Labor Day falls on September 1st this year, traditionally marking the unofficial end of summer. Although the first celebratory parade was held in New York City on September 5, 1882, and states began proclaiming an official day off in 1887 (Oregon led the way, designating the first Saturday in June as the commemorative date), the first Monday of September did not become a federal holiday until President Grover Cleveland signed it into law in 1894.
In modern America, many workers are capitalists owing to their investments in employer-sponsored or individual 401(k) pension plans.
The late 1880s were a time of labor agitation, unrest, and work stoppages. Labor’s grievances exploded on May Day 1886, after the predecessor of the American Federation of Labor (AFL) called for a nationwide strike demanding shorter workdays, safer working conditions, and higher pay. The hoped-for peaceful protest turned violent in Chicago’s Haymarket Square when police mobilized to control the crowd. Seven police officers and four protestors were killed when someone threw a bomb; dozens more were injured.
The 1880s and 1890s also witnessed the emergence of large “trusts” (holding companies) in meatpacking, petroleum refining, sugar, tobacco, and even matches, among other American industries. Although attacked for being monopolies, owing to their sheer sizes, the new organizations and the “robber barons” at their helms took advantage of the economies of scale by expanding the production of consumer goods. The prices charged by those industries fell faster than the economy-wide deflation then underway, ushering in a decade or more of growth and prosperity, known ever since as the Gilded Age.
The events sketched above took place in the shadow of Karl Marx. The first volume of Das Kapital was published in 1867. (Two largely unread additional volumes, edited by Frederick Engels, Marx’s coauthor on The Manifesto of the Communist Party, would appear posthumously.) Marx, of course, saw the economic world as influenced by class conflict between the working proletariat and the more commercially minded bourgeoisie. The latter supposedly exploits the former by paying workers less than they contribute to the production process.
Marx, like many social thinkers before the “marginal revolution” of the late nineteenth century — pioneered by William Stanley Jevons and Carl Menger — based their analyses on the labor theory of value. That theory incorrectly claims that the exchange value of any good or service (its price) fully reflects the amount of labor needed to produce it. Most economists now understand that the demand for labor and other generic inputs (land, physical capital) is derived from the demand for the goods those inputs help create. Inputs alone do not determine value; the amounts consumers are willing to pay must be considered. If that were not true, a painting I produce would sell for more than a Rembrandt because it takes me significantly more time and effort to complete a portrait of a person no one else would recognize.
Despite the harsh critiques by mainstream economists of Marx’s turgid writings and the failures of every economic system that has tried to implement his ideas, the unending conflict between labor (the exploited class) and capitalists (the exploiters) he predicted still influences U.S. labor policies, at least since the New Deal, and is now seeing a revival among some young people and politicians. That influence is evident in fears that workers will lose jobs to robots and that advances in artificial intelligence, especially artificial general intelligence, will make humans obsolete. However, no machine can or ever will replace the creativity of the human mind.
Increases in the stock of capital (plant and equipment, computers, and the like) raise labor productivity. At the margin, rising labor productivity leads to higher, not lower, wages. Technological advances do change the kinds of labor skills that employers demand, eliminating much of the repetitive, mind-numbing workplace drudgery that worried even Adam Smith.
Higher minimum wages, when not justified by productivity increases, price less skilled workers out of the labor market. Minimum wages of $16 or $20 per hour help explain why your restaurant’s “server” is a tablet instead of a person, why you scan barcodes and pay for items yourself at the grocery or big box store, and why you are forced to interact online with a seemingly braindead chatbot for answers to questions about product features or performance issues. Stagnant productivity leads to William Baumol’s cost disease in education and other labor-intensive sectors, where essentially the same production methods have been used for decades.
Capitalists take risks to provide the tools that combine with labor in the production process. Despite its importance, Marx did not develop a theory of capital accumulation or technological change, nor did he explain how, when state ownership of the means of production “inevitably” replaces private ownership, the existing capital stock would be maintained or how new capital would be mobilized at the end of the old capital’s useful life.
In modern America, many workers are capitalists owing to their investments in employer-sponsored or individual 401(k) pension plans. Treating the members of the two groups as distinct, monolithic, and continuously at odds with one another is a form of identity politics meant to be divisive. The hallmark of market processes — and the reason for their success in promoting progress and prosperity — is voluntary cooperation, not conflict or coercion.
Marxism instead promotes unproductive class warfare between owners and employees, as well as between unionized and non-union workers. So, fire up the grill, take the day off, and celebrate “labor.” But take a minute to recognize the Marxist origins of the holiday and ask yourself why we don’t have a “Capital Day.”
READ MORE from William F. Shugart:
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William F. Shughart II, distinguished research advisor of the Independent Institute, is J. Fish Smith Professor in Public Choice at Utah State University’s Jon M. Huntsman School of Business.