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Labor is the cornerstone

Illustration realized by the author of the article

The pandemic showed us that all the money, the capital goods such as machinery and equipment, are useless if there is no manpower to run them to create value. It has been evidenced that capital, the outcome of savings, is not the essence of production, but the labor force. Capital powers the labor as a producer of value, but it is not the essence of it.

The need by capital for labor to be run makes remember the ideas of the classical economist, David Ricardo, Adam Smith, and Carl Marx, who argued that the value of commodities comes from the average labor time needed to produce them. From such a premise, Marx (1865) deduces that the owners of capital (means of production) exploit labor through the partial payment of the value the latter creates, what he called surplus value. This unpaid part of the value is used for the replacement of materials, capital or machinery maintenance, and the remaining is appropriated. Such a surplus-value is expressed in money and is reinvested in the productive process to acquire capital goods and hire workers to reproduce the process.

 

Labor is more than a simple factor of production

The orthodoxy accounts for the output as a result of combining the factors of production, labor, and capital, in such a way, equals human labor to capital, to a degree that it is shown as any other factor of production. Nonetheless, contrary to being a simple factor, labor accounts for the capital accumulation, as it was stated by Marx (1849):

Capital consists of raw materials, instruments of labor, and means of subsistence of all kinds, which are employed in producing new raw materials, new instruments, and new means of subsistence. All these components of capital are created by labor, products of labor, accumulated labor. Accumulated labor that serves as a means to new production is capital.

Besides, the capability to learn and become more productive differentiates human beings from machines. Although the latter can increase its productiveness or efficiency as it becomes more sophisticated, such an increase in efficiency comes from an exogenous way, that is to say, it is a creation of a human being that takes place in an incremental fashion in the process of production, according to the accumulation of knowledge.  Schultz (1961) points out that the workers’ knowledge (human capital), brought about by the investment in education, is what explains the rise of productiveness, thus, the economic growth and development of countries.

 

Machinery cannot be exploited

When a capitalist acquires machinery and hire workers in the market, he or she only can exploit the workers or take profits from them not from the machinery, given the fact that the machine cannot produce commodities by itself and its value tend to fall over time, due to the obsolescence brought about by the technical change or the deterioration of the matter. The only way to get back the money invested in the machinery with additional money (profits) is through the hiring and exploitation of wage labor (living labor).

In accordance with Marx (1865), the progressive accumulation of means of production grows faster than the portion of capital to buy labor in such a way as the industry develops, the demand for labor does not progress at the same pace of the capital accumulation. Undoubtedly it grows, but at a decreasing proportion in comparison to the capital growth. That is to say, it would require every time more investment in capital to be able of employing the same number of workers, therefore, the profitability of business tends to decrease, and the risk of not getting what has been invested tends to increase.

Imagine a big Factory that needs a huge initial investment to buy the plant, machinery, and equipment. Its output per worker would be high, the unit value very low, and the size of the market has to be big enough to absorb all those commodities of low unit value. The risk of losing all the investment in physical capital increases. Such a risk is what would encourage speculation in the stock exchange (click here  Alex Grant, who talks about it), diverting resources from the real economy.

In a short article (unfortunately is available only in Spanish click here) Jose Roberto Acosta speaks on the lack of profitability of the current business, explaining that when money is invested in capital, let’s say machinery or broadly speaking in soft technology (software, apps,…), the money is expected to return through the productive use of such capital, however, the strong competition might speeds up the obsolescence of technology before the money invested returns with profits, therefore, the investment in capital does not ensure the profitability by virtue of capital-intensive production becomes less profitable and more risky. That is why business such as Uber are very attractive to the capital, they are labor-intensive and workers are willing to sell their time and even invest themselves in the transport equipment.

 

The robotized society

In a Forbes article, Tim Worstall imagines a totally robotized society and argues that the competition of capitalists for selling the goods produced by their robots would bring about the depression of prices to a degree where all the members of a society would be rich. In such a way the value disappears. At that point in the productive capacity, Worstall argues, all the needs and wishes could be satisfied and we would be living what Marx called the true communism where people can do as much they wish: “be a farmer in the morning and a philosopher in the evening. Or as we might put it, do a bit of gardening and then yakk with the guys over a few beers”.

From the aforementioned it is understood that in a society 100% automatized, any human being would not be needed to produce and be paid for that. Therefore, the production cost of commodities drops to zero, since capital goods (machines) would manufacture themselves and produce the consumer goods for human beings. In this way, if there are no Jobs, there is no cost, and, thereby, there is no exchange value or price.

In sum, it is not the capital but the labor which is the cornerstone of any economy. The American magnate Jeff Bezos already said it when he returned from space: «I want to thank every Amazon employee and every Amazon customer because you guys paid for all this”.

 

References

Marx (1849). Wage Labor and Capital: The Nature and Growth of Capital

Marx, Carl (1865). Wage, Price and profit. Editorial Progreso Moscú. 

Schultz, Theodore. (1961). Investment in Human capital. The American Economic Review. Vol 51. 1-17

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Medardo Alfonso Palomino Arias

Por Medardo Alfonso Palomino Arias

Economista y Magister en Gestión Pública graduado en la Universidad Santiago de Cali, Colombia. He sido Profesor desde el año 2014 en distintas universidades de Cali. En la actualidad me encuentro adelantando estudios y viajando en Australia. El proposito de mi blog es difundir conocimiento sobre economía y brindar un espacio para el debate.

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