Tuesday, August 24, 2021

Labor Cost's Costs

Your humble servant is in the process of responding to objections to the proposal contained in this post [1] and this post [2], and those who are new to the conversation should read those first in order to understand the following.

The objection I want to answer in this post is, essentially, this: The employees don’t stand to lose anything if the business fails, while those who invest money do, and I haven’t properly considered that in giving the employees shares in recognition of the value they impart to their firm.

This objection simply fails to understand the nature of money. While money is certainly a store of value, it isn’t equivalent to value. It is a means of exchange into which value is abstracted so that we don’t have to barter between sheep and chickens. It is a convenience that we wouldn’t want to live without, but when money becomes mistaken for value, we end up with a distorted view of the way things operate in the economy.

Now in most market transactions we seek to exchange equivalent values. Say you’re selling sandwiches. You conclude that a certain sandwich is worth four dollars. If I agree that it is worth that much, and I want a sandwich, I will be willing to give you four dollars in exchange. Presumably, the ingredients of the sandwich didn’t cost you four dollars, and your time spent in making it wasn’t worth as much, but the two together were. In this way you make a profit over and above the cost of the ingredients. But when we add in the value of your labor, we have engaged in an even exchange.

But the situation is different when it comes to an employee. The full value of an employee’s work isn’t realized by him because it would make profits impossible. Profits are derived from the difference between the value given by the employees and their compensation.

This is easy to see using our sandwich example. When someone makes a sandwich, or any other product for sale, he realizes the value of his labor when he sells it. But this only works insofar as he makes the product himself. If he employs the labor of others, then the compensation he gives to those others becomes a cost to him, along with materials. And if the employees were able to realize the total value of their work, there would be nothing left over for profits, which would have been realized by the employer if he was doing all the work himself.

Thus, we see that every employee experiences a loss simply by being employed. He may not lose any money, which is a store of value, but he loses value all the same. And this will be true even if the company he works for is profitable, indeed, especially if the company is profitable. So, the employees do share in losses, and they have losses even if the company is successful.

The capitalist’s answer to this problem is to deny that it exists. The Marxist answer has been to abolish ownership of the means of production. What I am trying to accomplish, on the other hand, is restore the loss of value to the employee, in a word, restore the employee’s property.

Apart from this, to claim that employees lose nothing from a failed business is to ignore their opportunity costs. Instead of working somewhere else they chose to work for the business that ended up failing. That ends up being quite an expense if the other opportunity was one where they could have ended up better off.

“Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.” [3] Employees of a business that fail can lose a lot in terms of opportunity cost, even if they haven’t directly lost any money. Here again, the conceptual error arises from mistaking money for value.  

Labor is viewed by a business as a cost. And costs don’t have costs. But labor consists of people, and people do have costs. Even if they're employees.


Tuesday, August 17, 2021

Occupation Interrupted

Here your humble servant will take some time from the series of posts that has been ongoing here and address the gigantic elephant in the room that is doubtlessly occupying the attention of many of this blog’s readership. I refer, of course, to the collapse of the government in Afghanistan, the takeover of the country by the Taliban, and the ham-handed manner in which the United States has been effecting its withdrawal.

President Biden has been saying that the speed in which the Taliban swept the country wasn’t anticipated. That is probably true. But it doesn’t excuse the danger in which many Afghans who assisted the United States in its efforts have now been placed. That is because the rapid fall of the U.S. supported regime in Kabul ought to have been foreseen.

Our own experience in Vietnam, let alone that of the Soviet Union in Afghanistan, should have taught us the lesson that a regime that is propped up by a foreign power—the United States in this case—has no real capability of defending itself on its own. A government essentially installed by such a foreign power becomes an empty shell once that power departs, and is, thus, easily shattered.

There will be those of the nation’s intelligentsia who will lament that the Afghan military proved unwilling to defend its country against the Taliban onslaught. What they will have failed to see is that what it really failed to defend was American interests. It will be hard for such people to grasp that what we were expecting the Afghan military to do was take up arms against fellow Afghans on behalf of the United States. That wasn’t likely to happen. Even if some Afghans will fight other Afghans on their own behalf, doing so on behalf of the United States wasn’t something we should have expected.

There will be others who will, for whatever reasons of their own, say that we lost a war against the Taliban. But that isn’t what happened. What happened is that we stopped occupying Afghanistan, with the inevitable and foreseeable result.

That’s right. What we’ve been doing for twenty years was occupying another country, while installing a regime that we favored. This is not to say that our war with Afghanistan was unjustified initially. It was harboring, after all, the terrorist organization that engaged in the 9/11 attacks. But we took it further, and engaged in an occupation, all the while calling it a “war.”

But wars have conclusions. Our efforts in Afghanistan promised no conclusion, because it wasn’t a war: it was an occupation. And the Taliban knew all along that all it had to do was wait us out. We’re still enough of a republic that our government has to pay attention when the population gets tired of a seemingly endless “war.”

