How Capitalism Enriches The Working Class

In the early days of capitalism, there was a mass exodus from farm to factory. No one forced the masses to work in factories; they did so because factory work was better and more profitable than the alternative – sixteen hours a day of backbreaking farm labor for less money. Or begging, prostitution, crime, and starvation. As Ludwig von Mises explained in Human Action (p. 615):

The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wages were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them in the strict sense of the term, from death by starvation.

The same can be said of the conditions in some of the poorer countries today. Labor unions that complain about “sweatshops” and “child labor” are not concerned about the well-being of Third-World children. Quite the contrary – they see them as competition for unionized labor and want them all thrown out of work and into the streets. Academics and clergy who assist labor unions in these crusades are viewed by the union bosses as useful idiots.

As capitalism developed, there was an inexorable increase in wages, thanks mostly to capital investment by entrepreneurs. Increased skill, education and experience on the part of the workers themselves (i.e., human capital development) makes them more valuable to employers by making them more productive and hence increases wages; but this is a slow and very incremental process. Capital investment, on the other hand, is capable of producing much larger leaps of productivity. Think of the productivity of a farm worker who plows a field behind a team of horses, compared to performing the same task on a tractor. He is no more skilled or hard working, yet he is infinitely more productive in terms of acres plowed per day.

When capital investment increases worker productivity, it means more profits for the capitalists who must them compete for the more skilled labor. They must pay them more or risk losing them to other employers – and losing the revenue that they can help generate as well. Under capitalism, there is a strong correlation between the growth in labor productivity and the growth in wages.

In addition to being responsible for higher wages, capitalism produces cheaper products, more products, and better quality products, thanks to the never-ending process of competition. The lowering of prices gives workers an even bigger pay boost with which they can purchase the increased array of products and services produced by capitalism, thereby enhancing their standard of living.

Nothing benefits “the masses” economically more than the growth of capitalism, for capitalists have always understood that the way to become really wealthy is to provide more value at lower prices to the largest possible customer base. Thus, products like cars and refrigerators that were at first the exclusive province of the wealthy soon became available to everyone.

Productivity growth spurred by capital investment is also responsible for shortening the work week. The only way workers can work less but get paid more is by being more productive, i.e., producing more revenue per hour or week for their employers. Human capital investment plays a role here, but so does capital investment and risk taking by entrepreneurs. Thanks largely to capital investment, the work week in America is about half of what it was at the advent of what economic historians call “the second industrial revolution” that began at the end of the American Civil War (1865). The shorter work week is the result of capitalism, not lobbying by labor unions or federal legislation that only codified what already existed.

Capitalism is also responsible for the demise of child labor. Young people originally worked in factories (and still do in many parts of the world) out of economic necessity, for the alternatives were crime, prostitution, begging, or starvation. As workers became more productive and better paid, thanks to capitalism, they were able to take their children out of the factories and send them to school. Legislation banning child labor only codified what capitalism had already been hard at work abolishing. Moreover, such legislation was usually inspired by labor unions who wanted to throw young people, who competed with union labor, out of work. This kind of “child labor” legislation was designed to harm children by depriving them and their families of economic opportunities that they so desperately needed (and need).

Capitalism has also made the workplace safer. In relatively “dangerous,” strenuous, or dirty jobs, employers must pay a wage premium because relatively few people want such jobs. Economists call this a “compensating difference.” The man who rides on the outside of the garbage truck at daybreak, in the winter, in the northern states, does so because he makes a very good salary – better than any of his alternatives. Profit-seeking capitalists have always understood that they need to pay more to get people to perform risky or dangerous work. Therefore, they have also always understood that there is profit in making the work place safer. A safer workplace requires a lesser compensating difference. Lower wages paid to the workers can mean higher profits for the capitalist. Thus, the American workplace had become safer and safer for generations before the Occupational Safety and Health Administration (OSHA) was established in the 1970s.   Indeed, OSHA has often reduced workplace safety with its clumsy and stupid workplace rules enforced by government bureaucrats with no knowledge of the specific work that they are regulating.

Labor unions, on the other hand, have never benefited anyone but the highly-paid union bosses and some of their members, who have never accounted for more than about one-third of the American labor force (less than ten percent today in the private sector). If unions are successful at raising wages above market rates with strikes, strike threats, shut downs, sabotage, or negative smear campaigns against corporate executives (“corporate campaigning”), the laws of economics dictate that some of their members will lose their jobs – usually those with the least skill, experience, and seniority. Employers will not pay workers more than they can produce in revenue for them and still stay in business. Thus, a new hire who can produce, say, $500/week in additional revenue, is not employable if the union “succeeds” in negotiating a $700/week wage. This is the “disemployment effect” of unionism.

