You go to a bakery and you see a woman working there who has four children. You want her to make more money? Fine, so do I. But the question is not how high her salary should be because she has four children, but rather how much more are you willing to pay for bread baked by a woman with four children. Because if you are buying there, you are the one paying her salary.
No established firm in this world pays salaries to their employees, their customers always do. I say established because in a startup business the investor has to save up money to pay for all the salaries (plus capital equipment and other expenses), sometimes for months and years, before the revenues and profits (if they ever arrive) come in, and in that case the investor is the one paying the salaries. But once a firm is making profits and is therefore able to stay on the market, the customers are always signing every paycheck every month.
Think about the BMW automobile company and imagine that for some reason people completely stopped buying their cars. How many salaries could they pay out? Not many. Maybe they would scrape by for a month or two, maybe not even that. But if the customers stop coming in, the salaries stop going out. I own a business as well and I never pay my employees out of my pocket, it's always our customers. They show up in our stores, they pay for what they find interesting and at the end of the month we use this money to pay out the salaries. If the customers stopped showing up we would have to stop paying out salaries.
This might seem obvious to some people but I write this only because I can assure you that to many it is not. Some will say "let's pass a law raising her salary and making it harder to fire her and that will take care of that." I would reply that these people have not taken the time to study the nature of human action. Such a mandate passed by the government would, as most government decrees do, only make the situation for this woman worse. Raising her salary above the market wage will cause her employment to become unprofitable and thus fewer people will want to hire her. And if you make it harder to fire her, then employers will again be afraid to hire her because the risk of her not being the right employee suddenly becomes much higher. So whereas before she actually had a job which she had chosen among the alternatives that she could choose from, now no one will be willing to hire her and she becomes jobless with four kids.
So then if the capitalists don't employ us but rather we employ each other and thus our wages depend on the number of our customers and the thickness of their wallet, rather than on the "greed" of our employers, how do we get a higher wage for this woman and indeed for everyone in society?
How to get more customers? We allow her employer the freedom to invest and thereby make her work more productive and the products more attractive in order to attract more customers. And how do we make the customers richer? We allow everyone else in society to invest in order to make labor more productive. The fact is that we are (materially - and we all need material things to survive) only as rich as our productiveness allows us to be. And we become more productive only by investing in new and better capital equipment (machines & tools) so that we can produce more with fewer resources. Then things become better and cheaper.
But people will only save and invest if they can expect to receive a profit from their investment. The bigger the share of the savings and profits that is taken away from investors, the less they will invest. The more money a central bank prints, the more this money loses value, the less people will save. Less savings equals less funds available to invest. The more the government taxes profits, the less attractive it is to invest. The more the government taxes wages, the higher the wage cost, the lower the profits. Low profits equals less investment. Less investment means we become poorer.
All the above is of course descriptive of the economic means, i.e. through production and trade, of making profits. There is also the political way, i.e. through extortion and confiscation, of making profits, but that is a whole other subject...
Thanks for the inspiration to Ludwig von Mises and his short book Economic Policy: Thoughts for Today and Tomorrow, which is available online for free here.
Matej Avsenak Ogorevc
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