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Wednesday, June 2, 2021 Leer en Español

What Bernie Sanders Doesn’t Understand about CEO Salaries

The idea that value comes from labor is simply untenable.

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The Chief Executive Officers of the nation would be justified in singing along with the Coasters’ 1950s rock and roll song “Why’s everyone pickin’ on me?” (Officially known as “Charlie Brown.”)

Needless to say, Sen. Bernie Sanders is leading the pack, as per usual, baying for some CEO “blood;” well, money. In his latest initiative he is on the warpath against CEO salaries. The Senator from Vermont (Socialist) wants to limit them to 50 times the amount paid to the median worker in their corporations.

Why 50 times and not 40 or 60? If you ask this question, you are obviously anti-worker (woikah, as we say in Brooklyn) and thus should be cancelled. Why limit CEO salaries at all? That’s an easy one. While the guy on the shop floor is really doing all the work, the executives are just pushing papers from one stack to another, playing video games while they are supposed to be working, chasing secretaries around their desks, and having three martini lunches. This all stems from the Marxian labor theory of value, according to which “blood, sweat and tears” creates goods and services, and the ruling classes just exploit the workers.

This theory claims that things are of value in proportion to the amount of labor inputted into them. This is nonsense on a stick. The mud pie and the cherry pie incorporate the same amount of labor effort, and yet one of them is of value and the other not. The Marxists would claim the former is created with no “socially necessary” labor, but this is circular; they define “socially necessary” so as to obviate this incisive objection. Mud pies obviously have no value, so they say it has no “socially necessary” labor. This theory is also subject to the flaw that someone can pick up a diamond as big as your fist with virtually no labor in it, and yet it is worth a pretty penny. As another nail in the coffin of this mischievous theory, the prices and values of objects already created (houses, cars, paintings, you name it) keep changing, which the labor necessary to create them in the past can of course not change at all.

Another supposed justification for taking CEOs down a peg or two or three is that they just earn “unconscionably” high salaries; in the tens of millions per year. Of course it never occurs to the Bernies of the world that every penny of this is justified on the ground that these leaders spell the difference between profits and bankruptcy for corporations. We economists have a very well-established theory that wages, for everyone not just the rich, tend to reflect the discounted marginal revenue productivity of the employee, or plan old “productivity” for short. If they are higher than that amount losses occur; lower, and laborers tend to be bid away.

Egalitarianism once again raises its ugly head. But why pick only on CEO salaries? LeBron James undoubtedly earns more than 50 times the amount of money taken home by the guy who sweeps the floors of the Los Angeles Lakers basketball court. Shouldn’t we cut his salary on these spurious grounds? Similarly, many top performers—singers, actors, musicians—pull down earnings way more than 50 times the amount accorded to those who perform menial tasks for them. A great many lawyers, accountants, and physicians top the salaries of their secretaries, nurses, and clerks by more than this amount too. Why the narrow focus on CEOs?

According to the physiocrats (an 18th-century group of economists), the only licit industry was farming. People gotta eat, right? Then, we became more sophisticated and realized that manufacturing, too, was worthwhile, and thus justified. You can grab onto a shoe or a shovel. Later, services also were accorded legitimacy, even though they were not tangible. Why does Bernie get away with his unwarranted attack on business leaders? Why is not scorn immediately heaped upon him for this latest attack on free enterprise of his? 

It’s because all too many people still do not realize that management, marketing, commerce, business, capitalism, and entrepreneurship are also “worthy of its hire” as it says in the Bible.

  • Walter Edward Block is an American economist and anarcho-capitalist theorist who holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans. He is a member of the FEE Faculty Network.