In addition, labor unions in America have long been the main source of anti-capitalist propaganda, and of lobbying for anti-capitalist legislation (corporation income taxes, minimum wage laws, labor regulation, etc.). By weakening capitalism in this way, they weaken the main source of productivity growth and hence the main source of wage increases. The union bosses keep their high-paying jobs by benefiting at best a slim majority of their members, while harming the economic prospects of other union members and especially non-unionized workers, whom they demonize and slander by calling them “rats,” “scabs,” and much worse. Indeed, there is a very long history of violence perpetrated against competing, non-union labor by American labor unions, who are celebrated with their own holiday at the end of every summer.

Thomas J. DiLorenzo [send him mail] is professor of economics at Loyola College in Maryland and the author of The Real Lincoln; Lincoln Unmasked: What You’re Not Supposed To Know about Dishonest Abe, How Capitalism Saved America, Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution – And What It Means for America Today. His latest book is Organized Crime: The Unvarnished Truth About Government.

This article originally appeared at and is reprinted here with permission under a Creative Commons License. 


The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

This post originally appeared on Western Journalism – Equipping You With The Truth

WATCH: Obama Celebrates Labor Day By Sneaking In This Executive Order

An Executive Order one major business leader says does “more harm than good” was signed Monday by President Obama as part of his campaign to end-run Congress on a critical workplace issue.

The order mandates that federal contractors give their employees seven paid sick days a year.

“Businesses that cannot afford to offer this benefit today are no more able to afford it simply because it is mandated,” Kevin Shivers, Executive Director of the National Federal of Independent Business in Pennsylvania, said in July when Pittsburgh passed similar legislation as part of the White House effort to impose a burden Congress refused to pass. “A ‘one size fits all’ paid sick leave mandate for small businesses is just too restrictive and doesn’t address the realities of a host of different businesses. Therefore, it is likely to cause more harm than good for all concerned.”

Shivers argued that paid leave is not without costs.

“For a company to absorb the cost it will mean a reduction of other benefits for employees such as such as overtime opportunities, reduced hours, reduced retirement benefits, lost vacation or other fringe benefits. Workers may prefer those benefits over paid sick leave, but a mandate would restrict the flexibility to offer the benefits the employees want,” he wrote.

The action only applies to federal contractors. Obama has supported legislation to require all business with 15 or more employees to provide seven paid sick days per year. Congressional Republicans have resisted on the grounds that small businesses face enough burdens as it is. To break the stalemate, Obama used his State of the Union message to call for communities to pass their own legislation. To date, 21 have done so.

Imposing the decision on businesses through executive order fits within the policy Obama himself vowed to follow in his second term.

“What I’m not gonna do is wait for Congress,” he said. “So wherever we have an opportunity and I have the executive authority to go ahead and get some things done, we’re just gonna go ahead and do ‘em.”

However, businesses are less enthused.

The “rapid growth in compliance requirements is becoming untenable,” said a letter by the presidents of the National Defense Industrial Association, the Aerospace Industries Association, the Professional Services Council and the IT Alliance for Public Sector. The letter was sent to the White House last month in response to last month’s leaks regarding the directive Obama unveiled publicly on Monday. “The impacts, inefficiencies, and in many cases, unintended consequences are such that the interests of the American taxpayer are being significantly and negatively impacted.”

Since 2009, the Obama White house has issued 12 contractor-focused executive orders that have led to 16 new regulations, “adding thousands of pages of new requirements to an already complex federal acquisition system, which contractors must navigate,” the letter said.


This post originally appeared on Western Journalism – Equipping You With The Truth

The Failed Moral Argument For A ‘Living Wage’

With Labor Day upon us, newspapers across the US will be printing op-eds calling for a mandated “living wage” and higher wages in general. In many cases, advocates for a living wage argue for outright mandates on wages; that is, a minimum wage set as an arbitrary level determined by policymakers to be at a level that makes housing, food, and health care “affordable.”

Behind this effort is a philosophical claim that employers are morally obligated to pay “a living wage” to employees, so they can afford necessities (however ambiguously defined) on a single wage, working forty hours per week. This moral argument singles out employers as the morally responsible party in the living wage equation, even though the variables that determine a living wage go far beyond the wage earned.

For example, as I discussed here, the living wage is a function not simply of the wage, but of the cost of housing, food, health care, transportation, and a myriad of other factors. Where housing costs are low, for example, the living wage will be lower than it would be in a place where housing costs are high.

So, what matters is not the nominal wage paid by the employer, but the real wage as determined by the cost of everything that a wage is used to purchase.

Why Is Only the Employer Responsible?

