For that brief 30-year Golden Age, 1945-1970, private sector unions were the main mechaninism that compelled the sharing of returns on invested capital and thus spread prosperity throughout the land.They definitely had their weaknesses, but they also had their strengths, one being that they were organized around industries. This allowed for differentials on pay rates based on this or that industry’s labor productivity, aka profitable output per hour worked.Minimum wage has never been anything but a low floor, but its value has been reduced greatly since the peak in the early 1970s. I think that mechanism is even more flawed than unions, at least if it’s turned into anything more than a floor.The underlying issue is this: How does an economy based on mass production enable mass consumption? If there’s an imbalance of the kind that led to the Great Depression, a mass-production system falls apart because consumers are insolvent. This, shall we say, trickles upward, and the mighty fall.To keep it afloat, the returns on capital need to be widely distributed. If private-sector unions disappear (as they mostly have in this country) the result is what the father of capitalism, Adam Smith, predicted in 1776 (“The Wealth of Nations”) when he wrote that the wages of unskilled labor will trend toward subsistence.In a mass-production economy, subsistence wages for a big chunk of consumers, and barely above that for most of the rest, will not sustain production. That was the lesson of the Great Depression, which we seem doomed to repeat now that just about everyone who lived through those harrowing times is gone.The question thus remains: By what mechanism do we ensure that enough of the products of our labor return to the hands of the laborers? Today’s returns on invested capital are high, but they are not being distributed in a way that will sustain our mass production economy for very long.
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