Wage Slavery Part 2: Worker Control

I continue my comments about “wage slavery” by addressing a common complaint from socialists about working conditions. The advocates of socialism claim that workers should have more control over their work environment and also have some ownership in the businesses for which they work. They include the desire to receive some of the “excess value” that they say capitalists “steal” from them.

Several years ago, I identified five functions that must occur in every business, whether successful or not. Those businesses that perform these functions the best tend to perform the best. I will use these five functions as a framework for addressing the desires of socialists to have more involvement in the companies for which they work. Those five functions consist of:

  1. Product Development
  2. Operations and Administration
  3. Personnel and Management
  4. Marketing and Distribution
  5. Finance

I will address them separately without going into great detail.

Product Development

In a socialist organization, in which all workers have a voice and management decisions, they must have a process for designing and developing the products created and sold by the company. How does a collective perform this very important function? Do all the workers have a vote in what products the company will manufacture and sell? Or do they appoint a committee of specialists?

Operations and Administration

Most of the workers in an organization are involved in operations or administration. They either help produce the goods and services of the company, or they help to administer the organizational processes — e.g., accounting, maintenance, etc.

Who in the socialist organization will make decisions about who does what and when? If all workers have a voice in this process, will it operate effectively and efficiently? How will they allocate work assignments in a “democratic” organization?

Personnel and Management

Capitalist companies have procedures by which managers hire and fire people and how they organize the management structure of the company. They attempt to place the most qualified people in the most appropriate jobs.

How will this work in a socialist organization? Will a committee decide who gets hired? Will they have the authority to fire anyone, and based on what criteria? Does the concept of management — a hierarchical concept — completely disappear in the “democratic workplace.”

Marketing and Distribution

Any executive in charge of marketing and distribution will tell you that no truth exists in the concept “if you build a better mousetrap, people will come.” Even marketing executives frequently underestimate the importance of well-designed and well-manufactured products in the marketing effort. They do, however, clearly understand that, if you don’t tell people about your “better mousetrap,” few, if any, people will come (buy your mousetrap.)

So, in the socialist organization, how does the company inform the public about the products they have available? Do they require every worker to meet a sales quota? In a socialist organization within a socialist economy, do the workers even have a choice in what products they develop and manufacture and how those products get distributed? Doesn’t some central government agency do that for them?


The finance function addresses issues about which the socialists seem to care the most. They just want their share of the profit pie. So let’s look at three subfunctions of business finance:

  1. Capital Investment
  2. Profits
  3. Losses

Capital Investment

All businesses require capital investment. Large businesses require plants or offices in which the workers do their work. They also require equipment. They may require large manufacturing equipment, or they may only require desktop computers, paper, and pencils. They cannot, however, provide products and services without at least a small amount of capital.

Do the proponents of socialist organizations propose that the workers bring their own equipment and build their own plants? If they plan to confiscate the capital of successful capitalists, they’re making a prima fascia admission that socialism cannot exist on its own. If they cannot provide their own capital, they must confiscate it from capitalists. Does socialism require capitalism from which to steal?


Socialists seem to focus a lot of attention on business profits. You frequently hear them complain about how the businesses make billions of dollars, while many of the workers make only “slave wages.” They want to distribute those profits amongst the workers.

That sounds like a good idea. Doesn’t it?

The distribution of profits, however, amounts to a much more complex decision then many realize. Profits retained by the company determine the rate at which the company can grow. If a company distributed hundred percent of its profits to the workers, future growth of the business (along with the future expansion of employment) would cease. (Without additional external financing, a company can only grow as fast as the rate at which it plows earnings back into the company, which leads us back to the question of capital investment.)

What socialist committee will make these difficult decisions?


Socialists seldom talk about business losses. Of course, they would like a part of the profits that companies make. Accountants use the term “profit and loss” statement for a very good reason. Even some of the largest companies occasionally suffer losses. Some businesses have losses for an extended period. Some may never see profits and ultimately go out of business. Look at one of the darlings of Wall Street: Tesla. I don’t think this company has ever made a profit. Should Tesla employees chip in to keep the company going?

