WEBVTT NOTE 9.02. Land, Labor, and Rent 1 00:00:00.000 --> 00:00:08.440 2. Land, labor and rent A. Rent 2 00:00:08.440 --> 00:00:14.860 We have been using the term rent in our analysis to signify the higher price of the services 3 00:00:14.860 --> 00:00:22.400 of goods. This price is paid for unit services, as distinguished from the prices of the whole 4 00:00:22.400 --> 00:00:25.280 Whole Factors Yielding the Service 5 00:00:25.280 --> 00:00:32.480 Since all goods have unit services, all goods will earn rents, whether they be consumers 6 00:00:32.480 --> 00:00:36.380 goods or any type of producers goods. 7 00:00:36.380 --> 00:00:43.520 Future rents of durable goods tend to be capitalized and embodied in their capital value and therefore 8 00:00:43.520 --> 00:00:47.160 in the money presently needed to acquire them. 9 00:00:47.160 --> 00:00:53.580 As a result, the investors and producers of these goods tend to earn simply an interest 10 00:00:53.580 --> 00:00:56.800 return on their investment. 11 00:00:56.800 --> 00:01:03.980 All goods earn gross rent, since all have unit services and prices for them. 12 00:01:03.980 --> 00:01:09.640 If a good is rented out, it will earn gross rent in the higher charge. 13 00:01:09.640 --> 00:01:16.960 If it is bought, then its present price embodies discounted future rents, and in the future 14 00:01:16.960 --> 00:01:21.200 It will earn these rents by contributing to production. 15 00:01:21.200 --> 00:01:25.080 All goods, therefore, earn gross rents. 16 00:01:25.080 --> 00:01:31.520 And here there is no analytic distinction between one factor and another. 17 00:01:31.520 --> 00:01:39.940 Net rents, however, are earned only by labor and land factors, and not by capital goods. 18 00:01:39.940 --> 00:01:47.500 Net rents equal gross rents earned minus gross rents paid to owners of factors. 19 00:01:47.500 --> 00:01:53.580 For the gross rents earned by a capital good will be imputed to gross rents paid to the 20 00:01:53.580 --> 00:01:56.740 owners of the factors that produced it. 21 00:01:56.740 --> 00:02:04.520 Hence, on net, only labor and land factors, the ultimate factors, earn rents. 22 00:02:04.520 --> 00:02:13.520 And in the ERE, these, along with interest on time, will be the only incomes in the economy. 23 00:02:13.520 --> 00:02:21.060 The Marshallian theory holds that durable capital goods earn quasi-rents temporarily, 24 00:02:21.060 --> 00:02:24.460 while permanent lands earn full rents. 25 00:02:24.460 --> 00:02:27.600 The fallacy of this theory is clear. 26 00:02:27.600 --> 00:02:34.500 Whatever their durability, capital goods receive gross rents just as lands do, whether in the 27 00:02:34.500 --> 00:02:43.940 In the changing real world or the ERE, in the ERE they receive no net rents at all, 28 00:02:43.940 --> 00:02:47.580 since these are imputed to land and labor. 29 00:02:47.580 --> 00:02:53.960 In the real world, their capital value changes, but this does not mean that they earn net 30 00:02:53.960 --> 00:02:54.960 rents. 31 00:02:54.960 --> 00:03:03.320 Rather, these changes are profits or losses accruing to their owners as entrepreneurs. 32 00:03:03.320 --> 00:03:10.680 If then, incomes in the real world are net rents accruing to labor and land factors and 33 00:03:10.680 --> 00:03:18.320 entrepreneurial profits, while the latter disappear in the ERE, there is no room in 34 00:03:18.320 --> 00:03:23.080 either world for the concept of quasi-rent. 35 00:03:23.080 --> 00:03:27.480 Nowhere does this special type of income exist. 36 00:03:27.480 --> 00:03:34.320 A wage is the term describing the payment for the unit services of a labor factor. 37 00:03:34.320 --> 00:03:39.020 A wage, therefore, is a special case of rent. 38 00:03:39.020 --> 00:03:41.360 It is labor's hire. 39 00:03:41.360 --> 00:03:48.260 On a free market, this rent cannot, of course, be capitalized, since the whole labor factor, 40 00:03:48.260 --> 00:03:55.360 the man, cannot be bought and sold for a price, his income to accrue to his owner. 41 00:03:55.360 --> 00:04:00.660 This is precisely what occurs, however, under a regime of slavery. 42 00:04:00.660 --> 00:04:08.220 The wage, in fact, is the only source of rent that cannot be capitalized on the free market, 43 00:04:08.220 --> 00:04:14.960 since every man is necessarily a self-owner with an inalienable will. 44 00:04:14.960 --> 00:04:21.700 One distinction between wages and land rents, then, is that the latter are capitalized and 45 00:04:21.700 --> 00:04:27.260 transformed into interest return, while the former are not. 46 00:04:27.260 --> 00:04:33.880 Another distinction is purely empirical and not apodictically true for mankind. 47 00:04:33.880 --> 00:04:40.780 It has simply been an historical empirical truth that labor factors have always been 48 00:04:40.780 --> 00:04:45.060 relatively scarcer than land factors. 49 00:04:45.060 --> 00:04:51.460 Land and labor factors can be ranged in order of their marginal value productivity. 50 00:04:51.460 --> 00:04:58.060 The result of a relative superfluity of land factors is that not all the land factors will 51 00:04:58.060 --> 00:05:05.640 be put to use, that is, the poorest land factors will be left idle, so that labor will be free 52 00:05:05.640 --> 00:05:13.300 to work the most productive land, for example, the most productive agricultural land, urban 53 00:05:13.300 --> 00:05:18.940 sites, fish hatcheries, natural resources, etc. 54 00:05:18.940 --> 00:05:26.140 Those will tend to use the most value-productive land first, the next most productive second, 55 00:05:26.140 --> 00:05:27.140 etc. 56 00:05:27.140 --> 00:05:33.820 At any given time, then, there will be some land, the most value-productive, under cultivation 57 00:05:33.820 --> 00:05:37.460 and use, and some not in use. 58 00:05:37.460 --> 00:05:44.540 The latter, in the ERE, will be free land, since its rental earnings are zero, and therefore 59 00:05:44.540 --> 00:05:47.100 its price will be zero. 60 00:05:47.100 --> 00:05:54.340 This capital value will be positive, however, if people expect the land to earn rents in 61 00:05:54.340 --> 00:05:56.000 the near future. 62 00:05:56.000 --> 00:06:02.940 The former land will be supramarginal, and the latter land will be submarginal. 