Happy Monday my fellow FRians! As usual, though I’m a little late in posting, this Monday’s post comes to us from Stephen. Thank you, Stephen!
As the first two parts in this series covered the other economic factors of production, it is only natural that attention ought to be turned to the remaining factor of production, i.e. labor. Labor is simultaneously the simplest as well as the most difficult to understand of the three factors of production.
After all, land really includes all various forms of raw resources not merely land; and capital is often misconstrued to mean finances or techniques and technologies.
Labor, as Adam Smith employed the term, generally referred to work performed by humans. This generally relegates the labor of animals, being property, as something akin to capital, though it is something Prof. Smith really never addressed whether a domesticated horse was capital or a type of labor.
Much like there were economists who thought that all value and wealth ultimately derived from the land therefore property was the singularly important factor of production, there have been schools of economic thought which espoused the notion that all value and wealth ultimately derives from mans’ labor.
Such consideration that the tree which produces apples or the field which grows wheat requires the human labor to gather the apples or to plant and harvest the wheat so that land is only valuable when labor is applied to it; likewise that every tool is itself a creation of labor, therefore capital is also the product of labor.
This distorted perspective has generally been propounded to deny the ownership of the land and capital to deny the owners thereof of their rents and profits, in favor of the owners of labor that their wages may be elevated.
Wages are in their way similar to profits and rents in that it is the value returned upon a person’s labor something like the profits are a return upon the capital and the rents a return upon the land.
Abstractly, a person spends his time at labor and is rewarded with the fruits of his own labor, whether he sells his services to another or works to produce what he needs or desires for himself.
Labor is in economics much like the word “work” in the field of physics, i.e. work equals force times distance, a specifically defined type of activity of time spend producing something of value.
Which brings us to an interesting notion, that all time is spent, but only time spent on producing something of value is labor. Unlike land which exists outside of the individual, or capital which is a certain creation of labor, time is something everyone is born with an indeterminate stockpile of relatively egalitarian proportions.
That is to say that each person is born with a life expectancy, more or less, of time which they are at liberty to spend as they see fit. One of the few times that Karl Marx was correct and astute was his novel view of a man’s labor as a temporal expression, that is measuring a person’s priorities and values based upon how they spend their time. In an abstract view it has been said that labor ought to be viewed as a form of wealth, and thus taxing a person’s labor is really a wealth tax rather than an income tax, but this generally from people opposed to every form of taxation. The view of labor as a pool of lifetime wealth endowment is an interesting concept and perspective.
Interestingly, this also correlates with income expenditures. Studies show that in many ways a poor person has more in common with a rich person from their own culture than they do with a poor person from another culture.
For example, Italians spend more of their income on food than American, and this is true whether the person is poor or rich, however a poor person in America will spend about the same percentage of their expenditures on food as a wealthy person though the types of food may be different, the general proportion of food groups will also be similar.
So the idea that a person’s values and priorities are reflected in how they choose to spend their time is as legitimate a form of economic analysis as how they chose to allocate their money and is often very telling of what a person is really like and what they really value.
Of course, then Marx immediately proceeded to muck it up by claiming that the value inherent in any product was the direct result of the quantity of human labor involved in producing it, which is complete foolishness and the seed of many of the errors of his economic conjectures.
Under this rubric, if one person spends ten hours producing an ashtray, yet another person can produce the identical ashtray in only one hour, then the first ashtray should be ten times more valuable, even though they are identical. This makes no sense, therefore value is not the product of the amount of labor involved.
The productivity of labor is as important as the labor itself, thus labor is measured not in absolute terms but in terms relative to the abilities and productivity of the competition. Nay-sayers will be quick to pounce upon the fact that wages do not necessarily track with productivity as a way of saying that this does not hold, because they refuse to apply a central maxim of economics, the idea of “ceteris paribus”, or all things else being equal.
Many factors come together to determine the value of labor, but that is a topic divergent from the one in discussion here, which is more to address the nature of labor itself.
Classical economics distinguishes between productive and non-productive labor in its discussion of the wealth building potential of work, the distinction that a farmer or carpenter actually produces a commodity as opposed to a doctor or entertainer who does not produce a tangible product which can be bought and sold in the market.
(Certain people of a feminist bent deride housewives and mothers because their labor in not directly financially compensated, conflating unpaid wages working in the home with the value of such types of non-productive labor.)
Understand that productive or unproductive labor does not denote the value of a person’s labor, merely categorizes the type of work performed. The distinction becomes important when discussing the creation of a wealthy nation as services do not accumulate and store value, they do not create wealth.
The music produced by a band, the performance of a dancer, the advice of a lawyer, once done is immediately consumed and does not remain. The cheese produced by the farmer or the hammer created by the blacksmith remains until it is consumed, though the cheese will be consumed more rapidly than the hammer.
As it is productive labor which creates a store of wealth for a nation, no nation should ever be neglectful or dismissive of this segment of the economy, and any nation which is will falter and decline.
There was a time, decades ago when many so-called economists heralded the coming of the information age and our inevitable transition into a “service” economy, where the profitable intellectual fields of designing the machines, investing in businesses, and a myriad of other “service professions” would be the future of our economy while the manufacturing would be done overseas helping out both their economies and ours.
Thus politicians excused the exportation of our nation’s capital to foreign counties with the pretense that Americans would be making even more money providing the engineering, financial, and logistic services to those foreign produced products. Or other service industries like tourism, education, arts and entertainments, and so forth.
It all sounds good from a monetarist perspective, you don’t need to actually produce anything if you can provide services to those who actually do, and if those services are lucrative enough your nation will have more money.
However, money is not true wealth, and large segments of society were simply not suited to thrive in this globalist utopian vision of cheap foreign labor. Now people even speculate on the prospect of complete automation of industries, and increasingly less need for labor itself, thus proposing such “fixes” as “universal income” or “guaranteed wages”.
Of course, what becomes of those people once you turn them from being a labor resource of the nation’s wealth into a burden upon society consuming but not producing, superfluous and expendable? The rosy scenario of vast numbers of people not having to labor, can so easily be flipped to the nightmarish scenario of those vast numbers of people becoming expendable, or just pets.
Naturally, the very same people saying that many of the poor and undereducated workers will not be needed are the very same people claiming that we need to import cheap labor from abroad in order to pay for the retirement funds of an aging population with their taxes, even though they consume far more in benefits than they pay in taxes. A tremendously schizophrenic view of labor from our current political classes.
On the bright side, every prediction of the looming collapse of society because of an excess of unnecessary workers has invariably proven false. People with free time find valuable work which needs to be done.
The same fears were talked about with many labor saving inventions of the past, and I’m sure the wheel was expected to create massive unemployment when it was invented and you no longer needed all those people to carry things when one man could do the work of ten with a simple wheelbarrow.
No discussion of labor would be complete without a reminder of the “Protestant Work Ethic”, that is the expression of philosophers of the Protestant persuasion that work itself was valuable, that physical labor and accomplishment was not merely economically rewarding but essential to being a complete and fulfilled person.
