![]() The answer here is not to raise the banner of class warfare but to accumulate skills. At this skill level, also, capital can be substituted for labor providing a further downward pressure. Of course, where labor is unskilled it is homogeneous and we would expect to see the increased competition for jobs and resultant low wages which we do. No brain surgeon ever accepted a lower wage from the fear that the hospital might hire a juggler instead. It follows that workers with different skills are not substitutes for one another they are not, in other words, in competition. Skills, like capital, can be specific to a certain role and, thus non-transferable. The error here, perhaps less when Smith was writing, is to regard labor as homogeneous. Warren Buffett would not disagree.īut looking at the passage from Smith we can see much wrong with it, or at least, much that has no application today.įirst, Smith says that stockholders are "fewer in number" than laborers and thus have a kind of oligopoly power. Wages will stagnate, Smith argues, and profits will rise. From this flowed the idea of the 'subsistence wage' with which Malthus earned economics the tag of "the dismal science" and Lasalle's Iron Law of Wages. Smith argued that wages would rise when an economy was growing but otherwise he posited a clear general tendency for wages to feel only downward pressures. In the long-run the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. The masters, being fewer in number, can combine much more easily.In all such disputes the masters can hold out much longer. It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. With wages, Smith states, "The workmen desire to get as much, the masters to give as little as possible". Instead, this product goes to the stockholder as profit and the laborer receives wages. ![]() Workers do not receive the full product of their labor as they did in the "early and rude state of society which precedes.the accumulation of stock and the appropriation of land". Here we have the genesis of the Marxist theory of the workers alienation from the means of production, exploitation, and 'class war'. His maintenance is generally advanced to him from the stock of a master, the farmer who employs him and who would have no interest to employ him, unless he was to share in the produce of his labour, or unless his stock was to be replaced to him with a profit" Smith says that "The produce of almost all other labour is liable to the like deduction of profit". Smith goes on to say that "It seldom happens that the person who tills the ground has wherewithal to maintain himself till he reaps the harvest. Smith charts the development from a situation of subsistence production where "the whole produce of labour belongs to the labourer" via the emergence of private property (which gives rise to rent) and stock (which gives rise to profit) to one where a payment for a good must be divided between the labourer (wages), the landlord (rent), and the stockholder (profit). And when Reisman writes "The doctrine of class warfare is a derivative of the exploitation theory, whose best-known proponent is Karl Marx" we ought to point out that it is found also in Ricardo's predecessor Adam Smith.īook One, Chapter VIII, of The Wealth of Nations is titled ' Of the wages of labour'. Marx simply took the aggregative, labour value theory based economics of David Ricardo and took them to their dismal and erroneous conclusions. Eugen von Böhm Bawerk produced his devastating destruction of Marx's economics, Karl Marx and the Close of His System, back in 1896.īut Paul Samuelson was right when he said that "Karl Marx can be regarded as a minor post-Ricardian". By now Marx and his followers ought to be used to this sort of punishment at the hands of Austrians. I felt it this week reading George Reisman's ' Open letter to Warren Buffett' where the well booted doctrines of Karl Marx got another kicking. ONE GETS an almost cruel pleasure in seeing someone deploy irrefutable logic to destroy an opponent's arguments, writes John Phelan for the Cobden Centre. Why wages are not always destined to go down.
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