Why Wages Rise: 8. The Cost of Being Governed

Dr. Harper is a member of the staff of the Foundation for Economic Education.

In the preceding articles in this series, your wages have been spoken of as though they were entirely composed of money in the pay envelope which you could spend as you wish. They have been discussed as though each dollar could be spent for a loaf of your favorite brand of bread, or for peanuts, or for a new car; or given to your church, or to your favorite charity; or turned over to your wife to spend as she deems wise; or whatever.

But this ignores an important fact. Not all your wages are available to you for free choice of spending in this way. And it is that aspect, as it relates to the level of wages, that will be discussed, in part, in this article.

If You Produce in your garden twice the fruits and veg­etables this year that you did last year, you have twice the "garden­ing wage." Or if yours is a com­mercial garden and you have sold twice the amount of produce, you have twice the income and can buy twice the amount of things of your choice.

Let us suppose that this year you produce 20 bushels of potatoes worth $2.50 a bushel, after taking out costs other than pay for your own time. You have a $50.00 to­tal wage. Having worked 50 hours, you have an hourly wage of $1.00.

Now if I had come along in the spring and offered my help at a wage of $50.00 for the season ;and if together we produced 40 bushels instead of 20, our wage would still be $1.00 an hour —$100 for 100 hours.

But suppose that instead of of­fering my services to grow an ad­ditional 20 bushels of potatoes, I had offered to guard your potato patch against the mountain lions for a seasonal fee of $50.00. You would, of course, have turned my offer down for two reasons : (1) There are no mountain lions around anyhow, and what I am offering is no more a service to you than it would be for me to guard the mountain lions against your potatoes. (2) To pay me that high a wage would require all the proceeds from the potatoes you produce, leaving you nothing as pay for your own exercise.

Service Charges by Fiat

But suppose I had bargained on a different basis, and said : "Since the protection of the potato patch is important to both of us, I will chip in along with you and pay an equal share of the cost of this general welfare. In other words, I will do all the work of protecting the patch and you will do all the other work of raising the potatoes. Then we will each pay half of each other’s income in return for half the product     each of us getting, at the end of the year, ten bushels of potatoes plus half of the service of having had them protected."

This would still be unappealing to you, since the protection is worth nothing to you and you would not pay anything for it willingly. Why give up half your potatoes for nothing?

Let us assume, however, that by some device — though we are not here considering that device—it is decreed that this protection is "necessary" ; that it must be pro­vided for the "general welfare." That decree overrules your objec­tion without answering it. And so I become hired by decree. Under this situation we find that wages are still nominally at a level of $1.00 per hour for both of us. Yet the worth of the wage has beenchanged. Though nominally the same wage as before, when all the time of both of us was spent rais­ing potatoes, it can’t possibly be worth as much as before because we have produced less.

A wage can buy no more than is produced. And under this new arrangement the two of us have produced only half as much as be­fore, or 20 bushels instead of 40 bushels of potatoes. So our wages will now buy only 20 bushels of potatoes—plus protection against the mountain lions, of course. Our wages have in this instance, then, lost buying power in proportion to that part over which there was loss of free choice in spending—half the total yearly wage of our little community. The loss was the amount of forced purchase of a service worth nothing to you.

Nor would this loss of buying power have been eliminated by diluting our money to the extent of the protection cost. This would only have raised prices sharply for the reduced amount of pro­duction. No matter what is done to the money, nothing short of a miracle can turn 20 bushels of potatoes into 40 bushels.

Uncertain Worth of Forced Sales

An extreme illustration has been given, to be sure. But it sug­gests clearly the principle that is involved.

Not all services are as worthless as guarding your potato patch against the mountain lions. I might, instead, have offered to pick the bugs off your potatoes. If this de-bugging had produced 20 or more additional bushels of potatoes at a cost of $50.00—and lacking a way to do the same thing more cheaply — my offer would have been acceptable to you.You would willingly have hired me, because my service would have been worth the cost to you.

My point is that if you are forced to buy certain "goods" or a "service" priced by edict, you are an enslaved buyer. Under these circumstances, what you are forced to pay has no necessary relationship to what it is worth to you. It may be worth nothing. It may, in fact, be of negative worth to you — something you would gladly pay to avoid rather than to have. Or it may, on the other hand, be worth something to you. It may be worth a little bit. Or it may be worth any amount up to the decreed price you are forced to pay. It may conceivably be worth more than the decreed price, rarely and for a few per­sons.

So in such an instance you can’t escape a purchase at a price un­related to its worth to you. You are not allowed to go without it, nor to produce it yourself, nor tobuy it from a more efficient source. This means that the "income" required to pay for it is likewise of uncertain worth. It is worthless because you attach no worth at all to what you get in return. At best, it is income of less worth than any other dollar of your income, which can be spent for what you most want to buy.

