Profits vs. Wages

For right-wing libertarians: Why should a factory owner receive more profit than the workers who constructed and maintain said factory?

. . . as answered on Quora. . . .

In classical political economy, profit is the return on capital, wages are the return on labor, and rent the return on land. That is, those who hire themselves out as laborers get wages in payment, and those who invest their savings in productive processes receive profits as their reward — if their ventures prove successful.

The wage contract is fairly simple, and laborers get their rewards whether or not the business earns a profit. When the entrepreneur can no longer pay them, they go elsewhere. Profit is something identified and recoverable after all the hired factors have been paid off. The wiser question is not whether factory owners* should receive moreprofit than workers, but that they should any receive profits while workers continue to receive wages, because anything else would be, well, stupid. Against the terms of relevant contracts.

The differences between contract labor and owning and managing a business are key to making sense of things. Economist Yves Guyot put it this way:

Wages are a speculation. The laborer who offers his labor to a trader or a contractor, argues thus with him: “I deliver to you so much labor. It is true that you run the risks of the enterprise. You are obliged to make advances of capital. You may gain or lose. That does not concern me. I do my work, I make it over to you at a certain price; you pay this to me whatever happens. Whether it redounds to your benefit or causes you loss is not my affair.”

Yves Guyot, The Tyranny of Socialism (1894).

All who favor market cooperation over forms of coercion and expropriation — not just principled libertarians — look at claims of workers’ key contributions being the sole and overriding contributions to production as being rather witless. We shake our heads when we encounter these hoary socialist clichés.

And we imagine what a targeted entrepreneur might say:

‘You think that because you sweep a floor you should own it? Is it some Lockean “mixing of labor” that gives you this purported right to property? You were hired on specific terms for specific tasks! If the terms are invalid and the hiring amounts to a ceding of my property to you, then I will simply not hire you. Your new terms are unacceptable. You are basically saying that all my and my investors’ [the capitalists’] past savings that went into this enterprise should be yours because I have offered you a contract for a limited purpose. Don’t be absurd.’

But absurdity is precisely what all these retro socialist arguments amount to.

Libertarians often respond politely and even carefully to such arguments, in part because unraveling farragos is fun. But, in truth, we tend to regard the people who ask such things as cretins. Dumb-asses. Or else as con artists plying tricky arguments to engage in some grift. Socialism we regard as the Super Grift. We libertarians often roll our eyes at the insanity and folly.

And then some greasy grifter calls us “greedy”! For defending the rights of capitalists and entrepreneurs to their property, of all things. I am neither a capitalist nor an entrepreneur. But I know greed when I see it, and I see it when laborers hired for specific tasks rise up to demand more than specified in their contracts on the basis that, well, they “do some work.” Of course, most wage-earners of profitable American enterprises despise socialism. They aren’t greedy. They know they haven’t earned what socialists demand.

The bulk of socialists are college kids and professors and government functionaries and . . . journalists caught up in dreams of utopia. Thankfully, most nowadays don’t even ask these question in the old naive Marxoid fashion. They have moved on to the cult of “social justice” and “intersectionality.” They have their own follies. But at least they have abandoned this witless gambit.

* Or some other entrepreneur and some other business enterprise — the socialist obsession with “the factory” is so old-fashioned! I have never worked in a “factory,” the magazine I worked for being closest. Oh, and as a teen-ager I worked on a dairy farm one summer. Remember that Marx hated country life!