Tag Archives: Austrian Economics

Why Socialism and Communism Can Never Work.

The Austrian Economists Who Refuted Marx (and Obama)

From:    The Daily Bell

Editorial By Richard Ebeling

March 04, 2014

The president of the United States has publicly declared that he knows the minimum wage any worker in the United States should earn as an hourly salary: $10.10. Why not $11.11 or $9.99 has been left a mystery. But what the president is sure of is that businessmen clearly are stonehearted money grabbers exploiting some of their workers by not paying them the real value of what their labor is worth.

Left unspoken in Obama’s assertion of knowing what a minimum “fair” or “just” wage should be in America is the ghost of a thinker long thought to have been relegated to the dustbin of history: Karl Marx (1818-1883).

Marx’s Labor Theory of a Worker’s Value

Marx’s conception of the unjust “wage slavery” that businessmen imposed on their workers became the premise and the rallying cry that resulted in the communist revolutions of the twentieth century, with all their destruction and terror.

Marx insisted that the “real value” of anything produced was determined by the quantity of labor that had gone into its manufacture. If it takes four hours of labor time to produce a pair of shoes and two hours of labor time to prepare and bake a cake, then the just ratio of exchange between the two commodities should be one pair of shoes in trade for two cakes. Thus, the quantities of the two goods would exchange at a ratio representing comparable amounts of labor time to produce them.

If a worker’s labor produced, say, three pairs of shoes during a twelve-hour workday, then the worker had a just right to the ownership of the three pairs of shoes his labor had produced, so he might exchange it for the productions of other workers from whom he wanted to buy.

But, Marx insisted, the businessman who hired the worker did not pay him a wage equal to the value of the three pairs of shoes the laborer had produced. Simply because the businessman owned the factory and machines as private property with which the worker produced those shoes, and without access to which the worker would be left out in the cold to starve, the employer demanded a portion of the worker’s output.

The employer paid him a wage only equal to, say, two of the pairs of shoes, thus “stealing” a part of the worker’s labor. Hence, in Marx’s mind, the market value of the third pair of shoes that the businessman kept for himself out of the worker’s work was the source of his profit, or the net gain over the costs of hiring the worker.

Here is the origin of the notion of “unearned income,” the idea of income not from working and producing, but from, well, simply owning a private business in which the workers who really did all the work were employed.

The businessman, you see, does nothing. He lives off the labor of others, while sitting up in his office, with his feet on the desk, smoking a cigar (when it was still “politically correct” to do so). It is not surprising given this reasoning about work, wages and profit that a president of the United States then says to businessmen, “You really did not make it.”

Carl Menger and the Personal Value of Things

Karl Marx died in 1883, at the age of 64. A decade before his death, in the early 1870s, his labor theory of value had been overturned by a number of economists. The most important of them was the Austrian economist, Carl Menger (1840-1921), in his 1871 book, Principles of Economics.

Menger explained that the value of something was not derived from the quantity of labor that had been devoted to its manufacture. A man might spend hundreds of hours making mud pies on the seashore, but if no one has any use for mud pies, and therefore does not value them enough to pay anything for them, then those mud pies are worthless.

Value like beauty, as the old adage says, is in the eyes of the beholder. It is based on the personal, or “subjective,” use and degree of importance that someone has for a commodity or service to serve some end or purpose that he would like to satisfy.

Goods do not have value because of the amount of labor devoted to their production. Rather, a certain type of labor skill and ability may have value because it is considered useful as a productive means to achieve a goal that someone has in mind.

And furthermore, the value of things decreases as our supply of them increases, because we apply each additional quantity of a good at our disposal to a purpose less important than the purpose for which previously acquired units of that good were used.

As I am adding shirts to my wardrobe, each extra shirt generally serves a use for that type of clothing less important to me than the shirts I had purchased earlier. Economists call this the “diminishing marginal utility of goods.”

Read More here: http://www.thedailybell.com/editorials/35079/Richard-Ebeling-The-Austrian-Economists-Who-Refuted-Marx-and-Obama/

Ron Paul: Our Peaceful Revolution Will Make Bankers, Crony Capitalists and War Profiteers Suffer!