So how will the socialist workers handle losses experienced by the companies of which they want to own a part? Do they accept a cut in pay? Do they break their piggy banks and add to the capital of the company? If they think they contribute value to the products being manufactured and sold, and those products don’t generate enough revenue, should they accept their responsibility and resign?

Starting and building a successful business does not happen without hard work or by accident. It requires a balanced and intense focus on the five functions that I have identified above. If they don’t do these functions well, more than likely, the company will go out of business.


I have one general question for the socialist who want workers to have more control over the businesses for which they work: Do you sincerely want to accept the responsibilities and risks involved in operating a business?

Wage Slavery

Advocates of socialism frequently claim that employers hold workers in wage slavery. They believe that “corporate” bosses force them to work in unbearable conditions at jobs they cannot quit. Adding insult to injury, the “bosses” profit from the excess value created by the workers.

This form of wage slavery only occurs under “capitalism” as practiced in the United States. Socialists want to give the workers control over their work environment. They also want workers to receive some of that “excess” value.

I have some empathy for these complaints. At the age of 19, I worked in a brick and tile factory. The metal building was hot and humid. Dust filled the air. I had to work long periods without a break. Some people might’ve found these conditions unbearable. My fellow workers and I found the conditions acceptable. But, I can see how some people might complain about their working conditions.

“Unbearable” amounts to a personal judgment. Most workers in the United States don’t know the real meaning of “unbearable.”

If I did not like the working conditions, I could’ve quit. But, I only planned to work for the summer. What about the others? Did they have the alternative to just quit?

Of course, in the United States, workers always have the alternative of quitting any job they might hold. Do they, however, experience sufficient outside influence as to make keeping a job they don’t like preferable to seeking a better job elsewhere?

Yes, they experience significant coercion to retain the jobs they currently have. They experience enough pressure to make it feel like wage slavery. From where does that pressure come?

Most of the coercion to maintain a job a worker does not want comes from programs controlled, in one way or the other, by government. To verify this point, let’s look at your paystub again. It includes benefits that you might have to relinquish, in part or whole, if you were to leave your current employment. Here are just a couple of examples:

  • Pension plans tie employees to their jobs by requiring lengthy vesting periods. Such plans generally require the blessing of the federal government.
  • Healthcare plans also bind employees because of various restrictions on portability. Employees who require coverage for pre-existing conditions will frequently lose that coverage if they moved to another job.

Pension and healthcare plans represent a couple of the most significant benefits offered by many corporations in order to tie their employees to their jobs. Such plans do not represent the sort of control a worker would have in unfettered capitalism. In a free market, employees would receive their gross salary, and from that, they would plan their own retirement and healthcare. By controlling their own benefits, employees would shift their preferences and move to new jobs when they so desired.

In my next post, I will address two additional items that arise in claims of wage slavery: 1) worker control or ownership, and 2) receipt of “excess value.”


Liberty or Literacy

During a recent town hall sponsored by CNN, Presidential candidate Bernie Sanders made the following statements and asked the following questions:

“We’re very opposed to the authoritarian nature of Cuba,” Sanders said, “but you know, it’s unfair to simply say everything is bad. When Fidel Castro came into office, you know what he did? He had a massive literacy program. Is that a bad thing? Even though Fidel Castro did it?”

Commentators expressed such rightful outrage about his support for the oppressive regime of Castro that they failed to give a direct answer to his underlying question. Is a massive literacy program implemented by an authoritarian government a bad thing?

Some might acquiesce. Literacy tends to help societies and economies develop. So, people might gain some benefits from forfeiting some, or all, of their liberty.

I would say no, no, a thousand times no. The loss of liberty negates any benefit of increased literacy rates—if, in fact, literacy did increase.

In a libertarian society, individuals can achieve literacy if they wish to. Having the skills to read and write, they can examine and express controversial viewpoints. The benefits of literacy come only from its use.

In an authoritarian society, literacy creates no benefit for the individual. The government controls what people read. The government limits what people speak or write.

People gain more benefit as illiterates in a free society than they ever could as literates in an unfree society.

You should keep this point in mind if you favor public schools, voucher programs, or “free” college. What good do you get from any form of education provided by a government that steals other people’s property to pay for it and controls what education you get and how you can use it?

Consider that the government, either directly or indirectly, controls all of the education system—public and private—in the United States.

