Wages are determined by the margin of production. What this means is that a laborer’s bargaining power in the market is determined by their next best alternative to wage labor. Typically, that alternative, where available, has been homesteading.
That was the historic difference between the “New World” and the “Old World.” The New World was a land of opportunity because it had a lot of high quality land available for the taking. Not just for elites, but for any citizen who was willing and able.
In fact, in the United States the federal government didn’t require any income taxes for the first hundred years. Government was funded largely by the sale of federal lands (as well as tariffs). The rate of growth was astounding. Like China today, the growth rates were regularly reaching 10% per year.
As the land became increasingly homesteaded and auctioned off, the margin of production was reduced. By this I mean the quality of freely available land was diminished, and this reduced the bargaining power of labor.
Land is required for all production and even life itself. Without access to it, we die. Simple as that. Yet, there is no principle of justice by which one can legitimately claim sovereignty over locations on the Earth. It can and is accomplished with the sword or the barrel of a gun, but the principles of classical liberalism provide no basis for any exclusive claims over our common inheritance of nature.
“The land is the original inheritance of mankind. The usual, and by far the best argument for its appropriation by individuals is that private ownership gives the strongest motive for making the soil yield the greatest possible produce. But this argument is only valid for leaving to the owner the full enjoyment of whatever value he adds to the land by his own exertions and expenditure.” – John Stuart Mill
With the exception of Malthus, all the classical liberals recognized that land is there for everyone. With the exception of Malthus, the classicals saw the potential for an increasing pie of wealth to be enjoyed by all. The aristocratic Malthus, by contrast, was fixated on natural limits and overpopulation.
The idea of Technological Unemployment is a Malthusian concept (via Keynes) which teaches us to focus on scarcities, even though the scarcities are entirely artificial. Malthus didn’t believe we had a right to exist on the planet. He didn’t see people in their proper role as wealth-creators, but instead as resource consumers. And if the current owners of land decided to “make room” for more, that would just mean less food to go around.
All this raises an obvious question. What happens when there is no free land? The answer is that landless laborers become entirely dependent upon landowners simply for their right to exist on the surface of the planet. You get a scenario that looks very much like a Malthusian Trap, but in fact has nothing to do with natural scarcity.
When the free land is gone, and the bargaining power that comes with it, wages tend towards subsistence. The only reason subsistence wages are paid at all is because it would be unprofitable for the landlords to let their serfs starve to death. When they’re dead they stop paying rent. Landlessness is the essence of serfdom, and although the aesthetic trappings of feudalism are gone, serfdom has never left us.
The last chapters of Henry George’s book Protection or Free Trade were devoted to this topic, especially the one titled “The Robber Who Takes All That Is Left.” Here’s an excerpt:
“Labor may be likened to a man who as he carries home his earnings is waylaid by a series of robbers. One demands this much, and another that much, but last of all stands one who demands all that is left, save just enough to enable the victim to maintain life and come forth next day to work. So long as this last robber remains, what will it benefit such a man to drive off any or all of the other robbers?” – Henry George, Protection or Free Trade
Because of this, labor is placed into an artificial race to the bottom in wages. There is always some level of wages at which it is profitable to trade capital for labor. Furthermore, even if technology somehow progressed to a stage where robots really were better at every single task than humans, it would still make sense to employ humans because of the Law of Comparative Advantage.
If you want a vision of the future, imagine a child grinding away in a sweatshop… forever. That is, unless we awaken to the realities I just described.
The secret to raising the margin of production without the chaos of land redistribution or the economic damage of income taxation is to use Land Value Taxation.
“Men did not make the earth… it is the value of the improvement only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds.” – Thomas Paine, Agrarian Justice
One way to share the fruits of that rental value of the Commons is to simply distribute it as an equal Citizen’s Dividend.
How is this different than the Basic Income? The Basic Income is not tied to any funding mechanism, and as such would almost assuredly come out of taxes on labor, sales, or other productive activities. Thus, it leaves untouched the Robber Who Takes All That Is Left.
How does giving money help a serf whose existence is utterly dependent upon a landlord? The rents are not based on cost of production… because land is not produced! The landlord will just increase the rent by however much the Basic Income is, because he has all the bargaining power. It is like trying to fill a bucket with a hole in the bottom.
We can plug up that hole by taxing the rental value of land to the fullest extent possible, and provide not just a “basic” income, but a dividend that sustainably grows over time with the progress of civilization. The value of our birthright to the Earth increases with every passing year. Why limit ourselves to just a basic income?
The Basic Income is Dead. Long Live the Citizen’s Dividend!