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Property and the Just Wage

In the last installment, we maintained that the only means to economic equilibrium was the just wage: unless each person gets a fair proportion of the wealth he produces, there will not be enough purchasing power in the mass of men to clear the markets. We noted that in the absence of a just wage, the market will have to rely on non-economic means to achieve equilibrium: charity, government spending, and usury. Therefore we can accurately judge the failure of the just wage—that is, the failure of economic equilibrium—by noting the amount of non-economic means that are required to clear the markets. This leads us to the conclusion that the very size of government is a measure of the failure of economic justice. Indeed, one of the objects of distributism is to cut down on the need for gargantuan government.

At this point, the Austrian or neoclassical economist is likely to object that in order to enforce a just wage, you will need not a smaller but a larger government, one capable of setting the employment contract for each and every workplace. Such an arrangement is likely to abrogate the rights of both parties to freely bargain for a free and just wage. This critique cannot be passed off lightly, because under current conditions, they happen to be correct. However, the “current conditions” are neither necessary nor natural, and while the standard economists are proximately right they are ultimately wrong. But this takes some explanation of the current theory.

The Standard Theory

Without going too deeply into the model, we can note that the standard theory states that in a perfectly competitive, free-market environment, wages will tend to reflect accurately the productivity of both the workers and capital, and that each side would get the wealth it actually produces. The most famous proponent of this theory, called “marginal productivity,” was J. B. Clark, who put it this way,

Where natural laws have their way, the share of income that attaches to any productive function is gauged by the actual product of [that function]. In other words, free competition tends to give labor what labor creates, to capitalists what capitalists create, and to entrepreneurs what the coordinating function creates.[1]

Another way to state this theory is to say that wages determined by free market bargaining will be “just wages,” and equilibrium conditions will be satisfied. While space does not permit a complete critique of this theory, we can note that it is very easy to test empirically. According to the theory, over time, wages should rise with productivity.

But that is not, indeed, what happens. In the last thirty years, productivity has exploded for each and every category of labor, but the median wage has stagnated. Indeed, it is lower today in real dollars than it was in 1973. Hence, the standard theory is falsified in practice. Clearly, workers are producing more, but they are not getting any of the benefits; the rewards of increased productivity are going to a few people at the top, while the mass of men have seen no improvement. However, it is obvious that if people are producing more but earning the same, they cannot from their earnings consume all that they produce, and hence the economy will have to rely on the non-economic sources of demand; usury and welfare will replace economic justice as the means to equilibrium.

Why doesn’t free bargaining produce equitable wages? Adam Smith gave the reason a century before Clark proposed the theory. Concerning any dispute over wages, Smith says,

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily. …In all such disputes, the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks they have already acquired. Many workman could not subsist a week, few could subsist a month, and scarce any a year without employment.[2]

In other words, Smith recognized that it was power, and not productivity, that determines the outcome of wage negotiations, and power will generally favor “the masters.” But if it is power that is arbitrated in a wage contract, then the solution is to redress the balance of power between the parties. To do this, we must look at the primary source of economic power, namely property.

Property: The Source of Economic Power

Property relations are the most basic economic relations, and all other economic outcomes will depend in large measure on the nature of the basic property relations. As Daniel Webster noted, “Power follows property,” and this is a simple truism that cannot be denied. All production depends on property, and even in the infinite “space” of cyber-space, one still needs a physical place to place the servers, the programmers, the transmission lines, etc. We tend to take the modern form of property for granted, but in fact it is a relatively recent innovation, dating back to 1535 and the seizure of the monasteries, an act which created a new form of property. This modern form of property was not codified in law until 1667 in the Statute of Frauds, and the dominant form of modern property, the corporation, did not gain its current status and powers until 1886, in a bit of Supreme Court legislation known to history as Southern Pacific v. Santa Clara County, a decision which made the railroads—and all corporations—practically independent and sovereign nations.

