Michael Matulef on Nostr: Wages and salaries serve the same economic function as other prices that is, they ...

Wages and salaries serve the same economic function as other prices that is, they guide the utilization of scarce resources which have alternative uses, so that each resource gets used where it is most valued. Yet because these scarce resources are human beings, we tend to look on wages and salaries differently from the way we look on prices paid for other inputs into the production process. Often we ask questions that are emotionally powerful, even if they are logically meaningless and wholly undefined. For example: Are the wages "fair"? Are the workers "exploited"? Is this "a living wage"?

No one likes to see fellow human beings living in poverty and squalor, and many are prepared to do something about it, as shown by the vast billions of dollars that are donated to a wide range of charities every year, on top of the additional billions spent by governments in an attempt to better the condition of poor people. These socially important activities occur alongside an economy coordinated by prices, but the two things serve different purposes. Attempts to make prices, including the prices of people's labor and talents, be something other than signals to guide resources to their most valued uses make those prices less effective for their basic purpose, on which the prosperity of the whole society depends. Ultimately, it is economic prosperity which makes it possible for billions of dollars to be devoted to helping the less fortunate.


~ Thomas Sowell