Exploring Rent vs. Labor in Our Capitalist Society
David Ricardo is credited with inventing the concept of economic rent. Modern economic thought generally defines rent and rent-seeking as income derived from capital which is NOT the result of production. Hence, the landlord collects rent from property he owns, the professional derives a salary based not on what he produces, but on what he knows or is licensed to do. Governments collect taxes based on land or resources used – sometimes on production itself (value-added taxes). These are all examples of economic rents.
Labor, on the other hand, is the act of creating tangible wealth. It is compensated based on some version of the Labor Theory of Value (LTV), measured by time spent in the production process – which, in turn, presumably creates some surplus valueas profit in the marketplace. One can also interpret wages as credit advanced by a rentier to debtors (following David Graeber’s model), who may or may not be free to cancel that debt by leaving an employer for another in a competitive environment. Consumers, too, can become creditors when they apply some subjective judgment to the price for anything – they ask, “how much is this worth to me?”
Thus, our capitalist society becomes a continuous interplay of rents and production based on ownership of resources, including workers’ time in labor (and, possibly, bargaining power). Even Ricardo’s theory of rents goes back further, to Adam Smith, who distinguished different forms of wealth based on ownership of land or some natural resource as opposed to time and “sweat” of labor. Anarchist and socialist strains of thought (emerging almost immediately after Smith, certainly from the French Revolution) have always sought to establish a hierarchy of wealth and value – with the wealth from labor at the top of the value pyramid, wealth from ownership of capital relegated to an inferior moral position.
Yet the spirit of capitalism, as it developed through the 19th and 20th centuries, sought to correlate the creation of wealth via profit with overall benefit to society – the path toward abundance for all. Such an enterprise required the participation of everybody, workers and rentiers together, all dedicated to the same ends. Labor Day in the U.S. and Canada emerged as national holidays celebrating organized labor, developing in the 19th century. International Workers Day (May 1) in Europe had similar origins with the Second International (Paris,1889). Do these holidays also celebrate the need for balance between rents and labor? Or are they merely performative (and weak) efforts to make workers feel important to the capitalist project?
At least since the days of Karl Marx, the emphasis has been more on imbalances and conflict than on mutually supportive economic activity (20th century total warfare perhaps the regrettable exception). Today, the interests of the class of wage-earning workers versus the interests of resource-owning bourgeois rentiers seem almost as hostile as in Marx’s day. With new technological developments (like generative AI) we appear to be in a similar position to the English Luddites of 1812 who decided to engage in destructive insurrection against owners of the textile mills and their power looms. Like them, similar struggles by organized labor in the mid-20th century against factory automation went nowhere. The Luddites failed in their battle, as explored by Brian Merchant in his speculative history of the movement, Blood in the Machine. The only real solution to these problems has been through negotiated agreements to distribute the surplus value of labor more equitably. But, while possibly increasing total consumer spending (depending on size of the compensation package), it becomes something of a philosophical quandary as to whether any NEW WEALTH is created by these agreements. Redistribution does not equal growth.
And abundance does require growth. Labor productivity, by itself, only creates growth for the owner of capital, the rentier. If workers are laid off due to technological advances, they are not contributing to growth if they can’t spend! Somehow, increased productivity must be taxed. Investment, not just consumer spending, must result if we are to achieve abundance. Either government levies the tax, or the banking system must do the trick – increased social welfare, one way or another, must be the product of increased productivity. A growing population needs a certain amount of growth to even stay at the same level, a static population needs growth to improve its standard of living. (In theory, a declining population could do the same, but nobody wants to see that!)
But the problem of work is more complicated. Various proposals related to a Universal Basic Income (UBI) have been advanced to deal with anticipated shortfall in the need for labor. In times past, pensions were considered the norm for dealing with large numbers of workers growing too old to continue working productively (still seen in the public sector). These fixes to a problem which only existed theoretically seemed overkill – not garnering sufficient political muscle to be implemented on a permanent basis. There has never really been a lasting decline in the need for labor. Retraining, yes, but idleness never. Unfortunately, retraining can be a multi-generational task, implying reconfiguration of public education, etc. The Luddites simply moved from Nottinghamshire to London, or into other low-skilled occupations locally.
Rent-seeking, however, is more flexible than labor. Perhaps it shouldn’t be this way, but the power of capital has proven much more enduring over the last two hundred-odd years than “sweat from the brow” of a typical wage-earning worker. Being based upon the medium of exchange itself – money – it can easily be manipulated. A license can be marketed by an institution of higher learning, land can be bought and sold, rents increased to whatever “the market will bear.” The rentiers we call advertisers are incredibly influential. The prospect for competition in the world of creative endeavor is much less limited than in the world of commodity production. Retraining in creative fields may still take time but less rigorous for skilled practitioners than for unskilled workers in the local factory, or farm, since the basics are already established. To the rent-seeker, artificial intelligence is a tool, to the laborer, a replacement.
In looking at the relative merits of labor surplus value versus creative surplus value, I’m agnostic. I belong to the camp that believes net social benefit requires physical work and creative energy, both. What remains unresolved is the relative compensation for all the various skills necessary to realize this net social benefit – and the proper weight of things like intellectual property (rent). These may be political questions more than anything. And, on this Labor Day, it’s worth remembering that political outcomes depend on both capital and coordination. Those who organize always come out ahead!
— William Sundwick
Warp and Woof 