Should we allow socialists to increase that control?

Read the complete New York Post article:


Review: Austrian School for Investors

I recently read Austrian School for Investors[1], because I have been a student of investing for many years, and I know a group that has read the book for discussion.

Although I began the book with the anticipation of a clear explanation of the application of Austrian methodology to investing, I finished the book with a sense of disappointment. I would not recommend this book for anyone sincerely desiring to apply Austrian theory to investing.

Before I point out specific problems with this book, I want to revisit— subjective value theory, which sets the Austrian school apart from all other schools of economics. Although many know and advocate the subjective value theory, I believe that many don’t fully understand it. Its simplicity seems to disguise its fundamental nature and importance. After reading this book, I would put the authors in the group of people who know subjective value theory but don’t fully understand the theory and its application.

Here’s a simple explanation of the application of subjective value:

All exchanges occur because both parties value what they receive more than what they give up.

That’s it. No exceptions. Regardless of the purpose of the exchange.

People buy what they value more than what they give up. People sell what they value less than what they receive. This principle applies to all purchases/sales, whether the items consist of turkeys, iPhones, cars, houses, stocks, bonds, paintings, etc. No exceptions.

When people buy investments, they have a single objective, no matter what the investment vehicle: buy something for which someone else will, in the future, offer them in exchange something they value more than the investment. Regardless of their stated justification, they can have no other reason.

If the investor understands that simple objective, they only have the difficult task of making a reasoned guess about what others will want in the future.

If, in the process of making that guess, they expect the market to bid up the price of companies that show an accounting profit, investors should keep in mind the importance of consumers. The authors alluded to the importance of good company management, but they made no mention that good managers cannot record profits when consumers don’t purchase a sufficient quantity of their products.

For the sake of clarification, money does not represent an exception to subjective value. People pay an amount of money for a stock because, at that moment, they value the stock more than the money. Their rationalization for that value does not matter. Likewise, when they sell the stock for an amount of money, they value the money more than the stock. Money consists of just another commodity in investment transactions.

In addition, market prices — stated in a quantity of money — do not provide a measure of value. They only record the amount of one commodity (money) some people have decided they value more than the investment they gave up. Market prices only indicate what other people might give for a similar quantity of the same investment. They do not, to repeat, indicate value.

Because value, and its measure, always originates with individuals, another person cannot create nor store value. The answer to the question, “What’s it worth?” must always be, “I don’t know.” To cite a recent market price as a measure of worth or value consists of a logical fallacy.

The concepts I have described above amount to a recitation of ideas fundamental to Austrian methodology that the authors have ignored or contradicted in their description of “Austrian investing.” Yes, they do mention subjective value frequently, but, then, they proceed to make statements that conflict with subjective value.

I will give only a couple of examples of how the authors fail to apply subjective value rigorously.

“From the perspective of the Austrian School, the only way to sustainable capital accumulation and thus wealth accumulation, is thrift, value preservation, and responsible risk taking by employing liquid funds in roundabout ways on assets offering higher value creation potential.”
(Page 220) (Emphasis mine.)

First, the authors need to define wealth, a term which they frequently use in this book. Wealth becomes very difficult to define in terms of ordinal valuations determined by individuals.

Second, because of its subjective nature, value cannot be either created or preserved.

“At the core of value investing is the determination of a company’s fundamental (or ‘intrinsic’) value, which is examined independent of the stock price.”
(Page 281) (Emphasis mine.)


“The concept of intrinsic value implies a strict separation of ‘price’ and ‘value’. It should be noted here that the term ‘intrinsic value’ in this context is not meant to deny the fundamental subjectivity of value judgments. Rather, it is in the words of Robert Blumen, ‘the entrepreneur’s appraised price, based on assumptions about the future’.”
(Page 282) (Emphasis mine.)

In the two paragraphs cited above, the authors make the type of statement which makes this book, from a truly Austrian perspective, both frustrating and confusing. They first referred to intrinsic value, which they claim can be examined independent of stock price. They then state that their use of the term “intrinsic value” does not deny the fundamental subjectivity of value judgments. How can this be?

By using the term intrinsic value, the authors do deny subjective value judgments. One cannot reconcile their self-contradictory statement.

