next book, George Reisman can usually be found hiking with their dog or trying out new coffee shops in their neighborhood.

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Jacob Perez July 17, 2025
Absolutely brilliant. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. I am now a lifelong fan of this author.
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Barbara White December 22, 2024
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I find myself somewhat conflicted. It verged on repetitive in the second act. A more concise edit would have served it well. A fair 3 stars.
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Such a rich narrative. The author orchestrated a breathtaking finale. Truly a work of art. Worth every moment spent reading.
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I was completely blown away. I became deeply invested in the protagonist's journey. A masterclass in storytelling. A true literary gem.
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Masterpiece from start to finish. It strikes a perfect harmony of dialogue and world-building. Every chapter felt necessary. I am now a lifelong fan of this author.
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Excellent, though slightly flawed. It held my rapt attention, even when certain twists were telegraphed. Quite impressive overall.
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A profoundly satisfying read. I adored how the story unfolded. It kept me captivated without sacrificing elegance. A true literary gem.
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Took a moment to build, but the payoff was spectacular. The middle had a deliberate pace, but the climax was phenomenal. Quite impressive overall.
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Such a rich narrative. The prose is exquisite. It’s accessible yet undeniably sophisticated. An effortless 5 stars.
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Took a moment to build, but the payoff was spectacular. It held my rapt attention, even when certain twists were telegraphed. Quite impressive overall.
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Jacob Brown June 10, 2024
Masterpiece from start to finish. I became deeply invested in the protagonist's journey. A masterclass in storytelling. I am now a lifelong fan of this author.
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Nicholas Hall May 19, 2024
Honestly one of the most premium reading experiences lately. I became deeply invested in the protagonist's journey. A masterclass in storytelling. A true literary gem.
Donna Gomez
Donna Gomez December 26, 2024
A very strong entry. The middle had a deliberate pace, but the climax was phenomenal. Quite impressive overall.
Andrew Martin
Andrew Martin January 25, 2025
Honestly one of the most premium reading experiences lately. The author orchestrated a breathtaking finale. Truly a work of art. An effortless 5 stars.
Richard Mitchell
Richard Mitchell November 18, 2024
I was completely blown away. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. An effortless 5 stars.
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Karen Davis April 15, 2024
A highly sophisticated read. The middle had a deliberate pace, but the climax was phenomenal. A wonderful companion for a quiet weekend.
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Honestly one of the most premium reading experiences lately. I adored how the story unfolded. It kept me captivated without sacrificing elegance. An effortless 5 stars.
David Lopez
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A profoundly satisfying read. The author orchestrated a breathtaking finale. Truly a work of art. A true literary gem.
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A profoundly satisfying read. The prose is exquisite. It’s accessible yet undeniably sophisticated. I am now a lifelong fan of this author.
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Edward Rodriguez August 09, 2024
A profoundly satisfying read. The prose is exquisite. It’s accessible yet undeniably sophisticated. Worth every moment spent reading.
Edward Sanchez
Edward Sanchez November 04, 2025
Excellent, though slightly flawed. A brilliant concept executed with flair. Just a few pacing choices I would change. A wonderful companion for a quiet weekend.
Lisa Harris
Lisa Harris August 17, 2024
A highly sophisticated read. The middle had a deliberate pace, but the climax was phenomenal. A wonderful companion for a quiet weekend.
Jacob Wright
Jacob Wright December 18, 2024
I was completely blown away. The pacing was impeccable and the characters felt incredibly authentic. I was completely immersed. Worth every moment spent reading.
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Gary Parker July 31, 2025
A highly sophisticated read. The middle had a deliberate pace, but the climax was phenomenal. A solid 4 stars from me.
Kevin Roberts
Kevin Roberts May 10, 2024
An acceptable diversion. Certain acts were fascinating, while others felt like a slight endeavor to complete. Perhaps more aligned with a different audience's tastes.
Elizabeth Allen
Elizabeth Allen April 06, 2024
I was completely blown away. The prose is exquisite. It’s accessible yet undeniably sophisticated. An absolute must-read for connoisseurs of the genre.
Edward Jones
Edward Jones March 20, 2024
A decent, if standard, experience. It verged on repetitive in the second act. A more concise edit would have served it well. A fair 3 stars.
Jacob Moore
Jacob Moore November 17, 2024
A profoundly satisfying read. The prose is exquisite. It’s accessible yet undeniably sophisticated. A true literary gem.
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Stephanie Torres January 16, 2025
I find myself somewhat conflicted. Certain acts were fascinating, while others felt like a slight endeavor to complete. Perhaps more aligned with a different audience's tastes.
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Daniel Wright October 05, 2025
Not entirely to my refined tastes. The tempo was somewhat languid, and I found my mind wandering. Not poor, simply average. Perfectly average.
Donna Miller
Donna Miller April 11, 2024
I was completely blown away. The prose is exquisite. It’s accessible yet undeniably sophisticated. Worth every moment spent reading.
Betty Ramirez
Betty Ramirez November 27, 2025
Honestly one of the most premium reading experiences lately. It strikes a perfect harmony of dialogue and world-building. Every chapter felt necessary. A true literary gem.
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Betty Roberts January 25, 2025
A profoundly satisfying read. I adored how the story unfolded. It kept me captivated without sacrificing elegance. I am now a lifelong fan of this author.
Deborah Lee
Deborah Lee October 27, 2025
Absolutely brilliant. The author orchestrated a breathtaking finale. Truly a work of art. I am now a lifelong fan of this author.
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