Price Controls

Doesn’t capitalism lead to the lower labor wages?

No. Under capitalism, one’s wages depend on how much one can produce. That is why Michael Jordan — or a doctor — gets paid millions of dollars more than the minimum wage. It depends on how well and how much they produce. The reason why factory laborers receive more wages in America is that they are rendered more productive by productive use of capital.

Isn’t the solution to raising wages minimum wage laws?

If passing minimum wage laws are the secret to raising wages, then why doesn’t the government make everybody rich by setting the wage to a million dollars? Would this solve poverty in third world countries, or would this make everyone — who produces less than the million-dollar minimum wage — unemployable? The truth is that those who do not produce enough to merit the minimum wage will become unemployed by such laws, and those who do produce more than the minimum wage do not need such laws. If a laborer — say Michael Jordan — is not paid enough for what he produces, then someone else will hire him and pay him more. It is competition for labor — that produces — that pushes wages up.

What sets the price of labor under capitalism?

Prices under capitalism are set by any particular businessman, but by the free-market. It is competition between businesses for labor that pushes wages up; it is competition between laborers that pushes wages down (to reduce this competition between laborers unions create “union shops” which prevent non-union members from competing with them, by banning non-union members from working in the unionized field).