Both Marxist and neo-classical theories of income distribution agree that the worker is exploited if he gets less than he produces. They differ over the imputation to the worker of 'his' product, Marxists using the average and neoclassical theorists the marginal product. In order to bring out the deeper reasons behind this difference, the following notions and theories are invoked: the fallacy of composition, permitting the capitalist to treat each worker as if he were the marginal worker; the alienation of the worker from the capital goods which are the product of past labour; the capital controversy and the doubts that have been raised about the notion of aggregate capital; and Robert Nozick's distinction between end-result principles and historical principles in ethical theory.Pre-capitalist societies and advanced capitalist societies require a different conceptual frame work than the exploitation theory developed by Marx for classical capitalism. In these societies power relations and strategic interaction are more important than the anonymous exploitation through the market mechanism. Kelvin Lancaster's view of capitalism as a differential game between workers and capitalists provides an insight into modern capitalism that is more adequate than the Marxist model.