So, if it’s the real wage that matters, why is there a fixation on the nominal wage itself? After all, wages, in real terms, could be increased greatly by forcing down food costs and rents. So, why is there not a constant drum beat for grocers to lower their prices to make necessities affordable? Why are activists not picketing outside grocery stores for their high prices? Why are they not outside KB Homes headquarters for KB’s apparently inhumane efforts at selling homes at the highest prices that the market will bear? Why are people not picketing used car dealers for not lowering their prices to make transportation affordable for working families? And why are gas stations strangely exempted from protests over the high cost of gasoline? Certainly, all of these merchants are just as instrumental in determining real wages as any employer. Grocers, landlords, home sellers, and the owner of the corner gas station can put a huge dent in the family budget when they allow their “greed” to impel them to charge the highest prices they can get away with in the market place.

And yes, it’s true that plenty of activists regularly denounce landlords as “slumlords” or greedy capitalists for charging the highest rents the market will bear. And there are still plenty of activists who argue for price controls on rents and food. But they’re in a small minority nowadays. The vast majority of voters and policymakers recognize that government-dictated prices on food and housing lead to shortages. Setting a price ceiling on rents or home prices simply means that fewer housing units will be built, while setting a price ceiling on eggs, or milk or bread will simply mean that fewer of those staples will be brought to market.

Such assertions are barely even debated anymore, as can be seen in the near-extinction of new rent-control efforts in the political sphere. You won’t see many op-eds this Labor Day arguing for price controls on fruit, gasoline, and apartments. You won’t see any articles denouncing homeowners for selling their homes at the highest price they can get, when they really should be slashing prices to make homeownership more affordable for first-time homebuyers.

So, for whatever reason, homeowners, grocers, and others are exempt from the wrath of the activists for not keeping real wages low. The employers, on the other hand — those who pay the nominal wage — remain well within the sights of the activists since, for some arbitrary reason, the full moral obligation of providing a living wage falls on the employer.

Were food prices to go up by 10 percent in the neighborhood of Employer X, who is responsible? “Why, the employer, of course,” the living-wage activists will contend. After all, in their minds, it is only the employer who is morally obligated to bring up real wages to match or exceed an increase in the cost of living.

So while price controls on food, housing, and gasoline are generally recognized as a dead end, price controls on wages remain popular. The problem, of course, as explained here,here, here, and here, is that by setting the wage above the value offered by a low-skill worker, employers will simply elect to not hire low-skill workers.

A Low Wage Is Unacceptable, but a Zero Wage Is Fine

And this leads to the fact that when faced with high wages, employers will seek to replace employees with non-human replacements such as these automated cashiers at McDonalds, or other labor-saving devices.

But this phenomenon is simply ignored by the living-wage advocates. Thus, the argument that employers are morally obligated to not pay low wages becomes strangely silent in the face of workers earning no wage at all.

Indeed, we see few attempts at passing laws mandating that employers hire human beings instead of machines. While it’s no doubt true that some neo-Luddites would love to see this happen, virtually no one argues that employers not be allowed to employ labor-saving devices. Certainly, anyone making such an argument is likely to be laughed out of the room since most everyone immediately recognizes that it would be absurd to pass laws mandating that a road builder, for example, hire people with shovels instead of using bulldozers and paving machines.

Meanwhile, successes by “living wage” advocates in other industries, where automation is not as practical, have only been driving up prices for consumer goods. Yes, living wages in food, energy, and housing sectors will squeeze profits and bring higher wages for those who keep their jobs; but the mandates will also tend to raise prices for consumers, meaning that real wages in the overall economy have actually gone down, thanks to a rising cost of living.

All in all, it’s quite a bizarre strategy the living wage advocates have settled on. It consists of raising the prices of consumer goods via increasing labor costs. Real wages then go down; and, at the same time, many workers lose their jobs to automation as capital is made relatively less expensive by a rising cost of labor. While the goal of raising the standard of living for workers and their families is laudable, it’s apparent that living wage advocates haven’t exactly thought things through.

Note: The views expressed on are not necessarily those of the Mises Institute.

This commentary originally appeared at and is reprinted here with permission under a Creative Commons license

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by

This post originally appeared on Western Journalism – Equipping You With The Truth

BREAKING: New Jobs Report Just Out – Here’s The Ugly Truth Obama Doesn’t Want You To See

If you were to read only the first paragraph of the Associated Press report on the government’s brand new jobs report, you’d be led to believe that President Obama’s economic policies are working beautifully. But then the AP quickly changes its happy tune about the June jobs numbers for the nation and — in a stunning about-face that contradicts its own initial assessment of the country’s job health — reveals the dark side of the just-issued Labor Department report.

Here’s the AP’s opening “hip-hip-hooray, Obama” paragraph as carried on the left-leaning (and Obama loving) Huffington Post:

“U.S. employers added a solid 223,000 jobs in June, and the unemployment rate fell to 5.3 percent, a seven-year low. The numbers reflect a job market moving close to full health and raise expectations that the Federal Reserve will start raising interest rates as early as September.”

