Monday, June 14, 2021

Labor Is Capital

What are tools? They are nothing other than extensions of ourselves. The human body is limited in the actions that it can perform, and so we use tools to extend our capabilities. It’s pretty hard to drive a nail with your fist, so we have hammers. It’s impossible to saw a wooden board with your fingernails, and so we have saws.

Of course, our tools get a lot more complicated than that. We have heavy tools that are used in things like construction and manufacturing. We don’t always call them tools. For example, we don’t usually call a telescope a tool, though it expands the range of our perception immensely. We don’t often hear a rocket referred to as a tool, but it can launch satellites, and even carry people into space.

Tools owned by a business for purposes of production are its capital. I’m not talking about tools that are put out for sale, but those human made things, such as machinery, that are used in the process of generating profits. In the case of a corporation, the company is the owner of these tools, and the shareholders are the owners of the company. 

Now business owners are understood to be the owners, either directly or indirectly (through stock ownership), of a firm’s capital. It is that ownership that entitle the owners to be entitled to the firm’s profits. Labor, the human effort used in production, is considered to be a separate factor of production. Those who provide labor only are not considered owners, and are not considered entitled to the profits.

But this is peculiar. Those who own the tools, which are extensions of the human body, are considered owners; those who bring their bodies to bear on production without such extensions are not. There is something arbitrary in this distinction.

Here’s another way to look at it. Someone can set aside a part of her wages or salary and buy stock in any publicly traded company she chooses. But she cannot, simply by working, acquire any stock or partnership interest in the company she works for. Yet the money she receives for working represents a value; it is an abstraction of her labor. She can obtain an ownership interest using an abstraction of her labor, but cannot do the same with the labor itself. (I am not talking about employee stock ownership plans, which tend to be, essentially, retirement programs.)

Those who invest in a company are recognized as imparting value to the business, and are given shares in the enterprise in exchange. But the employees also impart value to the businesses they work for.


No business can pay its employees, in the form of wages or salaries, the entirety of the value they bring to the company; it would be unable to make a profit if it did that.

There is a measurement called “revenue per employee,” which calculates, roughly, how much money each employee generates for the firm. [1] It is used as a measure of productivity, and it is calculated by dividing the company’s total revenue by the number of employees it has. Obviously, the total revenue can’t be disbursed to the employees, because it would eat up the profits.

But this shows that employees don’t receive as compensation the value they impart to the company. They don’t receive a full return on their labor investment. The doctrine—nay, the superstition—that capital can only be purchased with money, has resulted in an artificial division in society between capital and labor, with the resulting class conflict manifesting itself in politics. And with the preponderance of money being on the side of capital, labor suffers a perpetual disadvantage.

The obvious solution to class conflict is to rid ourselves of classes. The Marxist answer was to abolish ownership of the means of production, the ownership of capital. But this has always resulted in the effective ownership of capital by the government; and history has informed us that when everyone’s employer is also the police, the results are likely to be dire.

So, ridding the world of capitalists isn’t the answer. What we should consider, instead, is ridding the world of labor.

By that, I don’t mean that we should leave vast numbers unemployed, but that we should find a way to convert laborers into capitalists. My suggestion of how to accomplish that will be the subject of my next post.

Friday, June 4, 2021

Repeal Taft-Hartley

In recent posts, your humble servant has been attempting to sketch out some ideas on how to make better the lot of working people in the interest of enhancing the overall standard of living in this country, and do something about the historic income gap in the United States. What I have yet to mention is a solution that has been around for years, but is, in the U.S., underutilized.

“In 2020, the percent of wage and salary workers who were members of unions—the union membership rate—was 10.8 percent....” [1] That’s a pretty small percentage. But we know that union membership makes for higher wages. Among “full-time wage and salary workers, union members had median usual weekly earnings of $1,144 in 2020, while those who were not union members had median weekly earnings of $958,” and this difference in earnings has been consistent historically.

The paucity of union representation in the United States has different explanations, which depend on whether the account is coming from the labor or management side of the divide. We do know that consulting employers on union avoidance is a multimillion-dollar industry. [2]


Yet, the fact remains, that employees represented by unions tend to be compensated better than those who have no union. The reason for this is plain. As Adam Smith himself observed, employers have a substantial advantage in bargaining power. Labor unions equalize the respective positions. If history is taken into account, the fact that unions better the standard of living for workers is beyond question.

So why do unions struggle? Why are so few workers organized when it would be in their economic interest to be so?

