Capitalism and Profits: How Workers Can Gain Power and Share in the Wealth

By Carl Milsted

Why do we have profits? Why don’t workers get all the wealth that they create? Why do we need stockholders anyway? Why do we need capitalists?

All too often the hard Left has responded to these questions with the answer that we don’t need capitalists and stockholders, and then launch into envy-filled conspiracy theories on how the workers get exploited. Such thinking either leads to disaster – such as worker’s “paradises” with slave labor and mass starvation – or the populace turning back to the Right. If instead we look at these questions objectively, we can in fact reduce the payments to capitalists and increase the workers’ share of the wealth they produce.

Stockholders are paid for the service of paying the workers before there is income produced. With modern capital-intensive manufacturing there is a large amount of work to be done before the first consumable product comes off the line. That is, we have a huge number of jobs to be done before there are any consumers writing checks to pay the workers to do those jobs. There is design work, tools to build, factories to build, catalogs to write, inventory to create, advertising to be done and so on. Only after all these overhead tasks are done do we have an income stream to pay the workers. This can take years.

Capitalists earn their profits by paying the workers before the income comes in. In return workers give up their right to some profits. If the workers of the world were to unite and build factories, design products and so forth without taking a paycheck, then they could do without capitalists and take home all the proceeds of their efforts – once those proceeds come in. In fact there are some software workers who have ended up being millionaires by doing something much like this: take a below market paycheck while working at a startup company in return for stock options.

But this can only work if the workers have savings in hand to survive while waiting for the income to come in. Social Security discourages this.

Dr. Carl S. Milsted, Jr. is a Senior Editor of the Free Liberal. He is the author of HolisticPolitics.org. By day, Milsted is a physicist who writes software for national defense related applications. He hopes to eventually move on to the more interesting and lucrative field of Mad Science.