Did you catch that part about the “job market moving close to full health?” If that’s the rosy scenario we’re now celebrating, how can the Associated Press — only a few words removed from that happy dance — say the following about the drop in the unemployment rate?

The rate fell mostly because many people out of work gave up on their job searches and were no longer counted as unemployed.

Other details in the report were less encouraging: The percentage of Americans working or looking for work fell to a 38-year low. Average hourly pay was flat. And employers added 60,000 fewer jobs in April and May than the government had previously estimated.

So, at the same time that the AP trumpets “a job market moving close to full health,” the news service acknowledges that more and more and more Americans have dropped out of the labor force. It’s as though the AP had that first celebratory paragraph ready to roll before the truly bad news found in the devilish details of the government’s report was released.

Does the old expression “whistling past the graveyard” come to mind?

Coverage of the Thursday jobs report by The Hill goes into greater detail about the dark underbelly of the statistics that the president and his liberal supporters certainly won’t be pointing out any time soon.

“The number of people in the labor force fell by 432,000, a reason for the lower jobless rate, while 56,000 fewer people were employed, sending the participation rate down to 62.6 percent, the lowest level since 1977.”

And as long as we’re unpacking the Labor Department’s numbers to disclose the facts about America’s jobs picture rather than the feelings the left would embrace, here’s the truth about the kind of jobs the private sector created in June. As you can see, they’re not high-skilled, high-paying positions — except possibly for the health care sector — as much as low-skilled, low-paying service jobs. Again, via The Hill:

Jobs growth was centered in the service sector — retailers added 33,000 jobs, the healthcare sector tacked on 40,000 while leisure and hospitality jobs increased by 22,000.

Manufacturing only added 4,000 while construction employment was unchanged in June.

This post originally appeared on Western Journalism – Equipping You With The Truth

Obama’s Sneak Attack On American Business: The MASSIVE Wage Hike He’s Poised To Impose

When it comes to fair pay for U.S. workers, so much of the nation’s attention — and the Democrats’ rhetoric — is focused on the debate about the minimum wage. As Western Journalism has reported, the $15-per-hour demand by employees of fast food restaurants — supported by union bosses and political grandstanders — has been all over the news. Just two days ago, we told you about the Democrat-driven push for a $15 hourly minimum in the state of New York, a move that — if the wage is okayed by a three-person panel — could force up to 20% of fast food outlets in the Empire State to close their doors.

But the hotly debated pros and cons of a hefty hike in the minimum wage are serving as a useful distraction for a president more intent on making an executive move that would impose a substantial wage hike for millions of workers who are paid far more than the mandated minimum. It’s an administrative action that a post on Politico describes as “the most ambitious government intervention on wages in a decade.”

As early as this week, the Labor Department could propose a rule that would raise the current overtime threshold — $23,660 – to as much as $52,000, extending time and a half overtime pay to millions of American workers.

And as with so many actions by the Obama administration, this massive new wage hike wouldn’t require legislative authority, meaning the president could change the rules of the game for an untold number of U.S. businesses without approval from Congress.

However, that doesn’t mean that lawmakers on Capitol Hill — especially Republicans in the House and Senate — wouldn’t try to block the anticipated wage hike by Obama’s Department of Labor. Politico says the battle lines are already being drawn, even though the overtime rule change hasn’t been formally proposed by the administration.

“Sen. Lamar Alexander, chairman of the Senate Health, Education, Labor and Pensions committee, said the rule — sight unseen — ‘seems engineered to make it as unappealing as possible to be an employer creating jobs in this country.’”

The United States Chamber of Commerce — in a nine-page letter to Labor Secretary Thomas Perez — warns that any changes to overtime rules “threaten to upend years of settled law, create tremendous confusion, and have a significantly disruptive effect on millions of workplaces.”

The Economic Policy Institute estimates the new overtime threshold the president wants to mandate would give a raise to as many as ten million salaried workers, some 12% of the American workforce.

Politico notes that, despite their campaign speeches about the need for a higher minimum wage, at least two Democrats challenging Hillary Clinton for the 2016 presidential nomination have already taken up the banner of more overtime pay for U.S. workers whose votes they’re courting.

“In announcing his candidacy May 30 former Maryland Gov. Martin O’Malley called for ‘overtime pay for overtime work.’ Sen. Bernie Sanders did the same in his May 26 kick-off speech in Burlington, Vt., calling it a ‘scandal’ that ‘millions of American employees, often earning less than $30,000 a year, work 50 or 60 hours a week— and earn no overtime.’”

This post originally appeared on Western Journalism – Equipping You With The Truth