1: Issues that Depend on Distribution
Collaboration among men on productive activity results in a significant problem: when men work together to achieve an outcome, how are the benefits (profits) of that endeavor to be shared among them? Is there a natural or universal standard of fairness for so doing?
Where a man undertakes to produce something on his own, there is no such conflict. The fisherman sets out in his boat, and what he catches is his own. But the second two men go fishing together, there arises the question of how to share the catch. If they cannot settle this matter between themselves, government is called on to effect a peaceful resolution by force - to avoid the two men doing violence to one another to get what they want, an objective third-party can use violence to them both to force upon them a solution that neither of them wants.
In post-industrial society, few men produce things on their own or in ad-hoc collaboration with others. Instead, there are long-standing relationships in which one man (or many) contribute their labor to a commercial concern in exchange for a share of the profits. Or even more commonly, they wish to receive an immediate wage regardless of if or when the undertaking generates a profit.
This relationship has existed for centuries between craftsmen and apprentices. The apprentice assists a craftsman and receives a payment for his assistant, regardless of whether his labor creates anything of value. In many instances, a young apprentice destroys more materials than he creates in finished goods and his wage is a gift, and as he gains experience he increases to rather than reduces his employer's profits. But where there is one employer and one employee, communications and personal and direct. Any disagreement about wages can be worked out immediately, generally to the satisfaction or both - or the employer and employee part company.
However, industrialization has changed our way of life. A factory owned by one man may employ ten thousand, and it is not possible to negotiate wages directly with so many employees. Nor is it possible for employer or employee to appreciate how much (or little) each individual worker contributes to the total product. And should there be an irreconcilable difference and the two part ways, ten thousand laborers are unemployed, and the sudden glut imbalances the local labor market, diminishing the income of all.
The complexity becomes greater because of the number of individuals involved. In a corporation, there is not just one owner, but many who argue over their shares. There are investors and creditors who also demand their share. There are many employees who perform different kinds of work, some of which has no direct relation to the product the firm sells.
Further, most workers' wages are paid in advance and are not dependent on the productivity of the work, hence the employer is paying out of revenue not yet received and absorbing the risk that it will never be received (should the product fail to sell). The employer is therefore conservative in setting wages so that the risk is mitigated. There is also an expectation of wages to be stable - that once a wage is set, the laborer will continue to receive that wage. The employer will be reluctant to offer more and the employee will be unwilling to accept less when market conditions change.
There is also the matter of supply and demand of labor in the marketplace, which is independent of the accounting profit of a firm. Where there is a shortage of labor, it sells at a premium, and the employer must offer higher wages or lose his workers to those who can. Where there us a surplus, the laborer cannot demand a higher wage because other workers are willing to work for less. And then, there is the necessity of a specific set of skills - not all labor is interchangeable. There may be a shortage of carpenters and a surplus of blacksmiths.
There are also psychological factors, in that an employee "feels" that he is worth a certain amount whether or not he can substantiate such a claim. This may be self-referential, as the employee feels he deserves a given wage for no other reason than he wants it, or it may be comparative in that the employee feels he must get as good or better a deal than others, conveniently ignoring that his work product is not equal or greater than that of others who are better compensated.
It is also largely an effect of the modern economy that man is able to generate income by doing something other than creating things to consume. Ultimately, consumables are the source of wealth, but there are ancillary services for which a person is compensated. The merchant's profit is made for the services of conveying things from producer to consumer. The investor's profit is made from lending capital to those who can make productive use of it. The speculator's profit is made from recognizing that people value things more in one location or time than another, and so on. There is very often some jealousy or consternation on the part of those who perform strenuous physical labor for those who perform less physical activity and gain better compensation.
He then contrasts two different kinds of distribution:
- Personal Distribution - Determines the amount of profit that is paid to individuals, which is often a subject matter that is subject to negotiation and agreement.
- Functional Distribution - Determines the amount of profit that is created by performing a task, which is not at all subjective or negotiable, but may be difficult to precisely apportion when multiple individuals collaborate.
The most valid claim to unfairness in the distribution of wealth is when the personal distribution is not in line with the functional distribution - whether significantly more or less. The essential problem is greed, or the desire of some parties to gain more than that to which they are entitled by taking from the share of others.
An individual working alone, financing his own operation, always gets exactly what he produces even if that is nothing at all. There are instances in which employees are engaged for a share of the profits, and while this not be precisely correct it is at least proportional to the amount of profit - but the employee takes the full risk of contributing his labor to a fruitless enterprise and receiving nothing at all. And more commonly there are instances in which employees are paid a wage for their time regardless of whether the enterprise is profitable and their employer bears the full risk of taking a loss if the enterprise is less profitable than predicted.
There is a brief consideration of how profit is created. Man's "work" is coordinating labor and capital to produce a benefit, either for himself or to be exchanged with others. He may work with his own labor and capital, or he may work with that of others. There is no other way that anything is produced.
When others contribute capital and labor, they do so to gain compensation, and the amount of their compensation is negotiated with the person to whom they lend their service and assets, and there are many bases on which a person may suggest that a given amount of labor or capital is "worth" a given amount of compensation. It may be a calculation of the profit generated by their specific contribution, mitigated by the market value given alternative sources (an employer bargain-shops labor in the same way as a worker bargain-shops for the goods he consumes among competing sellers). The most an employer can afford to pay is the full amount of profit he creates, and the least he can pay is the lowest price quoted him by a provider.
Here, he briefly mentions the perspective of the socialists, whose concept of fairness has nothing to do with productivity. In their perspective there is a certain amount of compensation a man deserves, just because. They contend a man is entitled to have the necessities and luxuries of life provided for him even if he does nothing to create what he consumes. If a man cannot produce what he requires by his own effort, the only way he can have it is to take it from others who have produced it - and because he has produced nothing, he has nothing to trade and must take from others without compensating them. The ethics of socialism are therefore very specious, to the point that the words "ethical" and "socialism" are contradictory.
Man has a choice to collaborate with others, and it is rational to collaborate only when it is more rewarding to do so - if he can be more productive working alone, and particularly when this is because he receives less than he has produced, then it is not in his interest to collaborate. In such instances, he must often be compelled by threat or force to work for others, as he would not choose to do so himself. There is no need for threat or force to guarantee a man the possession of that which he produces. It is necessary only to give a man possession of what he has not produced, or to take from him that which he has produced to give to others. And this is the reason that socialism almost always requires some element of force against the productive, and why those who are productive shun any such social arrangement.
So as a society, the problem we have to solve is arriving at a common idea about what distribution of wealth is fair and equitable to all, and it must be based on a rational and realistic standard if it is to be sustainable. Where men feel they are being treated unfairly, they part company and society unravels. Threat and force can only hold them in place for so long before they rebel or defect, or are discouraged from being productive because it renders them no benefit.
In isolation, a man who does not produce what he needs to consumer is not sustainable. In society, a body of men who do not produce what they need to consumer is also not sustainable. And therefore, it is the very perpetuation of society that is at stake in this inquiry.