Don’t Tell Us What Our “Marginal Productivity” Is; We’ll Tell You

When you take a big dose of syrup of ipecac, you get a big stream of projectile vomiting. And when someone calls for a living wage, you get a nice big vomit stream from the usual suspects on the Right, denouncing such calls on the basis of what they call “hard-headed economic rationality.” Response to the recent strike by fast food workers is no exception: An endless slough of cookie cutter pieces once again recycling the old chestnut that strikes for better wages are useless because wages are determined by the marginal productivity of labor.  Fast food franchise owners pay low wages because they’re forced to by the Iron Law of Marginal Productivity — they can only pay workers based on the revenue they bring in, or they go out of business. It’s an argument as old as Henry Hazlitt’s Economics in One Lesson.

In the latest regurgitation of the “marginal productivity” argument Eric Raymond (“Fixing the fast food strike,” Armed and Dangerous, August 30), an iconic figure in the free and open-source software movement who writes a lot of sense on information freedom and network organization but little else, says “in order for you to pay a worker $15 per hour, that worker has to net you more than $15 an hour in revenue.” And “flipping burgers is not neurosurgery. The job procedures are simple and mechanical; adding a lot of value with a human touch is hard.” So what franchise owners can pay “is constrained by economics. The wages they can pay are effectively bounded above by the amount of revenue each employee can capture.”

This is both circular and backwards. According to John Bates Clark’s marginal productivity theory, the “marginal productivty” of a factor or input is what it contributes to the final price of the product. So the “marginal productivity” of a factor is simply what it can command. This means that the market price mechanism is secondary to the nature of the institutional structure of power that controls the production inputs. When an economic ruling class uses state power to enforce a monopoly on production inputs, their “marginal productivity” is nothing more than the rents they are able to extract, and pass on to the consumer, from enclosing access to those production inputs.

So to say that the return on factors is determined by marginal productivity, but marginal productivity depends on the return the owner of a factor is able to command, is circular.

At the same time, it’s backwards. Labor is different from other factors of production in one regard. Owners of land and capital will dispose of their full supply, guided only by one consideration: Revenue maximization. If labor were governed by the same law, workers would work as much as they were physically able to on a sustainable basis. But in fact there’s a backward-bending supply curve of labor because, unlike using land and capital, expending labor — at least after a certain point — is unpleasant. Labor, unlike a piece of land or a lump of coal, has to be persuaded to supply its own productive services — to crawl out of bed in the morning and go into a place it would rather not be.

Since the main source of equilibrium price for reproducible commodities is the cost of factor inputs, it’s more accurate to say that the productivity of labor in a free market would be the price required to overcome the disutility of labor.

The fact that workers toil under such conditions for so little money is not the effect of the free market pricing mechanism. It’s the result of the structure of power that controls the factors of production. Historically, as Franz Oppenheimer argued in The State, it is impossible to exploit labor so long as employers are forced to compete with the possibility of self-employment. Exploitation only becomes possible when unoccupied land is no longer freely available for independent production. And the land is nowhere near being fully occupied by natural means — i.e., actually using it. Instead, it’s enclosed by a privileged class of landlords, who control access to vacant and unimproved land. Other forms of productive property are likewise enclosed for rents by an economic ruling class, with the help of the state.

The purpose of the state, since its origin, has been to enforce such artificial scarcities and artificial property rights on behalf of the economic ruling class. The rents of the propertied classes result not from their contributions to production —  i.e., actually producing something — but from enclosing and controlling access to productive opportunities. The great share of income, under capitalism, comes not from production but from controlling the conditions under which others are allowed to produce.

The result is that, by artificially restricting independent access to the means of production and subsistence, the supply of wage labor is artificially inflated compared to the demand for it.

So in a truly free market, the main source of commodity value would be the requirement to pay labor enough to make it worth their while, in their own subjective perception, to engage in production.

Our goal as market anarchists is not to “force” anyone to pay labor more, but to tear down the enclosures that force workers to accept wage employment only on the terms offered by the economic ruling class.

Anarchy and Democracy
Fighting Fascism
Markets Not Capitalism
The Anatomy of Escape
Organization Theory