63 00:06:02.940 --> 00:06:07.660 On the dividing line will be the poorest land now in use. 64 00:06:07.660 --> 00:06:14.820 This will be the marginal land, and it will be earning close to zero rent. 65 00:06:14.820 --> 00:06:22.020 It is important to recognize the qualification that the marginal land will earn not zero 66 00:06:22.020 --> 00:06:26.180 but only close to zero rent. 67 00:06:26.180 --> 00:06:33.180 As Frank Fetter stated, the last unit of product of any finite amount would have to pay its 68 00:06:33.180 --> 00:06:35.140 corresponding rent. 69 00:06:35.140 --> 00:06:41.980 The only product obtained in the strict theory of the case without paying rent would be one 70 00:06:41.980 --> 00:06:48.860 One unit infinitesimally small, in plain Anglo-Saxon, would be nothing at all. 71 00:06:48.860 --> 00:06:55.980 No finite unit of product can be shown to be a no-rent unit. 72 00:06:55.980 --> 00:07:03.340 The reason is that in human action there is no infinite continuity, and action cannot 73 00:07:03.340 --> 00:07:07.100 proceed in infinitely small steps. 74 00:07:07.100 --> 00:07:13.420 Mathematically minded writers tend to think in such terms, so that the points before and 75 00:07:13.420 --> 00:07:19.620 after the point under consideration all tend to merge into one. 76 00:07:19.620 --> 00:07:27.580 Using marginal land, however, will pay only if it earns some rent, even though a small 77 00:07:27.580 --> 00:07:35.740 one, and in cases where there are large discontinuities in the array of MVPs for different lands, 78 00:07:35.740 --> 00:07:39.620 The Marginal Land might be earning a substantial sum. 79 00:07:39.620 --> 00:07:46.780 It is obvious that there is no praxeological precision in terms like close, substantial, 80 00:07:46.780 --> 00:07:48.140 etc. 81 00:07:48.140 --> 00:07:55.680 All that we can say with certainty is that if we arrange the MVPs of lands in an array, 82 00:07:55.680 --> 00:08:00.060 the rents of the Submarginal Lands will be zero. 83 00:08:00.060 --> 00:08:06.160 We cannot say what the rent of the marginal land will be, except that it will be closer 84 00:08:06.160 --> 00:08:11.160 to zero than that of the supramarginal lands. 85 00:08:11.160 --> 00:08:17.680 The terms marginal, supramarginal, etc. are rather differently used here from the way 86 00:08:17.680 --> 00:08:20.940 they have been used up to now. 87 00:08:20.940 --> 00:08:27.380 Instead of dealing with the supply and demand for a homogeneous good or factor, we are here 88 00:08:27.380 --> 00:08:35.140 We are referring to one class of factors, such as lands, and comparing different qualities 89 00:08:35.140 --> 00:08:38.840 of the various factors in that class. 90 00:08:38.840 --> 00:08:47.500 The near zero earning land is marginal because it is the one just barely put to use. 91 00:08:47.500 --> 00:08:54.380 Now we have seen that the marginal value product of a factor decreases as its total supply 92 00:08:54.380 --> 00:08:59.740 Supply Increases and Increases as the supply declines. 93 00:08:59.740 --> 00:09:07.400 The three major categories of factors in the economy are land, labor, and capital goods. 94 00:09:07.400 --> 00:09:13.560 In the progressing economy, the supply of capital per person increases. 95 00:09:13.560 --> 00:09:21.800 Here we shift the definition of progressing economy to mean increasing capital per person, 96 00:09:21.800 --> 00:09:29.160 So that we can contrast the effects of changes in the supply of one type of factor to changes 97 00:09:29.160 --> 00:09:31.720 in the supply of another. 98 00:09:31.720 --> 00:09:40.400 The supply of all ranks of capital goods increases, thereby decreasing the marginal value productivities 99 00:09:40.400 --> 00:09:46.020 of capital goods, so that the prices of capital goods fall. 100 00:09:46.020 --> 00:09:53.860 The relative MVPs of land and labor factors in the aggregate tend to rise, so that their 101 00:09:53.860 --> 00:10:00.340 income will rise in real terms, if not in monetary ones. 102 00:10:00.340 --> 00:10:06.780 What if the supply of capital remained the same, while the supply of labor or land factors 103 00:10:06.780 --> 00:10:07.780 changed? 104 00:10:07.780 --> 00:10:14.880 Thus, suppose that, with the same capital structure, population increases, thus expanding 105 00:10:14.880 --> 00:10:26.880 The General Fall in the MVP of Labor and a Rise in the MVP of Land Factors 106 00:10:26.880 --> 00:10:37.880 This rise will cause formerly sub-marginal no-rent lands to earn rent and to enter into cultivation by the new labor supply. 107 00:10:37.880 --> 00:10:46.880 This is the process particularly emphasized by Ricardo, population pressing on the land supply. 108 00:10:46.880 --> 00:10:57.880 The tendency for the MVP of labor to drop, however, may well be offset by a rise in the MPP schedules of labor, 109 00:10:57.880 --> 00:11:06.880 since a rise in population will permit a greater utilization of the advantages of specialization and the division of labor. 110 00:11:06.880 --> 00:11:19.120 The constant supply of capital would have to be reoriented to the changed conditions, but the constant amount of money capital will then be more physically productive. 111 00:11:19.120 --> 00:11:26.120 Hence, there will be an offsetting tendency for the MVPs of labor to rise. 112 00:11:26.120 --> 00:11:43.120 At any time, for any given conditions of capital and production processes, there will be an optimum population level that will maximize the total output of consumers' goods per head in the economy. 113 00:11:43.120 --> 00:11:50.440 A lower level will not take advantage of enough division of labor and opportunities for labor, 114 00:11:50.440 --> 00:11:56.920 so that the MPP of labor factors will be lower than at the optimum point. 115 00:11:56.920 --> 00:12:04.080 A higher level of population will decrease the MVP of labor and will therefore lower 116 00:12:04.080 --> 00:12:07.180 real wages per person. 117 00:12:07.180 --> 00:12:13.940 There is, of course, no reason to assume that maximum real income per head is necessarily 118 00:12:13.940 --> 00:12:16.380 the best ethical ideal. 119 00:12:16.380 --> 00:12:23.120 For some, the ideal might be maximum real income plus maximum population. 120 00:12:23.120 --> 00:12:30.940 In a free society, parents are free to choose their own ethical principles in the matter. 121 00:12:30.940 --> 00:12:38.180 Recognition of the existence of a theoretical optimum population that maximizes real output 122 00:12:38.180 --> 00:12:45.340 per head, given existing land and capital, would go far to end the dreary Malthusian 123 00:12:45.340 --> 00:12:48.540 controversies in economic theory. 124 00:12:48.540 --> 00:12:55.820 For whether a given increase in population at any time will lead to an increase or decrease 125 00:12:55.820 --> 00:13:03.400 is an empirical question, depending on the concrete data. 126 00:13:03.400 --> 00:13:07.860 It cannot be answered by economic theory. 