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Tuesday, August 23, 2016

Celebrate Capital on Labor Day – Reed’s Feed

The demise of coercive labor unions has been great for workers.


A weekly roundup of thoughts on the passing scene by FEE president Lawrence W. Reed.

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“If all the cars in the United States were placed end to end,” some wise guy once said, “it would probably be Labor Day weekend.” Only a dozen days to spare before that last fling of the summer, here are some thoughts to help you get intellectually prepared.

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The old, fallacious labor theory of value plagued economic thinking for centuries. Not even Adam Smith got it right. It was the Austrian economists beginning with Carl Menger in 1871 who revealed that value is personal and subjective, not a function of work hours. When deciding on what a thing is worth, each actor in the market place asks himself, “What will it do for me?” not “How much time and muscle power did you spend on it?” In this 2015 article, economist Steven Horwitz explained how a century and a half since Menger, we’re still “haunted” by an age-old error.

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The exploitation of child labor, proclaim the socialists, stands as an especially damning indictment of capitalism and capitalists. Never mind the fact that before capitalism and its Industrial Revolution, most children died before the age of five. Those who survived worked longer and harder in generally more deplorable conditions than would be the case after market-produced technology and abundance rescued them.

Even today, as economist Ben Powell explains in this interview, the much-maligned “sweatshops” of the world are accomplishing more good than the efforts to ban them. For a further historical perspective, see my own essay on child labor in 19th Century Britain. And for a more recent, inspirational story on child labor, check out this piece from Mike Reid about a young Nigerian named Rocky.

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In public high school, I learned from Upton Sinclair’s The Jungle that greedy capitalists not only poisoned their customers with tainted meat but ran roughshod over their workers in the meat packing plants as well, evening grinding a few of them up into sausage. But later, when I was old enough to learn facts instead of propaganda, I discovered that Sinclair cooked it all up.

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For the first time since passage of the federal Taft-Hartley Act in 1947, a majority of the 50 states are governed by “Right-to-Work” (RTW) laws. West Virginia became the 26th RTW state a few months ago. While organized labor paints RTW as a heinous injustice against working people, it doesn’t ban unions. It simply declares that no person can be compelled to join or pay dues to a labor organization as a condition of employment.

Unions must persuade, not coerce, workers to participate, which makes them more accountable and responsible. As the Center for Union Facts explains, “big unions have opposed employee rights, engaged in self-dealing and corruption, and made excessive demands that have killed tens of thousands of jobs and driven major cities into bankruptcy.” Where union representation is compulsory, union leaders charge their membership more for an often-dubious service and pay themselves more for the task.

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Finally, it would behoove all of us to celebrate labor, not compulsory unions, for our standard of living. But that ain’t all. There was a lot of labor in ancient Egypt, building pyramids for the Pharoahs. All those long hours and copious sweat didn’t translate into living standards for the average worker and unions wouldn’t have made much difference. What makes labor so productive today is the application of capital, a point I made in this piece that deserves dusting off again for yet another Labor Day:

Happy Capital Day!

Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.

Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.

Capital can refer to either the tools of production or the funds that finance them. There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital.

There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture funding behind him. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.

This is not class warfare. I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business.

And yet, we have a “Labor Day” in America but not a “Capital Day.”

Perhaps subconsciously, Americans do understand to some extent that those who invest and deploy capital are important. After all, most people would surely have an easier time naming the “top ten capitalists” in our history than the “top ten workers.” We take pride in the kids in our neighborhoods when they put up a sidewalk lemonade stand. President Obama continues to be roundly excoriated for his demeaning remark, “You didn’t build that; somebody else made that happen.”

That’s not to say there aren’t bad eggs in the capitalist basket. Some use political connections to get special advantages from government. Others cut corners, cheat some customers or pollute a stream. But those are the exception, not the rule, in a society that values character. Workers are not all saints either—who among us doesn’t know of one who stole from his employer, called in sick when he wasn’t, or abused the disability or unemployment compensation rules? Those exceptions shouldn’t diminish the importance of work or the nobility of most workers.

Like most Americans, I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. Nothing at all wrong about that!

But this year on Labor Day weekend, I’ll also be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife. Indeed, what could possibly be wrong about having a “Capital Day” in odd numbered years and a “Labor Day” in the even-numbered ones?

Labor Day and Capital Day. I know of no good reason why we should have just one and not the other.


  • Lawrence W. Reed is FEE's President Emeritus, having previously served for nearly 11 years as FEE’s president (2008-2019). He is also FEE's Humphreys Family Senior Fellow and Ron Manners Global Ambassador for Liberty. His Facebook page is here and his personal website is lawrencewreed.com.