Also, the idea of separating price and value makes no sense. Prices result from the actions of buyers and sellers acting based on the structure of their separate value preferences. Without individually determined value, no transactions would occur, and thereby no prices registered. Prices, it should be noted again, do not represent a measure of value. They simply indicate a point in the relative range between what buyers and sellers value as individuals.

If you choose to read this book, keep in mind at all times that the purchase or sale of any asset occurs only because both parties value what they get more than what they give up. Understanding this one concept does not change the game; it will give you a clearer understanding of how to play the game.

  1. Austrian School for Investors: Austrian Investing between Inflation and Deflation by Rahim Taghizadegan, Ronald Stöferle, Mark Valek


Socialist Security Pyramid

The Socialist Security Pyramid

I began my description of Social Security as an example of a socialist program. It fits nicely into the Marxist mantra, “From each according to his ability, to each according to his need.” — or some other nonsense. It is just a socialized pyramid scheme — it puts Bernie Madoff to shame.

Don’t believe the malarkey about a “trust fund.” The Social Security accountants keep meticulous records of what you earn and what you have paid in FICA taxes, but the government does not fulfill any fiduciary responsibility to the beneficiaries. The government doesn’t look for the best investments for your particular needs.

The government collects money (by force) from current wage earners and distributes it to the current recipients. When the government collects more than it pays out, the rest goes into the general fund (the Social Security administrators buy government bonds.)

Here’s how their pyramid works.

The graphic above gives a greatly scale down depiction of the Social Security pyramid. This system has one person receiving benefits of $10,000 per year. It has 12 workers paying into the system. Each of those workers earns $10,000 a year and pays 10% of that wage as a Social Security tax. The total taxes collected from all workers amount to $12,000. The system has a ratio of payers to receivers of 12 to 1.

This system, which collects $12,000 in taxes and pays out $10,000 in benefits, ends up with a surplus of $2,000. (The surplus goes into the general fund through the purchase of $2,000 in bonds.)

As with all pyramid schemes, those paying into the system greatly outnumber those receiving payments. As long as this remains true, the scheme can continue.

But economic systems never remain stagnant. Consider the following demographic shifts.

If one of the 12 workers from the previous period retires, the system ends up with an entirely different situation. The system now has two workers, each receiving $10,000 a year—for a total payout of $20,000, and only 11 workers paying a total of $11,000 in taxes based on the same parameters of $10,000 per year in wages and 10% in Social Security taxes.

When 1 out of the 12 payers retires, the ratio drops to 11 to 2, and the system plunges into a catastrophic deficit. The system now has a total of $13,000 to pay benefits. It has collected $11,000 in the current year and has $2,000 left over from the prior period. That amount will not cover the $20,000 benefit obligation of the system. The system has a deficit of $7,000 and will collapse without any outside funding.

To keep this teeny system afloat, the payer to receiver ratio must stay at 12:1 or greater. Of course, a few things can happen that might change that relationship, for example:

  1. Retirees can die faster.
  2. More people can enter the workforce.
  3. Incomes for payers can rise faster than the increase of benefits paid out.
  4. More…

In the case of the real Social Security, the numbers receiving have been growing, and the numbers paying in has been declining. The system is heading for collapse. (You can do your own research to find out the actual ratio.)

Legislators have made several proposals that would extend the life of our current Social Security system — raising the retirement age, adjusting the tax schedule. But, whatever the government comes up with to stretch out the life of Social Security (by tinkering with a fraudulent system), the system will continue to transfer income from one group of people to another group of people.

Social Security provides a good example of a socialist program (redistribution) that exists in a system most people think of this capitalist. Like many socialist programs, it transfers money from savings to spending. That shift causes a long-term drag on economic growth. It cannot sustain over the long term, yet politicians recommend more redistributive programs like it.

Socialist politicians don’t want to replace capitalism. They want to expand the socialism that already exists.


The Scam Called Social Security

The beauty of this Socialist Security scheme (scam) is that the government has been able to pull it off for so many years. Most people don’t actually know how it works.

Earlier, I asked you to take a look at your payroll deductions. I will focus on one item that appears on nearly everyone’s paystub: the FICA deduction. Take that amount and double it. That total equals the amount taken from your total earnings by force. (Half shows up on your paystub. Half shows up on the employer’s books.)

