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Thomas Stork on Wages

January 20, 2011

Thomas Stork at the Distributist Review deconstructs the neoclassical doctrine attributing wages solely to the law of supply and demand:

Above I said that power and institutions are two elements that Samuelson does not take into consideration in his economic theories. Let us consider them further. In fact they are connected, for those with sufficient power will shape the institutions to favor their interests. Now by institutions I mean not only organizations or agencies of various kinds, but a society’s legal system, including its tax structure, the way that its technology has developed, and even its cultural norms, since these last affect all the other types of institutions. How are power and institutions related? In a normal capitalist enterprise, those with capital hire workers to perform a task and pay those workers an agreed wage. The capitalists of course are responsible for paying all other expenses in addition to the wages. But beyond that they get to keep the profits. And those profits can be considerable, much more considerable, in proportion, than the wages paid to the workers. That is why the rich are most often the capitalists. But suppose that a society, via its government or some intermediate body, offered groups of workers easy access to start-up capital so that they could establish their own firms, and subsequently borrow capital from lenders for their needs? In that case, the workers would be the owners and they would keep the profits after the capitalists had received the agreed upon interest payments. Is there anything in the nature of economics preventing such a scenario? No, but for the most part, workers have not commanded enough power to obtain such an arrangement. It is doubtless true that in many cases they have not been interested in such worker-owned companies, but that also is the result, in part at least, of cultural norms.

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