Socialists maintain that the capitalists' profits are a theft from the working class because the working class produces all social wealth. Capitalists say they take risks when they invest their money in a business -- and therefore are entitled to profits as a reward for their risk-taking. Yes, some capitalists do take some "risks", a few venture capitalists, for example, in the sense that they may, in making a certain investment decision, risk losing their ownership of productive property and their position as a capitalist. That is, they "risk" having to join the other 95 percent of us in the working class, and having to work for a living. Actually, however, the concentration of wealth under capitalism is such that most top, established capitalists, with their massive and diverse stock and bond holdings, rarely face even that sort of "risk." Most of that "risk" is borne by the small-scale or petty capitalists operating in the margins of the economy, and by those workers who try to make it as capitalists by starting up a small business. That such "risk" exists on an incidental basis cannot justify the ongoing process of theft through which capitalists accumulate the capital they risk and continue to accumulate more capital after it is risked. Nor is the fact of exploitation altered by the occasional worker who risks his or her life savings in a (usually failing) bid to become a capitalist.
To say that the "risk" justifies the profit-making operation of that system is circular logic, for neither the system or the risk are necessary. In a socialist society, new products could be developed, tested, introduced, and if a certain threshold of interest in the product was shown, produced on a mass scale -- all without risk to anyone. Not only are the capitalists' "risks" unnecessary; so too are the far greater risks that the capitalist system imposes on the working class. For every day that they continue to accept living and working under this system, workers risk losing their jobs and livelihoods, their ability to feed, clothe and shelter themselves and their families, their health and even their lives. The fact that the likes of a Donald Trump may "risk" losing part or even all of their fortunes gambling on a particular business venture is no defense of the system that subjects the working class to these far graver risks.
Defenders of capitalism say it's the capitalists' entrepreneurial abilities and skills which organise the means of production in such a way as to make the most efficient use of labour and create the most wealth. Capitalists do have an interest in squeezing the greatest possible productivity out of each worker. But capitalists themselves no longer have much to do with the organization of production. More importantly, the overall social impact of productivity increases under capitalism doesn't exactly make an argument in favor of preserving the system.
Historically, capitalist "entrepreneurs" did play a vital role in bringing together the forces of modern industrial production. But the successful capitalists were those who were most "efficient" at accumulating capital, which means that they were most efficient, not merely in making the most productive use of labour, but in reaping surplus value through the ruthless exploitation of wage labour. Frequently, they were also among the most efficient at scheming against, swindling and otherwise robbing each other, the most successful of them in this country earning the epithet, "the robber barons."
Today there is very little "entrepreneurship" remaining in the capitalist system. New businesses are regularly being started up, but most either die within a few years or are swallowed up by long-established firms. New ways and means of stepping up the rate of exploitation, including, but not limited to, increases in productivity, are, of course, still being implemented by capitalist firms, but this is done by the capitalists' hired executives and management. Established capitalists may "dabble" in such activity; most don't. In any event, they don't have to.
It is important to recognize that the major capitalists who own and control the overwhelming majority of the means of production and distribution today did not become major capitalists by working hard, scrimping and saving. Most of today's top capitalists inherited their class status; historically, many top capitalists acquired their initial block of capital through inheritance or by crooked or illicit means. But however a particular capitalist gained entrance to that class, the fact is that no one can accumulate the large quantity of capital required to become a top capitalist through any means other than the exploitation of the working class. Small business firms exist in a viciously competitive climate. Eighty percent of all new businesses fail within 10 years! Thus, for most small business owners, even if they did get their start by "scrimping and saving," it is capitalism, not socialism, that will take their businesses away.
During their struggle to keep their businesses alive, the petty capitalists, besides putting in long hours themselves, are forced to be among the most ruthless exploiters of wage labor-often exploiting members of their own family. Those that do survive for any length of time do so only by extracting surplus value and accumulating capital through such exploitation. Thus, even if the business was started largely from what the petty capitalist saved when he or she was a worker, it increasingly comes to consist of wealth that was stolen from the working class.
Frequently, the petty capitalists are at the mercy of larger capitalists, and are not really "independent" owners. Many are but adjuncts to larger firms that own or control the "chains" of retail outlets, restaurants, real estate offices, etc. And petty capitalists generally are, at best, left with but a small share of the surplus-value contained in the commodities they sell, after they pay their suppliers, bank and other creditors, landlords and the political state. Thus, even the supposed great "merit" of small business and "free enterprise"- that it permits people to "be their own boss"- is largely a fiction even for the small minority able to start up a business. The only realistic way that workers today can truly become "their own boss," in terms of determining the policies that govern a workplace or industry, is by organizing as a class to establish a socialist society, in which all the people will own, and collectively and democratically control, all the means of production and distribution.
