If I start a lemonade stand and charge $2.00 a glass and it costs me $0.50 a glass to make and I can sell 10 glasses an hour, I will make $20 an hour with a cost of $5, so my take-home will be $15 an hour.
If I can add you as an employee and now we can sell 20 glasses an hour I can generate $30 an hour in revenue, so now I need to decide what I can/should pay you and you have to decide if you think that’s fair.
If I pay you $0.50 per glass then you make $10 an hour and I now make $20 an hour, but I made that before I had an employee, so why am I hiring you?
And if I pay you even a penny more than $0.50 per glass I’m actually a charity now, because I’m making less money with you than I was on my own.
So I can only rationally pay you anywhere from 0.01 per glass to 0.49 per glass, and when you start getting closer and closer to 0.50 per glass it starts making less and less sense to hire you.
This also isn’t a partnership. I realized there was a market for lemonade, I invested my money to buy the table, the glasses, the lemons, sugar, ice, containers, signs, etc. You came along and offered to help me make more lemonade, so if you accepted say, $0.35 per glass you would make $7.00 an hour and I would make $23.00 per hour.
This is in both of our benefits, you see. I can make $20 an hour on my own so you helping me helps me make an additional $3 per hour, but without my employment, you make $0.00, so now you make $7.00. You can’t make more than $10.00 remember, not unless this is just a charity, and if that’s the case then why don’t I just work on my own and GIVE you $10 an hour in charity? There’s no difference.
Everyone actually benefits when I make a profit. It incentivizes me to hire you, you make more money than zero, and more people can have lemonade because now we can provide 20 glasses per hour instead of 10.
This is how prices are meant to be set too. If I set the price at $3.00 per glass and only 5 people per hour buy, I will only make $15 an hour minus costs, which is $0.50 * 5 = $2.5 so in total, I will make $12.5 an hour, but if I set the price at $2.00 per glass and 10 people an hour buy, I make $15 an hour after expenses.
So highest prices possible does not equate to more for me as the business owner. I need to negotiate a price with my customers, which is also a negotiation of quality, and a negotiation with my employees (which is also a negotiation of quality).
These things also aren’t this simple. I’m obviously simplifying this dramatically. There are a lot more factors at play here too. For instance:
What if hiring someone else ups the number of glasses we can sell from 20 an hour to 25? Do I hire them instead of you? If I hire them both, do I pay you both the same or only based on your respective values? If I can make 10 glasses an hour and you can make 10 but this other person can make 15, in total we can make 35 glasses an hour. At $2.00 per glass with a cost of $0.50 per glass this is a grand total of $52.50 an hour.
So at $52.50 an hour I have to pay both of you but I cannot pay you combined more than a set amount or I would make more than if I never hired you. Now what happens if your work dwindles and you start only producing 7 glasses per hour? What if you don’t show up for work frequently? What if the guy down the road, who claims to be government, comes by and tells me I now have to pay his neighbor $0.10 per cup for his service he’s calling “insurance”?
Here’s the bottom line: If you don’t want to make $7.00 an hour, don’t agree to work for me. Why didn’t you start up your own lemonade stand and sell lemonade for $1.75 a glass and put me out of business then?
In the end, there is no such thing as wage theft, there are simply negotiations and consent. You are completely free not to agree and not work for me at that price. If I can’t get anyone to work at $4.00 an hour I will have to raise my offer, won’t I? In fact, it’s likely in my best interest to give you a good offer just like it is to give my customers a good offer. If you are the best and you can make 20 glasses an hour then I don’t want my competitor to have you, so I want to give you the best offer I can, don’t I?
Most of these “labor theory of value” arguments often come from third world or third world adjacent countries where the respective governments are fundamentally still quite tyrannical and/or where the belief structures are very collectivst.
If I start a lemonade stand and charge $2.00 a glass and it costs me $0.50 a glass to make and I can sell 10 glasses an hour, I will make $20 an hour with a cost of $5, so my take-home will be $15 an hour.
If I can add you as an employee and now we can sell 20 glasses an hour I can generate $30 an hour in revenue, so now I need to decide what I can/should pay you and you have to decide if you think that’s fair.
If I pay you $0.50 per glass then you make $10 an hour and I now make $20 an hour, but I made that before I had an employee, so why am I hiring you?
And if I pay you even a penny more than $0.50 per glass I’m actually a charity now, because I’m making less money with you than I was on my own.
So I can only rationally pay you anywhere from 0.01 per glass to 0.49 per glass, and when you start getting closer and closer to 0.50 per glass it starts making less and less sense to hire you.
This also isn’t a partnership. I realized there was a market for lemonade, I invested my money to buy the table, the glasses, the lemons, sugar, ice, containers, signs, etc. You came along and offered to help me make more lemonade, so if you accepted say, $0.35 per glass you would make $7.00 an hour and I would make $23.00 per hour.
This is in both of our benefits, you see. I can make $20 an hour on my own so you helping me helps me make an additional $3 per hour, but without my employment, you make $0.00, so now you make $7.00. You can’t make more than $10.00 remember, not unless this is just a charity, and if that’s the case then why don’t I just work on my own and GIVE you $10 an hour in charity? There’s no difference.
Everyone actually benefits when I make a profit. It incentivizes me to hire you, you make more money than zero, and more people can have lemonade because now we can provide 20 glasses per hour instead of 10.
This is how prices are meant to be set too. If I set the price at $3.00 per glass and only 5 people per hour buy, I will only make $15 an hour minus costs, which is $0.50 * 5 = $2.5 so in total, I will make $12.5 an hour, but if I set the price at $2.00 per glass and 10 people an hour buy, I make $15 an hour after expenses.
So highest prices possible does not equate to more for me as the business owner. I need to negotiate a price with my customers, which is also a negotiation of quality, and a negotiation with my employees (which is also a negotiation of quality).
These things also aren’t this simple. I’m obviously simplifying this dramatically. There are a lot more factors at play here too. For instance:
What if hiring someone else ups the number of glasses we can sell from 20 an hour to 25? Do I hire them instead of you? If I hire them both, do I pay you both the same or only based on your respective values? If I can make 10 glasses an hour and you can make 10 but this other person can make 15, in total we can make 35 glasses an hour. At $2.00 per glass with a cost of $0.50 per glass this is a grand total of $52.50 an hour.
So at $52.50 an hour I have to pay both of you but I cannot pay you combined more than a set amount or I would make more than if I never hired you. Now what happens if your work dwindles and you start only producing 7 glasses per hour? What if you don’t show up for work frequently? What if the guy down the road, who claims to be government, comes by and tells me I now have to pay his neighbor $0.10 per cup for his service he’s calling “insurance”?
Here’s the bottom line: If you don’t want to make $7.00 an hour, don’t agree to work for me. Why didn’t you start up your own lemonade stand and sell lemonade for $1.75 a glass and put me out of business then?
In the end, there is no such thing as wage theft, there are simply negotiations and consent. You are completely free not to agree and not work for me at that price. If I can’t get anyone to work at $4.00 an hour I will have to raise my offer, won’t I? In fact, it’s likely in my best interest to give you a good offer just like it is to give my customers a good offer. If you are the best and you can make 20 glasses an hour then I don’t want my competitor to have you, so I want to give you the best offer I can, don’t I?
Most of these “labor theory of value” arguments often come from third world or third world adjacent countries where the respective governments are fundamentally still quite tyrannical and/or where the belief structures are very collectivst.