All Commentary
Sunday, May 1, 1988

Wage Earners and Employers

Q. “Are the interests of the American wage earners in conflict with those of their employers, or are the two in agreement?”

A. To answer that question we must first look at a little history. In the pre-capitalistic ages, a nation’s social order and economic system were based upon the military superiority of an elite. The victorious conqueror appropriated to himself all the country’s utilizable land, retained a part for himself, and distributed the rest among his retinue. Some got more, others less, and the great majority nothing. In the England of the early Plantagenets, a Saxon was right when he thought: “I am poor because there are Normans to whom more was given than is needed for the support of their families.” In those days the affluence of the rich was the cause of the poverty of the poor.

Conditions in the capitalistic society are different. In the market economy the only way left to the more gifted individuals to take advantage of their superior abilities is to serve the masses of their fellowmen. Profits go to those who succeed in filling the most urgent of the not-yet-satisfied wants of the consumers in the best possible and cheapest way.

The profits saved, accumulated, and plowed back into the plant benefit the common man twice. First, in his capacity as a wage earner, by raising the marginal productivity of labor and thereby real wage rates for all those eager to find jobs. Then later again, in his capacity as a consumer when the products manufactured with the aid of the additional capital flow into the market and become available at the lowest possible prices.

The characteristic principle of capitalism is that it is mass production to supply the masses. Big business serves the many. Those outfits that are producing for the special tastes of the rich never outgrow medium or even small size. Under such conditions those anxious to get jobs and to earn wages and salaries have a vital interest in the prosperity of the business enterprises. For only the prosperous firm or corporation has the opportunity to invest, that is, to expand and to improve its activities by the employment of ever better and more efficient tools and machines.

The better equipped the plant is, the more the individual worker can produce within a unit of time, and the higher is what the economists call the marginal productivity of his labor and, thereby, the real wages he gets. The fundamental difference between the conditions of an economically underdeveloped country like India and those of the United States is that in India the per head quota of capital invested, and thereby the marginal productivity of labor, and consequently wage rates, are much lower than in this country. The capital of the capi talists benefits not only those who own it, but also those who work in the plants and those who buy and consume the goods produced.

And then there is one very important fact to keep in mind. When, as we did in the preceding observations, one distinguishes between the concerns of the capitalists and those of the people employed in the plants owned by the capitalists, one must not forget that this is a simplification that does not correctly describe the real state of present-day American affairs. For the typical American wage earner is not penniless. He is a saver and investor. He owns savings accounts, United States Savings Bonds and other bends, and first of all insurance policies. But he is also a stockholder. At the end of the last year [1961] the accumulated personal savings reached $338 billion. A considerable part of this sum is lent to business by the banks, savings banks, and insurance companies. Thus the average American household owns well over $6000 that are invested in American business.

The typical family’s stake in the flourishing of the nation’s business enterprises consists not only in the fact that these firms and corporations are employing the head of the family. There is a second fact that counts for them, to wit, that the principal and interest of their savings are safe only as far as American free enterprise is in good shape and prospering. It is a myth that there prevails a conflict between the interests of the corporations and firms and those of the people employed by them. In fact, good profits and high real wages go hand in hand. []

Editors’ note: Ludwig von Mises (1881-1973) was a pre-eminent exponent of free market economics during his long and distinguished academic career. He was associated with The Foundation for Economic Education as a consultant and part-time staffmember from shortly after FEE was founded in 1946 until his death in 1973. We wish to thank his widow, Margit von Mises, for permission to publish this transcript of Professor Mises’ response to the question: “Are the interests of the American wage earners in conflict with those of their em ployers, or are the two in agreement?” These remarks were broadcast during the intermission of the U.S. Steel Concert Hour, May 17, 1962.

  • Ludwig von Mises (1881-1973) taught in Vienna and New York and served as a close adviser to the Foundation for Economic Education. He is considered the leading theorist of the Austrian School of the 20th century.