Pure Capitalism would lead to Armageddon: Salaries

Salaries

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

In AnCap, business would pay employees the minimal amount possible, just to make them stay alive, say 10p/hour - so we'd all be poor. Right?

Of course not. 

In a free society, salaries would be set according to the Discounted Marginal Value Product (DMVP); that is, every input in production (land, labour, capital) recieve payment according to their discounted marginal contribution to production. If, all things equal, an additional employee contributes to production £20/h, his salary would tend to equal the discounted value of this. 

In non-econ language: Let's say an employee produces value to your firm roughly equal to £20. If you pay him £25, you're making losses and would eventually fire him/go bankrupt yourself. If you're paying him £10, your competitors could offer him the very same job for £15, still reaping the benefits that employee provides - then some other competitor would offer him the same job for £18 etc. You get the hang of it - essentially the opposite of the old Marxian claim of "Race to the Bottom" applied on salaries. The effect is that salaries tend to be bid up to their value (ignoring the temporal effect and discounting for it). 

Conclusion: Salaries in a free society would equal what the employee contributes. That is, notions of "we would all work for essentially no wages" are rubbish predictions and are not features of a free society. 

Note: Today, large chunks of what employers pay for having employees are taken away in taxes - not only the visible income taxes, but also payroll taxes the employers has to pay the government simply for hiring you. In a free society, these costs would vanish and your salary would be the full amount instead of a government-reduced amount. Why? Because that's the firms' costs of hiring you, that's what you are "charging them" for your services, although the government reaps large chunks of that.