Why no labor controversy?

from Peter Radford

The familiar so-called “capital controversies” a few decades ago were never fully resolved. This is mainly because the losers of that battle eventually won the war and so were able to overlook their loss. They carried on with a muddled view of what capital actually is and ignored the impact of that muddle as if it were unimportant.

Whichever side you are on in that debate – which still emerges from the shadows now and again – I have a question: why no labor controversy?

Surely labor is as muddled a concept as capital.

If our problem with capital is supposed to be its multitudinous expression in concrete terms – is it a machine? is it money? is it simply a bookkeeping entry on a balance sheet? is it a factory? and so on – then labor too is a similar multitude.

Is labor simply an energy source?

After all people do “work” in the old fashioned sense of that word. They lift, bend, move, and otherwise translate energy into work as they go about business. Labor is thus an energy input.

Is labor a source of skill?

Naturally. People don’t just add energy as they work they also they perform their tasks with some form of intelligence and aptitude. Not all tasks require the same amount of such intelligence. Some require little at all. But others depend almost entirely upon skill for the output of the work. Obviously there is a whole range. Does clumping them all under the broad rubric of “labor” do justice to the degrees of difference? And aren’t those differences as wide part as a machine is from a factory?

To me, at least, the old fashioned triad of inputs into the basic economic production equation – land, labor, and capital – are all so imprecise as to leave any output from those equations subject to enormous doubt.

What, exactly, do we mean by them?

What capital? What labor? and what land?

It is no wonder, then, that even the most heroic attempts at understanding the great curve towards modern prosperity that began a couple of hundred years ago fall farcically short. They don’t take into account to drivers of such prosperity, they depend upon archaic notions and such imprecise measures that they cannot hope to succeed.

I understand that using the notion of labor is nice because it allows an analyst to arrive at determinations of employment, numbers of jobs and so on, but the sacrifice of understanding about the what drove the surge in prosperity is too big a cost. Indeed, the cost is so big it threatens to undermine the credibility of the entire effort.

Both labor and capital are controversial because they mask the extent to which knowledge, both practical and pure, affect the economy. Of course knowledge is also a vague concept – we quickly sink it discussions of know-how versus know-what and so on – but at least it is one step closer to the real cause of growth. Which is our collective ability to translate quantities of raw materials, energy, and thought into things we are willing to buy and sell and hence create wealth and satisfy various needs. And that ability is constantly evolving, thus making old scarcities into abundance, and making redundant what was once essential.

It is this ability that constantly confounds the doomsayers who rant against growth. They neglect to see that growth is not dependent upon ever more consumption of raw materials, or upon the use of non-renewable energy sources, it depends more crucially on our ability to conceive of uses, techniques, and devices to extract work and to satisfy our needs ever more efficiently.

Ingenuity is the crucial input. And ingenuity is constrained by a whole host of human constructs such as culture, institutions, history, and so on.

I understand the desire to compress human endeavor into simple formulae in the attempt to trace the arc of progress, but I think we all would benefit from a clearer understanding of what needs to be compressed. For economics to fit more neatly within the same world as the more basic sciences it needs to look through the lens of energy conversion, at work, and at the flow of information that results from both. Using land, labor, and capital makes that next to impossible. Some combination of energy, raw material, and knowledge would be a step in the right direction.

But economics is too path dependent to make such a shift. So we are stuck with pointless controversies, and inputs so vague that they obscure rather than illuminate the basic economic process called growth