127 00:13:07.860 --> 00:13:11.940 Economics can say little else about population and its size. 128 00:13:11.940 --> 00:13:19.620 The inclusion of a corpus of population theory under economics instead of biology or psychology 129 00:13:19.620 --> 00:13:25.720 is the unfortunate result of the historical accident that the early economists were the 130 00:13:25.720 --> 00:13:30.600 The First to Delve into Demographic Problems 131 00:13:30.600 --> 00:13:37.680 It might be wondered how the statement that increasing population might increase MPP and 132 00:13:37.680 --> 00:13:45.780 MVPs can be reconciled with the demonstration that factors will always be put to work in 133 00:13:45.780 --> 00:13:49.600 areas of diminishing physical returns. 134 00:13:49.600 --> 00:13:53.200 The conditions here are completely different, however. 135 00:13:53.200 --> 00:13:59.440 In the previous problem we were assuming a given total supply of the various factors 136 00:13:59.440 --> 00:14:03.800 and considering the best method of their relative arrangement. 137 00:14:03.800 --> 00:14:10.640 Here we are dealing not with particular production processes and given supplies of factors, but 138 00:14:10.640 --> 00:14:17.580 with the vague concept of production in general and with the effect of change in the total 139 00:14:17.580 --> 00:14:19.920 supply of a factor. 140 00:14:19.920 --> 00:14:26.440 Furthermore, we are dealing not with a true factor, homogeneous in its supply, but with 141 00:14:26.440 --> 00:14:33.240 a class of factors, such as land in general, or labor in general. 142 00:14:33.240 --> 00:14:38.000 Aside from the problem of vagueness, it is evident that the conditions of our present 143 00:14:38.000 --> 00:14:41.780 problem are completely different. 144 00:14:41.780 --> 00:14:48.360 For if the total supply of a factor changes, and it has an effect on the productivity of 145 00:14:48.360 --> 00:14:55.540 of the Labor Factor, this is equivalent to a shift in the MPP schedules. 146 00:14:55.540 --> 00:15:02.320 The Lausanne way of Valra and Pareto of phrasing this distinction would be to say that in the 147 00:15:02.320 --> 00:15:09.880 former case we implicitly assumed that the supply of tastes, techniques and resources 148 00:15:09.880 --> 00:15:12.880 remains given in the economy. 149 00:15:12.880 --> 00:15:19.080 In the present case, we are considering a change in a resource, for example, an increase 150 00:15:19.080 --> 00:15:21.360 in the supply of labor. 151 00:15:21.360 --> 00:15:28.040 We would amend this to say that only tastes and resources were considered given. 152 00:15:28.040 --> 00:15:34.840 As we saw in the previous section, techniques are not immediate determinants of production 153 00:15:34.840 --> 00:15:35.840 changes. 154 00:15:35.840 --> 00:15:40.560 The techniques must be put to use via saving and investment. 155 00:15:40.560 --> 00:15:48.200 In fact, we may deal with tastes and resources alone, provided that we include time preferences 156 00:15:48.200 --> 00:15:51.320 among the tastes. 157 00:15:51.320 --> 00:15:57.360 Because we are accustomed to viewing labor implicitly as scarcer than land factors, we 158 00:15:57.360 --> 00:16:01.600 speak in terms of zero-rent land. 159 00:16:01.600 --> 00:16:07.180 If the situations were reversed and lands were scarcer than labor factors, we would 160 00:16:07.180 --> 00:16:13.820 have to speak of zero-wage laborers, sub-marginal labor, etc. 161 00:16:13.820 --> 00:16:19.380 Theoretically this is certainly possible, and it might be argued that in such static 162 00:16:19.380 --> 00:16:27.180 societies with institutionally limited markets as ancient Sparta and medieval or post-medieval 163 00:16:27.180 --> 00:16:34.820 Europe this condition actually obtained, so that the surplus labor earned a below subsistence 164 00:16:34.820 --> 00:16:41.720 Inventor's wage in production, those who were surplus and did not own invested capital were 165 00:16:41.720 --> 00:16:47.180 curbed by infanticide or reduced to beggary. 166 00:16:47.180 --> 00:16:54.020 That sub-marginal land earns no rent has given rise to an unfortunate tendency to regard 167 00:16:54.020 --> 00:17:01.660 the very concept of rent as a differential one, as referring particularly to differences 168 00:17:01.660 --> 00:17:04.900 is in quality between factors. 169 00:17:04.900 --> 00:17:12.420 Sometimes the concept of absolute or pure rents is thrown overboard completely, and we hear 170 00:17:12.420 --> 00:17:19.260 only of rent in a differential sense, as in such statements as the following. 171 00:17:19.260 --> 00:17:28.380 If land A earns 100 gold ounces a month and land B earns zero, land A is making a differential 172 00:17:28.380 --> 00:17:31.060 rent of 100. 173 00:17:31.060 --> 00:17:39.900 If laborer A earns 50 gold ounces a month and laborer B earns 30 gold ounces, A earns 174 00:17:39.900 --> 00:17:44.200 a rent of ability of 20 ounces. 175 00:17:44.200 --> 00:17:51.460 On the contrary, rents are absolute and do not depend on the existence of a poorer factor 176 00:17:51.460 --> 00:17:54.340 of the same general category. 177 00:17:54.340 --> 00:18:02.980 The differential basis of rent is purely dependent on, and derived from, absolute rents. 178 00:18:02.980 --> 00:18:06.500 It is simply a question of arithmetical subtraction. 179 00:18:06.500 --> 00:18:13.220 Thus, land A may earn a rent of 100, and land B a rent of zero. 180 00:18:13.220 --> 00:18:18.620 Obviously, the difference between 100 and zero is 100. 181 00:18:18.620 --> 00:18:26.680 In the case of the laborer, however, laborer A's rent, that is, wage, is 50, and B's 182 00:18:26.680 --> 00:18:27.920 is 30. 183 00:18:27.920 --> 00:18:34.720 If we want to compare the two earnings, we may say that A earns 20 more than B. There 184 00:18:34.720 --> 00:18:41.680 is little point, however, in adding to confusion by using rent in this sense. 185 00:18:41.680 --> 00:18:47.880 The differential rent concept has also been used to contrast earnings by a factor in one 186 00:18:47.880 --> 00:19:15.300 Differential rent is used to mean the difference between the actual DMVP and the opportunity 187 00:19:15.300 --> 00:19:20.860 for Gone or the DMVP in the Next Best Use. 188 00:19:20.860 --> 00:19:27.500 It is sometimes believed that the 10-ounce differential is in some way not really a part 189 00:19:27.500 --> 00:19:36.420 of costs to entrepreneurs, that it is surplus or even unearned rent acquired by the factor. 