By Eugen Bohm-Bawerck What I have to say may, I think, best be developed by looking at a typical instance that illustrates price determination through social control in a particularly noticeable manner: the case of the settlement of wage disputes by means of a strike.
According to the accepted formula of modern wage theory, based on the marginal-utility theory, the amount of wages in case of free and perfect competition would be determined by the "marginal productivity of labor," i.e., by the value of the product that the last, most easily dispensable laborer of a particular type produces for his employer. His wages cannot go higher, for if they did, his employer would no longer gain any advantage from employing this "last" laborer; he would lose, and consequently would prefer to reduce the number of his workers by one; nor could the wages be substantially lower, in the case of effective competition on both sides, because the employment of the last worker would still produce a substantial surplus gain. As long as this is true, there would be an incentive to the further expansion of the enterprise, and to the employment of still more workers. Under an effective competition among employers this incentive would obviously be acted upon, and could not fail to eliminate the existing margin between the value of the marginal product and the wages in two ways: by the rise of wages, caused by the demand for more workers; and by a slight diminution of the value of the additional produce, due to the increased supply of goods. If these two factors are allowed to operate without outside interference, they would not only delimit wages, but actually fix them at a definite point, owing to the nearness of these limits, let us say for instance at $5.50 for a day's labor.
But let us now assume competition to be not quite free on both sides, but that it be restricted, or eliminated, on the side of the employers… (Read more)
Source: Mises.org