Before the reign of Henry VIII, property tended to be a wide-spread condition throughout society. Technically, only the king was a property-holder, in our sense of the term, while nearly everyone else was tenant, either a tenant-in-chief (a duke or other great lord) or a sub-tenant. We associate “tenants” with “renters,” people who normally have only thin, contractual, and precarious rights to the property they occupy, and who pay for these limited privileges the highest amount that the market will bear, an amount called “economic rent.” But this was not so then. Rights in tenancy were nearly as strong as outright ownership is today, and rents were not “economic,” but customary. That is, they were not related to the economic value of the land, but to the value of the services provided to the land: defense, improvements, courts, etc. They were more like a tax than a rent, and did not vary from year to year. We tend to think of a 15th century peasant as powerless and perhaps starving, a mere serf (slave). But that was not the case. Wages were, in fact, quite high. An artisan could provision his family with 10 weeks of work, while a common laborer could do so in 15, wage levels that were not seen again until the late 19th century.[3]

However, after the seizure of the monasteries, wages collapsed so that, at the close of the 16th century, it took an artisan 35 weeks and a laborer 42 weeks to provision his family.[4] The seizure of the monastic lands and the enclosure of commons had dispossessed most of the peasantry of their traditional lands and rights. They became landless proletarians crowding into cities, which often could not provide them with sufficient work, or brigands on the highway, stealing to support their families. Rents became economic, with landlords squeezing out the last penny of value from the now weakened renters.

This brief history shows the power of property to completely change wage relationships. Men who have property—that is, the means of production—are free to negotiate a wage contract, or not, as they wish. But a man with no other means of support must accept the terms offered. In this latter case, the wage contract becomes leonine, that is, based on the inequality of the parties, and leonine contracts are always about power.[5] The CEO does not earn 500 times what the line worker does because he is 500 times more productive, but because he is 500 times more powerful; the seamstress in a sweatshop does not earn a pittance because her productivity is low, but because her power is pitiful. Power, not productivity, is the issue in labor negotiations, and you cannot change wage relationships without changing power relationships. And the key to economic power is productive property.

We should be careful to note here that the issue is not about private property per se, but about the form and extent of that property. Property is natural to man, we might even say it is proper to him. It is as natural for a man to say, “This is my house” or “This is my land” as it is for him to breathe. Indeed, when a man cannot say, “this is mine,” then he really is less of a man; he might even find it difficult to breathe, or at least draw a fee breath; his rights and freedoms have been truly compromised. The Socialists and the Communists correctly analyzed the problem in terms of property, but they analyzed it in the wrong direction. Having ascertained that there were too few owners, they tried to ensure that there would henceforth be no owners. But the distributist takes the problem in the other direction; they wish to make the mass of men more properly human by giving them what is proper to a man, namely property.

The primary justification for private property is that it ensures that each man gets what he produces. As R. H. Tawney put it, “Property was to be an aid to creative work, not an alternative to it.”[6] But when property becomes aggregated into a relatively few hands, when only a few control the means of production, property loses its proper function, and “ownership” becomes divorced from use. In our day, “ownership” is frequently in the form of a corporate share, which losses most of the qualities of actual ownership to become attenuated to a mere lien on a certain portion of the profits, or not, as the managers decide.[7] Oddly enough, this puts not only the worker, but the investor at a disadvantage, as power passes to a new group, the über-managers, who sit on each other’s boards and set each other’s salaries. As John Bogle, the founder of the Vanguard investment funds, notes, the managers take an increasing share of the profits, leaving scraps for those who actually put their money at risk.[8] The result is that the returns to both kinds of labor, actual labor and the stored-up labor of capital, are reduced, while “management” and speculation get the lion’s share of the profits.

The whole point of Distributism is the restoration of distributive justice to its proper place in economic science, and this means, at the practical level, the wider distribution of property. Only a man who has his own property—the land, tools, and training to make his own way in the world—only such a man can fairly negotiate a wage contract. If he has alternatives to what is being offered, then the resulting contract is likely to be fair, that is, to fairly represent his contribution to the productive process. Nor is this conclusion really at odds with standard neoclassical economic theory, if only the economists would take their own theory seriously. For at the base of all the standard economic theory stands the “vast number of firms” assumption, which presumes that the production of any commodity is spread over a vast number of firms such that none of them have any pricing power. They should all be price-takers and not price-makers. But the precondition of the “vast number of firms” assumption is that property be widely dispersed throughout society; without the latter you cannot have the former. If economists took their own assumptions seriously, they would be the first to protest in front of firms like Wal-Mart or Exxon. But they do not take their own theories seriously, because if they did they would become distributists or something very like it. Indeed, they would note the obvious: that the modern corporation has collectivized production beyond the wildest dreams of any Stalinist bureaucrat.

