No, it does not. To understand why, we must first explain the logic behind this claim. It is rooted in what is termed "marginal productivity" theory. In the words of one of its developers:
"If each productive function is paid for according to the amount of its product, then each man get what he himself produces. If he works, he gets what he creates by working; if he provides capital, he gets what his capital produces; and if, further, he renders service by co-ordinating labour and capital, he gets the product that can be separately traced to that function. Only in one of these ways can a man produce anything. If he receives all that he brings into existence through any one of these three functions, he receives all that he creates at all." [John Bates Clark, The Distribution of Wealth, p.7]
Needless to say, this analysis was based on the need to justify the existing system, for it was "the purpose of this work to show that the distribution of income to society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates." In other words, "what a social class gets is, under natural law, what it contributes to the general output of industry." [Clark, Op. Cit., p. v and p. 313] And only mad people can reject a "natural law" like gravity — or capitalism!
Most schools of capitalist economics, when they bother to try and justify non-labour income, hold to this theory of productivity. Unsurprisingly, as it proves what right-wing economist Milton Friedman called the "capitalist ethic": "To each according to what he and the instruments he owns produces." [Capitalism and Freedom, pp. 161-162] As such, this is one of the key defences of capitalism, based as it is on the productive contribution of each factor (labour, land and capital). Anarchists as unconvinced.
Unsurprisingly, this theory took some time to develop given the theoretical difficulties involved. After all, you need all three factors to produce a commodity, say a bushel of wheat. How can we determine that percentage of the price is due to the land, what percentage to labour and what percentage to capital? You cannot simply say that the "contribution" of each factor just happens to be identical to its cost (i.e. the contribution of land is what the market rent is) as this is circular reasoning. So how is it possible to specify contribution of each factor of production independently of the market mechanism in such a way as to show, firstly, that the contributions add up to 100 percent and, secondly, that the free market will in fact return to each factor its respective contribution?
This is where marginal productivity theory comes in. In neo-classical theory, the contribution of a specific factor is defined as the marginal product of that factor when the other factors are left constant. Take, as an example, a hundred bushels of wheat produced by X acres of land being worked by Y workers using £Z worth of capital. The contribution of land can then be defined as the increase in wheat that an extra acre of land would produce (X+1) if the same number of workers employed the same capital worked it. Similarly, the contribution of a worker would be the increase that would result if an addition worker was hired (Y + 1) to work the same land (X) with the same capital (£Z). The contribution of capital, obviously, would be the increase in wheat produced by the same number of workers (X) working the same amount of land (Y) using one more unit of capital (£Z+1). Then mathematics kicks in. If enough assumptions are made in terms of the substitutability of factors, diminishing returns, and so forth, then a mathematical theorem (Euler's Theorem) can be used to show that the sum of these marginal contributions would be a hundred bushels. Applying yet more assumptions to ensure "perfect competition" it can be mathematically proven that the rent per acre set by this perfect market will be precisely the contribution of the land, that the market wage will be the contribution of the worker, and the market interest rate will be the contribution of capital. In addition, it can be shown that any monopoly power will enable a factor owner to receive more than it contributes, so exploiting the others.
While this is impressive, the problems are obvious. As we discuss in section C.2.5, this model does not (indeed, cannot) describe any actual real economy. However, there is a more fundamental issue than mere practicality or realism, namely that it confuses a moral principle (that factors should receive in accordance with their productive contributions) with an ownership issue. This is because even if we want to say that land and capital "contribute" to the final product, we cannot say the same for the landowner or the capitalist. Using our example above, it should be noted that neither the capitalist nor the landowner actually engages in anything that might be called a productive activity. Their roles are purely passive, they simply allow what they own to be used by the people who do the actual work, the labourers.
Marginal productivity theory shows that with declining marginal productivity, the contribution of labour is less than the total product. The difference is claimed to be precisely the contribution of capital and land. But what is this "contribution" of capital and land? Without any labourers there would be no output. In addition, in physical terms, the marginal product of, say, capital is simply the amount by which production would decline is one piece of capital were taken out of production. It does not reflect any productive activity whatsoever on the part of the owner of said capital. It does not, therefore, measure his or her productive contribution. In other words, capitalist economics tries to confuse the owners of capital with the machinery they own. Unlike labour, whose "ownership" cannot be separated from the productive activities being done, capital and land can be rewarded without their owners actually doing anything productive at all.
