False and True Paths to Higher Wages

Vic H. Blundell

[Reprinted from Green Revolution, Summer 1981]

People everywhere need understanding of fundamental, natural economic principles governing the rate of wages, Those who set themselves up as judges are often no better informed than the wage-earners. themselves. A few sages who recognize that an economic law determines wages (and that this should function freely) are brushed aside as reactionary defenders of laissez faire, the source of the trouble. This is not surprising because the question is mistakenly thought to be a battle between the capitalist employers and those employed. They are unaware of how the legal privileges in land, tariff, quotas, subsidies, grants and monopolies upset the "law of wages".

Let's look at the wages-problem in a non-inflationary context. First we must define "profits". No matter how increases in wages for any section of wage workers are secured, the increased cost is passed to the consumers in higher prices. When more wages are given to workers in some industries, they are obtained at the expense of fellow-workers in all other industries. Trade unions know this but they say, "It's not our fault if the cost of our wages is passed on to the consumers. Wages really should come out of profits".

Workers don't (and can't) explain how this is to be done.

Trade unions seem concerned only with their own problems and disregard the general interest. The unity of workers is a sham; the closed shop results from fear that wages may be lowered by competition of fellow workers, and from the frustration of knowing no way to raise the whole wage level.

The ordinary worker regards his employer's interest as antagonistic to his own.

He fails in a longer view of the varying factors that he telescopes into the word "profits", To better understand the "wages" question, we must better define profits and capital.

Three factors -- land, labor and capital -- produce all wealth. Each of them logically deserves a return of this wealth for their part, labeled rent, wages, and interest. These three are often lumped in the term "profit". And in that "profit" are often hidden privileges granted thru laws, such as protective tariffs, quotas, licenses, subsidies, grants and monopolies.

Capital should have a legitimate return, namely interest. Because this is distorted by, and not distinguished from the "return on privilege", defense of interest on capital is interpreted as defense of profits of any kind -- no matter whether they originated in legal combines and monopolies. The remedy of low wages, therefore, is not in clobbering the legitimate user of capital (nor even in "profit-taking or profit-sharing") but in removing the source of privilege.

Other things being equal, it is clear that wages are no higher. in monopoly-businesses than where there is competition. Why? Where productivity is greatly increased by shops and factories on superior locations, wages are no higher? Why is this? Due to its location, fertility or mineral content, the productivity capacity of land varies enormously from place to place, yet wages tend everywhere to a common level. Where does the increased production from site and fertility, go? Keep your eye there to help explain the low level of wages.

The value resulting in land because its site or location comes from the work of all the people in the community. Higher land values result largely from the community expenditures on or near that land for streets, schools, markets, fire and police protection. It doesn't come from the efforts of the individual land holders.

An important step toward a higher wage level is for the community to collect and use for its community-purposes those rises in land values. This has two effects. First, holders of high-valued land will have to pay high amounts to the community -- and will prefer to surrender land they are not using. This brings more land into production for those who need it, Second, since the community gets its "income" from land-values, then the community can remove taxation from wages, incomes, the products which wages buy, and from the capital of the hard-pressed user of genuine capital. Workers can see the sense of thus removing the factors that depress wages.

The Non-privileged Capitalist

The non-privileged capitalist can get only a competitive return on his real capital. He, unlike the land-holder, cannot benefit at the expense of the community. His advantage comes from his better product, or being first in the field. But such will be soon duplicated if the capitalist has no government-granted-privilege, such as a special license, subsidy, quota, tariff, patent, etc. It's his work, skill, enterprise and knowledge (all labor) which bring him rewards -- but not at the expense of others. They will rightly be his wages, operating as a capitalist -- i.e., user of capital.

What can such an employer do when his workers face him with a higher wage bill? He could meet it from his own wage. Should he work for less than his employers? He could accept a lower interest on his capital. But competition already forces it to a low rate. In both these cases, the employer is therefore obliged to pass on any asked-for increase in wages to the consumer in higher prices; or go out. of business.

But a producer privileged with a monopoly or favored land-site is not under the same pressure. Wage increases for his workers could come out of the special land-privilege which he enjoys. Nevertheless, today he does pass them on. His privileged "profits" are protected by the laws under which a mistaken capitalist system works.

What must be done? Certainly first is to abolish legal privileges. Only then a person cannot benefit oneself at the expense of another. When location-value of land flows to the community, there will be no claims upon production except those of' labor and capital. Then the path -- the foundation of -- permanently high real wages will have been well laid.