President Biden surmised correctly that we couldn’t keep pouring money, let alone American lives, into that vortex. Because, however, he seems not to have appreciated our status as a foreign occupier, he has been taken unawares by the inactivity of the shell government we set up.

And now we wait for the next time our feckless national leadership forgets the lessons learned here. Or maybe we’ll figure out a better way to select them.

Monday, August 9, 2021

Omar Khayyam and the Labor Theory of Property

This post is part of a continuing series, and, to understand it completely, it will be useful if you can do your humble servant the kindness of looking at the previous two posts, which you can find here [1] and here [2], if you have not already done so. In the last offering I promised to deal with objections I encountered. But it turns out that I will have to handle this task in more than one post, because at least one objection is foundational, and will require some explanation.

The objection I’m referring to is that I am proposing theft. It is said that entrepreneurs are risking their money in business enterprises, and that what I am proposing will deprive them of full ownership of companies they create, companies that should be their sole and exclusive property.

Now I should own at the onset that my proposal is grounded in the labor theory of property, which holds that the origin of property is to be found in labor. As Adam Smith pointed out in An Inquiry into the Nature and Causes of the Wealth of Nations, “The produce of labour constitutes the natural recompence or wages of labour. In that original state of things which precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. He has neither landlord nor master to share with him.” [3]

This idea is unpopular in some circles because it is a theory that is associated with John Locke, who had some unsavory involvement with chattel slavery. But the labor theory of property has nothing to do with that. And it really amounts to common sense, in any event. Before there was land ownership, and before there was capital, there were only two ways to exercise dominion over external things: labor and theft or robbery. Now we instinctively consider work a good thing, and theft or robbery a bad thing. I will here side with our instincts without further discussion.

But if labor really is the source of legitimately acquired property, then that dynamic cannot be overcome by social convention. Much less can it be overcome by violence. Yet, at the end of the day, it has been violence that has determined our property relations throughout history.

The feudal system was a military regimen, whereby land was acquired by conquest. The enclosure movement in England, supported by acts of Parliament, by which peasants were evicted from the former common land, created that laboring class that was to people the factories. And what needs to be said about European acquisition of land in the Americas combined with the involuntary transport of Africans to suffer under one of the most brutal slave regimes in history? It is true that

“The Moving Finger writes; and, having writ, moves on: nor all thy Piety nor Wit Shall lure it back to cancel half a Line, nor all thy Tears wash out a Word of it.” [4]

And so, I don’t counsel self-flagellation, provided the proper lessons are learned. But I do wish to urge upon the reader that the property regime we have inherited was largely won by violence, whether the violence of conquest, or the violence of positive law (which threatens violence for disobedience); and it is simply foolish to treat it as if it was delivered to us at Mt. Sinai.

Thus, I take the position that property is acquired by labor or by violence; and that if it has not been acquired by the former, the latter has been the means. This is not to say that a business owner acquires his ownership solely by violence. Certainly, he will, in most instances, expend much labor himself. Moreover, what money he invests has, unless it was derived from interest or rent, come from his labor. I simply want employees to derive the total value of their labor as well.

I am also taking the position that property acquisition by labor is legitimate, and that by violence is illegitimate. And here I appeal to natural law.

Natural law is that law which we all (or most of us) carry around inside of us. We know right and wrong instinctually. Allow me to demonstrate.

Imagine we find ourselves in the early days of humanity. There are no landowners, and there are no capitalists. We see someone come upon an apple tree, and he picks an apple. Just as he brings the apple to his mouth, someone else comes along, knocks the apple out of his hand, and begins to eat it.

Has the person who first picked the apple suffered a wrong? Most of us would say so. And why would we say that? Because he first picked the apple, that is, he expended labor to acquire it. It makes no difference that there is no legally constituted authority to enforce his rights. A wrong has been done to him all the same.

Similarly, most of us would say that the second person committed a wrong. He ended up with the apple, and he was the one who got to enjoy it. But he engaged in violence to acquire it; he knocked the apple out of the first person’s hands. And it makes no difference that there is no legal authority to exact a punishment.

Now I maintain that positive law, the kind that issues from legislatures, is legitimate only when it prohibits what is wrong. If there were a government to interpose between the two people in our thought experiment, it would, hopefully, prohibit the second person from knocking the apple out of the first person’s hands. And all of this reveals that there is an intrinsic connection between labor and property.

If the foregoing is insufficient to convince you, consider the fact that acquisition through labor is a prerequisite for theft. One cannot steal what is not already owned. But before the ownership of the means of production arose, which in our time is what is understood to be capital, and for which we might use the broader term of “productive property,” the only way to acquire things, and exercise the dominion over them that we call “property,” was labor; just as Adam Smith explained to us.

It is this intrinsic connection between labor and property that I am trying to find a way to restore. What I have laid out is the only way I have thought of to accomplish that, but I am open to other suggestions. But those other suggestions need to actually consider labor as a property creating event, that is, they must recognize that to the extent work is performed, the worker has acquired at least a partial ownership of the product of his labor.