In Marxs theory of Capital, he suggests that the origin of profit (in a factory) is surplus labour.

(A factory may as well be a company, a record label or a health-care unit).

The government by taxation appropriates a proportion of profits; the purpose of which is to provide services for society as a whole.

A couple of questions arise here. First, the classical perspective on profit is to see it as a wage to the owner for organising the factory. Why does Marx not in fact take this position? Is this because he sees, for a factory labour as a commodity, but organisation as not?

The second, isn't taxation returning (a certain proportion of) surplus profit to society at large and thus back to labour?


It's worth noting, first of all, that this question is somewhat anachronistic for Marx's own time, as income taxes were not generally levied, except under circumstances of war. The majority of taxation existed in the form of customs duties and property taxes. It's worth noting that these forms of taxation place the largest burden of the tax on the poor rather than the rich (this should be obvious for customs duties, as it is much the same as modern sales tax; that this applies to property taxes, one has to remember that the majority of such receipts would have been drawn from the ownership of land that was then rented out to be used; the tax burden, as with most rented property today, would have raised the rent). Nevertheless, it is worth noting that both Marx and Engels, at times, wrote in favour of progressive incomes taxes, as a means of shifting the burden of taxation from the poor to the rich.

At this point it seems possible to address your second question: given that the burden of taxation in Marx's time (and arguably our own) lies primarily on the poor, especially in the form of taxes which raise the cost of consumption, and given that the revenues of these taxes are used not for social programs (the welfare state does not yet exist at the time Marx is writing), but rather to fund wars and other actions of the state, taxation cannot be a means of returning value to labour; rather, taxation becomes yet another means of oppressing the working classes. Thus, in Capital Marx writes that:

The modern fiscal system, whose pivot is formed by taxes on the most necessary means of subsistence (and therefore by in­creases in their price), thus contains within itself the germ of auto­matic progression. Over-taxation is not an accidental occurrence, but rather a principle. In Holland, therefore, where this system was first inaugurated, the great patriot, De Witt, extolled it in his Maxims as the best system for making the wage-labourer sub­missive, frugal, industrious...and overburdened with work. Here, however, we are less concerned with the destructive influence it exercises on the situation of the wage-labourer than with the forcible expropriation, resulting from it, of peasants and artisans, in short, of all the constituents of the lower middle class. There are no two opinions about this, even among the bourgeois economists. Its effectiveness as an expropriating agent is heightened still fur­ther by the system of protection, which forms one of its integral parts. (Marx, Capital, p. 921)

So why doesn't Marx portray profit as a wage paid to the owner of capital? In the "Preface to the First Edition," Marx sets his goal as analysing the "the social antagonisms that spring from the natural laws of capitalist production" (Marx, Capital, p. 91) In other words, Marx's aim is not to articulate how goods ought to be distributed---this being what much of modern economics is concerned with (given some definition of ought, i.e., to maximise overall societal wealth, etc.)---but rather, the laws by which capital functions, i.e., the assumptions which underlie a capitalist economy (Marx intends Capital to be a descriptive rather than normative study). From this angle, taxation is really of secondary importance to the more pressing question: how does there come to be something (value) to be taxed?

It is in explaining the genesis of value that Marx invokes the labour theory of value, which, as you pointed out, is not unique to Marx; in Marx's own view, he is simply taking over the account of the genesis of value given by the most able defenders of capitalism of his day. Thus, Marx's version of the labour theory of value is not terribly different from Ricardo's. But, then, if value is generated by labour, what is profit? Profit is evidently extracted from the surplus of value generated by labour, but if labour is the only thing which generates value, why should this surplus go to those who owns the means of production? (And this basic contradiction is, in part, why the labour theory of value fell into disuse; note that much of contemporary economics no longer concerns itself with how value is generated, but rather how it is distributed).

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  • The classical view adds in enterprise & management; and I do think that is important. Though Marx doesn't take account of it as labour - it is a form of labour. One could argue that profit is the wage of enterprise/management. I don't know whether that it is the classical view. Of course this then leads to the question of distribution of wages. Surely both questions are important - generation and distribution? – Mozibur Ullah Aug 20 '14 at 0:42

As ig0774 points,

the burden of taxation in Marx's time (and arguably our own) lies primarily on the poor, especially in the form of taxes which raise the cost of consumption, and given that the revenues of these taxes are used not for social programs (the welfare state does not yet exist at the time Marx is writing), but rather to fund wars and other actions of the state, [so] taxation [could not] be a means of returning value to labour [in Marx's time]

As for modern Marxists, I suppose they vary, but what I have most often found regarding returns of value from capital to labour is to think of them as "indirect wages". If the State provides the workers with something, then the direct wages do not need to cover such expense (and can be, political expediency apart, be lowered accordingly).

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Communism (and the understanding by Marx) is such a different type of organization, that it cannot be studied from a classical perspective. Few academics have really understood the core difference between communism and socialism, for example, or if they have, they have not commented on it.

To really understand it, you have to see the "State" as a type of organizing force (from above), that is simultaneously the individual himself -- an esoteric thing that is akin to a meta-consciousness, and the people within it akin to cells of that body. So there is no taxation, just as there is none within your body -- it is built to maintain itself.

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  • The State as an organising force is what Hobbes and Rousseau were theorising; but I think to establish essentialist readings of distinction between Socialism, Communism & Classical economics and is a function of Ideology; it does a dis-service in understanding economics - for one thing the labour theory of value has origins in the work of Aquinis, Ibn Khaldun, Smith, Ricardo & Marx. – Mozibur Ullah Jul 18 '14 at 4:27
  • I would say the essential distinction, is that Socialism builds from the People upwards, while Communism builds from the Individual/State downwards. Classical economics is simply in-between and independent of both, and mostly deals with the free-market. – TheDoctor Jul 18 '14 at 4:31
  • Those are such broad-based categorisations, and though in some sense helpful; in other sense its not helpful - I'm looking for some detail in understanding these different regimes of economics and how they've influenced each other. – Mozibur Ullah Jul 18 '14 at 4:45
  • I could give you a comprehensive treatise on that one, but I don't think this is the forum for it. But I will tell you that it has to do with a complex interaction with Religion. – TheDoctor Jul 18 '14 at 4:48
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    Well, how about discussing it in chat? – Mozibur Ullah Jul 18 '14 at 4:52

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