Economics Questions

Re: Isn't capitalism exploitative and unfair?

Jack Roberts — Thu, 01 Nov 2012 02:00:36 GMT

I ask the question on this topic, the example of a doorman or a porter at five star $1000 a night hotel. Should he be paid more than an individual working the same job at a $200 a night hotel?

Unfortunately the answer is that the employer will always pay as little as he can, but if he wants a higher level of service then he might have to pay more than the other cheaper hotel pay their porter. It is this mechanism that leads to competition in the job market and ultimately the incentive to increase the quality of the service which results in an overall benefit to civilisation.

Re: Isn't capitalism exploitative and unfair?

Anenome — Wed, 31 Oct 2012 04:35:43 GMT

If employment is available and the worker can also sell his product directly to the consumer, and the worker STILL chooses employment, then you've got to realize there's a reason why the employee is preferring employment to servicing the consumer directly.

When you figure that out, OP, then you'll know why your reasoning is fallacious. Hint: it has to do with how much more productive you can be if you use the capitalist's productive capital versus producing without his capital. Your wage is derived from how productive you can be. The value of your labor with his capital is so much greater that, even with the cut the capitalist takes out of the wage he pays you, you can earn more from employment than you could on your own with direct access to the consumer and less productive capital.

So, it's literally win/win for everyone.

Re: Isn't capitalism exploitative and unfair?

Jeremiah Dyke — Wed, 31 Oct 2012 02:51:02 GMT

The capitalist is not paid at the point of production. They are paid at the point of sale, if the item sells. The laborer demands to be paid daily/weekly, the capitalist may not see the return on that individuals labor until months/years after the production is complete. However, the laborer is not willing to wait for the point-of-sale. The laborer wants to be paid upfront. Thus, the capitalist is something of a lender of sorts. It lends out its financial capital up front in exchange for a larger return at the point-of-sale. There are companies who allow the laborer to wait until the point-of-sale (vs being paid up front) in exchange for sharing in the profits. However, the laborer is also taking a risk because the profits may not be what they thought.

Re: Isn't capitalism exploitative and unfair?

HabbaBabba — Wed, 31 Oct 2012 02:46:39 GMT

I don't find fault with anything there, or disagree, but this is the sort of thing I'm trying to dig into the mind of the whatever? the OP is. Generally the socialist/exploited worker syndrome is someone who doesn't do anything productive. Just general service work, entry-level, to the entry-level. Which is fine, I suppose. There's a place for it. But if you're 40 and slinging lattes, you've made mistakes or there's something much larger, terribly wrong. Probably both are equally likely in this time and place.

If we can get to the core of what type of creature thinks they are exploited by the "capitalist" or whatever boogey man term they like to use, then a cure can be assessed. I've found actually producing something, creating, progress, fixes a whole lot of these demons and why it's so dangerous for an entire economy to move towards service. Basically, there's nothing like sucking at something to put success into perspective.

Re: Isn't capitalism exploitative and unfair?

Malachi — Wed, 31 Oct 2012 02:37:30 GMT

Well theres labor and theres labor. I think the hard part of my job is the part that involves figuring stuff out. Anybody can drive a forklift, and anybody can be taught to use a lathe. But figuring out how to make two dozen pieces press-fit into existing assemblies so someone else can install them is not something anyone can do. I guess theres equivocation on "hard" here.

the way I see it what makes a job pay well is the demand, and once market forces account for that you have risk, skill, and physicality. The higher the risk, the higher the skill, the higher the physical nature of the job, the more money it pays. The offset to all of those are the benefits: good working conditions. "easy" work in the sense that its something that isnt difficult to to do, its not a challenge. And the physical nature of the job, like an ironworker or a football player versus an i.t. Guy who telecommutes. If standards, including presence, apply to your physical corpus, you get compensated for that in some form.

and there are scarcity demands that market forces cannot account for, not everyone can be a musician, or whatever.

Re: Isn't capitalism exploitative and unfair?

Wheylous — Wed, 31 Oct 2012 02:31:41 GMT

MML, I would appreciate some attention to my (shorter) argument as well.

Re: Isn't capitalism exploitative and unfair?

HabbaBabba — Wed, 31 Oct 2012 02:27:48 GMT

I work in engineering, pal. Regardless, that's not the point. It ain't hard labour. And it begs the question if the "capitalist" running the show is equally exploitative of fat guys shaped like pears.

