Why Wages Go Up and What It Means for Us
Floyd A. Harper’s book “Why Wages Rise” dives deep into the reasons why some people’s paychecks get bigger over time. Spoiler alert: it’s not just about working harder; it’s about working smarter with the right tools, savings, and understanding how money really works. Let’s break it down.
1. It All Starts with Productivity
- Harper makes it clear that the more you can get done in an hour, the more valuable your work becomes, and that’s how wages go up. This is called productivity. Think of it like baking pies: if you can bake twice as many pies in the same amount of time, those pies (and your skills) are worth more. Harper puts it simply: “Production creates its own buying power in a free economy.” In other words, the more you produce, the more you can earn. It’s a straightforward equation—if you can produce more, you can buy more.
2. Tools to Harness Energy
- Harper talks about tools, not just the kind you find in a toolbox, but anything that helps you do your job better. Tools can be machines, technology, or even software that makes you more efficient. These tools let you produce more with less effort, which means higher pay. But here’s the twist: someone needs to save up to buy these tools. Savings are what allow businesses to invest in the things that make us more productive. So, when people or companies save money, they’re basically investing in future productivity. More pies, more pay!
3. Specialization: Stick to What You’re Good At
- Here’s a fancy word for you: specialization. It means focusing on one thing you’re really good at, instead of trying to do everything. Harper explains that when people or businesses specialize, they become more efficient. It’s like if you’re great at baking pies, you should stick to that, and let someone else handle the apple picking. By doing what you’re best at, you not only get better at it but also contribute more to the economy. Specialization leads to more innovation and higher wages because everyone’s doing what they’re best at.
4. The Importance of Savings in an Economy
- Let’s talk about savings. Harper emphasizes that savings are the backbone of economic growth. When people save money, it allows businesses to invest in the tools and equipment they need to be productive. Imagine you want to start a bakery—you need money for ovens, mixers, and ingredients. That money comes from savings, either yours or someone else’s. Harper suggests that if you don’t have the savings, tools, or processes in place, you need to work for someone who does. This is why savings are so crucial; they’re what businesses use to pay wages and produce valuable goods and services.
5. The Lubricant of Exchange
- Harper describes money as the lubricant that keeps the economy running smoothly. But here’s something I’ve learned: money isn’t just paper; it’s a way to trade labor. When you pay for a pie, you’re really paying for the baker’s time and effort—the labor that went into making it. That’s why prices reflect how much work went into something. Harper also touches on something important: inflation. When inflation happens, the value of your money (and the labor it represents) can drop, which means you can buy less with the same amount of money. He also points out that there’s a secondary market for things like stocks and bonds, which “store” value instead of paying for labor directly. These are like piggy banks that hold onto the value of your work until you need it.
6. Leisure and a Better Life
- Harper wraps up by talking about leisure, which is the time you spend not working. As productivity and wages go up, you get more leisure time. But Harper makes an interesting point: “What most persons do with their leisure costs them money. Yet they probably are paying for the privilege of doing something that someone else gets paid for doing regularly for his living.” In other words, you might pay to go fishing on the weekend, while someone else is out there fishing for a paycheck. It’s a funny reminder that while leisure is important, it’s often tied to the value of work. The goal isn’t just to make more money, but to have a better life where you can enjoy your time off, thanks to the hard work you’ve put in.
Harper’s Perspective on Capitalist Economies
Harper’s big message is this: in a capitalist system, where businesses and people buy and sell things freely, wages go up when productivity increases, when we use tools effectively, and when there’s enough savings to keep the economy going. Harper believes that wages aren’t just about negotiating a better deal—they’re about the broader forces at play in the economy. Savings and investments in tools are what drive productivity, and that’s what ultimately leads to higher wages.
But Harper also makes a crucial point about what happens when wages are artificially pushed up by external forces like labor unions. While unions may have good intentions, pushing for higher and higher minimum wages can lead to more inflation. And here’s the catch: when inflation goes up, so do the prices of everything we buy. So, even if wages go up, the higher cost of goods can cancel out those gains, leaving us no better off. Harper’s take, and mine as well, is that instead of focusing on artificial wage increases, we should be putting our energy into boosting productivity. That way, wages rise naturally, without the negative side effects like inflation that can hurt consumers in the long run.
In the end, “Why Wages Rise” is all about understanding the real reasons behind wage increases. Harper’s insights help us see how productivity, tools, specialization, savings, and money all work together in a capitalist economy to make sure we earn more and live better. If you want to understand why some people earn more than others—and how you can, too—this book is a must-read.
Unlike the other books, this book I enjoyed listening to the Audio book. You can find the book here:
POST SCRIPT:
Another interesting aspect of savings in an economy is the idea of deferred spending, which leads me to reflect on the impact of taxes, particularly capital gains tax. When someone chooses to save money, they are essentially postponing their consumption, unlike someone who immediately spends at a supermarket or shopping mall. By saving, that individual forgoes the immediate satisfaction of spending in favor of future benefits. Taxing those savings, particularly through capital gains tax, can feel like a penalty on the act of deferred consumption.
What makes this more intriguing is that savings play a critical role in the economy. By saving, individuals enable others to borrow or invest through banks, thereby helping to circulate wealth. Although this is a simplified view of how banking operates (since fractional reserve banking complicates the process), the core idea remains: savings fuel economic growth by providing capital for investment and improving future opportunities for individuals and society. In this way, savings become vital to the ongoing circulation of wealth, contributing to long-term prosperity.