GMAT Reading Comprehension
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Source: GWD
Level: 3
Seventeenth-century philosopher John Locke stated that as much as 99 percent of the value of any useful product can be attributed to "the effects of labor". For Locke's intellectual heirs it was only a shortstep to the "labor theory of value", whose formulators held that 100 percent of the value of any product is generated by labor (the human work needed to produce goods) and that therefore the employer who appropriates any part of the product's value as profit is practicing theft.
Although human effort is required to produce goods for the consumer market, effort is also invested in making capital goods (tools, machines, etc.), which are used to facilitate the production of consumer goods. In modern economies about one-third of the total output of consumer goods is attributable to the use of capital goods. Approximately two-thirds of the income derived from this total output is paid out to workers as wages and salaries, the remaining third serving as compensation to the owners of the capital goods. Moreover, part of this remaining third is received by workers who are shareholders, pension beneficiaries, and the like. The labor theory of value systematically disregards the productive contribution of capital goods - a failing for which Locke must bear part of the blame.
According to the author of the passage, which of the following is true of the distribution of the income derived from the total output of consumer goods in a modern economy?
- A Workers receive a share of this income that is significantly smaller than the value of their labor as a contribution to total output.
- B Owners of capital goods receive a share of this income that is significantly greater than the contribution to total output attributable to the use of capital goods.
- C Owners of capital goods receive a share of this income that is no greater than the proportion of total output attributable to the use of capital goods.
- D Owners of capital goods are not fully compensated for their investment because they pay out most of their share of this income to workers as wages and benefits.
- E Workers receive a share of this income that is greater than the value of their labor because the labor theory of value overestimates their contribution to total output.