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Lening and the Division of Labour



One of the big issues with socialists is that they are fixated with wages. Every single socialist country on earth (that would be all countries, for those who are counting) has some sort of minimum wage law. This law is typically stated in terms of money per hour, but sometimes it shows up as "worker's benefits" or "employer's contributions" and so on. Socialists do so because they attempt to achieve "equality". But consider the following.

Richland produces two kinds of gidgets (A and B). The time required to manufacture one gadget is one hour. Poorland also produces the same gidgets, but their manufacturing process is less efficient. They need 2 hours to produce A and 3 to produce B. As capital and goods can move freely between countries, if Poorland wants to compete with Richland it has no other option than to have less expenses and this means lower wages. And so in Poorland manufacturing wages for A and B will tend to be 50% and 33.3% of Richland respectively.

But if people in both countries can move freely inside of them, labourers in Poorland will be attracted to the manufacture of A (because of higher salaries) but this will cause the wages of A to drop while the wages of B to rise (less workers) until they are more or less equal. But this boost in the production of A (and its now lower manufacturing cost) would mean that Richland can no longer compete producing A because Poorland produces it far cheaper. But at the same time, the production of B in Poorland would become unprofitable because of rising wages and will no longer be able to compete with B manufactured in Richland. Consequently, the manufacturing of B in Poorland would cease, the manufacturing of A in Richland would cease and this country would concentrate in manufacturing B only (at lower wages). As a consequence of this, wages in Poorland and Richland would tend to equalize. Lower in Richland and higher in Poorland. Presto! Automatic "equality". But the story does not end here, as the Law of Association shows, there will be now more A's and B's than ever before. Poorland and Richland will both be wealthier than ever before.

What this means is that free markets tend towards the automatic equalization of wages (all other conditions being equal), with one gigantic advantage: we all become wealthier.

Socialism on the other hand, with the imposition of minimum wages is simply destroying this process by trying to force this process in a completely arbitrary manner and as a consequence of this, not only equalization does not happen but there is also a drop in productivity.

What would have happened if Richland and Poorland would have imposed minimum wages? Gidgets in both countries would have become more expensive, which means that sales would drop, which means that labourers would be fired and furthermore, there would be no advantage in moving from producing B to A in Poorland and A to B in Richland. As a consequence of all of this, A and B would still be manufactured in both countries with a far smaller labour force, at a higher price and lower production. Basically, both countries just became poorer. And when this happens what do socialists do? They tax even heavily companies producing A and B thus making sure prices of A and B rise even further hence rising prices and thus lowering consumption. Even more poverty is created. A vicious cycle repeats itself.

Is it clear now why the imposition of minimum wages is counterproductive? This conclusion seems paradoxical even more in the light of what people "feel". Yes. People feel better when they jump from lower wages to minimum wages. This is nothing but human time preference. This is normal. The problem is that people do not understand the big picture and socialists make sure they never will. Furthermore, minimum wages are not "the" big socialist evil out there. This is so because as we have shown above, socialism interferes with the division of labour at so many levels. As such, eliminating minimum wages will create more misery and despair for as long as socialism is alive and kicking. In order to solve the problem the only real solution is to remove socialism altogether. This will automatically solve the "wages problem".

Peace and cooperation

A few of the lesser advertised benefits of the division of labour is that it fosters peace and cooperation among people. Consider the following factors:

  • The division of labour benefits everybody, including those who are at a disadvantage in productive methods.
  • The division of labour is independent from any belief, religion, ethics, morals, points of view or opinion.
  • The division of labour operates only as long as there are markets where to trade goods and services. But the existence of markets implies contractual obligations. If nobody would fulfil their obligations, markets would cease to function. Hence, people realize that not-cooperating (for whatever reason of belief, religion, ethics, morals, points of view or opinion) is counterproductive and leads to less personal wealth. Hence, the division of labour fosters cooperation.
  • The division of labour fosters cooperation and anything that would destroy such cooperation is counterproductive (i.e. makes people less wealthy personally). As such wars are counterproductive and are thus avoided. The existence of wars is only possible because of the existence of governments who do not abide by the division of labour.

Therefore it is clear that anything that opposes the free action of the division of labour will contribute to wars and isolation. But socialism is opposed to the division of labour at its most basic theoretical level. Furthermore, any political theory acting as socialism will produce the very same effects. It is, in part, for this very same reason that the number of wars have skyrocketed in the last 200+ years. Because with the advent of "representative" governments they brought with them social economic policies originating not in socialism but in the misguided notion that a "strong government" is required (see for example The Aggressiveness Of Modern Democracies).

It is for this very same reason that wars are only profitable in the presence of governments who do not foster peace and cooperation (see War Is Good Business Invest A Child). Remove governments and the division of labour takes over. Problem solved.


The reasons why socialism fails and fails miserably are so numerous that are impossible to count. However, what is obvious it that socialism fails because at its most basic, its core theories do not agree with reality. Socialism fails because it attempts to go against human nature. In this case, it attempts to go against the division of labour and the consequences are as obvious as inevitable. The problem is that people prefer the "feel good" of societal acceptance instead of looking at the future and the debacles that socialism is creating. This is, again, human nature. Time preference. It is for this very reason that there is a Political Systems Lifecycle driving political evolution and such evolution will not happen until Socialism is thoroughly debunked at an individual level.

But then again, perhaps you believe that socialism is a valid theory because it attempts to re-educate or re-program people to perform in a socially-correct, selfless and giving manner by force. That's your choice. One thing though, before you dismiss our point of view, you may want to investigate what happened in Cuba when Fidel Castro was put in charge of one such experiment where people were paid with public "recognition" instead of money.

Note: please see the Glossary if you are unfamiliar with certain words.

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