Labor Day 2012: Time to Honor the Free Market, Not Public Unions


Labor Day in America is one of the most misunderstood holidays of them all. 

While I enjoy the day off, great weather, and general relaxing and transitional mood of the weekend, there tends to be countless tributes to union leaders and caricatures of a heroic working class vs. stingy, fat cat businessmen. 

And while there is nothing wrong with honoring hard work and honest labor, this narrative is far too simplistic and ignores the many other factors that contribute to economic productivity and rising living standards for all.

Unfortunately, much of the media, including even the president, likes to use class warfare rhetoric that attempts to pin us against each other. CEOs and business owners are exploitative of the working class, and without unions and a heavy dose of federal legislation and intervention, greedy capitalists would run rampant all over the rest of us.

But economic production and wealth creation is much more complicated than that and relies on an interconnected, not antagonistic, relationship. While much attention is given to labor, virtually none is given to the importance of capital. And without each other, economic growth is impossible.

Capital without labor means plenty of machines and tools but without anyone to operate them and financial resources without the manpower to invest in. Labor without capital looks a lot like totalitarian states such as North Korea or other poor countries; lots of people working, but with sticks instead of huge farm equipment and businesses starting with pennies instead of a loan.

If you take a look around the world, one hardly finds a shortage of labor but instead discovers a huge absence of capital. Capital — which includes both productive tools and the funds that finance them — is also not limited solely to the wealthy to disperse on the rest of us. Anyone, rich or poor, who saves, invests their money in stocks, and generally delays present consumption in favor of the future, is producing capital, and thus a capitalist. Sadly, this basic economic factor, and those who employ it, hardly receives the credit they deserve.

Instead, we have this pervasive myth that is solely because of altruistic labor unions fighting against rich capitalists that has given us the 40-hour workweek, weekends off, higher wages, and labor standards. But this couldn't be further from the truth.

The modern benefits that workers in American enjoy are the result of the interconnected relationship between labor and capital mentioned above, not from organized labor and government legislation. Real wages and standards of living rise because of increases in production and capital investment in machinery and other tools that increase the productivity of labor and therefore the output that the economy is able to produce. When workers are able to stack pallets with forklifts instead of their hands, each individual's productivity, and thus his added value and wages, is vastly increased.

This is why between 1860 and 1890, when barely 3% of the labor force was unionized and federal regulations virtually non-existent, manufacturing wages in America increased by 50% and another 37% from 1890 to 1914, which was also much, much higher than there heavily unionized European counterparts. 

A sound currency as well contributed to the growth of the middle class, giving them an increasingly strengthening purchasing power to go along with a rise in wages. In others words, production, sound money, and a free market economy have done more for the poor and the middle class than all of the union and labor leaders combined.

It seems plausible in theory that unionization, by lobbying for better pay, would be responsible for rising standards of living but that is simply not the case. Wealth can only come from production, and all the legislation or demands in the world mean nothing without the capital and productivity there to meet those demands. More often than not, actually, unions prevent low-skilled labor from entering many industries, decrease competitiveness and production (the very factors that lead to increases in wages and wealth), and historically have been much more hostile and unfair to non-union workers than CEOs and business owners.

It is a shame that America has moved so far away from the hugest factors of increased wealth and prosperity for all and have instead embraced massive debt over capital savings, paper money over a sound currency, and a controlled economy over a free one. 

So while we should absolutely honor and celebrate the value and importance of labor, it is foolish to ignore the capital and other external factors that help labor become more productive, easier, and more abundant.