At this point, the standard economist is likely to object yet again that we have merely relocated the problem from one of government fixing wages to another government dividing property, and that the later is likely to be more tyrannical than even the former. Once again, this is a serious objection and must be seriously considered. That will be the topic of the next installment.

Books by John Médaille and on distributism are available in The Imaginative Conservative Bookstore. This is part IV of Dr. Médaille’s series on the Economics of Distributism. Click here for parts IIIIII, V. This originally ran on Front Porch Republic and is published here with the permission of the author. The Imaginative Conservative applies the principle of appreciation to the discussion of culture and politics—we approach dialogue with magnanimity rather than with mere civility. Will you help us remain a refreshing oasis in the increasingly contentious arena of modern discourse? Please consider donating now.


1. J.B. Clark, The Distribution of Wealth: A Theory of Wages, Interest, and Profits (New York: Augustus M. Kelly, 1899), 3 Italics in original

2. A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Amherst, New York: Prometheus Books, 1776), 70

3. J.E.T. Rogers, Six Centuries of Work and Wages: The History of English Labour (New York: G. P. Putnam’s Sons, 1884), 390

4. Ibid.

5. Belloc, The Servile State, 111

6 R.H. Tawney, The Acquisitive Society (Mineola, New York: Dover Publications, 1920), 59

7. Ibid., 62

8. Bogle, The Battle for the Soul of Capitalism

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9 replies to this post
  1. I have found this discussion/series fascinating, and I'm impressed with the arguments the author has put forward. But, I remain with John–this seems deeply ideological and radical to me, and I'm very worried about the very point the author makes at the end of this installment, the agent of change and division. The older I get, the less convinced I am that government can provide any good in this fallen world. Even the most basic function of government, the protection of property by the police, seems sadly out of whack. Do cops ever investigate real crimes, or do they simply serve as a tax/revenue gathering branch of the government, chasing down drivers who happen to be traveling a mile or two over the speed limit? And, if we're talking about the federal government, please remember, we're talking about the same set of folks who decimated the American Indian (in the name of property redistribution) and interned Japanese Americans in the 1940s (more property redistribution!). Distributiism seems faulty in theory and in practice. More later.

  2. I can't imagine this ending well.

    On the one hand Mr. Medaille is suggesting that classical economists take their own principles more seriously (that, he says, would make them distributists). Okay. But to argue against "Walmart and Exxon" as if the modern corporation is somehow the embodiment of the principles of classical economics is a straw man — or indeed a straw horse, Mr. Medaille would beat it so.

    His feints seemingly designed to lure us into accusing him of statism notwithstanding, I hope that Mr. Medaille comes around to some kind of conclusion along the following lines:

    The just distribution of property according to productivity will never perfectly be achieved, but it can largely be achieved by vigorous enactment and defense of free market principles. It will take some time for property to be more justly distributed in this organic fashion, but it is altogether more safe (and more likely to be just) if it is left as much as possible to the free operation of a market consisting of men free to act as they think best than if it is entrusted to a government.

  3. Brad,

    I am convinced that for ordered liberty to flourish limited government is a necessity. I think your indictment of local police is sweepingly broad and unfair. I want drunk drivers off our roads, I want murderers and rapists arrested and jailed. I want to call the Village police force when I see suspicious people on my street. Yes I have guns and can defend myself and my family, but I would much prefer trained professionals investigate crime and arrest perpetrators. I am pleased to have civil and criminal courts to settle disputes and judge accused evil doers. I don't want me or my neighbors to have to settle disputes with fisticuffs or seek to exact justice personally against those who may have hurt or killed our loved ones.

    I also am very pleased to have the U.S. Army, Navy, Marines and Air Force to defend my country against enemies foreign and domestic. I know that there are evil people running foreign governments who mean our nation harm and I want brave young men, who swear an oath to our constitution, prepared to use violence to defend us and kill our enemies when necessary.

    You complain about the abuse of local and national government power. Abuse of any power is bad. However, man is fallen and has a propensity toward sin. Not just those on the government payroll, but all men. That includes priests, teachers, fathers, and mothers. That is not a reason to condemn the priesthood, teaching, fatherhood or motherhood. It is not government that is evil by nature, it is the evil that is in man's heart that brings evil into our communities and our nation.

