by David Gordon
Critics of capitalism from Marx to Bernie Sanders claim that the free market exploits the working class for the benefit of the rich; and even some “classical liberals” of recent vintage argue that capitalism needs to be supplemented by a guaranteed basic income or the like.
The critics have matters precisely wrong. In the free market, workers’ marginal productivity, discounted by the rate of interest, determines their wages. Employers will not pay workers more than they contribute to the value of the product, and the pressure of competition prevents employers from paying less than this. In order for wages to rise, marginal productivity must also rise.
How can this be achieved? Mises answers: