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14 Wages

Wages is among the most sensitive of topics in economics: there is no workman who wouldn't wish to get more for his labor, and pandering to this desire is a common tactic in politics. There can be little debate that a certain wage is necessary for subsistence - but as in all things, the need of the supplier is only one side of the argument as to what wage is "fair" for a given hind of work. Bastiat would like to set aside the political matters to discuss the more practical matters of economics.

He turns first to the autistic economics of primitive man, where the wages of labor were determined as the direct outcome of action. If a man chooses to fish, he may have fish to eat; if he chooses not to fish, he will certainly have none. And here the first problem of wages is witnessed: if he takes action he might be rewarded - and he must accept the possibility he will not. A man may attempt all day to catch a fish and fail. When this happens, he accepts it as his own failure - and if he should insist that nature or God is being unfair with him for not rewarding him for his effort, this is clearly petulance.

Modify this situation: a man agrees to help another man to fish, and they agree to split their catch. If the two men working together catch no fish, then there is no reward for their labor. The assistant has no rational basis to claim that the man he agreed to help has not been fair with him - their effort produced no fish, and there is nothing to divide among them.

Modify this situation again: a man agrees to help another man to fish, in exchange for a sum of money. If the two men working together catch no fish, then the man is still owed the sum of money - the agreement was for his time, not whether it was productive. If the men working together catch a plethora of fish, then the man is owed the sum of money on which they agreed, and not a penny more. The fact that the excursion was more bountiful than expected had no bearing on the sum of money that was agreed upon.

And therein is the most basic conflict of wages: the wage is owed as agreed regardless of what profit is made from the work. If his labor is unproductive, he is still owed the wage and the employer must fulfill his agreement. If his labor is highly productive, he is still owed the wage that was agreed upon, even if the employer profits tremendously from the tasks the laborer performed.

The worker, and those who advocate for him, do not care for any of this: they are concerned for their own profit regardless of the fortune of the employer. It is common for workers to suggest they are owed a greater share of the profit when the employer enjoys success - and unheard of for workers to return their wages when their employer suffers misfortune. Thus considered, there is very little actual fairness in their demands for "fair" wages.

He likens wages to "insurance" that an employer provides - in that the laborer is ensured his income regardless of whether the employer profits from his work. It can also be likened to credit because the laborer is paid for the work long before the product is sold. (EN: It's my sense that he is suggesting that the worker's "cost" of wages, being less than the total amount of the profit on his work, is like an insurance premium or an interest expense, but that seems wrong-headed. The worker's wage is a price for a product, and is set in a negotiation in which the buyer pays no more than necessary and the seller sets his minimum price.)

He considers the profit of business as a risk - an investment in labor and capital to produce a product that he hopes to sell for a profit, but is not guaranteed. Some business ventures make fortunes, others lose fortunes. The employer considers the wages he pays as part of his wager in a high-risk game.

He suggests that the socialists description of wages as "tyranny" or "feudalism" is aggrandized propaganda and entirely basis. It ignores that workers are not forced to accept a wage, but may negotiate for it, and that they may choose to work elsewhere. The stern choice of "work or starve" is presented to every person by nature, not by other people. Employers offer laborers an option for a way in which they may work, but have no power to command that they accept what is offered. Ironically, it is only in the socialist system that people are compelled to take a given job to receive whatever benefits the state offers in return.

It's also mentioned that the wage system has taken precedence because workers prefer it to other alternatives. Laboring for a share of the profit when the product is sold provides the worker with no income for a long period of time and causes him to share the risk of his employer that the product will not sell. Being paid for piece-work as work is needed is also unattractive because it depends on productivity and income may vary with the customers' demand for finished products. Given these options, many workers prefer to work for a stable and dependable wage - as much as they complain about wanting more, workers will elect to accept a wage because they are unwilling to deal with the risk and variance in other methods of compensation.

He further explores the distinction between providing service for pay and slavery/serfdom. (EN: This is excessive as the difference is clear - the best approach is not to get into a debate of words, but merely dismiss those who resort to distortion and melodrama. But it is worth noting that the kind of system the socialists propone - a central control of all labor - is closer to slavery than the free market.)

A significant point about contracts: men enter into contracts willingly - while a contract "binds" a man to fulfill certain obligations, it is in exchange for obligations the other party makes to him. If neither party has taken action, they may simply nullify their commitment. A problem arises only when one has fulfilled his obligation and the other party refuses to fulfill theirs - in which case just compensation is owed by any standard of reason and fairness.

Men are required to undertake effort to provide for their needs - this is a requirement imposed by nature, not by other men. Working for a wage is only one choice, provided to them by an employer, and it is a choice they may take or leave of their own free will. (EN: Ideally speaking, that is - there have historically been instances where government supports dragooning men into the service of a private company.)

