All Commentary
Friday, February 1, 1963

Is Labor a Commodity?


Throughout most of recorded world history, and even today in some of the more primitive soci­eties, human beings have been and are treated as animals fit only to serve as slaves under the lash of a master.

No civilized person wishes to condone such savagery. A person is not a commodity; each individ­ual is priceless—his worth not to be measured or expressed in dol­lars, or gold, or things. The la­borer as such is not a chattel to be sold and bought, owned and controlled by others. Yet, one fre­quently hears serious debate as to whether labor is a commodity—whether the services a laborer ren­ders should be priced in market fashion according to the forces of supply and demand.

Apparently, many persons still believe in the old “iron law of wages” propounded in error by some of the earlier economists. It seemed to them, at the dawn of the industrial revolution, that wages in general could never rise above that bare level at which wage earners could subsist and re­produce their kind. On the basis of that fallacy, Karl Marx advo­cated political revolution and com­pulsory communism as the only chance for workers to receive “the full produce of their labor.”

Marx was intelligent enough to recognize that human labor is a scarce factor of production, but he could not or would not see that labor is only one of the costs of production. He seemed to take for granted that somehow someone would accumulate savings and make them available in the form of tools and other capital for use by workers, whether or not a re­turn were allowed on such invest­ment. Nor would Marx recognize that what attracted workers into the factory system was the oppor­tunity they found there to improve their level of living—an opportunity for progress by their own free will and choice. All he could see was that poverty still existed at the middle of the nineteenth cen­tury—and he urged revolution.

A Vital Error

In reality, though, a free mar­ket was, and is, the only escape of workers from feudal poverty and serfdom, their only opportunity for progress. Yet Marx and his followers, by confiscating private property, would destroy the mar­ket mechanism for price determi­nation and voluntary exchange, and with it all hope for relief of poverty.

It is the free market and com­petition among employers for the services of wage earners that make workers independent of arbitrary discretion on the part of the em­ployer. Within broad limits set by what consumers are willing to pay for finished products, a wage earner is free to shop around for the job opportunity of his choice. “What makes the worker a free man is precisely the fact that the employer, under the pressure of the market’s price structure, con­siders labor a commodity, an in­strument of earning profits…. Labor is appraised like a commod­ity not because the entrepreneurs and capitalists are hardhearted and callous, but because they are unconditionally subject to the su­premacy of the pitiless consumers.”¹

It is the prospect of profit from employing laborers of given skills that drives businessmen to com­pete and bid wage rates up to the limit consumers will allow. If present entrepreneurs ignore such profit opportunities, then others will enter the business—perhaps some of the wage earners them­selves. To say that labor is a com­modity in this situation simply means that the individual wage earner is free to shop around and sell his services to the highest bidder—or free to be self-em­ployed or unemployed if no bid suits him.

Each Is Worth What He Can Earn

In this connection, it should be clear that the worth of every man’s service is similarly deter­mined, whether he be a strictly unskilled laborer or the most highly skilled artist, teacher, min­ister, butcher, baker, lawyer, en­gineer, business executive, or whatever. If he offers a service for sale, its value depends upon the highest bid acceptable to him in the free market.

The seller of services, of course, is not free to compel consumers to pay prices high enough to cover every conceivable wage demand. But, short of government compul­sion in such forms as minimum wage laws, unemployment compen­sation, and the like, no one has such power over consumers.

So, the wage earner’s alterna­tives are to sell his services at market rates, as other scarce fac­tors of production are priced in a market economy, or to work un­der the decree of a dictator of one kind or another.

The wage earner himself is no more a commodity than is the farmer whose labor results in a bag of potatoes. But the farmer should be free to sell either his labor or his potatoes; and so should every wage earner be free to offer his services as a commod­ity. Laborers or others who argue that labor is not a commodity would thus deny freedom of ex­change, which is the economic method—and the only one—that assures the laborer true and full value for his services.

Footnotes

¹ Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 605-629.

 

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Ideas on Liberty

Protective Taxes and Wages

It is said that we cannot compete with those who pay less wages than we. There are two classes of persons with whom one cannot compete,—his inferiors and his superiors. A physician might find that he could not compete with a laborer in digging a ditch, or with a great financier in managing a bank. Could any tax enable him to compete with the banker; that is, to compete with his superior? On the contrary, if he should complain that he could not compete with the laborer because he could not afford to employ his time in an occupation which is less remunerative than his own, everyone would ask him why then he desired to compete? Now, could a tax enable him to compete with the la­borer? Indeed, it could. It could intervene to deprive him of the services of the laborer, and force him to dig his own ditch, abandoning a profession in which he could earn ten dollars a day to spend his time in an occupation worth only a dollar. This last is the only way in which protective taxes enable us to compete. They put us in a position such that we abandon occupations in which we might earn the high American rates, in order to do things which other people would do for us at half the price.

WILLIAM GRAHAM SUMNER

From an essay in the North American Review, January 1883.


  • Paul L. Poirot was a long-time member of the staff of the Foundation for Economic Education and editor of its journal, The Freeman, from 1956 to 1987.