“We kept losing our men, they kept escaping from the factory life from a pesthole–till we had nothing left except the men of need, but none of the men of ability.” Atlas Shrugged, Chapter 10

 

This quote from Ayn Rand’s “Atlas Shrugged” highlights the ultimate outcome of a “to each according to his need, from each according to his ability” pay scale at the fictional Twentieth Century Motor Works. That this novel has been so eerily prescient on so many topics is a testament not so much to Ms. Rand’s prose but rather to her ability to recognize cyclical patterns that emerge in society due to those that succumb to ideas driven by emotion rather than reason. One of the most common fallacies is to conflate the value of one’s humanity (which is equal for all) with the value placed on what one produces. It is an easy error to make; after all it certainly seems “fair” that if two people work equally long and equally “hard” they deserve equal remuneration. Even though this fallacy (the labor theory of value) is easily overturned by considering the case of a mud-pie baker in comparison to an apple pie baker, it continues to infect the minds of all too many. When our leaders are infected with this nostrum, their position of power permits them to spread the damage far and wide. Governmental implementations of this idea include the minimum wage coupled with welfare. Such policies with one hand make it illegal for those with low experience or skills to work while with the other hand pays those same people to not work, crushing their spirit and the motivation to improve themselves.

Private implementation of this idea is more rare, but it does happen. The most recent and well-publicized example is that of Gravity Payments located in Seattle. The company’s CEO, Dan Price, apparently took a page from Atlas Shrugged and announced they would implement a new $70,000 minimum salary pay scale (that’s a $33.65 minimum wage).

Those on the left predictably rejoiced at this news – here was someone finally doing privately what they have been insisting for so long government must force everyone to do. Irrespective of who implements such a plan (public or private) it is doomed to failure on psychological grounds. The first signs of that failure harkens back to the Atlas Shrugged quote above – “we kept losing our men.” Early on two of Gravity Payment’s key employees quit citing the inequity of a pay scale they saw as rewarding the least productive at the expense of the more productive. Like a talent sieve there is nothing to retain or attract the more productive employee when it is need, and not effort, that is rewarded. Likewise, like an anti-talent magnet only those with the lowest drive and skillset will be attracted, for where else could they have any hope of earning such a high wage?

The irony here is that Mr. Price started his company in order to provide the lowest cost alternative in the payment processing industry. He saw others charging too much and he knew he could do the same for less (that is, be more efficient and hence more productive). Now he claims he will not raise prices in order to support this new wage scale (he’s already lost some customers over this fear). But, it seems, if he is going to be consistent it would be perfectly acceptable to raise prices and lay a guilt trip on his customers if they were reluctant to pay the higher rates. After all, his company “needs” the money to pay his employees who “need” their high wages.

Wages, like everything else, are a function of supply and demand. Demand is a function of the subjective valuations humans place on things. Supply is a function of the uneven distribution of varying talents. We can no more expect uniformity in wages than we can expect solidarity in opinion or an equal distribution of talents. One can paddle up stream only for so long; eventually nature will overpower our feeble attempts to counter to it.