For all its amazing mathematics, the neo-classical solution fails simply because it is not only irrelevant to reality, it is not relevant ethically.
To see why, let us consider the case of land and labour (capital is more complex and will be discussed in the next two sections). Marginal productivity theory can show, given enough assumptions, that five acres of land can produce 100 bushels of wheat with the labour of ten men and that the contribution of land and labour are, respectively, 40 and 60 bushels each. In other words, that each worker receives a wage representing 6 bushels of wheat while the landlord receives an income of 40 bushels. As socialist David Schweickart notes, "we have derived both the contribution of labour and the contribution of land from purely technical considerations. We have made no assumptions about ownership, competition, or any other social or political relationship. No covert assumptions about capitalism have been smuggled into the analysis." [After Capitalism, p. 29]
Surely this means that economics has produced a defence of non-labour income? Not so, as it ignores the key issue of what represents a valid contribution. The conclusion that the landlord (or capitalist) is entitled to their income "in no way follows from the technical premises of the argument. Suppose our ten workers had cultivated the five acres as a worker collective. In this, they would receive the entire product, all one hundred bushels, instead of sixty. Is this unfair? To whom should the other forty bushels go? To the land, for its 'contribution'? Should the collective perhaps burn forty bushels as an offering to the Land-God? (Is the Land-Lord the representative on Earth of this Land-God?)." [Op. Cit., p. 30] It should be noted that Schweickart is echoing the words of Proudhon:
"How much does the proprietor increase the utility of his tenant's products? Has he ploughed, sowed, reaped, mowed, winnowed, weeded? . . . I admit that the land is an implement; but who made it? Did the proprietor? Did he — by the efficacious virtue of the right of property, by this moral quality infused into the soil — endow it with vigour and fertility? Exactly there lies the monopoly of the proprietor, though he did not make the implement, he asks pay for its use. When the Creator shall present himself and claim farm-rent, we will consider the matter with him; or even when the proprietor — his pretended representative — shall exhibit his power of attorney." [What is Property?, pp. 166-7]
In other words, granting permission cannot be considered as a "contribution" or a "productive" act:
"We can see that a moral sleight-of-hand has been performed. A technical demonstration has passed itself off as a moral argument by its choice of terminology, namely, by calling a marginal product a 'contribution.' The 'contribution = ethical entitlement' of the landowner has been identified with the 'contribution = marginal product' of the land . . . What is the nature of the landowner's 'contribution' here? We can say that the landlord contributed the land to the workers, but notice the qualitative difference between his 'contribution' and the contribution of his workforce. He 'contributes' his land — but the land remains intact and remains his at the end of the harvest, whereas the labour contributed by each labourer is gone. If the labourers do not expend more labour next harvest, they will get nothing more, whereas the landowner can continue to 'contribute' year after year (lifting not a finger), and be rewarded year after year for doing so." [Schweickart, Op. Cit., p. 30]
As the examples of the capitalist and co-operative farms shows, the "contribution" of land and capital can be rewarded without their owners doing anything at all. So what does it mean, "capital's share"? After all, no one has ever given money to a machine or land. That money goes to the owner, not the technology or resource used. When "land" gets its "reward" it involves money going to the landowner not fertiliser being spread on the land. Equally, if the land and the capital were owned by the labourers then "capital" and "land" would receive nothing despite both being used in the productive process and, consequently, having "aided" production. Which shows the fallacy of the idea that profits, interest and rent represent a form of "contribution" to the productive process by land and capital which needs rewarded. They only get a "reward" when they hire labour to work them, i.e. they give permission for others to use the property in question in return for telling them what to do and keeping the product of their labour.