190 00:19:36.420 --> 00:19:42.800 It is generally admitted that it is not without cost to individual firms, which have bid the 191 00:19:42.800 --> 00:19:52.800 In fact, the entire discussion concerning whether or not rent is costless or enters into cost is valueless. 192 00:19:52.800 --> 00:20:02.560 But there is no industry point of view. Not industries, but firms buy and sell and seek profits. 193 00:20:03.680 --> 00:20:11.920 In fact, the entire discussion concerning whether or not rent is costless or enters into cost 194 00:20:11.920 --> 00:20:18.720 is valueless. It belongs to the old classical controversies about whether rents are price 195 00:20:18.720 --> 00:20:22.080 Price Determined or Price Determining 196 00:20:22.080 --> 00:20:29.600 The view that any costs can be price determining is a product of the old cost of production 197 00:20:29.600 --> 00:20:32.640 theory of value and prices. 198 00:20:32.640 --> 00:20:41.120 We have seen that costs do not determine prices, but vice versa, or more accurately, prices 199 00:20:41.120 --> 00:20:48.520 of Consumers' Goods Through Market Processes Determine the Prices of Productive Factors, 200 00:20:48.520 --> 00:20:56.280 Ultimately, Land and Labor Factors, and the Brunt of Price Changes is Born by Specific 201 00:20:56.280 --> 00:20:59.720 Factors in the Various Fields. 202 00:20:59.720 --> 00:21:01.100 b. 203 00:21:01.100 --> 00:21:03.720 The Nature of Labor 204 00:21:03.720 --> 00:21:10.720 As we have mentioned earlier, labor is a category that includes a myriad variety of services. 205 00:21:10.720 --> 00:21:17.720 Generally, labor is the expenditure of pure human energy on a production process. 206 00:21:17.720 --> 00:21:23.320 Catallactically, labor is hired by entrepreneur capitalists. 207 00:21:23.320 --> 00:21:29.680 When an owner performs and earns a return for an essentially labor activity, which he 208 00:21:29.680 --> 00:21:37.640 could also perform as an employee, for example, the owner-manager, that return is an implicit 209 00:21:37.640 --> 00:21:39.240 wage. 210 00:21:39.240 --> 00:21:46.340 It is grossly unscientific to separate laborers into arbitrary categories and to refer to 211 00:21:46.340 --> 00:21:53.880 one group as labor and workers, while the other group receives various other names. 212 00:21:53.880 --> 00:22:00.280 To give them other names implies a difference in kind between their contribution and the 213 00:22:00.280 --> 00:22:02.440 contribution of others. 214 00:22:02.440 --> 00:22:04.480 But this difference does not exist. 215 00:22:04.480 --> 00:22:14.920 Thus, the popular custom is to call some hired labor, labor, while others are called managers, executives, etc. 216 00:22:14.920 --> 00:22:26.160 Management is a particularly popular category as contrasted with labor, and we hear a great deal of the term labor-management relations. 217 00:22:26.160 --> 00:22:28.600 But these categories are valueless. 218 00:22:28.600 --> 00:22:34.240 Management is hired by the owners or owner to direct production. 219 00:22:34.240 --> 00:22:43.240 Managers are supposed to obey the orders of their superiors, something they consent to do as part of the terms of their employment. 220 00:22:43.240 --> 00:22:52.240 The lower quality workers further down the scale, the laborers, are treated by these writers as a different breed. 221 00:22:52.240 --> 00:23:01.240 When we use the term quality here and in other parts of catalactic analysis, we are not employing it in some metaphysical sense, 222 00:23:31.240 --> 00:23:33.880 Management, etc. 223 00:23:33.880 --> 00:23:39.600 Yet there is no difference in kind between workers and management. 224 00:23:39.600 --> 00:23:45.140 The vice president of a company, if hired by its owners, has exactly the same amount 225 00:23:45.140 --> 00:23:52.940 of justification or lack of justification for joining a union as does a hired mechanic. 226 00:23:52.940 --> 00:23:58.840 Both are supposed to abide by the terms of their employment, that is, to obey the relevant 227 00:23:58.840 --> 00:24:01.240 and orders of their superiors. 228 00:24:01.240 --> 00:24:06.840 Both are free at any time to haggle over the terms of their employment, just as in any 229 00:24:06.840 --> 00:24:10.320 other voluntary exchange on the market. 230 00:24:10.320 --> 00:24:16.680 Both are laborers, who expend human energy in the production of goods. 231 00:24:16.680 --> 00:24:22.940 No special quality attaches to one set of laborers or another that makes it more or 232 00:24:22.940 --> 00:24:27.000 less justifiable for them to join a union. 233 00:24:27.000 --> 00:24:33.280 The union question will be explored in Chapter 10 on monopoly and competition. 234 00:24:33.280 --> 00:24:39.960 Here we might note that this false labor management dichotomy crops up in an interesting way in 235 00:24:39.960 --> 00:24:42.860 the struggle over foreman's unions. 236 00:24:42.860 --> 00:24:49.360 For some reason, even the most ardent union advocate thinks absurd the idea of unionizing 237 00:24:49.360 --> 00:24:51.320 the vice presidents. 238 00:24:51.320 --> 00:24:57.160 Those more critical of unions think it monstrous if unions attempt to organize foremen who 239 00:24:57.160 --> 00:25:02.540 are in the lower echelons of management and would, of course, be horrified at the very 240 00:25:02.540 --> 00:25:05.680 thought of unionizing vice presidents. 241 00:25:05.680 --> 00:25:13.840 Yet if there is no real dichotomy and all employees are labor, then our views on unions 242 00:25:13.840 --> 00:25:16.080 must be altered accordingly. 243 00:25:16.080 --> 00:25:21.840 Or if everyone admits that the unionizing of vice presidents is absurd or evil, then 244 00:25:21.840 --> 00:25:29.200 perhaps the same adjective would have to apply to the unionization of any workers. 245 00:25:29.200 --> 00:25:32.800 C. Supply of Land 246 00:25:32.800 --> 00:25:38.560 We have seen throughout that the processes of price determination for the unit services 247 00:25:38.560 --> 00:25:53.560 The prices of land and labor are exactly the same. Both sets of factors tend to earn their MVP. Both receive advances of present money from capitalist entrepreneurs, etc. 248 00:25:53.560 --> 00:26:01.560 The analysis of the pricing of unit services of original or permanent factors applies equally to each. 249 00:26:01.560 --> 00:26:07.160 There are three basic differences between the conditions of land and those of labor, 250 00:26:07.160 --> 00:26:11.560 however, that make separation of the two important. 