Bill: "The core of Marxist theory as I understood it was that all profit ultimately derived from labour."
[WS:] Yeah, and this was also a falsehood or reductionism rooted in missing the role of productivity in creating value. Labor may be creating all value, but how much of that value it creates depends on its productivity, and productivity depends on capital investment. In the middle ages, surplus value created by labor was extracted by feudal lords and either consumed or passed along to lord's offspring. Hence the productivity of labor in the middle ages did not change that much and the only way to increase surplus was by increasing labor input (more people working on more land). Capitalism separated investment capital from patrimony, and labor productivity started to improve rather quickly. Unlike feudal lords, who were a purely parasitic element of the medieval economy, capitalists actually perform labor that produce value inasmuch as their labor increases the productivity of all labor. From that pov, capitalist is a hybrid of a feudal lord inasmuch as he engages in conspicuous consumption and a worker inasmuch as he invests capital to improve the productivity of labor. The balance of these two roles of the capitalists - parasitic drones engaged in conspicuous consumption and worker bee producing surplus value for others - varied among different socio-political settings. I'd say that most of the US capitalist class is of the mostly parasitic variety, whereas in Asia and parts of Europe it is more of the worker bee kind.
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There is no "fallacy" or "reductionism" on Marx's part.
The capitalist may or may not participate in the production process--as a worker, a supervisor or manager. But his or her profits have nothing to do with his or her "labor" These functions could just as easily be performed for a salary, and are. Profits accrue to the capitalist in virtue of the fact that s/he is the owner of capital, and nothing else. Productivity does not require investment. It is a function of the instruments, techniques and natural conditions under which work is performed. The fact that these things take the form of capital, and are bought and sold under capitalism, has nothing to do with their inherent, productivity-enhancing qualities.
Jim