As Proudhon put it, "[w]ho is entitled to the rent of the land? The producer of the land, without doubt. Who made the land? God. Then, proprietor, retire!" [Op. Cit., p. 104] Much the same can be said of "capital" (workplaces, machinery, etc.) as well. The capitalist, argued Berkman, "gives you a job; that is permission to work in the factory or mill which was not built by him but by other workers like yourself. And for that permission you help to support him for the rest of your life or as long as you work for him." [What is Anarchism?, p. 14]
So non-labour income exists not because of the owners of capital and land "contribute" to production but because they, as a class, own the means of life and workers have to sell their labour and liberty to them to gain access:
"We cry shame on the feudal baron who forbade the peasant to turn a clod of earth unless he surrendered to his lord a fourth of his crop. We called those the barbarous times, But if the forms have changed, the relations have remained the same, and the worker is forced, under the name of free contract, to accept feudal obligations." [Kropotkin, The Conquest of Bread, pp. 31-2]
It is capitalist property relations that allow this monopolisation of wealth by those who own (or boss) but do not produce. The workers do not get the full value of what they produce, nor do they have a say in how the surplus value produced by their labour gets used (e.g. investment decisions). Others have monopolised both the wealth produced by workers and the decision-making power within the company. This is a private form of taxation without representation, just as the company is a private form of statism.
Therefore, providing capital is not a productive act, and keeping the profits that are produced by those who actually do use capital is an act of theft. This does not mean, of course, that creating capital goods is not creative nor that it does not aid production. Far from it! But owning the outcome of such activity and renting it does not justify capitalism or profits. In other words, while we need machinery, workplaces, houses and raw materials to produce goods we do not need landlords and capitalists.
The problem with the capitalists' "contribution to production" argument is that one must either assume (a) a strict definition of who is the producer of something, in which case one must credit only the worker(s), or (b) a looser definition based on which individuals have contributed to the circumstances that made the productive work possible. Since the worker's productivity was made possible in part by the use of property supplied by the capitalist, one can thus credit the capitalist with "contributing to production" and so claim that he or she is entitled to a reward, i.e. profit.
However, if one assumes (b), one must then explain why the chain of credit should stop with the capitalist. Since all human activity takes place within a complex social network, many factors might be cited as contributing to the circumstances that allowed workers to produce — e.g. their upbringing and education, the contribution of other workers in providing essential products, services and infrastructure that permits their place of employment to operate, and so on (even the government, which funds infrastructure and education). Certainly the property of the capitalist contributed in this sense. But his contribution was less important than the work of, say, the worker's mother. Yet no capitalist, so far as we know, has proposed compensating workers' mothers with any share of the firm's revenues, and particularly not with a greater share than that received by capitalists! Plainly, however, if they followed their own logic consistently, capitalists would have to agree that such compensation would be fair.
In summary, while some may consider that profit is the capitalist's "contribution" to the value of a commodity, the reality is that it is nothing more than the reward for owning capital and giving permission for others to produce using it. As David Schweickart puts it, "'providing capital' means nothing more than 'allowing it to be used.' But an act of granting permission, in and of itself, is not a productive activity. If labourers cease to labour, production ceases in any society. But if owners cease to grant permission, production is affected only if their authority over the means of production is respected." [Against Capitalism, p. 11]
This authority, as discussed earlier, derives from the coercive mechanisms of the state, whose primary purpose is to ensure that capitalists have this ability to grant or deny workers access to the means of production. Therefore, not only is "providing capital" not a productive activity, it depends on a system of organised coercion which requires the appropriation of a considerable portion of the value produced by labour, through taxes, and hence is actually parasitic. Needless to say, rent can also be considered as "profit", being based purely on "granting permission" and so not a productive activity. The same can be said of interest, although the arguments are somewhat different (see section C.2.6).
So, even if we assume that capital and land are productive, it does not follow that owning those resources entitles the owner to an income. However, this analysis is giving too much credit to capitalist ideology. The simple fact is that capital is not productive at all. Rather, "capital" only contributes to production when used by labour (land does produce use values, of course, but these only become available once labour is used to pick the fruit, reap the corn or dig the coal). As such, profit is not the reward for the productivity of capital. Rather labour produces the marginal productivity of capital. This is discussed in the next section.