The young people are the change. They will be the revolutionaries of the next 10-30 years. I am encourage not because I agree with everything RP says but because so few young people are involved and these few seem enthusiastic. (E)

Opportunity Begins With Freedom, Not a ‘Living Wage’

Excellent article as to why with the way the Central Banking system works a minimum wage is a moot argument (E)

Thursday, April 11, 2013 by Staff Report – http://www.thedailybell.com

In favour of the living wage … In the United States and some other developed economies, wages for the least well paid are too low. A mandatory living wage is the best way to redress this injustice. The idea of minimum wages is well accepted, but the American $7.25 an hour does not meet the simple standard of providing enough to support the worker who earns it. For an adult in New York State, self-support requires 55 percent more, $11.25 an hour in a full-time job, according to The MIT Living Wage Calculator. And a just minimum should really be enough to raise a family – something closer to the $23.58 an hour required to support a single wage-earner with one child. The minimum wage is one part of the remarkably complex pay system found in all developed industrial societies. – Reuters

Dominant Social Theme: What the Western world needs is a fair minimum wage.

Free-Market Analysis: This Reuters editorial brings up two points and provides us with two separate conclusions.

Theoretically, we are much averse to the argument that government needs to provide minimum wages. But practically speaking, if government is going to provide money to impoverished people, why not print the money and give it to them directly – instead of sending the money to banking coffers?

So the confusion embodied by this article is compounded by a lack of honesty about the monetary system itself. This article wants to treat our current situation as if the West’s problem is one mainly of governmental fairness. Here’s more:

Economists often suggest that wages are determined by market forces, the supply and demand for labour, and by employers’ calculations of the value of labour. But actual wages influence both the market and the perceived value of labour. It is more accurate to include market forces and economic value somewhere in the middle of the long list of factors which contribute to the ever-shifting social agreement on pay levels.

This agreement is established in the mysterious way that all social orders are built – the powerful push, the weak resist, traditions are followed and evolve, justice is respected and flouted, market forces and economic calculations nudge. By far the most important factor in determining pay is the social judgment of value. The main reason that bankers, advertising executives and doctors are paid more than teachers, childcare workers and street cleaners is that society values the former more than the latter.

And the main reason that the minimum-wage jobs pay too little to support a family is that society has agreed that is what such labour is worth. This is an injustice, because honest labour should always be rewarded with enough to live a decent life. To be fair, the social judgment of these occupations is less harsh than the pay level suggests.

The very poorly paid usually receive welfare benefits from the government, either in cash or in the form of free or cut-price services. It is an awkward arrangement, but unavoidable in societies which have decided that pay should be determined by the job but spending power should be determined, at least in part, by needs and family situation. That division will exist as long as family breadwinners do not receive special pay status.

The macroeconomic objections to higher minimum wages deserve serious attention, but they often hide higher earners’ justified fear of losing out. After all, when those at the bottom end up with more – as they inevitably would with a higher minimum wage, even after benefit cuts – those at the top must end up with less. Doctors would still have much higher incomes than cleaners, but both the doctors’ own pay and the ratio of their pay to cleaners’ remuneration would fall. The desire to maintain consumption and social status is legitimate, but must be set against a higher virtue – solidarity. The fruits of economic success should be shared equitably. A living wage for all is a good standard of success.

You see the argument being made? It is especially clear in this last paragraph. Providing people with a living wage is a “higher virtue.”

But this article in reality has nothing to do with virtue. If it was virtuous, it would tell the truth about how money is produced in the modern era, with a touch of a button. During the height of the financial crisis, Ben Bernanke of the Federal Reserve admits to generating some US$16 trillion in short-term loans to financial enterprises – much of which reportedly was never paid back.

Such spending makes arguments like this one moot. These are 20th century arguments, in fact, based on a time when people did not fully understand the monetary system. Perhaps one could say they are arguments from the 1800s when there was a gold standard and money was truly constrained.

But today these are arguments without a purpose. Were there sufficient determination, proponents of these sorts of solutions would start to argue that central banks ought to print money and deliver it directly to people instead of banks.

Of course, most of the people making these arguments are statists with an emotional or professional stake in concealing the way money is really produced in the modern era. And they would rather write these sorts of articles, apparently, then tell the truth about money and poverty in the 21st century.

From our standpoint, an even better solution to poverty would be to shut down central banks and let Leviathan begin to starve. Without an unlimited supply of money, the US in particular would have to shutter its military-industrial complex, the vast prison gulags that dot the country and the larger regulatory state that deprives people of the opportunity to work.

There are estimates that between 50 million and 100 million in the US who want to work cannot find employment. Something has gone drastically wrong with what we call regulatory democracy;  it simply doesn’t work. It’s reached a dead end.

Agitating that this sort of dysfunctional system should prop itself up by providing tens of millions with a living wage is not a solution but a kind of bribe. The idea apparently is to pay people a bare minimum in the hopes that they don’t rise up in protest against a system that is frozen in failure.

What the West and the United States really need is a long, loud discussion about statism, the incompetence of regulation and the abysmal failure of the current money system.

Conclusion: Opportunity begins with freedom.

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