Saturday, September 10, 2011

Labor and Capital

"Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."

Abraham Lincoln


16 comments:

Anonymous said...

Let's say we set minimum wage such that no worker can make less than $1000 for 40 hours of work. What do you think will happen?

Larry James said...

Prices would rise in the short term due to scarcity of products and rising costs of production. However, over time there would be a much larger market for goods and services if captial's greed could be restrained. Capital always presses down on labor, and labor sometimes has the courage to respond by pushing back. Greed drives jobs offshore, etc. But, I'll answer your extreme question with an extreme question: What do you think would happen if capital could find no labor?

rcorum said...

I think there is plenty of blame to go around. What about labor unions? The concept is great, but they are just as prone to greed as anyone. Would you not concur that there have been labor unions that have won agreements that have proven in the long run to be non-sustainable? You are correct that greed drives jobs offshore, but when a company cannot compete because of labor who is greedy. Larry, I really don't think capitalism is the enemy, just as I don't think that unions are evil. Just as there are corrupt capitalist, there are also corrupt unions.

Larry James said...

Rc, this conversation needs to reset at President Lincoln's wisdom, which was my intent with the quote. All you say about labor contains some truth. But when share holders operate unrestrained, labor, culture & economy suffer unduly. There is a middle ground, it is just that we have no means to get there, or so it would seem, in this present environment.

Anonymous said...

OK, this might prove productive.

LJ: "Prices would rise in the short term due to scarcity of products and rising costs of production."

ANON: The inverse of your comment is that prices would rise due to the overabundance of dollars. Yes, prices would rise and, yes, if the average person has more to spend, s/he will cover necessities and then spend more. Until dollar scarcity again reaches a balancing point with supply of resources, prices will rise. In short, inflation will occur and eventually all consumers will return to their initial level of buying power.

HOWEVER, any rising costs of production would be initiated due to attempts to meet growing quantities ordered, not necessarily due to greed. If, suddenly we could all afford the lease-cost of an Escalade SUV, the the final sale of the vehicle would be based upon competitive bidding. It may be greed that drives decisions of consumers to acquire the Escalade (or short-sightedness. They might invest in education, thus increasing their value to the market). But that is NOT corporate greed.

LJ: "What do you think would happen if capital could find no labor?"

ANON: This question contains a logic error. Capital, as in investment, can always find labor - unless labor conspires to withdraw. And this is always the threat of organized labor, pay up or we walk. But labor exists even though it is not engaged. Capital always finds labor. Your statement implies that ALL capital is separate from labor. If I can't get someone to cut my grass, even though I can pay $50, I can cut it my self. In fact, capital will seek to attract labor ONLY if the input cost is less than the output gain.

Lets say the firm refuses to pay employees above a certain rate for a job and the employees walk off the job. Fine. And then after a year or so, LABOR WILL THEN SEEKPrices would rise in the short term due to scarcity of products and rising costs of production. CAPITAL, as savings and union benefits dry up. Labor always exists and capital always exists. Only under manipulated circumstances are there short term shortages of labor.

Anonymous said...

Sorry, my cursor jumped.

I mean, if employees walk away and eventually run out of resources, then LABOR WILL SEEK CAPITAL - a place to work, where someone with resources set up conditions for labor to work and make money. Capital exists and labor exists. They engage together at an agreed-to price. Price is the signaling system that allows the two parties to meet one another's needs. If either party conspires to manipulate the signaling system (price paid to labor) then the other party can withdraw. Greed can cause either party to inappropriately withdraw.

belinda said...

capitalism . . . isn't that "love of money?"

Anonymous said...

If you earn it you don't need to take it from others.

Anonymous said...

Belittle,

Can you recommend a better system? Please enlighten us.

Anonymous said...

anon 4:45, I think what Larry is trying to point out is the fact that both sides of the equation can "take" what is not their own. We generally just focus on labor trying to take assets from capital, while the larger problem today is clearly the reverse. Capital gouges labor, driving down return for work to lowest possible level.

Anonymous said...

Actually, I think Larry's point demonstrates bias against those who take risks with their own private property. It's easy to point accusingly at the superwealthy, and even Warren Buffet is playing the game along with Larry by repeatedly stating that he does not need a tax break. If you have any sort of retirement there is a very high chance you are the owner of capital resources used to pay the overpriced cost of union labor. A very large proportion of the cost of each American made auto is healthcare insurance costs.

Reported in 2005:

"GM says health expenditures -- $1,525 per car produced; there is more health care than steel in a GM vehicle's price tag -- are one of the main reasons it lost $1.1 billion in the first quarter of 2005. Ford's profits fell 38 percent, and although Ford had forecast 2005 profits of $1.4 billion to $1.7 billion, it now probably will have a year's loss of $100 million to $200 million. All this while Toyota's sales are up 23 percent this year and Americans are buying cars and light trucks at a rate that would produce 2005 sales almost equal to the record of 17.4 million in 2000." (http://www.washingtonpost.com/wp-dyn/content/article/2005/04/29/AR2005042901385.html)

These auto workers are not more sickly, they just have better care (and more expensive) than the rest of us. But since they won't work unless they get a high wage (for low skilled work) AND great benefits, consumers pay through higher car prices. And now the company is bankrupt, so my investment in a Honda for greater value was nullified when my tax dollars paid them for not building me a car.

Monopoly labor is now targeting Ford Motor company, which coincidentally just announced it is building new facilities in India - can't afford the labor costs in North America.

Mr. Lincoln didn't have to contend with a labor union.

Anonymous said...

You're right, Lincoln didn't face unions; his problem was exactly the opposite: slavery!

btw--you're point is well-taken on companies and health insurance: our system is broken; companies can't afford to carry that load; we need single payor, national health care.

Anonymous said...

Dude, 90% of union members are slaves. They are just educated enough to not be able to leave for a better job. I worked for the UAW while in college and every week some guy tried to tell me that leaving the union would be the biggest mistake of my life. When I finally did get my first professional job I was harrassed and told how miserable I would be. 20 years later the same guys were standing in front of the same machines complaining about their pay and benefits - even though they made the best wages in town. 30 years later the plant is closed - b/c they wouldn't take a pay cut from $17 to $14 dollars per hour.

A few of the guys are delivering pizza now. No healthcare either.

Daniel Gray said...

I can recommend a better economic system. It's called love and the gospel, but I don't see many professing Christians practicing it.

Anonymous said...

Well, that just about settles it. Love will solve our problems. But I imagine you'll accuse me of running out of love about the same time my bank account is empty. Then I won't be able to love any more, since I won't have anything else to give.

Daniel Gray said...

Can you show me where I stated that love involved emptying one's bank account?