Re: Isn't capitalism exploitative and unfair?

Neodoxy — Wed, 31 Oct 2012 02:27:33 GMT

MML,

If there's anything that I can clarify then I will be happy to do so, I realize that I threw a wall of text at you.

I can understand your confusion, and it's not something that I like either, but I like capitalists making so much more if it means that everyone gets more, if it means that the hard laborers can feed their families and see the quality of their lives increase over time as the market system sets to work and increases the incomes of everyone within the system.

It is the most fair because it is the best possibility for everyone, not just for the capitalists (indeed they benefit from state interventions by and large but that's another issue) but for everyone. If I could I would see everyone rich, but no one, not me, you, or the government, have the power to make this so. We can only work in the right direction, the system of the free market.

Re: Isn't capitalism exploitative and unfair?

Malachi — Wed, 31 Oct 2012 02:26:25 GMT

Youre kidding, right? Do you think designing a bridge is easy?

Re: Isn't capitalism exploitative and unfair?

HabbaBabba — Wed, 31 Oct 2012 02:24:09 GMT

What about an engineering office? Nobody does shit.

Re: Isn't capitalism exploitative and unfair?

Kelvin Silva — Wed, 31 Oct 2012 02:22:19 GMT

If the laborer thinks that it is not worthy to be paid x amount of money for y amount of work, then he ought to look for another job.

If he agrees to it, then obviously he thinks that there may be some justification for his entrance into the contract.

Re: Isn't capitalism exploitative and unfair?

MissMapleLeaf — Wed, 31 Oct 2012 02:15:05 GMT

@Neodoxy

I'm still trying to process everything you said, but I think I understand where you're coming from. I just don't understand how it's fair that the capitalist can make so much more when his labour if obviously not worthy of that relative to what his labourers do, especially when it's hard labour.

Re: Isn't capitalism exploitative and unfair?

Michael J Green — Wed, 31 Oct 2012 02:06:20 GMT

The worker, or another "exploited" worker, buys the product offered by the capitalist. The product is on store shelves for the predetermined price of $40. But the worker-buyer receives $50 of value from the good.

Has the capitalist been exploited?

Re: Isn't capitalism exploitative and unfair?

Kelvin Silva — Wed, 31 Oct 2012 02:03:32 GMT

I doubt she will read it.

I doubt ill read it. But if i do, ill tell you.

Re: Isn't capitalism exploitative and unfair?

Neodoxy — Wed, 31 Oct 2012 02:00:10 GMT

Alright then, let's get started.

Now first of all, let's leave the situation of the workers and focus instead upon the consumer. Now good X, which is what is being produced, is so much more valuable to the people who will buy the good that they are willing to pay double the cost of put into producing good X to obtain good X. This means that whatever productive process the entrepreneur (which is what we will call the capitalist for reasons that will become clear) stumbled upon was so amazingly productive and new, or efficient, that he is able to reap this amazing process. This means one of the following:

1. A new product has been produced which consumers value far more highly than whatever other things that the inputs needed to produce good X could be used to produce, and this includes labor.

2. The process which he has developed in making a pre-existing type of good is so much more efficient in its utilization of non-labor factors that he is now making a massive profit. The inputs that he would be using to produce Y quantity of X goods are now either being used to produce other things in the economy or they are being used to make Z (a much greater) quantity of good X, or some combination of these two things. In either case more is produced and a greater number of people see their wants satisfied through the productive process.

It should be noted here that the entrepreneur in endeavoring to build the factory and engage in the new process is, above all else, a bringer of progress, since he was able to satisfy the wants of other individuals better than anyone else in his society was able to. Anyone else could have opened that factory if they had either accumulated or borrowed the funds, but no one did. Had the endeavor failed miserably then he would have been massively insolvent and probably lived the rest of his life in a state of debtorhood. As it is, however, he has made the lives of many of his consumer's, and/or anyone consuming goods which use the same inputs in their production, since now more of those goods will now be produced because the cost of producing them has gone down.

However, the entrepreneurs' actions have not only benefited him and a wide variety of other people, but they have also benefited his workers. The only reason why you would work someplace is because you can't work anywhere better, in some combination of pay and working conditions. This means that even if the capitalist's actions are "unfair" they would nonetheless be mutually beneficial and the best alternative for the laborers without utilizing force.

