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Economics in One Lesson
example, workers offered a wage of $1 an hour, or $40 a week, are in
fact, as they see it, being asked to work for only $10 a week—for they
can get the rest without doing anything.
It may be thought that we can escape these consequences by offer-
ing “work relief ” instead of “home relief;” but we merely change the
nature of the consequences. “Work relief ” means that we are paying
the beneficiaries more than the open market would pay them for their
efforts. Only part of their relief wage is
for their efforts, therefore (in
work often of doubtful utility), while the rest is a disguised dole.
It would probably have been better all around if the government
in the first place had frankly subsidized their wages on the private
work they were already doing. We need not pursue this point further,
as it would carry us into problems not immediately relevant. But the
difficulties and consequences of relief must be kept in mind when we
consider the adoption of minimum wage laws or an increase in mini-
mums already fixed.
3
All this is not to argue that there is no way of raising wages. It is
merely to point out that the apparently
easy method of raising them
by government fiat is the wrong way and the worst way.
This is perhaps as good a place as any to point out that what dis-
tinguishes many reformers from those who cannot accept their pro-
posals is not their greater philanthropy, but their greater impatience.
The question is not whether we wish to see everybody as well off as
possible. Among men of goodwill such an aim can be taken for
granted. The real question concerns the proper means of achieving it.
And in trying to answer this we must never
lose sight of a few elemen-
tary truisms. We cannot distribute more wealth than is created. We
cannot in the long run pay labor as a whole more than it produces.
The best way to raise wages, therefore, is to raise labor productiv-
ity. This can be done by many methods: by an increase in capital accu-
mulation—i.e., by an increase in the machines with which the workers
are aided; by new inventions and improvements; by more
efficient
management on the part of employers; by more industriousness and
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efficiency on the part of workers; by better education and training.
The more the individual worker produces, the
more he increases the
wealth of the whole community. The more he produces, the more his
services are worth to consumers, and hence to employers. And the
more he is worth to employers, the more he will be paid. Real wages
come out of production, not out of government decrees.
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1
T
he power of labor unions to raise
wages over the long run and
for the whole working population has been enormously exagger-
ated. This exaggeration is mainly the result of failure to recognize that
wages are basically determined by labor productivity. It is for this rea-
son, for example, that wages in the United States were incomparably
higher than wages in England and Germany all during the decades
when the “labor movement” in the latter
two countries was far more
advanced.
In spite of the overwhelming evidence that labor productivity is
the fundamental determinant of wages, the conclusion is usually for-
gotten or derided by labor union leaders and by that large group of
economic writers who seek a reputation as “liberals” by parroting
them. But this conclusion does not rest on the assumption, as they
suppose, that employers are uniformly
kind and generous men eager
to do what is right. It rests on the very different assumption that the
individual employer is eager to increase his own profits to the maxi-
mum. If people are willing to work for less than they are really worth
to him, why should he not take the fullest advantage of this? Why
should he not prefer, for example, to make $1 a week out of a work-
man rather than see some other employer make $2
a week out of
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