Throughout most of recorded world history, and even today in some of the more primitive societies, human beings have been and are treated as animals fit only to serve as slaves under the lash of a master.
No civilized person wishes to condone such savagery. A person is not a commodity; each individual is priceless—his worth not to be measured or expressed in dollars, or gold, or things. The laborer as such is not a chattel to be sold and bought, owned and controlled by others. Yet, one frequently hears serious debate as to whether labor is a commodity—whether the services a laborer renders should be priced in market fashion according to the forces of supply and demand.
Apparently, many persons still believe in the old “iron law of wages” propounded in error by some of the earlier economists. It seemed to them, at the dawn of the industrial revolution, that wages in general could never rise above that bare level at which wage earners could subsist and reproduce their kind. On the basis of that fallacy, Karl Marx advocated political revolution and compulsory communism as the only chance for workers to receive “the full produce of their labor.”
Marx was intelligent enough to recognize that human labor is a scarce factor of production, but he could not or would not see that labor is only one of the costs of production. He seemed to take for granted that somehow someone would accumulate savings and make them available in the form of tools and other capital for use by workers, whether or not a return were allowed on such investment. Nor would Marx recognize that what attracted workers into the factory system was the opportunity they found there to improve their level of living—an opportunity for progress by their own free will and choice. All he could see was that poverty still existed at the middle of the nineteenth century—and he urged revolution.
A Vital Error
In reality, though, a free market was, and is, the only escape of workers from feudal poverty and serfdom, their only opportunity for progress. Yet Marx and his followers, by confiscating private property, would destroy the market mechanism for price determination and voluntary exchange, and with it all hope for relief of poverty.
It is the free market and competition among employers for the services of wage earners that make workers independent of arbitrary discretion on the part of the employer. Within broad limits set by what consumers are willing to pay for finished products, a wage earner is free to shop around for the job opportunity of his choice. “What makes the worker a free man is precisely the fact that the employer, under the pressure of the market’s price structure, considers labor a commodity, an instrument of earning profits…. Labor is appraised like a commodity not because the entrepreneurs and capitalists are hardhearted and callous, but because they are unconditionally subject to the supremacy of the pitiless consumers.”¹
It is the prospect of profit from employing laborers of given skills that drives businessmen to compete and bid wage rates up to the limit consumers will allow. If present entrepreneurs ignore such profit opportunities, then others will enter the business—perhaps some of the wage earners themselves. To say that labor is a commodity in this situation simply means that the individual wage earner is free to shop around and sell his services to the highest bidder—or free to be self-employed or unemployed if no bid suits him.
Each Is Worth What He Can Earn
In this connection, it should be clear that the worth of every man’s service is similarly determined, whether he be a strictly unskilled laborer or the most highly skilled artist, teacher, minister, butcher, baker, lawyer, engineer, business executive, or whatever. If he offers a service for sale, its value depends upon the highest bid acceptable to him in the free market.
The seller of services, of course, is not free to compel consumers to pay prices high enough to cover every conceivable wage demand. But, short of government compulsion in such forms as minimum wage laws, unemployment compensation, and the like, no one has such power over consumers.
So, the wage earner’s alternatives are to sell his services at market rates, as other scarce factors of production are priced in a market economy, or to work under the decree of a dictator of one kind or another.
The wage earner himself is no more a commodity than is the farmer whose labor results in a bag of potatoes. But the farmer should be free to sell either his labor or his potatoes; and so should every wage earner be free to offer his services as a commodity. Laborers or others who argue that labor is not a commodity would thus deny freedom of exchange, which is the economic method—and the only one—that assures the laborer true and full value for his services.
Footnotes
¹ Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 605-629.
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Ideas on
Protective Taxes and Wages
It is said that we cannot compete with those who pay less wages than we. There are two classes of persons with whom one cannot compete,—his inferiors and his superiors. A physician might find that he could not compete with a laborer in digging a ditch, or with a great financier in managing a bank. Could any tax enable him to compete with the banker; that is, to compete with his superior? On the contrary, if he should complain that he could not compete with the laborer because he could not afford to employ his time in an occupation which is less remunerative than his own, everyone would ask him why then he desired to compete? Now, could a tax enable him to compete with the laborer? Indeed, it could. It could intervene to deprive him of the services of the laborer, and force him to dig his own ditch, abandoning a profession in which he could earn ten dollars a day to spend his time in an occupation worth only a dollar. This last is the only way in which protective taxes enable us to compete. They put us in a position such that we abandon occupations in which we might earn the high American rates, in order to do things which other people would do for us at half the price.
WILLIAM GRAHAM SUMNER
From an essay in the North American Review, January 1883.