Now let's briefly breeze over what would happen if we had the government outlaw all profit by stating that any discrepancy between price and cost are to be distributed equally among the workers. I realize that this isn't directly your question, but it goes far in showing how this system might be considered fair. Well first we would see that the entrepreneur would never had made the factory to begin with. There was almost certainly some reason to believe that the factory would not succeed and that it would run at a loss. If the entrepreneur had to worry about this, and had no profit incentive, then why would he have taken the risk in the first place? A world without profits makes no sense unless you are also creating a world without losses, and a world in which firms didn't have to worry about losses... Well I should hope that the failings of that would be perfectly obvious. Would it have been more fair to the people who preferred to work at the factory more than anyplace else they could have worked at to instead be unemployed or take a job which they do not prefer? Of course not, that isn't fair at all, and it really isn't fair for someone to go around saying what other people's wages should be.

It might be one thing if you could point a magic wand and have a world with both the new factory and full wages, but this is not possible for reasons just shown. If entrepreneurs, the risk takers and innovators of our society, believe that their profits will be reduced to nothing then they will not take risks.

There is a reason why the capitalist system takes the shape that it does with entrepreneurs, capitalists, and laborers, and this is because each one of these groups plays a very important societal function in production.

Now, we will look at whether or not the situation you outlined is even really sustainable, something which Wheylous mostly tackled. From what you have said the capitalist (we will call him the entrepreneur for reasons which will become clear) is making a 50% profit on everything which he sells. That is A LOT of money and, as they say in mainstream economics, money left on the table is never left there for long. The fact that he is making this much money will encourage new entrepreneurs to enter into the industry in order to try to emulate his success. Since the process has proven possible and indeed incredibly successful, the risk goes way down, so new competitors enter into the market. This has two affects, for starters we see that the price of labor and other inputs are bid upwards since now multiple entrepreneurs are bidding for a limited number of resources. Secondly an increasing quantity of good X will appear on the market, causing the price to fall (if you do not understand why then look up the law of marginal utility) until profits are either gone or they are very small. At this point the market is very "saturated". For instance you don't see a huge amount of profit (to my knowledge) in farming because you're doing something very tried and true, not something new which is at all likely to bring about windfall profits.

Thusly we see that generally any discrepancies, like the one which you have outlined, are probably unsustainable in most cases. In those cases which it is sustainable to any capacity it is usually warranted, but that's the whole monopoly discussion which is only semi-related to what we are talking about. Now let's move on to your preferred mode of socialism

We would expect a democratically run concern to function very badly. This is in the very nature of democracy. Not everyone is fit to work at a managerial decision making capacity. This requires a certain set of skills which most people do not have. This is in the nature of the division of labor. I am good at certain things and you are good at other things. The painter does not tell the cheese maker what the best method of cheese making is because it is out of his line of expertise. Similarly we don't expect the factory worker to necessarily understand what the market looks like in the future, or what other people's jobs entail. This is why we have entrepreneurs and mangers. The manager/engineer's role, their job in the division of labor is specifically to determine the best way that all other productive inputs can be combined, and the entrepreneur's role is to what extent they should be combined given what they believe the future state of the market will look like. In this way the democratic system of management is a perversion of the division of labor itself. It puts the untrained in charge of the productive process which they likely do not understand. If the traits of entrepreneurship were really so common that practically every single laborer had them then profit would be a very rare phenomenon indeed because every Joe Shmoe could enter into business and have a successful firm.

We also see that a democratically run firm, apart from likely being horribly mismanaged, would likely have no innovative capacity. If a new endeavor were to be proposed, then what would everyone have to gain by it? While perhaps in our situation above it is understandable that they would do it, but for a much smaller profit margin I would have a hard time seeing someone put their job on the line for a 10% pay raise (what would be a 10% profit margin). If the endeavor fails then not only do they lose their jobs, then they have also lose whatever pay they would have had which would have had to put into the factory. For this reason most innovation would probably cease, and everyone would be worse off in the socialist world because of the massive loss of productive potential.

End.

Damn it felt good to do some really good economics.

I'm sorry that this is so long, but it is a very intricate and very important question which you have raised, and so it should not be taken lightly. I should also remind you of your agreement for a really open exchange of ideas.