    You have expressed great concern about the evil that governments have done. I agree these things are very bad. However, I remind you that many large institutions, led and staffed by sinful human beings, have committed great evils. This includes private businesses, hospitals, universities, and churches.

    Do not be fooled by ideological libertarian arguments into accepting the premise that evil is found primarily in the public sector. No, it dwells equally in the private sector. Why? Because it is in the heart of all men whether their income comes from sales revenue or tax revenue.

    Yes, government should be greatly limited in scope and power. Yes, the national government is out of control and needs to be drastically reduced in size. Yes abuse of the police, courts and the military is substantial and their areas of operation should be much smaller.

    But, you are wrong. You are wrong to broadly indict the men and women who serve in our local police departments. Most of them are true public servants. They put their lives on the line confronting and arresting thugs that you and I have always wished to avoid facing. Violence is in our world and we can not wish it away or write off the people we pay to deal with it. As one who has needed police assistance on more than one occasion, I am very glad they were on duty and willing to risk their lives.

  4. Brad,

    Secondly, as for as your criticism of Distributism, I will first off admit that I am no expert on it and learning more is part of my motivation for running this series. I don't know what you mean when you say it "seems faulty in theory and practice." Specifically, what are you addressing? I certainly don't think Fr. McNabb, Belloc or Chesterton would have recommended decimating the American Indians or interning the Japanese Americans. You are attacking a straw man whose name is bad government policy, not an economic theory recommended by serious Catholic thinkers.

    Your expressed view that government is inherently evil and cannot provide any good service (including local police) is much more radical and ideological to me than any of the distributist essays I have read, including Medaille's essays on TIC. From my reading of Catholic social teachings I have yet to find anything in distributism that is contrary to the teachings of the Church. I am no expert and am willing to hear further argument.

    I have Medaille's book and, so far, have found it persuasive. I will have to learn much more before accepting distributism as my economic theory of choice. I do know that there are very large amounts of property in the United States controlled by very large international corporations. I also know that most of them have no allegiance to U.S. workers and most of them would move every job in the U.S. to China tomorrow if it meant improving quarterly profits and getting multi-million dollar bonuses.

    I think it is high time we have economic policies in this country that treat small businessmen and small farmers equitably, and encourage jobs to stay in the U.S. As Medaille has stated, the first thing to do is stop the government policies which advantage large corporations in tax policy, regulatory policy, and the legal system. Our current government policies serve large corporations over local businessmen. That should stop.

    I don't like government interference in the marketplace. It often is unfair and inefficient. I believe that current government policies favor large business and big capital over small business. Is that what distributism is about? I don't know. I am willing to learn more about it.

  5. Winston, thanks for your longish posts. Several points. First, I certainly wasn’t criticizing your posting of this series. I’ve been fascinated by it, and I’ve been eager for it to reach a conclusion. Why to reach a conclusion? Not to see it end, but to see where the author takes his argument. As I mentioned, though, I agree with John W.–Distributism, as presented in this series, has an ideological feel to it. I will be the first to admit, I’m not economist. But, ever since reading That Hideous Strength, I’ve been interested in what exactly Distributism is.

    Second, as I’ve stated in print on this site, I’m all in favor of law enforcement and our military forces. I believe these–as do most people–necessary for a livable society. My argument is against the misuse of these people and resources. Relegating a large part of a high patrol, for example, to purchasing radar guns (or whatever the current technology) and chasing down drivers driving over 75 in a 70mph zone seems a waste of everyone’s time and resources. May our armed forces and police ever challenge the evil in our worlds. And, may we always thank them for such noble efforts.

    Third, I was never suggesting that evil resides only in an institution, only that institutions tend to concentrate and institutionalize evil. Agreed, evil comes from pride—”ye shall be as gods.”

    Fourth, I’m not convinced I was attacking from a purely libertarian basis. As I see it, I was challenging from an Augustinian basis. The very people, presumably (though, I don’t know, because I’ve not seen the conclusion of this series) who would be distributing things are (again, I presume) the very people who messed things up in the first place. If we want achieve decentralization of power, why not simply reform laws that allow companies to hide (especially in terms of liability) behind incorporation. This was a major part of the platform of the Democratic party’s platform in the second half of the nineteenth century–abolish laws that give a special legal advantage to corporations, especially when it comes to liability.