251 00:26:11.560 --> 00:26:18.560 One we have already dealt with in detail, that in the free economy land can be capitalized 252 00:26:18.560 --> 00:26:25.560 in its price as a whole factor and therefore earns simply interest and entrepreneurial 253 00:26:25.560 --> 00:26:37.520 A second difference we have been considering, the empirical fact that labor has been more 254 00:26:37.520 --> 00:26:40.260 scarce than land factors. 255 00:26:40.260 --> 00:26:47.440 A corollary of this is that labor is pre-eminently the non-specific factor, which is applicable 256 00:26:47.440 --> 00:26:54.160 to all processes of production, whereas land tends to be far more specific. 257 00:26:54.160 --> 00:27:01.120 A third difference derives from the fact that laborers are human beings, and, also an empirical 258 00:27:01.120 --> 00:27:05.600 fact, that leisure is always a consumer's good. 259 00:27:05.600 --> 00:27:12.240 As a result, there will be reserve prices for labor against leisure, whereas land, in 260 00:27:12.240 --> 00:27:16.280 the broadest sense, will not have a reserve price. 261 00:27:16.280 --> 00:27:20.800 We shall deal with the effects of this distinction presently. 262 00:27:20.800 --> 00:27:29.940 The fact that labor is scarcer and non-specific means that there will always be unused land. 263 00:27:29.940 --> 00:27:36.140 Only the best and most productive land will be used, that is, the land with the highest 264 00:27:36.140 --> 00:27:38.140 DMVPs. 265 00:27:38.140 --> 00:27:44.320 Similarly, in the real world of uncertainty, where errors are made, there will also be 266 00:27:44.320 --> 00:27:51.100 the Unused Capital Goods, that is, in places where malinvestments have been made, which 267 00:27:51.100 --> 00:27:54.220 turned out to be unprofitable. 268 00:27:54.220 --> 00:28:00.500 We have seen that the prices of consumers' goods are set by consumers' demand schedules, 269 00:28:00.500 --> 00:28:03.440 as determined by their value scales. 270 00:28:03.440 --> 00:28:10.260 That is, by the way that the quantity supplied by producers, the first-rank capitalists, 271 00:28:10.260 --> 00:28:13.020 will be valued by consumers. 272 00:28:13.020 --> 00:28:19.180 When in the changing economy producers have speculative reservation demands, the price 273 00:28:19.180 --> 00:28:26.460 will, at any moment, be set by the total demand for the given stock, and this will always 274 00:28:26.460 --> 00:28:30.860 tend to approach the true consumer's demand price. 275 00:28:30.860 --> 00:28:34.100 A similar situation obtains in land. 276 00:28:34.100 --> 00:28:41.540 The prices of land factors will be determined by the general schedule of the factors DMVPs, 277 00:28:41.540 --> 00:28:48.180 will be set according to the point of intersection of the total quantity or stock of the factor 278 00:28:48.180 --> 00:28:54.260 available with its discounted marginal value productivity schedule. 279 00:28:54.260 --> 00:29:01.900 The DMVP in turn is, as we have seen at length, determined by the extent to which this factor 280 00:29:01.900 --> 00:29:04.180 serves the consumers. 281 00:29:04.180 --> 00:29:11.500 The MVP is determined directly by the degree that a factor unit serves the consumers, and 282 00:29:11.500 --> 00:29:19.020 the discount is determined by the extent that consumers choose saving investment as against 283 00:29:19.020 --> 00:29:20.700 present consumption. 284 00:29:20.700 --> 00:29:28.340 Therefore, the value scales of the consumers determine, given the stocks of original factors, 285 00:29:28.340 --> 00:29:33.580 all the various results of the market economy that need to be explained. 286 00:29:33.580 --> 00:29:40.300 The prices of the original factors, the allocation of original factors, the incomes to original 287 00:29:40.300 --> 00:29:47.180 factors, the rate of time preferences and interest, the length of the production processes 288 00:29:47.180 --> 00:29:52.580 in use, and the amounts and types of the final products. 289 00:29:52.580 --> 00:29:59.420 In our changing real world, this beautiful and orderly structure of the free market economy 290 00:29:59.420 --> 00:30:05.620 tends to be attained through the drive of the entrepreneurs toward making profit and 291 00:30:05.620 --> 00:30:07.700 avoiding loss. 292 00:30:07.700 --> 00:30:15.820 This rule by consumers' valuations holds insofar as entrepreneurs and owners of factors 293 00:30:15.820 --> 00:30:23.020 aim at maximum money income, to the extent that they abstain from higher money income 294 00:30:23.020 --> 00:30:36.020 to pursue non-monetary ends. For example, looking at one's untilled land or enjoying leisure, the producer's own valuations will be determining. 295 00:30:36.020 --> 00:30:44.020 From the general praxeological point of view, these producers are to that extent acting as consumers. 296 00:30:44.020 --> 00:30:50.020 Therefore, the full rule of consumer's value scales would hold even here. 297 00:30:50.020 --> 00:31:06.520 However, for purposes of catalactic market analysis, it may be convenient to separate man as a producer from man as a consumer, even though, considered in his entirety, the same man performs both functions. 298 00:31:06.520 --> 00:31:20.520 In that event, we may say that to the extent that non-monetary goals enter, not consumers' values are determining, but the values of all individuals in society. 299 00:31:20.520 --> 00:31:31.520 At this point, let us consider a great bugaboo of the Henry Georgists' speculation in land that withholds productive land from use. 300 00:31:31.520 --> 00:31:39.020 According to the Georgists, a whole host of economic evils, including the depressions of the business cycle, 301 00:31:39.020 --> 00:31:49.520 stem from speculative withholding of ground land from use, causing an artificial scarcity and high rents for the sites in use. 302 00:31:49.520 --> 00:31:56.520 We have seen that speculation in consumers' goods, and the same will also apply to capital goods, 303 00:31:56.520 --> 00:32:26.520 The Theory of Money and Credit 304 00:32:26.520 --> 00:32:31.680 Use in the Present or Use at Various Times in the Future 305 00:32:31.680 --> 00:32:37.520 If the owner of the good estimates that demand for the good will be higher in the future 306 00:32:37.520 --> 00:32:43.020 and therefore its price will be greater, he will, provided that the length of waiting 307 00:32:43.020 --> 00:32:51.320 time is not too costly in terms of time preference and storage, keep the goods on hand in inventory 308 00:32:51.320 --> 00:32:53.200 until that date. 309 00:32:53.200 --> 00:32:59.880 This serves the consumers by shifting the good from use at present to a more highly valued 310 00:32:59.880 --> 00:33:02.560 use in the future. 