A Wage Economy

A "wage economy" is where most all income is tied to the provision of services to others. A restaurant may obtain profit, for example, but only by serving food to the customers (only by making the customers better off). 

The advantage of a wage economy is that it is sustainable, there is no net destruction of wealth in the process. The earned wages are put toward growing living standards for workers, as each wage earner decides where to spend the earned wages.

An alternative to a wage economy would be one where most income is not tied to the provision of services, but is instead obtained by the transfer of wealth from some people to other people, carried out by a central government. 

This type of system would be an "entitlement economy," with the government playing a central role in choosing who will be entitled to receive direct payments which are not tied to the provision of services.

One problem with an entitlement system is that it reduces the options for wage earners, as the sum of all earned wages makes up a smaller and smaller proportion of overall GDP. 

Proportionally more of the resources are allocated by government bureaucrats, and proportionally less of the resources are allocated by individuals working for a future for themselves and their families.

Another problem with an entitlement system is that it reduces the rate of new wealth creation. This occurs because of the inefficiency of resource allocation. Proportionally more resource allocation is bureaucrat-directed, rather than being market-directed.

Because bureaucrats are not as sensitive to feedback from price signals and from profit/loss signals (as are the market participants; such as independent business owners and even wage earners) they end up mis-allocating resources more often than the market participants.

This artificial increase in the relative proportion of human error in resource allocation restricts the horizon of growth for an economy, and makes the economy less flexible and resilient, so that it is more susceptible to contraction in response to economic shocks.

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