“During the Great Depression, a variety of laws were put in place to help workers. However,” after “World War II, the rising influence of labor unions was checked by a change in federal law that limited the power of these unions.” [3] Specifically, it was Labor Management Relations Act of 1947, better known as the Taft–Hartley Act.

“In understanding the Taft-Hartley Act, it is helpful to begin with the previously enacted federal labor legislation, the National Labor Relations Act of 1935, otherwise known as the Wagner Act. The Wagner Act was the first major piece of U.S. labor legislation and was known at the time as ‘Labor's Bill of Rights.’ The Wagner Act gave workers the right to organize, join labor unions, collectively bargain through representatives of their choosing, and strike. Under the Wagner Act, both ‘closed’ shops and ‘union’ shops were legally permitted. The Act also established the National Labor Relations Board.” (A “closed shop” is “a business in which the employer by agreement hires and retains only union members”. [4] A “union shop” is a “a unionized business in which the employer by agreement is free to hire nonmembers as well as members of the union but union membership within a specified time (as 30 days) is a condition of continued employment”.) [5] 

“In the midterm elections of 1946, the Republicans gained control of the Senate and the House of Representatives for the first time since 1931. At that time, there was a growing fear of Communist infiltration of labor unions. That, coupled with the growth in membership and power of unions and several large-scale strikes, led to an increasingly anti-union climate. In 1947, Congress enacted the Labor Management Relations Act, otherwise known as the Taft-Hartley Act, over a veto from President Harry S. Truman. The Taft-Hartley Act repealed significant provisions of the Wagner Act.


“The Taft-Hartley Act reserved the rights of labor unions to organize and bargain collectively, but also outlawed closed shops, giving workers the right to decline to join a union. It permitted union shops only if a majority of employees voted for it. It further gave the President the authority to appoint a board of inquiry to investigate labor disputes or ask the Attorney General for a federal injunction if it appears that a strike would imperil national health or safety. The Act also placed restrictions on political contributions by unions and required union officers to deny under oath any Communist affiliation.

“The Taft-Hartley Act also placed significant limitations on the union rights to strike and boycott. For example, it required unions to give 60 days’ advance notice of a strike. The Act also prohibited certain types of strikes and boycotts, including:

    · Secondary boycotts: The boycott of an employer with which the union doesn’t have a dispute, with the goal of inducing that employer not to work with another business with which the union does have a dispute

    · Sympathy strikes or boycotts: Whereby the workers not involved in a labor dispute strike or boycott in support of other striking or boycotting employees or unions   

   · Jurisdictional strikes and boycotts: These are initiated against an employer as a result of a dispute with another union as to the right to perform certain work.

“The Taft-Hartley Act also expressly authorizes the states to pass laws prohibiting union shops or agency shops. Following the enactment of the Taft-Hartley Act, many states enacted such limitations, which are known as ‘right to work’ laws. Currently, 28 states have passed right to work legislation.” (An “agency shop” is “a shop in which the labor union serves as the bargaining agent for and receives dues from all employees in the bargaining unit regardless of union membership”.) [6] 


What the Taft-Hartley Act did, in essence, was prevent labor from acting in concert and nationwide. With sympathy strikes and boycotts prohibited, unions couldn’t engage in unified action against even the most egregious employers, leaving the employees involved to fight their battle alone. It prohibited unions from contracting with employers to hire only from their number, and, in states that chose to enact such legislation, prohibited them from contracting with employers to require union membership of those that are hired as a condition of employment.

A law of this kind should never be touted as in keeping with the free enterprise spirit. What sort of free enterprise prohibits entering into certain kinds of contracts? The law is, rather, intended to weaken union power, to weaken labor power. Where is the legislative effort to prevent employers from acting in nationwide concert to hold down wages?

For that matter, where is a law that prohibits employers from relocating their facilities to other countries to take advantage of cheap labor? This is another tactic that weakens the bargaining power of unions. Those employers who are able can threaten such a relocation if unions demand what the employers deem “too much,” or even if the employees try to unionize in the first place.

And so, unions are weak in the United States because the laws protecting workers are weak. Moreover, Taft-Hartley positively operates to prevent them from becoming more robust.

It appears, then, that unions will be stronger, and the standard of living for workers be greater, if Taft-Hartley is repealed. It will also be useful toward that end if penalties were imposed on American businesses that move their facilities to other countries to avail themselves of cheap labor.

None of this should be considered anti-business. Businesses obviously provide a necessary and valuable component of our national well-being. They should be encouraged, incentivized, and even assisted to make life better for all of us. But not when they do the opposite.