311 00:33:02.560 --> 00:33:06.920 Land however is a permanent resource as we have seen. 312 00:33:06.920 --> 00:33:12.880 It can be used all the time, both in the present and in the future. 313 00:33:12.880 --> 00:33:18.560 Therefore any withholding of land from use by the owner is simply silly. 314 00:33:18.560 --> 00:33:23.940 It means merely that he is refusing monetary rents unnecessarily. 315 00:33:23.940 --> 00:33:31.080 The fact that a landowner may anticipate that his land value will increase because of increases 316 00:33:31.080 --> 00:33:37.680 in future rents in a few years furnishes no reason whatever for the owner to refuse to 317 00:33:37.680 --> 00:33:40.000 acquire rents in the meanwhile. 318 00:33:40.000 --> 00:33:48.480 Therefore, a site will remain unused simply because it would earn zero rent in production. 319 00:33:48.480 --> 00:33:54.880 In many cases, however, a land site, once committed to a certain line of production, 320 00:33:54.880 --> 00:34:01.180 could not easily or without substantial cost be shifted to another line. 321 00:34:01.180 --> 00:34:06.980 Where the landowner anticipates that a better line of use will soon become available or 322 00:34:06.980 --> 00:34:12.560 is in doubt on the best commitment for the land, he will withhold the land site from 323 00:34:12.560 --> 00:34:19.440 from use if his saving in changeover cost will be greater than his opportunity cost 324 00:34:19.440 --> 00:34:24.320 of waiting and of forgoing presently obtainable rents. 325 00:34:24.320 --> 00:34:31.240 The speculative site owner is then performing a great service to consumers and to the market 326 00:34:31.240 --> 00:34:35.960 in not committing the land to a poorer productive use. 327 00:34:35.960 --> 00:34:41.720 By waiting to place the land in a superior productive use, he is allocating the land 328 00:34:41.720 --> 00:34:45.880 and to the uses most desired by the consumers. 329 00:34:45.880 --> 00:34:53.000 What probably confuses the Georgists is the fact that many sites lie unused and yet command 330 00:34:53.000 --> 00:34:55.620 a capital price on the market. 331 00:34:55.620 --> 00:35:02.840 The capital price of the site might even increase while the site continues to remain idle. 332 00:35:02.840 --> 00:35:07.200 This does not mean, however, that some sort of villainy is afoot. 333 00:35:07.200 --> 00:35:13.260 It simply means that no rents on the site are expected for the first few years, although 334 00:35:13.260 --> 00:35:16.820 it will earn positive rents thereafter. 335 00:35:16.820 --> 00:35:23.580 The capital value of ground land, as we have seen, sums up the discounted total of all 336 00:35:23.580 --> 00:35:31.180 future rents, and these rental sums may exert a tangible influence from a considerable distance 337 00:35:31.180 --> 00:35:34.820 in the future, depending on the rate of interest. 338 00:35:34.820 --> 00:35:41.220 There is, therefore, no mystery in the fact of a capital value for an idle site or in 339 00:35:41.220 --> 00:35:42.460 its rise. 340 00:35:42.460 --> 00:35:47.500 The site is not being villainously withheld from production. 341 00:35:47.500 --> 00:35:53.860 In the free society, as we have indicated, the site could not originally become the property 342 00:35:53.860 --> 00:36:02.420 of anyone until it had been used in some way, such as being cleared, cultivated, etc. 343 00:36:02.420 --> 00:36:08.560 There need be no subsequent use, however, until rents can be obtained. 344 00:36:08.560 --> 00:36:14.500 Let us now consider the effect of a change in the supply of a land factor. 345 00:36:14.500 --> 00:36:20.480 Suppose that there is an increase in the supply of land in general, the supply of labor and 346 00:36:20.480 --> 00:36:23.100 savings remaining constant. 347 00:36:23.100 --> 00:36:29.620 If the new land is sub-marginal in relation to land presently in use, it is obvious that 348 00:36:29.620 --> 00:36:37.060 The New Land will not be used, but will instead join its fellow sub-marginal land sites in 349 00:36:37.060 --> 00:36:38.060 idleness. 350 00:36:38.060 --> 00:36:44.580 If, on the other hand, the New Land is superior, and therefore would earn a positive rent, 351 00:36:44.580 --> 00:36:46.380 it comes into use. 352 00:36:46.380 --> 00:36:52.780 There has been, however, no increase in labor or capital, so that it will not be profitable 353 00:36:52.780 --> 00:36:59.340 for these factors to be employed on a greater total amount of land than before. 354 00:36:59.340 --> 00:37:06.000 The new productive land, competing with the older land, will therefore push the previously 355 00:37:06.000 --> 00:37:11.280 just marginal land into the sub-marginal category. 356 00:37:11.280 --> 00:37:18.580 Labor will always employ capital on the best land, and so the new acquisition of supramarginal 357 00:37:18.580 --> 00:37:25.460 land will oust the previously marginal land from production, since the new land is more 358 00:37:25.460 --> 00:37:31.780 More value productive than the old marginal land which it replaces, the change increases 359 00:37:31.780 --> 00:37:36.340 the total output of goods in the society. 360 00:37:36.340 --> 00:37:39.940 D. Supply of labor. 361 00:37:39.940 --> 00:37:45.540 One of the complications in the analysis of labor is the alleged occurrence of a backward 362 00:37:45.540 --> 00:37:47.780 supply of labor. 363 00:37:47.780 --> 00:37:54.040 This happens when workers react to higher wage rates by reducing their supply of labor 364 00:37:54.040 --> 00:38:14.760 For Labor, Though Hardly Homogeneous, Is a Peculiarly Non-Specific Factor, Therefore, 365 00:38:14.760 --> 00:38:20.800 Higher Wage Rates for One Set of Factors Will Tend to Stimulate Other Laborers to Train 366 00:38:20.800 --> 00:38:35.500 As wage rates in general rise, in all their 367 00:38:35.500 --> 00:38:52.500 In addition to their connexity between various specific labor markets, the supply of all labor, that is, the quantity of labor hours, can either increase or decrease depending on the value scales of the individuals concerned. 368 00:38:52.500 --> 00:39:03.500 Rising wages may draw non-working people into the labor force and induce people to work overtime or to obtain an extra part-time job. 369 00:39:03.500 --> 00:39:10.500 On the other hand, it may lead to increased leisure and a falling off in total hours worked. 370 00:39:10.500 --> 00:39:17.500 Rising wages may lead to population growth, swelling the total supply of labor in general, 371 00:39:17.500 --> 00:39:31.500 or may lead to a cutback in population and the taking of some of the gains of increased wages in the form of increased leisure and an increased standard of living per person in the population. 