The Nature of Government Services

The costs of government are of this type for individual persons in the nation. These costs are all paid with compulsory taxes of one form or another. Since each serv­ice is of uncertain worth to any individual person, therefore the income from which the taxes are paid is of uncertain worth to that person.

Government is concerned with governing. It means to govern, to control, to rule, to exercise author­ity.

Or put it this way: A political government is an agency we setup to govern ourselves. It oper­ates outside and beyond those things we do for ourselves individ­ually, as we voluntarily cooperate with one another in willing ex­change and trade.

A political government does not do all the governing, of course. Banks and other businesses have private policemen, guards, and night watchmen. Organizations of all sorts have governing bodies which in some degree govern their members ; sometimes these or­ganizations attempt to govern outsiders, too. There is even a bit of governing within each family ; witness the posterior pains of childhood.

The distinctive feature of the political governmental body is its monopoly status, its compulsory "sales" to every member of the society. This is not true of most other forms of governing withinour society. We may escape them in one way or another. If we do not like the private policeman in one bank, for instance, we can take our business elsewhere. It may be less easy for a child to leave his family, but small boys still go over the hill at times.

Our concern with the matter of governing is its relation to our judgment of its worth. This af­fects real wages. And that is why the monopoly of political govern­ment is of a special type — of special concern.

The total cost of political gov­ernment in the United States is now about a hundred billion dol­lars a year. Were you to appraise each part of this enormous ex­penditure in order to judge its worth to you, as you would your individual grocery purchases or the selection of a necktie, you would find yourself confronted with an almost inconceivable task. For were you to study the things which government does and judge their worth in this way, even at the hasty and superficial rate of one million dollars an hour, you would not be able to finish until well into the twenty-first century. Besides, since persons do not agree on that any more than they do about the worth of items in a department store or mail order catalog, I don’t know just what these things are worth. Nor do you, I dare say. All we can say is that it is a monopoly market cost­ing the average family about $2,­000 a year to be governed. These are service charges we must pay —or go to jail.

It seems certain, then, that the value of our present political gov­ernment is completely uncertain for any one person and, therefore, for all persons combined. We can’t possibly know its worth, so long as a given service remains a mo­nopoly that individuals are com­pelled to purchase. All we know,for any one item, is that it is still tolerated by a majority of the vo­cal citizens.

Effect on Wage Rates

One would be remiss not to think of the worth of government when he is appraising the worth of his wages. The part of his wages going for political govern­ment today is of quite a different sort of worth from the remainder, which he can spend for objects of his choice and preference. It is quite different, dollar for dollar, from income he can use to buy whatever appeals to him as cheap­est and best, among all available goods and services.

Were it not for the fact that the cost of being governed has risen higher and higher over the years, this would not be an im­portant factor in any study of the cause of rising wages. But the cost has risen sharply.

The present cost of governing ourselves (cost of government) is about thirty-one times as much as it was a century ago, per per­son, and aside from the effects of inflation on dollar costs. Or if we express it in terms of wages, the cost of governing ourselves a cen­tury ago took about three minutes of time out of each hour of work ; now it takes nineteen minutes out of each hour of work.

It is noteworthy that the cost of governing ourselves is now a little more than double the entire share of the national product go­ing to those who have saved. It is more than double the total of dividends, interest, rents, and royalties, even in our nation where these are high because of a fabulous accumulation of capital and savings in various forms.

The effect on wages of the ris­ing costs of government is re­vealed by the accompanying chart. The inroad has become alarming over the last half century. It hastaken almost half-48 per cent, to be exact—of the increased pro­ductive capacity of an hour of work over this period. The in­creased cost of governing our­selves has, in other words, ab­sorbed half the increased welfare which improved production tech­niques have made possible during the twentieth century.

Let’s put it another way. Sup­pose it were possible, in some way, to govern ourselves with the same proportion of our working time as prevailed a half century ago. Were this possible, the amount of income remaining to the worker for free choice in his spending—his pay after taxes—presumably could have risen at least twice asmuch as it has. Our increased capacity to produce, if allowed to operate to the full, could have doubled our increase in economic benefits.

In closing, I would emphatically suggest that perhaps the best way to get higher wages now would be to hire out to ourselves in­dividually, so to speak, for more of the job of governing ourselves. That would mean more self-re­liance, more self-control, and all the rest. In this way great sav­ings could be made in the drain on our incomes, leaving that much more to spend on things of our choice and preference. This, in effect, is the same thing as a rise in wages.

Those of us who labor for a living might well consider a com­pletely new direction—a new ob­jective — in our bargaining for wages. Since there is no more tobe gotten from employers than the slow increase in productivity will allow, perhaps we should start directing our bargaining power at government. Why not govern ourselves more, and there­by be able to keep more of what we are nominally paid?

A dollar saved is a dollar earned.

Read the next part of this series here