If you think “by force” sounds a little strong, consider two things. First, nowhere on your employment forms do you have an opportunity to check a box that says, “No, I don’t think I want that.” Second, if, after deducting money from your earnings, your employer fails to remit that money to the government, officials of government will shut down the business and sell all its assets. Sorry, you’re out of a job.

Aside from the idea of the use of force to take your money, the government tells you that it’s still your money. The government will keep it safe for you until you retire.

The government doesn’t really keep “your money” safe, nor invest it wisely. Yes, they put your name on a ledger, along with the amounts they have taken from you. From that list, they can calculate how much money they will give you when you retire. (By the way, they decide when you can retire; not you.)

So what did they do with the money taken from you (by force)?

They give it to someone else.

Oh no, contrary to what they have told you, they do not put that money in a special account just for you.

They use two ways to give that money (not your money) to others. First, they pay current Social Security recipients — thank you very much. Second, they use the money to fund part of the federal deficit — i.e., they loan it to themselves (the government.)

So, what happens to your money? From where will your Social Security payments come when you retire?

They will come from others paying FICA taxes while they are working. Those workers act as the base of the pyramid scheme that has been going on for roughly 90 years.

Next, I will describe that pyramid and how it could collapse soon.


Socialist Benefits

We all like benefits but look at the intervention required to provide those benefits. If you believe that intervention only applies to other people (i.e., rich people), let’s examine that assumption. Let’s make it personal.

Take a look at your last paystub. You know your “take-home” pay. Yes, that’s what you have to support your living. But, now look at the top line—gross pay. That’s not quite everything you should get. Add to that figure an amount equal to your FICA deduction (that’s the amount your employer must pay “on your behalf.”) You should also get the amount the employer saves by paying you with “benefits” rather than cash. We will ignore that amount for this example because it is too hard to calculate.

The cash you get paid should amount to your gross pay plus the employer’s portion of FICA (at least.) The difference between that amount and your “take-home” pay gets taken from you by force.

That’s right; by force. You cannot have that money paid directly to you.

On that list of deductions, you probably see deductions for items that you might pay for yourself. Even so, you have no choice. You cannot choose not to get the “benefit” if you don’t want it. You cannot acquire any of those “benefits” from another source if you wish.

Next, I will address what probably amounts to your largest involuntary payment — Social Security (FICA).


The Source and Measure of Value

Before I continue with my assessments of socialism and capitalism, I must return to a subject that I will touch on many times on this blog: the source and measure of value.

For an economic system to operate, market participants must have a consistent and reliable measure of value. They must know the value in order to allocate resources effectively and efficiently. The need for a consistent measure of value holds true regardless of what economic theory you advocate.

Marx: Labor Value

Karl Marx proposed what we call the “labor theory of value.” In simple terms, this means that the actions of labor put value into goods and services. It sounds like a good theory when you consider that all goods and services require labor in addition to land — and the byproducts of land.

The labor theory of value, however, breaks down when you try to apply it to actual forces of production. The value of labor has neither a consistent source nor a consistent measure. If labor provides the source for economic value, how can you have a consistent source when no two laborers produce the same product? Measuring labor value has a related problem. How do you measure the value of labor on interchangeable products? For example, if two cabinetmakers build essentially identical cabinets yet one cabinetmaker takes twice as long as the other, does that make his cabinet twice as valuable as that produced by the other cabinetmaker.

Karl Marx himself tried to address this discrepancy, but never succeeded in producing a reasonable adaptation to his original labor theory.

Intrinsic Value

Many other value theories start with the basis of intrinsic value. Any good or service has intrinsic value as a part of its nature. It has that value before it’s owner even offers it for exchange. The problem with intrinsic value originates with the source.

People buy and sell goods not because of their nature but for their utility. A carpenter who uses a hammer to make his living might value of hammer a lot more than a homeowner who wants to use it as a doorstop.

Likewise, if a good always has a certain intrinsic value, it would always trade at the same price (in terms of goods or money). Anyone with the smallest familiarity with commodity markets would recognize that the same good frequently does not have the same value at different times in different places.