He then details a number of situations that are more in the nature of accepting unfavorable contractual terms than anything to do with the general practice of employment. It's likely good advice, but in terms of the political argument it is a distraction - again, the unusual circumstances are suggested by propagandists to be universal and the better response is simply to dismiss them as such. It is also worth noting that the laborer is not compelled under most circumstances to remain in a given situation - he may walk off the job at any day, sacrificing only his unpaid wages, if he feels the situation to be disadvantageous.

As a positive argument, employment provides laborers who would be unable to work at a task for lack of capital resources the opportunity to contribute only their labor to one who provides the capital for their work to be accomplished. A man with only the skills to be a carpenter, without a workshop, tools, wood, or customers to purchase his product, may earn a living by selling his labor - and in very many instances the employer will also teach him the skills. It is a very beneficial relationship to both.

He mentions instances in which there is an abundance of labor, at which time employers can get help very cheap. This is not the employer's doing, and he acts as any buyer of any product in seeking the supplier who will accept the lowest price. And again, there is no public outcry when supply and demand favor the worker, and employers must pay dearly for scarce resources.

It's also noted that "the wage system" is not a system at all unless government gets involved. An employer is in competition with others, rather than in collusion, to obtain the labor he needs from the market. It is only when politicians intervene to enforce a given wage that there is any form of systemic control.

As to the accusations of collusion, this is just as common among laborers (to form a guild or union to acre to refuse to accept a lower wage) as it is among employers (to associate and agree to pay no more than a given wage). Without government support, such conspiracies are short-lived. Those who collude inevitably find that the agreement is not in their favor, and to serve their needs they must avail themselves of an opportunity to negotiate wages freely.

He speaks briefly and favorably of "mutual aid" societies, which provided a sort of unemployment insurance. Members who paid dues while they were employed would be supported for brief periods during which they were unemployed. But like many systems it was easily exploited by those who wanted to take more from the pool than they gave, and contrived ways to cheat their fellows. It is likely that through better planning and administration, such societies could provide a safeguard against unemployment. He also mentions that these societies were often self-policing and did much to encourage good work habits in their own members - to exclude the shiftless and dishonest workers from their ranks because they are a drain on those who are willing to be productive, but fall into misfortune. In this way membership in such a society is a warranty of a worker's quality.

He suggests that such organizations must remain independent to perform their function. When government takes over, efficiency is destroyed. People are forced to join, and the shiftless and dishonest are not excluded or discouraged. The funds are poorly managed, because a government can always extort from the taxpayer. History has shown government to be very poor at managing the insurance business, and it is best left to private firms.

Ultimately, even these organizations are unnecessary "in cases where private individuals are capable of managing their own affairs." And the same can be said of government. If the worker sets aside some savings to carry him through a period of unemployment, he needs no charity. He switches to the idea of a pension, which is very similar. A worker who saves for his retirement needs no assistance.

(EN: This goes on for quite a long time, as it was evidently a sensitive topic during the author's time - but it is more political than economic in nature.)

He returns to the idea of negotiation - deciding what percentage of the revenue is owed to capital and labor. Naturally, it is impossible to dole out more than is paid by customers (though the demand to do so increases price, which is burdensome to all of society), but there are various arguments as to what share is "fair" to the laborer and the capitalist. (EN: Again, this will be very idiosyncratic and there can be no general principle, and it is unnecessary. Wages are determined like prices, by negotiation between two parties who are concerned with their own needs, not the costs incurred by the other.)

He considers the evolution of workers in his day - suggesting that men tend to begin as wage earners for lack of capital, then amass capital to go into business for themselves, then hire others to do the labor. To his mind, the laborer and capitalist are not different people or different classes, but stages in the growth of a single person. The laborer who demands force against his employer will, if successful, found himself in a yoke of his own creation.

(EN: A great deal more rumination follows on the politics of the day, largely in attempting to intervene in a process that is better left alone. Inefficiencies and calamities exist, but are often more the result of the nature of things, and to attempt to intervene is an injustice to some and an injury to all - particularly when interfering makes industry unprofitable and capital abandons the domestic market to find investment elsewhere .)

He returns to his earlier consideration of economic development. It is possible to subsist without capital, as many primitive tribes do. And it is possible to subsist without employment, as was done when households were self-sustaining (though even then, there were servants and slaves). Capital and employment of labor represent a step in the evolution of human society - to rant against them is to argue against chance, for a return to a primitive existence. The men who seriously propose that are certainly free to depart from society and attempt to live their ideal existence in isolation - but choose not to do so because whatever they say, their behavior shows they prefer to exist in what is currently considered to be civilized society.