    Fifth, I’m not suggesting that Chesterton would favor Indian Removal or internment of Japanese Americans. I meant that the very agent of change (the federal government) we would call upon to implement Distributism is the very same agent who decimated the Indians and interned Japanese Americans.

    So, if Distributism means ending laws favorable to large corporations, excellent. By all means, we, as conservatives, should advocate such change. If, however, Distributism means that we give more power to the federal government to redistribute land and promote land reform, I’m very skeptical. We (the readers of TIC) won’t know until part V appears. I’m eager to see it.

  6. I am just learning about the varying eoncomic systems and hope you will excuse my ignorance. Please correct me if I misinterpreted the following:

    His whole explanation on humane science is so obvious one wonders why he spent so much time on it.I mean, what is the problem here. I don't know anyone who would say that economics is a physical science. It seems like he just has a bone to pick with Mises (but actually agrees). I don't think he read much Rothbard, who was an Austrian. I am a practicing Catholic and I do not hold all of Austrian economics as pure truth. His praise of distributism left me with some serious questions.

    1. What if a distributist in a distributist society had a brilliant idea, grew his idea, and got to big for his distributist society. Would he voluntarily have to give people ownership in the business? Seems like there is less freedom for that one man. And isn't liberty an incentive to do the very best you can?

    2. Is he trying to say that the social science of economics needs to be replaced with the verbiage "humane science". That was kind of unclear.

    3. "One hopes that there is enough generosity and benevolence in society to voluntarily cover the needs of these people." Really? Hopes? And then self-interest ruins what little charity is out there? Us self-interested people are the most generous people in the world.

    4. "the government will tax and redistribute the excess incomes in an amount sufficient to restore equilibrium. For a while, this method worked fairly well." Who is the government to tax someone who makes more and give it away? I never read that in the constitution. Are we to throw that out too because it is not distributist enough? I am not saying that the constitution is a perfect piece, but I still am finding a hard time coming up with anything better.

    5. "Charity, welfare, and usury measure the precise distance between the prevailing wage rate and the just wage. Economies that are overly dependent on these non-economic factors cannot be just economies. And therefore, they cannot be free economies. They create an endless series of dependencies that always tend to make men less free, to make them objects of charity, clients of state bureaucracies, or to place them at the mercy of usurers. In such circumstances, men lose even the memory of freedom; they cease to be citizens of the nation and become mere clients of the state or servants of the usurers." Something is wrong with this but I can't see it yet. My gut is telling me that something is missing from this. It has something to do with the idea of a just wage and freedom. I think it may be that someone somewhere is deciding the outcome of what is fair. Do a minority of distributists get to set up the system? Who's to say they won't be corrupted in the process.

  7. Cont'd post.
    6. I think lending money with an idea of interest attached is ethical. Especially when you are taking a huge risk. If the business does not move forward you lose out. If the business moves forward you can always dismiss the interest at some point. Maybe a jubilee year.

    7. I don't think this guy read, "I, Pencil".

    8. "that the modern corporation has collectivized production beyond the wildest dreams of any Stalinist bureaucrat." What? Again, "I, Pencil". Efficiency is not a horrible thing. Comparing it to Stalin is a ad hominem, isn't it?

    9. "The CEO does not earn 500 times what the line worker does because he is 500 times more productive, but because he is 500 times more powerful." My goodness, did he actually say something that dumb.

    10. I have another scenario. What if we want property for all. How is that to done? I don't see how you can do it without governmental force. Even in a small society someone will lament that the non-working slothful man does not deserve food, let alone land. It is like the Reyes case in the prison system. Did the courts really think that the TV's, free college degree programs, work out facilities, commissaries, and so forth would actually rehabilitate these men? They operate their illegal business quite comfortably whether they are inside a prison or outside of one. Undoubtedly, they are probably more comfortable inside.

  8. Dear Mr. Birzer,

    I have to say that I like your fourth point. It is like taking the good that already exists and deleting that which does not, while adding the good that does. Hmmm. Reminds me of how the Catholic Church brought its beauty to the cultures of the world.

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