Charles Kenny’s “Marx Is Back” (Feb. 2 Forum) correctly noted, “The communist revolutions of the first half of the 20th century proved far, far worse for living standards than the well-regulated markets of the latter half.” Europe and America have been free-market capitalist, and he did note that, “poor people in Europe and America are in the income elite according to the standards of South Asia and Africa.” (They also enjoy much better working conditions and lifespans.) Mr. Kenny then tells us there is yet hope that workers of the world will finally unite and put an end to such exploitation. Huh?
He has missed the necessity of inequality to workers’ prosperity. Consider: If a man’s pay exceeds the value of his own production, then the excess is necessarily the fruit of someone else’s labor. If he would be paid more but not enslave others, he must produce more. The usual way uses tools. Most workers work with tools/capital owned by someone else. And those tools can be very expensive. According to federal statistics, the average worker uses $334,000 worth of capital — buildings, equipment, inventory, etc. If workers had to supply these tools themselves, they’d be unemployed.
A small business with 12 employees might need $4 million of capital. Most of us don’t have that kind of money — especially, to lose. And most startups fail. Only someone a lot richer than you or I can afford this. And if there is no one rich enough to take those risks, workers won’t have jobs.
When we seek greater equality by taxing more of rich families’ income, they can cut back either their lifestyles or their saving (investing). Mostly, they’ll cut back their investing. Less investment means fewer tools means fewer jobs and lower pay for remaining workers.