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Minimum wage is necessary to prevent the Iron Law of Wages

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MissMapleLeaf posted on Wed, Oct 31 2012 5:34 AM

Capitalists want to keep wages and conditions as low as possible. The minimum wage is necessary to actually sustain the health and efficiency of the labourers. 

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Neither Austrian Economics or Libertarianism implies anything about preventing Iron Law of Wages. The result of the market proces is desireable whatever the final result (according to libertarians) because the judgement is passed from freedom. Austrian Economics of course does not provide any solution. Libertarians claim to solve poverty by charity. 
Sure, labor as well as commodities can be seen as a means to obtain abstract profit. In a capitalist mode of production labor is on the monetary cost side. The capitalists want to lower monetary costs.
Proudhon and the much later Jaroslav Vanek wanted to solve what they perciewed as the bads of division of labour by removing labor from the cost side by synthesis of cooperative production and market. Labor thus no longer on the monetary cost side.
However, I think there is a more serious problem outside the purview of austrians and idealistic libertarians.
Land is prior to capital and labour that sets it apart from human action.
In an unregulated expanding economy the distribution of income logically and empirically shifts towards landowners. And land ownership gravitate towards financially strong hands. Highly priced asset.
Land owners have the first claim to production and demand to much because they are in a position where they can do it. Demand output of tommorow today.  Thus labour and  capital factors are squezzed of land and forced onto less productive marginal land. Unemployment rises and wages fall below subsistence. During a recession, labour starves, capital wastes, while those financially strong landowners hold it out refusing to take losses and depreciate real estate (which happens painfully slow). Repeats in cycles regardless of monetary policy. 

Why I reject essential idealist claims of libertarianism and embrace Austrain Economics. The former idealism obstructs deep thinking. The latter provides insights on market proces.


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Capitalists want to keep wages and conditions as low as possible.

Do you have any evidence or reasoning in support of this?

The minimum wage is necessary to actually sustain the health and efficiency of the labourers.

Do you have any evidence or reasoning in support of this?

In the meantime, here is a preeminent socialist, Karl Marx, refuting the alleged "iron law of wages".

The keyboard is mightier than the gun.

Non parit potestas ipsius auctoritatem.

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Competition is all that is necessary to prevent the so-called "iron law of wages", comradette. This means the more capitalists, the better.

An idealist is one who, on noticing that roses smell better than a cabbage, concludes that it will also make better soup. -H.L. Mencken
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At the risk of you not reading my post again:




Let's assume that capitalists only care about making money.

Rutherford the capitalist makes widgets. He pays his laborers $10 to make a widget he sells for $25 (non-labor resources cost $5). Hence, he pockets $10 himself (assuming he leaves none invested in the company).

Is this a stable situation? Not at all. Why? Because capitalists only care about making money. If they could make more money, they would.

What happens, then?

Well, capitalist Rockfeller notices that Rutherford is making a lot of money. He sees that there is an opportunity for him to get some of it. He then offers the workers $11 in wages and only pockets $9. Notice that he has every incentive to do this - he is $9 better off for each widget!

Rutherford, now without laborers, is pissed. He wants money. He then offers $12 to the workers. Why? Because he prefers a profit of $8 over a profit of nothing.

This process goes on until the wages of the employees are almost the same as the price of the products.

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Answered (Not Verified) Bogart replied on Wed, Oct 31 2012 11:14 PM
Suggested by FascistSoup

No.  First ALL HUMANS, not just some arbitrary subset called capitalists, want to achieve their ends with the least use of scarce resources.  The differece here being profit.  They therefore hope to pay as little as possible for those resources which sometimes include the labor of others.  So all humans being consumers of someone elses labor would like to have that labor at as low of a price as possible.  And to make matters worse those same evil humans(All of us) may employ machines instead of labor when their valuation of labor is less than their valuation of machines.  And to make matters even worse than that, those same humans might forgo their ends if they consider the value of the means to be too great relative to the value of the ends.

But fortunately for the laborers, the humans employing them face two overwhelming reasons to pay their laborers what the market will bare or even more than that: 1. Their product is scarce.  So other consumers of labor will be interested to get that labor if their current employers pay them below market priced wages.  2. The consumers of labor may want that labor around for the long term so these evil humans will invest in improving the quality of that labor EVEN though that labor could be bidded away at some later date.

Now here is the tough part:  What parts of the things that help labor get more money or hinder labor from getting more money are affected by Minimum Wage?  Is the scarcity of labor affected?  Is the consumers desire to improve the output of the labor affected?  Is the price of labor relative to machines affected?  Is the value of the ends to small relative to the value of the means so the ends are simply forgone?

If you think about it then you will realize that only the last two items are affected negatively by Minimum Wage.  And given that, Minimum Wage hurts those exact people you think are being helped by it.

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z1235 replied on Wed, Oct 31 2012 11:35 PM


Capitalists want to keep wages and conditions as low as possible. The minimum wage is necessary to actually sustain the health and efficiency of the labourers. 

I agree. We can't let capitalists get whatever they want. They'd probably be demanding dates with the labourer's virgin daughters and paying labourers in stale sandwiches if it wasn't for laws to make those abominations illegal.
I propose that offering/paying a wage of less than $100/hr be punishable by a ten year prison sentence. Imagine how much good this would do to all the labourers. They'd be extatic. And I'd be president. 
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Why do capitalists hire workers higher than minimum wage then?

“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence."
"The sweetest of minds can harbor the harshest of men.”

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cab21 replied on Thu, Nov 1 2012 1:15 AM

the iron law of wages is that there is a natural minimun wage that does not need a government imposing a minimun wage. there is a natural point where people will not work for the wage offered, so the wage will naturally be higher then that point.

the law says wages go towards basic levels, but growing economies show wages above basic levels.


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This process goes on until the wages of the employees are almost the same as the price of the products.

I would say, until the profit rate in widget-making industry is higher than in others. At that point it does not make sense to continue investing into this industry. Of course, there are a lot of forces in real life, some of them acting short-term, some long-term, but in general, the equlibrium point is based on equating profit rate across industries, not on equating costs with revenues in a single industry.

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