372 00:39:31.500 --> 00:39:38.500 There will be such a backward supply if the marginal utility of money falls rapidly enough 373 00:39:38.500 --> 00:40:05.500 A backward supply might conceivably take place for a land factor as well, when the owner has a high reserve demand for the land in order to enjoy its unused, in the catallactic sense, beauty. 374 00:40:05.500 --> 00:40:18.000 In that case, the land would have an increasing marginal disutility of visual enjoyment foregone, just as leisure is foregone in the process of expending labor. 375 00:40:18.000 --> 00:40:34.500 In the case of land, since there is not as great a connexity between land factors as there is between non-specific labor factors, this circumstance will, in fact, impinge more directly on the market rental price. 376 00:40:34.500 --> 00:40:40.460 It may be revealed in a backward general supply for the land factor. 377 00:40:40.460 --> 00:40:46.420 Higher rental prices offered for his land will then induce the landowner to withhold 378 00:40:46.420 --> 00:40:53.380 more of it, taking the higher income partially in non-exchangeable consumption goods, as 379 00:40:53.380 --> 00:40:56.520 well as in more money received. 380 00:40:56.520 --> 00:41:03.060 These cases may be rare in practice, but only because of the freely chosen values of the 381 00:41:03.060 --> 00:41:05.060 of the Individuals themselves. 382 00:41:05.060 --> 00:41:12.340 Thus, there is no reason for the would-be preserver of a monument or of a park to complain 383 00:41:12.340 --> 00:41:16.300 about the way the market treats his treasured objects. 384 00:41:16.300 --> 00:41:22.100 In the free society, these conservationists are at perfect liberty to purchase the sites 385 00:41:22.100 --> 00:41:24.260 and preserve them intact. 386 00:41:24.260 --> 00:41:31.740 They would, in effect, be deriving consumption services from such acts of preservation. 387 00:41:31.740 --> 00:41:36.800 To return to labor, we have mentioned another component in wage rates. 388 00:41:36.800 --> 00:41:44.260 This is the psychic income or psychic disutility involved in any particular line of work. 389 00:41:44.260 --> 00:41:50.100 People, in other words, are often attracted to a certain line of work or to a specific 390 00:41:50.100 --> 00:41:54.940 job by other considerations than the monetary income. 391 00:41:54.940 --> 00:42:00.600 There may be positive psychic benefits and satisfactions derived from the particular 392 00:42:00.600 --> 00:42:23.600 In order to isolate such elements, let us suppose for the moment that all laborers are equally value-productive, that labor is a homogeneous factor. 393 00:42:23.600 --> 00:42:29.040 In such a world, all wage rates in all occupations would be equal. 394 00:42:29.040 --> 00:42:35.200 All industries need not be equally value-productive for this result to occur. 395 00:42:35.200 --> 00:42:41.200 For, as a result of the connexity of labor, that is, its non-specificity, 396 00:42:41.200 --> 00:42:45.440 laborers can enter wide ranges of occupations. 397 00:42:45.440 --> 00:42:51.760 If we assume, as we do for the moment, that all laborers are equally value-productive, 398 00:42:51.760 --> 00:42:58.480 Then they will enter a high-wage industry while quitting low-wage industry. 399 00:42:58.480 --> 00:43:04.360 This conclusion follows from the general tendency toward the uniformity of the price of any 400 00:43:04.360 --> 00:43:06.440 good on the market. 401 00:43:06.440 --> 00:43:13.580 If all labor were homogeneous and therefore one factor, its price, wage rate, would be 402 00:43:13.580 --> 00:43:20.920 uniform throughout industry, just as the pure interest rate tends to be uniform. 403 00:43:20.920 --> 00:43:26.400 Now let us relax one of the conditions of our hypothetical construct. 404 00:43:26.400 --> 00:43:32.600 It will be noted that we have avoided using the very fashionable term model to apply to 405 00:43:32.600 --> 00:43:35.240 the analyses in this book. 406 00:43:35.240 --> 00:43:41.640 The term model is an example of an unfortunate bias in favor of the methodology of physics 407 00:43:41.640 --> 00:43:46.360 and engineering as applied to the sciences of human action. 408 00:43:46.360 --> 00:43:53.200 The constructs are imaginary because their various elements never coexist in reality, 409 00:43:53.200 --> 00:43:59.800 yet they are necessary in order to draw out, by deductive reasoning and Ceteris Paribus 410 00:43:59.800 --> 00:44:05.280 assumptions, the tendencies and causal relations of the real world. 411 00:44:05.280 --> 00:44:12.040 The model of engineering, on the other hand, is a mechanical construction in miniature, 412 00:44:12.040 --> 00:44:17.880 All parts of which can and must coexist in reality. 413 00:44:17.880 --> 00:44:24.360 The engineering model portrays in itself all the elements and the relations among them 414 00:44:24.360 --> 00:44:27.600 that will coexist in reality. 415 00:44:27.600 --> 00:44:33.520 For this distinction between an imaginary construct and a model, the writer is indebted 416 00:44:33.520 --> 00:44:36.600 to Professor Ludwig von Mises. 417 00:44:36.600 --> 00:44:43.280 While retaining the assumption of equal productivity of all laborers, let us now introduce the 418 00:44:43.280 --> 00:44:51.200 possibility of psychic benefits or psychic disutilities accruing to workers at particular 419 00:44:51.200 --> 00:44:52.200 jobs. 420 00:44:52.200 --> 00:44:58.260 Some jobs are actively liked by most people, others actively disliked. 421 00:44:58.260 --> 00:45:04.660 These jobs may be common to certain industries or, more narrowly, to individual firms which 422 00:45:04.660 --> 00:45:16.500 What will happen to money wage rates and to the supply of labor in the various occupations? 423 00:45:16.500 --> 00:45:23.520 It is obvious that in the generally disliked occupation or firm, higher money wage rates 424 00:45:23.520 --> 00:45:28.500 will be necessary to attract and hold labor in that job. 425 00:45:28.500 --> 00:45:34.260 On the other hand, there will be so much labor competing in the generally liked jobs that 426 00:45:34.260 --> 00:45:36.260 The Theory of Money and Credit 427 00:46:04.260 --> 00:46:24.260 The question is an empirical one. It is a fundamental, empirically-derived postulate of this book that there is a great variety among men in labor skills, in insight into future events, in ability, intelligence, etc. 428 00:46:24.260 --> 00:46:30.140 In the book, that there is a great variety among men in labor skills, in insight into 429 00:46:30.140 --> 00:46:34.700 future events, in ability, intelligence, etc. 430 00:46:34.700 --> 00:46:38.280 It seems empirically clear that this is the case. 431 00:46:38.280 --> 00:46:45.180 The denials seem to be based on the simple faith that all men are really equal in all 432 00:46:45.180 --> 00:46:49.540 respects, or could be made equal under proper conditions. 