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According to classical theory, just like with capital, the cost of labor should converge to the marginal cost that was needed to produce it (i.e. to zero profit
by js8 6y ago
According to classical theory, just like with capital, the cost of labor should converge to the marginal cost that was needed to produce it (i.e. to zero profit for the employee). Of course it doesn't mean that everybody has to have to the same wage (for example, if your job requires more education, that's additional cost).
But if profit (value) is created in the economy as a whole (that is the reason to have it in the first place), and yet every unit in it converges to have zero profit (marginal revenue = marginal cost), what happens with all the extra money?
Or ask the other way around. Under neoclassical theory, the price of all commodities should converge to their costs. If labor is just another commodity, it should be true for labor as well. What is different for labor, from the perspective of the neoclassical theory, that it wouldn't behave like that?
I think the neoclassical theory is inconsistent, and the assumption, that because all these can converge to zero profit independently, they also can converge altogether, is simply wrong. Therefore, there will always be an area in the economy, which doesn't operate according to neoclassical theory, where the profits are close to zero, that is, there will a component of income that cannot be explained away by costs (which is what the article is trying to do).