Improving market wages is essential to the improvement of living standards and is considered by many to be the central problem of economics. The primary solution to this problem is to increase the DMVP of labor, that is, its productivity. (The other factor affecting the value of wages—namely, business risk—will be addressed in a later subsection.) Consequently, productivity is a hot topic in discussions of political and economic policy, and productivity comparisons among workers in the United States, Japan, and other countries are often publicized. Among those not familiar with economic principles, such comparisons might be taken as critical of American workers—perhaps, for example, as suggestive of a lagging work ethic. Yet productivity differences are much more strongly dependent on the context in which labor services are supplied: on tools, other capital goods, and the overall efficiency and sophistication of the structure of production. Such a productive context, of course, can only be generated by investment.

As we shall see later, the political climate in a non-free-market economy may be strongly unfavorable to investment, so that each unit of labor combines with smaller quantities of capital goods. The law of returns (pp. 4.4:46-50) tells us that if the supply of labor relative to capital passes a certain optimum point, then the marginal return (and therefore the DMVP) of labor will decrease. For example, if workers are hampered by inadequate tools or cramped facilities, they will produce and earn less per hour. In addition, productivity may be hampered by inadequate investments in worker training.