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NOTE 7.03. The Source of Factor Incomes

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3. The Source of Factor Incomes

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Our analysis permits us now to resolve that time-honored controversy in economics, which

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is the source of wages, capital or consumption, or as we should rephrase it, which is the

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source of original factor incomes for labor and land factors.

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It is clear that the ultimate goal of the investment of capital is future consumption.

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In that sense, consumption is the necessary requisite without which there would be no

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capital.

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Furthermore, for each particular good, consumption dictates, through market demands, the prices

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of the various products and the shifting of non-specific factors from one process to another.

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However, consumption by itself provides nothing.

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Savings and investment are needed in order to permit any consumption at all, since very

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little consumption could be obtained with no production processes or capital structure

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at all, perhaps only the direct picking of berries.

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Insofar as labor or land factors produce and sell consumers' goods immediately, no capital

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All is required for their payment. They are paid directly by consumption. This was true

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for Crusoe's berry picking. It is also true in a highly capitalistic economy for labor

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and land in the final stages of the production process. In these final stages, which include

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pure labor incomes earned in the sale of personal services, of doctors, artists, lawyers, etc.,

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to Consumers, the factors earn MVP directly without being discounted in advance, all the

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other labor and land factors participating in the production process are paid by saved

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capital in advance of the produced and consumed product.

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We must conclude that in the dispute between the classical theory that wages are paid out

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of Capital and the theory of Henry George, J.B. Clark and others that wages are paid

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out of the annual product consumed.

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The former theory is correct in the overwhelming majority of cases, and that this majority

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Society becomes more preponderant the greater the stock of capital in the society.