Socialism necessarily means abolishing the private ownership of all means of social production and distribution. However, this will not mean ruin and destitution for small business owners. On the contrary, they will become workers in a society in which all workers would be entitled to work, and to receive the full social value of what they produce. Thus, for most, if not all, of the former petty capitalists, socialism will mean greater affluence and a major increase in leisure time. And for everyone, socialist society means full economic security and the numerous advantages of life in a peaceful, harmonious and healthy social and physical environment.
All told, petty capitalists will be far better off under socialism than under capitalism. Due to the nature of their class position and outlook, only a very few petty capitalists can be expected to recognize this and act accordingly. But then, the socialist movement is fundamentally a working-class movement, more concerned with persuading and organising the vast majority of the people who belong to the exploited class of useful producers than winning over the minority that does the exploiting. When the working class unites politically and industrially to overthrow its exploiters and establish social ownership and democratic workers' control of the means of production, it is only taking back what it, and past generations of workers, created.
Today's top capitalists – many of whom inherited their class status, further indicating that they had little to do with the organising of production -- typically live off the surplus value from a diversified array of stocks, bonds, banking and other investments. They are far removed from the process of production. For example, a capitalist may have a few thousand shares of stock in an airline in the morning, sell it and use the proceeds to buy up shares of stock in a pharmaceutical firm in the afternoon, and sell that stock two days later to buy up shares in an electronics company. It is obvious that such a capitalist will have little or nothing to do with organizing the means of production in any of those firms. For that matter, many capitalists don't even have to involve themselves in such buying and selling. They have businesses such as hedge-funds to "manage their investments" for them too!
One could argue that the capitalists collectively are still ultimately responsible for the efficient organisation of production. But their profits are not the "rewards" of efficient organisation of production. The most efficiently organised production facility in the world wouldn't yield a penny of profit if its owners (or their hired management) did not hold the price of labor power (wages) down below the price of labour's product, i.e., if they did not exploit the workers.
Moreover, to whatever small degree some capitalists may still be "credited" for efficient organization of production within individual firms, the system of capitalist production is marked by anarchy, not efficiency. Separate firms competing for the same markets, with wasteful duplication of effort; the inevitable "crises of overproduction" that arise from that competition and the exploitation of wage labor; the waste of having 20 percent or more of the nations' productive capacity and 10 percent or more of the nation's potential workforce involuntarily idled at the same time; the colossal waste of potentially useful labor being channeled into advertising, real estate, "business services," militarism, regulatory agencies and other institutions that are "necessary" only to capitalism - these conditions are hardly indicative of the most efficient organization of production.
Finally, to whatever small extent capitalists may be responsible for the "efficient use of labor" within a firm, such efficiency, under the capitalist system, does more social harm than good. Productivity improvements under capitalism are used, not to lessen the necessary hours of labor for all, but to eliminate the jobs of many, and frequently entail stepping up the workloads or the pace of work for the workers remaining. All told, capitalists do have an interest in seeing production organized such that it will "create the most wealth"- for themselves. But for the vast majority of the people, who belong to the working class, this is hardly an argument in favor of capitalism.
A class of parasites is not needed for production to be organized in an efficient manner. Production will operate far more efficiently, in the social interest, when the workers themselves are in full control of production and distribution, and there no longer exists another class to "make...use of labor," for its own selfish ends.
It is sometimes argued that capitalists have an incentive to make the working class richer, not poorer? The more money the working class has, the more it will be able to spend on new goods and services, thus fueling the continued growth of capitalism.
Since profits are derived from surplus value, which can be extracted at an increased rate only by reducing the workers' share of their product, capitalists have every incentive to drive wages lower, not higher. The fact that capitalists as a class also must rely on workers to consume a certain portion of the total product in order to keep the economy growing doesn't change the incentive of each individual capitalist firm to push its own wage costs down. Indeed, this contradiction is at the heart of the system's cyclical "crises of overproduction" which periodically rock the capitalist economy. Some capitalists may well be aware of the contradiction, but they cannot resolve it. No individual capitalist firm is going to raise the wages of its own workers in order to contribute to raising the purchasing power of workers as a whole. The profit motive and the force of competition prevent such action. The firm that attempted to do so would have less surplus value than its competitors, would have less to invest in improved means of production, and sooner or later would be underpriced and ruined by the competitors that kept wages lower.
At least one capitalist think-tank, the Brookings Institution, recognised the essence of this contradiction in a book entitled, Income and Economic Progress. There it was argued that it was pointless to rely on a 'Voluntary increase of money wages as an adequate means of increasing the purchasing power of the masses," since "there is immediate gain for the individual business enterprise which can reduce wages below the existing market rate. To pay more than the market rate for wages," the book continued, "appears not only needless but also unstabilising in its effects upon business generally. Moreover, the very essence of competition is to pay what has to be paid and not more. Why should one ignore market considerations when he hires labour any more than when he buys raw materials?"
The idea that the capitalist system as a whole would, hypothetically, be more robust if wages were raised is not enough to cause capitalists to act contrary to their own immediate material interests. And this idea has nothing to do with the limited and qualified improvements in living standards that some workers have gained in this century-improvements that are now being reversed.