Capital and Labor
Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed.
-Abraham Lincoln, first address to Congress, December 3, 1861
Every generation encounters similar problems, but each tends to coin new terms to describe them. Sometimes it’s a good idea to look back, to apply classic terms to current problems and get a new (albeit old) perspective.
Words long used to describe the two major forces in an economy are Capital and Labor. Writers in past centuries recognized that a balance is needed between the two, and that if one or the other gets the upper hand the situation eventually gets out of control.
We need only look at the recession that began in 2008 to see what happens when Capital gets too much power. The French and Russian revolutions are classic examples of Labor getting the upper hand, to excess.
People with money, that is, people with assets like money, or gold, or property, or corporations, will always do their best to make more money, more assets – to become richer.
Those who work for a living will always do their best to get paid more and work less, and to have more comforts and benefits while they do work and at home. It’s also important to note that these same people often aspire to become Capitalists themselves, however unlikely that aspiration may be.
There are those who say these two opposing forces will create their own equilibrium. That might be true in a world where those two forces were the only ones in play, but in our world we have government in the middle, and that changes the equation.
Those who understand the world financial system realize how close we came to a total meltdown of our global economy right at the end of the Bush, Jr. Administration. If government hadn’t stepped in, in a big way, the Capital world would have collapsed. That wouldn’t have benefitted Capital or Labor, but Capital would have been reduced so substantially that Labor could have equalized the balance, or at least had a shot at doing so, as they both struggled to recreate a functional society.
In other words, Capital would have learned a painful but valuable lesson.
In this case, however, the lesson that was learned wasn’t helpful to Capital. The people who had been straining the economy with their profligacy were rewarded for doing so. Their deficiencies were made whole by the U.S. government and its counterparts across the world, and they are right back where they were, straining the economy as if nothing had happened. Government can affect the balance between Capital and Labor in several ways including taxation, regulation, and intervention. We just saw the greatest intervention in human history, which itself was brought on by the dismantling of regulation.
Now, regulation is back. On July 15, 2010, the U.S. Senate squeaked out by one vote final passage of a massive financial regulation bill which was quickly signed by President Obama. Some say this bill doesn’t go far enough, and others say it’s overkill, but only time will tell if it will do what it is supposed to do. Much of the bill “passes the buck” to regulatory agencies that are charged with studying the situation and creating new rules. It will be complicated, and lots of provisions in both the new law and the new rules will be grist for the legal mills for years to come.
But that’s a good thing. Bankers and stockbrokers and insurers (and the three groups have merged to a great extent in recent years) will have to create their ingenious new schemes within a framework of regulation and transparency, and that is real progress.
It seems that Capital gets into trouble when it starts to look at money as a commodity. In the recent debacle, it seemed to view the stock market, and all the other markets, as slot machines. It was easier to play the market than it was to improve the efficiency of the corporation or the quality of its products.
It used to be that the stock market was the way entrepreneurs obtained financing to build or expand businesses that actually made things. The business was the important thing, the stock market just a tool. What was important to the directors and executives was the long-term survival of the business. In recent years the market has taken the center ring, with the businesses just the means to provide short-term profit. Who cares if Amalgamated Widgets exists next year? What’s important is that AW’s stock, and director and executive compensation, go up. If AW is on a downhill slope, says the common wisdom, do everything possible to keep that fact from the public, and be sure to sell your stock before the truth comes out.
We brought this on ourselves. After the stock market crash in 1929, irate legislators put lots of protections in place. They didn’t let stock brokerages and banks and insurance companies perform the same functions or own each other. They established strict rules about reserves required for lending and they regulated all aspects of securities of all sorts. Over the years since that time Capitalist legislators have hammered away at these regulations, claiming that they were just obstructions from a bygone era that weren’t needed anymore. They eventually got their way, and proved themselves wrong.
It’s that balance between Capital and Labor that is important. Labor did pretty well after World War II, but by the 1980s had begun to lose ground. (The real point at which the middle class started its decline might have been in 1965, when the U.S. stopped making precious metal currency – it was at that point that the dollar became an imaginary entity and all the old rules got thrown out. A dime from 1964 contained less than ten cents’ worth of silver. Now its silver content is worth about $1.50. You may have had only two dimes to rub together, but they were 90% silver.)
In the last three decades the middle class has shrunk and many full-time workers simply do not make enough to live on. Meanwhile, those who had the money to speculate in real estate and stocks and pre-1965 silver coins made a killing.
One of the most pernicious fantasies of Capital is that it deserves its hard-won perquisites. There was widespread outrage when Wall Street got bailed out and then, before the ink was dry on the new money poured into its coffers, used it to pay bonuses to the very people who had brought it to the brink. What! the people cried. These are the very dastards who caused the loss of a huge proportion of our savings, our mutual funds, our IRAs, our jobs! How dare they pay bonuses for failure?
But, but! the Capitalists responded. If we don’t pay them well, they’ll take their exquisite expertise and cross the street to work for our competitors! We must compensate them well for their acumen!
Do you remember that? The electorate didn’t. It kicked the bums out – the bums who had been in office for 22 months, doing their best to shore up the levees and keep the economy going – and replaced them with the very same Capitalist losers, or their henchpersons, who had brought them to ruin.