Honorable mention goes to Ludwig von Mises for “Gross Wage Rates and Net Wage Rates” :He [Mises] focuses primarily on the necessity of large-scale social cooperation. This social cooperation, by which complex chains of production function to improve the general standard of living, can be brought about only by an economic system based on private property. Private property in the means of production, coupled with the progressive extension of the division of labor, has helped to free mankind from the horrific afflictions that once confronted the human race: disease, grinding poverty, appalling rates of infant mortality, general squalor and filth, and radical economic insecurity, with people often living one bad harvest away from starvation. Until the market economy illustrated the wealth-creating possibilities of the division of labor, it was taken for granted that these grotesque features of man's condition were the fixed dictates of a cold and merciless nature, and thus unlikely to be substantially alleviated, much less conquered entirely, by human effort.
Students have been taught for many generations to think of property as a dirty word, the very embodiment of avarice. Mises will have none of it. "If history could prove anything in regard to this question, it could only be that nowhere and at no time has there ever been a people which has raised itself without private property above a condition of the most oppressive penury and savagery scarcely distinguishable from animal existence." Social cooperation, Mises shows, is impossible in the absence of private property, and any attempts to curtail the right of property undermine the central pillar of modern civilization.
Indeed Mises firmly anchors liberalism to private property. He is all too aware that to champion property is to invite the accusation that liberalism is merely a veiled apologia for capital. "The enemies of liberalism have branded it as the party of the special interests of the capitalists," Mises observes. "This is characteristic of their mentality. They simply cannot understand a political ideology as anything but the advocacy of certain special privileges opposed to the general welfare." Mises shows in this book and throughout his corpus of work that the system of private ownership of the means of production redounds to the benefit not merely of the direct owners of capital but indeed to all of society.
There is, in fact, no particular reason that people in possession of great wealth should favor the liberal system of free competition, in which continuous effort must be exerted on behalf of the desires of the consumers if that wealth is not to be whittled away. Those who possess great wealth — especially those who inherited that wealth — may in fact prefer to inhabit a system of intervention, which is more likely to keep existing patterns of wealth frozen. Little wonder that American business magazines during the Progressive Era are replete with calls for replacing laissez-faire, a system in which no one's profits are protected, with government-sanctioned cartel and collusion devices.
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... As Mises argued, there is no stable, long-term substitute for the free economy. Interventionism, even on behalf of such an ostensibly good cause as social welfare, creates more problems than it solves, thereby leading to still more intervention until the system is entirely socialized, if the collapse does not occur before then.
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For the sake of civilization itself, Mises urges us to discard the mercantilist myths that pit the prosperity of one people against that of another, the socialist myths that describe the various social classes as mortal enemies, and the interventionist myths that seek prosperity through mutual plunder. In place of these juvenile and destructive misconceptions Mises advances a compelling argument for classical liberalism, which sees "economic harmonies" — to borrow Frédéric Bastiat's formulation — where others see antagonism and strife. Classical liberalism, so ably defended here by Mises, seeks no coercively derived advantage for anyone, and for that very reason brings about the most satisfactory long-run results for everyone.
In weighing the pros and cons of the hiring of workers, the employer does not ask himself what the worker gets as take-home wages. The only relevant question for him is, What is the total price I have to expend for securing the services of this worker? In speaking of the determination of wage rates, catallactics always refers to the total price which the employer must spend for a definite quantity of work of a definite type, i.e., to gross wage rates. If laws or business customs force the employer to make other expenditures besides the wages he pays to the employee, the take-home wages are reduced accordingly. Such accessory expenditures do not affect the gross rate of wages. Their incidence falls entirely upon the wage-earner. Their total amount reduces the height of take-home wages, i.e., of net wage rates.
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It does not matter whether the time allowed for notice of discharge is longer or shorter, whether agreements are made for definite periods or for the worker's life time, whether the employee is entitled to retirement and a pension for himself, his widow, and his orphans, to paid or unpaid vacations, to certain assistance in case of illness or invalidism or to any other benefits and privileges. The question the employer faces is always the same: Does it or does it not pay for me to enter into such a contract? Don't I pay too much for what I am getting in return?
Consequently the incidence of all so-called social burdens and gains ultimately falls upon the worker's net wage rates. It is irrelevant whether or not the employer is entitled to deduct the contributions to all kinds of social security from the wages he pays in cash to the employee. At any rate these contributions burden the employee, not the employer.
The same holds true with regard to taxes on wages. Here too it does not matter whether the employer has or has not the right to deduct them from take-home wages.
Neither is a shortening of the hours of work a free gift to the worker. If he does not compensate for the shorter hours of work by increasing his output accordingly, time wages will drop correspondingly. If the law decreeing a shortening of the hours of work prohibits such a reduction in wage rates, all the consequences of a government-decreed rise in wage rates appear. The same is valid with regard to all other so-called social gains, such as paid vacations and so on.
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