Back in the late 1960s labor-statesman Walter Reuther
testified before Congress on the ideas of Louis O. Kelso, noted as the inventor
of the Employee Stock Ownership Plan (ESOP).
Reuther noted that if workers relied on raising fixed wage to increase
consumption income, they would end up worse off than before. Raising wages simply adds to the cost of
producing marketable goods and services.
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| Walter Reuther of the UAW |
What did Reuther suggest instead of raising wages? He was, after all, head of the United Auto
Workers, and could hardly be expected to champion the rights of owners and
management against workers.
Reuther's answer was profit sharing. Profits are what is left after all costs have been met and the product sold, so profit sharing does not increase costs to the consumer. An increase in compensation that comes from profits is thus a genuine increase in buying power.
Reuther's answer was profit sharing. Profits are what is left after all costs have been met and the product sold, so profit sharing does not increase costs to the consumer. An increase in compensation that comes from profits is thus a genuine increase in buying power.
But what gives a worker the right to receive profits? After all, if an employer generously gives
workers a share of profits, he or she can repent and take it away as easily as
it was given in the first place.
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| Daniel Webster: "Power follows property." |
. . . . unless the workers have a legal right as co-owners
to a share of the profits! That was
Kelso’s point, and what attracted Reuther to Kelso’s ideas.
Of course, the real importance of Kelso’s ideas is that it is a way to empower workers, not just secure them more income. “Power,” as Daniel Webster pointed out, “naturally and necessarily follows property.”
Of course, the real importance of Kelso’s ideas is that it is a way to empower workers, not just secure them more income. “Power,” as Daniel Webster pointed out, “naturally and necessarily follows property.”
That’s why the whole “Raise
the Minimum Wage Movement,” while well-intentioned, is going in the wrong
direction. Income doesn’t confer
anything except purchasing power — up to a point. Property confers economic power — which
includes purchasing power — but also political and social power.
Let’s take a look at wages, even if just as a way of getting
people more income. All things being
equal, and if human labor were truly the only factor of production (as DOL
statistics suggest by measuring productivity in terms of output per labor
hour), a raise in wages would result in a net gain of zero to workers. This is because the price level would rise to
compensate for the increase in costs.
All things are not, however, equal, and labor is not the
sole factor of production. In addition, suppliers and providers of retail goods
tend to raise prices in anticipation of an increase in effective demand (i.e., wages), so that workers pay more
in real terms even before they get their increases. Customers resist paying more for the same
goods or services workers produce, decreasing demand, and thus decreasing the need for workers — which
also hits any business with high fixed costs . . . such as workers with high
wages. The solution is either to get rid
of workers (sometimes you can’t), go bankrupt, or go out of business before you
lose what you have.
. . . or you could take the advice of Walter Reuther and
shift compensation from fixed wages to variable profits, which not only doesn't
increase costs, it gets the workers more than with fixed wage increases in most
cases, so they benefit three ways: they have more money to spend when prices
aren't going up, the company stays in business, and they don't lose their jobs.
That’s what Capital
Homesteading is designed, in part, to do.
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