Front Page Titles (by Subject) 3: Profit-Sharing - Socialism: An Economic and Sociological Analysis
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3: Profit-Sharing - Ludwig von Mises, Socialism: An Economic and Sociological Analysis 
Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).
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One school of well-meaning writers and entrepreneurs recommends profit-sharing with wage earners. Profits shall no longer accrue exclusively to the entrepreneur; they shall be divided between the entrepreneurs and the workers. A share in the profits of the undertakings shall supplement the wages of the workers. Engel expects from this no less than “a settlement, satisfying both parties, of the raging fight, and thus, too, a solution of the social question.”50 Most protagonists of the profit-sharing system attach no less importance to it.
The proposals to transfer to the worker a part of the entrepreneur’s profits proceed from the idea that, under Capitalism, the entrepreneur deprives the worker of a part of that which he could really claim. The basis for the idea is the obscure concept of an inalienable right to the “full” product of labour, the exploitation theory in its popular, most naive, form, here expressed more or less openly. To its advocates the social question appears as a fight for the entrepreneur’s profit. The socialists want to give this to the workers; the entrepreneurs claim it for themselves. Somebody comes along and recommends that the fight be ended by a compromise: each party shall have part of his claim. Both will thus fare well: The entrepreneurs, because their claim is obviously unjust, the workers because they get, without fighting, a considerable increase of income. This train of thought, which treats the problem of the social organization of labour as a problem of rights, and tries to settle a historical dispute as if it were a quarrel between two tradesmen, by splitting the difference, is so wrong that there is no purpose in going into it more closely. Either private ownership in the means of production is a necessary institution of human society or it is not. If it is not, one can or must abolish it, and there is no reason to stop half-way out of regard for the entrepreneur’s personal interests. If, however, private property is necessary, it needs no other justification for existing, and there is no reason why, by partially abolishing it, its social effectiveness should be weakened.
The friends of profit-sharing think it would spur the worker on to a more zealous fulfillment of his duties than can be expected from a worker not interested in the yield of the undertaking. Here too, they err. Where the efficiency of labour has not been diminished by all kinds of socialist destructionist sabotage, where the worker can be dismissed without difficulty and his wages adjusted to his achievements without regard to collective agreements, no other spur is necessary to make him industrious. There, in such conditions, the worker works fully conscious of the fact that his wages depend on what he does. But where these factors are lacking, the prospect of getting a fraction of the net profit of the undertaking would not induce him to do more than just as much as is formally necessary. Though of a different order of magnitude, it is the same problem we have already considered in examining the inducements in a socialist community to overcome the disutility of labour. Of the product of the extra labour, the burden of which the worker alone has to carry, he receives a fraction not sufficiently large to reward the extra effort.
If the workers’ profit-sharing is carried out individually, so that each worker participates in the profits of just that undertaking he happens to be working for, there are created without any evident reason, differences in income, which fulfil no economic function, appear to be utterly unjustified, and which all must feel unjust. “It is inadmissible that the turner in one works should earn twenty marks and receive ten marks more as a share of profits, while a turner in a competing works, where business is worse, perhaps worse directed, gets only twenty marks.” This means either that a “rent” is created and perhaps that jobs connected with this “rent” are sold or that the worker tells his entrepreneur: “I don’t care from what fund you pay the thirty marks; if my colleague receives it from the competition I demand it too.”51 Individual profit-sharing must lead straight to Syndicalism, even if it is a Syndicalism where the entrepreneur still keeps part of the entrepreneur’s profit.
However, another way could be tried. Not the individual workers participate in the profits, but all the citizens; a part of the profits of all undertakings is distributed to all without distinction. This is already realized in taxation. Long before the war, joint stock companies in Austria had to surrender to the State and to other tax-levying authorities from twenty to forty per cent of their net profits; in the first years of the peace this grew from sixty to ninety per cent and more. The “mixed” public enterprise is the attempt to find a form for the community’s participation, which makes the community share the management of the concern, in return for which it has to share in the providing of capital. Here, too, there is no reason why one should be content with half abolishing private property, if society could abolish the institution completely without injuring the productivity of labour. If, however, to abolish private property is disadvantageous, then the half abolition is disadvantageous too. The half-measure may, in fact, be hardly less destructive than the clean sweep. Advocates usually say that the “mixed” undertaking leaves scope for the entrepreneur. However, as we have already shown, state or municipal activity hampers the freedom of the entrepreneur’s decisions. An undertaking forced to collaborate with civil servants is not able to utilize the means of production in such ways as profit making demands.52
[50. ]Engel, “Der Arbeitsvertrag und die Arbeitsgesellschaft” (in Arbeiterfreund, 5 Year, 1867, pp. 129-154). A survey of the German literature on profit sharing is given in the memorandum of the German “Statistisches Reichsamt”: Untersuchungen and Vorschläge zur Beteiligung der Arbeiter an dem Erträge wirtschaftlicher Unternehmungen, published as a supplement to the Reichs-Arbeitsblatt of March 3, 1920.
[51. ]See the arguments of Vogelstein at the Regensburg session of the Verein für Sozialpolitik (Schriften des Vereins für Sozialpolitik, Vol. CLIX, pp. 132 ff.).
[52. ]See pp. 226-227.