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NOTE 1.08. Factors of Production: Labor versus Leisure

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8. FACTORS OF PRODUCTION, LABOUR VERSUS LEISURE

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Setting aside the problem of allocating production along the most desired lines and of measuring

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one product against another, it is evident that every man desires to maximize his production

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of consumers' goods per unit of time. He tries to satisfy as many of his important ends as

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is possible and at the earliest possible time, but in order to increase the production of

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his consumer's goods, he must relieve the scarcity of the scarce factors of production.

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He must increase the available supply of these scarce factors.

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The nature given factors are limited by his environment and therefore cannot be increased.

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This leaves him with the choice of increasing his supply of capital goods or of increasing

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The Theory of Money and Credit

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One method, then, by which man may increase his production per unit of time, is by increasing his expenditure of labor.

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In the first place, however, the possibilities for this expansion are strictly limited, by the number of people in existence at any time, and by the number of hours in the day.

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Secondly, it is limited by the ability of each laborer, and this ability tends to vary.

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And finally, there is a third limitation on the supply of labor.

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Whether or not the work is directly satisfying in itself, labor always involves the foregoing of leisure, a desirable good.

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This is the first proposition in this chapter that has not been deduced from the axiom of action.

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It is a subsidiary assumption, based on empirical observation of actual human behavior.

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It is not deducible from human action because its contrary is conceivable, although not generally existing.

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On the other hand, the assumptions above of quantitative relations of cause and effect were logically implicit in the action axiom,

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since knowledge of definite cause and effect relations is necessary to any decision to act.

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We can conceive of a world in which leisure is not desired, and labor is merely a useful, scarce factor to be economized.

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In such a world, the total supply of available labor would be equal to the total quantity of labor that men would be capable of expending.

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Everyone would be eager to work to the maximum of capacity, since increased work would lead to increased production of desired consumer goods.

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All time not required for maintaining and preserving the capacity to work would be spent in labor.

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Such a situation could conceivably exist, and an economic analysis could be worked out on that basis.

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We know from empirical observation, however, that such a situation is very rare for human action.

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For almost all actors, leisure is a consumer's good,

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to be weighed in the balance against the prospect of acquiring other consumers' goods, including possible satisfaction from the effort itself.

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The more a man labors, the less leisure he can enjoy.

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Increased labor, therefore, reduces the available supply of leisure and the utility that it affords.

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Consequently, people work only when they value the return of labor higher than the decrease in satisfaction brought about by the curtailment of leisure.

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It is possible that included in this return of satisfaction yielded by labor may be satisfaction in the labor itself, in the voluntary expenditure of energy on a productive task.

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When such satisfactions from labor do not exist, then simply the expected value of the product yielded by the effort will be weighed against the disutility involved in giving up leisure, the utility of the leisure foregone.

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Where labor does provide intrinsic satisfactions, the utility of the product yielded will include the utility provided by the effort itself.

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As the quantity of effort increases, however, the utility of the satisfactions provided by labor itself declines, and the utility of the successive units of the final product declines as well.

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Both the marginal utility of the final product and the marginal utility of labor satisfaction decline with an increase in their quantity, because both goods follow the universal law of marginal utility.

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In considering an expenditure of his labor, man not only takes into account which are the most valuable ends it can serve, as he does with all other factors, these ends possibly including the satisfaction derived from productive labor itself, but he also weighs the prospect of abstaining from the expenditure of labor in order to obtain the consumer's good, leisure.

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First leisure, like any other good, is subject to the law of marginal utility.

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The first unit of leisure satisfies a most urgently felt desire.

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The next unit serves a less highly valued end.

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The third unit, a still less highly valued end, etc.

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The marginal utility of leisure decreases as the supply increases, and this utility

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is equal to the value of the end that would have to be foregone with the loss of the

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and the unit of leisure.

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But in that case, the marginal disutility of work in terms of leisure foregone increases

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with every increase in the amount of labor performed.

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In some cases, labor itself may be positively disagreeable, not only because of the leisure

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foregone but also because of specific conditions attached to the particular labor that the

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actor finds disagreeable.

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In these cases, the marginal disutility of labor includes both the disutility due to

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these conditions and the disutility due to leisure foregone.

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The painful aspects of labor, like the foregoing of leisure, are endured for the sake of the

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yield of the final product.

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The addition of the element of disagreeableness in certain types of labor may reinforce, and

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This certainly does not counteract the increasing marginal dis-utility imposed by the accumulation

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of leisure foregone as the time spent in labor increases.

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Thus for each person and type of labor performed, the balancing of the marginal utility of the

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product of prospective units of effort as against the marginal dis-utility of effort

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will include the satisfaction or dissatisfaction with the work itself, in addition to the evaluation

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of the final product and of the leisure foregone.

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The labor itself may provide positive satisfaction, positive pain or dissatisfaction, or it may

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be neutral.

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In cases where the labor itself provides positive satisfactions, however, these are intertwined

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with and cannot be separated from the prospect of obtaining the final product.

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Deprived of the final product, man will consider his labor senseless and useless, and the labor

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itself will no longer bring positive satisfactions.

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Those activities which are engaged in purely for their own sake are not labor, but are

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pure play, consumers' goods in themselves.

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Play as a consumer's good is subject to the law of marginal utility as are all goods,

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and the time spent in play will be balanced against the utility to be derived from other

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obtainable goods.

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Leisure is the amount of time not spent in labor, and play may be considered as one of

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the forms that leisure may take in yielding satisfaction.

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In the expenditure of any hour of labor, therefore, man weighs the disutility of the labor involved,

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including the leisure foregone, plus any dissatisfaction stemming from the work itself, against the

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utility of the contribution he will make in that hour to the production of desired goods,

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including future goods and any pleasure in the work itself, that is, with the value of

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his marginal product.

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In each hour, he will expend his effort toward producing that good whose marginal product

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is highest on his value scale.

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If he must give up an hour of labor, he will give up a unit of that good whose marginal

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utility is lowest on his value scale.

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At each point, he will balance the utility of the product on his value scale against

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the disutility of further work.

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We know that a man's marginal utility of goods provided by effort will decline as his expenditure

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of effort increases.

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On the other hand, with each new expenditure of effort, the marginal disutility of the

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effort continues to increase.

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Therefore, a man will expend his labor as long as the marginal utility of the return

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exceeds the marginal disutility of the labor effort.

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A man will stop work when the marginal disutility of labor is greater than the marginal utility

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of the increased goods provided by the effort.

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Then, as his consumption of leisure increases, the marginal utility of leisure will decline,

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while the marginal utility of the goods foregone increases, until finally the utility of the

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The marginal products for gone becomes greater than the marginal utility of leisure, and the actor will resume labor again.

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This analysis of the laws of labor effort has been deduced from the implications of the action axiom and the assumption of leisure as a consumer's good.