Wages: The Anti-Capitalist and Pro-Capitalist View
[formatted from this twitter thread- ed.]
I present two conflicting theories of how the standard of living of the average wage earner rises: the prevailing, anti-capitalist theory, and my own, pro-capitalist theory.
Keep in mind that every law ultimately rests on the threat to kill violators. That is the threat made against all who forcibly resist lesser punishment, such as paying a fine or going to prison.
Thus, the prevailing theory of how wages rise is essentially that the government tells businessmen and capitalists, raise wages or we’ll kill you.
The prevailing theory of how the work week shortens is that the government tells businessmen and capitalists, shorten the work week or we’ll kill you.
The prevailing theory of how child labor is eliminated is that the government tells businessmen and capitalists, stop employing children or we’ll kill you.
The prevailing theory of how working conditions improve is that the government tells businessmen and capitalists, improve working conditions or we’ll kill you.
Now here’s my theory:
Businessmen and capitalists are continuously striving to introduce new and improved products and more efficient methods of production. They are impelled to do this by virtue of the profit motive.
To the extent that the businessmen and capitalists succeed, the supply of products is increased relative to the supply of labor, which causes the prices of products to fall relative to wage rates. This means a rise in the buying power of wages, i. e., a rise in “real wages.”
As real wages rise, more and more workers are put in a position in which they can afford to work in jobs that pay less but offer shorter hours. In fact, they become able to afford to take reductions in pay in greater proportion than the reduction in hours. Wage cuts in greater proportion than the reduction in hours make it positively profitable for employers to offer shorter hours. E.g., instead of two 12-hour shifts, it becomes more profitable to have three 8-hour shifts at lower hourly wages.
As the real wages of workers rise, not only do their hours shorten, but also the need for a financial contribution from their children diminishes. Thus, as capitalism progresses, the age at which children go to work rises. Since 1780, it’s gone from 4 to over 24 in many cases.
Furthermore, as the real wages of workers rise, they are more and more put in a position in which they can afford to take jobs that pay less but offer better working conditions, and, by the same token, refuse to take jobs that offer poor conditions.
Because of the height of real wages in capitalist countries, wage earners are routinely able to refuse to take jobs with poor conditions, except at such a premium in wage rates that it is usually much cheaper for employers to pay the cost of improving the conditions.
In sum, without government intervention, capitalism operates to raise wages, shorten hours, end child labor, and improve working conditions.
I turn now to a brief account of the effects of imposing the prevailing, anti-capitalist, gun-slinger, we’ll-kill-you theory of how the standard of living of the average wage earner rises.
Imposing wage rates above the free-market level causes unemployment. Insofar as those forced into unemployment in one field then add to the supply of labor in other fields, wage rates in those fields drop. An arbitrary inequality in wages is created. And skills are wasted.
Forcibly raising wage rates at the bottom of the skill-ladder, as do minimum-wage laws, forces the displaced workers into unemployment. These workers were already earning a wage below the now prescribed minimum and being employed elsewhere would require a yet-lower, illegal wage.
Forcibly reducing hours reduces production and causes higher prices. Even if the average worker’s hourly wage is increased to the point of leaving his weekly wage unchanged, the rise in prices reduces his real wages. Poor people are gunned into being poorer than they need to be.
Denying parents the ability to obtain a financial contribution from their children makes desperately poor families poorer still.
Forcibly improving working conditions diverts take-home pay into paying for the improvements and thus can literally take food off the table of poor workers’ families.
In sum, the so-called do-gooders are not at all do-gooders. They are EVIL-doers. They have an imperious mentality as far removed from reality as Marie-Antoinette’s and go about like drunken fools urging the government to brandish its weapons, not knowing who or what might be hit.
To learn about every aspect of the case for capitalism, read my Capitalism: A Treatise on Economics.