[WS:] This really answers a different question - why is there any surplus over the cost of production (i.e. remuneration of all factors of production) - which according according to the classical economic theory should not exist, at least in the long run. If that surplus exists, it is due to monopoly of which innovation is a special case. Innovators enjoy a short term monopoly before others catch up, and that allows them to charge premium over the cost of production. That argument has been around for a while cf. Schumpeter.
The question that I asked was what is the contribution of capital owner into the production process. The answer is that investments increase labor productivity and thus contribute to the creation of value. From that pov, capital owner is no different from a grunt with a shovel - they both contribute their labor to create value. The difference between them lies elsewhere - namely that capital owner also gets economic rent in addition to employee compensation, whereas the grunt with a shovel does not. It is quite possible, however, that the rent part of the capital owner is zero and all that he gets is compensation for his contributions to the production of value. That is, for example, the case of classical economic theory which holds that under perfect competition there is no room for any surplus beyond the cost of production.
Of course we all know that reality is different and there is ample of surplus that theoretically should not exist. The only solution to this dilemma that economics could muster was monopoly pricing that allow premium over the cost of production. However, it did not answer the question how the monopolies are created and maintained in the real world society. The answer that it is the "executive committee of the bourgeoisie and it military power" does not pass the smell test - because force or threats of force are almost never used in a modern society (there might have been some truth to it in the 19th century though) and monopolies are firmly established right and left. The innovator gaining a temporary advantage is a much better solution, but it does not explain situations of monopolists that do not innovate and yet maintain their monopoly status (e.g. US telecoms that offer shitty service by international standards at monopoly prices).
As I see it, the answer to this question should be sought within the realm of social relations not economics. It is the social organization of the economy that sets how goods are produced and delivered, how the producers are compensated, and what acceptable compensation for different types of producers is. This social organization of economy may or may not be consistent with what economics identifies as efficient markets - in reality there is some resemblance of market relations and some deviation from them.
In other words, different shades of grey.
Prices and compensation levels are set predominantly by social custom and the only limit is what the market can bear, If not enough surplus is generated, the customary prices and compensation levels cannot be supported, but other than that they can be set at any level that the players perceive as legitimate, and sky is the limit. This is why US companies can charge hundreds of dollars for products that cost pennies to produce and even less to innovate (cf. most fashion gadgets) and pay their executives - who are not even owners of capital in the conventional economic sense - fabulous salaries out of that surplus. They can do it because the majority of people consider these prices and these compensation levels as legitimate.
How that legitimacy is created and maintained is a different story - and that story is told by sociology, not by economics. In fact, conventional economics has very little to say on the subject - as evidenced for example by the fact that the recent Nobel prize in economics was awarded to guys who showed that prices cannot be determined by market rationality, and one of the previous prizes were awarded to a guy to show how cognitive biases affect economic decision making. Sociology otoh has plenty to say how social status and institutions affect the supposedly rational behavior.
Veblen's single publication (Theory of the leisure class) contributed more to the understanding of human economic behavior that all rat choice theories combined - but this is not the story that either Marxist or the mainstream orthodoxies want to hear.
-- Wojtek
"An anarchist is a neoliberal without money."