Another traditional view holds that profits accrue to those who own productive assets, while wages are paid to those who do not own the productive assets they employ.

But when you move up into the upper reaches of the organisation, both of these distinctions blur (in many of the bonus schemes lavished on upper management, they have all but disappeared). Management salaries become partly contingent on shareholder profits (or, in a more pernicious version, share prices). And management, not shareholders, are the ones who actually exercise control over the productive assets of the firm. Combined with the fact that upper management is very rarely fired for cause - they are normally bought out through golden parachutes - this raises a very real question as to whether the management cannot be said to co-own the assets in question, and thus whether their remuneration should be regarded as wage or profit.

This is not an entirely theoretical exercise. Non-profit organisations are permitted to pay market rates for management services, which means that when a non-profit becomes sufficiently large and complex (and "market rates" for upper management therefore take on an increasingly profit-like aspect), there is reason to question whether it does not, de facto, generate profit.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.