Subjective Value

Only the subjective theory of value remains consistent as to source and measure. This theory establishes that always and everywhere individuals provide the source and the measure of value. Individuals provide the source because the judgment as to value comes from nowhere else. Individuals provide the measure because only an individual can establish the relative value of one good over the other. And no one, not even the individual making the value judgment, can quantify that relative value. Keep this important point in mind.

The subjective theory of value proves difficult for many people to either comprehend or internalize. Some people reject the theory entirely because they have blindly accepted other theories of value. Many others seem to know and comprehend the subjective theory of value but they fail to understand and internalize it.

I frequently read articles by people who can give a clear and concise definition of the subjective theory of value, but in the next sentence, they make a statement that attributes value to a source outside the individual. One must remember that always and everywhere value the individual provides the source of value and measures it by his relative preferences.

In order to compare and contrast socialism, free-market capitalism, and whatever mixed system operating in the United States, I must use the only consistent value theory — the subjective theory of value. I cannot deny the importance of labor and land in the creation of marketable goods and services. But, it makes no sense to use labor, which varies in its consistency, and land of variable quality as the sources of value in economic transactions.


A Review of Capitalism

I have covered a lot of the subject of socialism before. I believe, however, that socialism deserves a lot more attention because of the rising popularity of socialism and socialist programs. But, explaining the pitfalls of socialism might not offer the best approach.

Maybe, explaining capitalism might provide a better approach. Most of the advocacy for socialism amounts to complaints about “capitalism” as the advocates know it.

But, none of these people have experienced true, unfettered, capitalism. The economic system in the United States has more socialistic characteristics than it does capitalistic characteristics. So what would you get with genuine free-market capitalism?

Capitalism arises naturally as an outgrowth of a free market. How would I briefly describe a free market?

A free market has no form of intervention — no regulation, no government spending, and no tampering with the monetary system. Individuals play the primary, and fundamental, role in a free market. Each individual does not, however, operate in isolation. He or she interacts voluntarily with other individuals for his or her own benefit. The voluntary nature of these interactions means that those transactions benefit both parties. People choose their own friends, acquaintances, employers, and trading partners.

The voluntary and reciprocal nature of these human interactions means people in free markets live in liberty, not democracy—in which the majority tells the minority how to live. Liberty and free markets provide freedom and voluntary interactions for all individuals, not just for the majority.

Liberty and free markets don’t sound too familiar; do they?

Advocates of socialism complain about “wage slavery,” income inequality (on a large scale), inaccessibility to education and healthcare, and many other economic benefits deserved by lower-income citizens. Although these complaints might have some merit in our current system, does that represent free markets and “capitalism?”

I will soon examine the system about which people complain.


Socialism: An Economic Ideal

A lot of discussion and debate revolves around socialism as a replacement for capitalism. It’s easy to see why socialism makes sense to many people. Socialists advocate for many of the things we all desire.

Why shouldn’t we get free healthcare? Is it not an integral part of the right to life? It would be good to have the ability to see a doctor whenever you want, and life-saving medication should also be available to whomever needs it.

And education. Doesn’t education contribute to the economic benefit of all citizens? Even people whose education seems like a distant memory (like myself) should have access to “Adult Education.” After all, the mind never stops learning.

But these seem like secondary needs compared to how we spend the bulk of our time — at work.

We work so hard at our jobs; shouldn’t we get the full benefit of our labor? And, shouldn’t we have more control over our work environment? Many advocates of socialism advocate a democratic structure in the workplace. Don’t you want a say in when and how you work?

The list of advantageous outcomes from socialism seems endless. Sign me up.

Before I make a full-throated endorsement of socialism, I need to take a closer look. I may want many of the same things socialists want, but I need to understand the foundation on which proponents of socialism will build this utopia.

I don’t, however, want to begin with an examination of socialism. People propose socialism as a replacement for something that already exists. In their minds that something consists of capitalism. So, before I can examine socialism, I must take a look at what the “capitalism” that it would replace.

Most of us think that we live in a capitalist economy. I want to find out, first of all, do we have real capitalism in this country, and if not, what sort of economic system do we have. Only then can we decide whether socialism would move us in the right direction, or, possibly, put us on the road to economic disaster.