433 00:46:49.540 --> 00:46:56.980 Generally, the assumptions of uniformity and equality are made implicitly rather than explicitly, 434 00:46:56.980 --> 00:47:03.540 perhaps because the absurdities and obvious errors of the position would then become clear. 435 00:47:03.540 --> 00:47:10.060 For who would deny that not everyone could be an opera singer or a batting champion? 436 00:47:10.060 --> 00:47:15.420 Some writers try to salvage the uniformity assumption by demonstrating that differences 437 00:47:15.420 --> 00:47:21.980 Expenses in wages occur solely because of the heavy cost of training for certain jobs. 438 00:47:21.980 --> 00:47:28.100 Thus, a doctor will earn more than a clerk because, in the nature of the task, a doctor 439 00:47:28.100 --> 00:47:34.380 will have to undergo the expenses of years of training, the expenses including actual 440 00:47:34.380 --> 00:47:42.260 money costs as well as opportunity costs foregone of earning money in such jobs as clerking. 441 00:47:42.260 --> 00:47:49.460 Therefore, in long-run equilibrium, money wage rates will not be uniform in the two fields, 442 00:47:49.460 --> 00:47:56.180 but income rates will be enough higher in medicine to just compensate for the loss, 443 00:47:56.180 --> 00:48:02.980 so that the net wage or income rates, considered over the person's lifetime, will be the same. 444 00:48:04.100 --> 00:48:10.260 It is true that costs of training do enter in this way into market wage rates, 445 00:48:10.260 --> 00:48:15.380 But they do not account for all wage differentials by any means. 446 00:48:15.380 --> 00:48:19.940 Inherent differences in personal ability are also vital. 447 00:48:19.940 --> 00:48:27.780 Decades of training will not convert the average person into an opera star or a baseball champion. 448 00:48:27.780 --> 00:48:34.380 Many writers have based their analyses on the assumption of the homogeneity of all workers. 449 00:48:34.380 --> 00:48:49.780 Consequently, when they find that generally well-liked jobs, such as television directing, pay more than such disliked jobs as ditch-digging, they tend to assume that there is injustice and chicanery afoot. 450 00:48:49.780 --> 00:48:56.580 A recognition of differences in labor productivity, however, eliminates this bugbear. 451 00:48:56.580 --> 00:49:04.060 In such cases, a psychic component still exists that relatively lowers the wage of the better-liked 452 00:49:04.060 --> 00:49:12.980 job, but it is offset by the higher marginal-value productivity and skill attached to the latter. 453 00:49:12.980 --> 00:49:19.740 Since TV directing takes more skill than ditch-digging, or rather, skill that fewer people have, 454 00:49:19.740 --> 00:49:31.420 E. PRODUCTIVITY AND MARGINAL PRODUCTIVITY 455 00:49:31.420 --> 00:49:36.460 Great care must be taken in dealing with the productivity concept. 456 00:49:36.460 --> 00:49:42.540 In particular, there is danger in using a term such as productivity of labor. 457 00:49:42.540 --> 00:49:49.900 Suppose, for example, we state that the productivity of labor has advanced in the last century. 458 00:49:49.900 --> 00:49:56.600 The implication is that the cause of this increase came from within labor itself. 459 00:49:56.600 --> 00:50:03.620 That is, because current labor is more energetic or personally skillful than previous labor. 460 00:50:03.620 --> 00:50:05.920 This however is not the case. 461 00:50:05.920 --> 00:50:12.800 An advancing capital structure increases the marginal productivity of labor, because the 462 00:50:12.800 --> 00:50:18.600 labor supply has increased less than the supply of capital goods. 463 00:50:18.600 --> 00:50:24.820 This increase in the marginal productivity of labor, however, is not due to some special 464 00:50:24.820 --> 00:50:28.400 improvement in the labor energy expended. 465 00:50:28.400 --> 00:50:32.940 It is due to the increased supply of capital goods. 466 00:50:32.940 --> 00:50:40.060 The causal agents of increased wage rates in an expanding economy, then, are not primarily 467 00:50:40.060 --> 00:50:47.020 the workers themselves, but the capitalist entrepreneurs who have invested in capital 468 00:50:47.020 --> 00:50:48.020 goods. 469 00:50:48.020 --> 00:50:54.380 The workers are provided with more and better tools, and so their labor becomes relatively 470 00:50:54.380 --> 00:50:58.740 scarcer as compared to the other factors. 471 00:50:58.740 --> 00:51:04.980 It should be understood throughout that when we refer to increases in wage rates or ground 472 00:51:04.980 --> 00:51:13.180 rents in the expanding economy, we are referring to real and not necessarily to money wage 473 00:51:13.180 --> 00:51:16.440 rates or ground rents. 474 00:51:16.440 --> 00:51:22.940 That each man receives his marginal value product means that each man is paid what he 475 00:51:22.940 --> 00:51:26.620 is worth in producing for consumers. 476 00:51:26.620 --> 00:51:32.700 But this does not mean that increases in his worth over the years are necessarily caused 477 00:51:32.700 --> 00:51:34.820 by his own improvement. 478 00:51:34.820 --> 00:51:40.940 On the contrary, as we have seen, the rise is primarily due to the increasing abundance 479 00:51:40.940 --> 00:51:45.660 of capital goods provided by the capitalists. 480 00:51:45.660 --> 00:51:54.840 It is then clearly impossible to impute absolute productivity to any productive factor or class 481 00:51:54.840 --> 00:51:56.460 of factors. 482 00:51:56.460 --> 00:52:02.860 In the absolute sense, it is meaningless to try to impute productivity to any factor, 483 00:52:02.860 --> 00:52:06.820 since all the factors are necessary to the product. 484 00:52:06.820 --> 00:52:14.620 We can discuss productivity only in marginal terms, in terms of the productive contribution 485 00:52:14.620 --> 00:52:20.740 of a single unit of a factor, given the existence of other factors. 486 00:52:20.740 --> 00:52:27.240 This is precisely what entrepreneurs do on the market, adding and subtracting units of 487 00:52:27.240 --> 00:52:33.560 factors in an attempt to achieve the most profitable course of action. 488 00:52:33.560 --> 00:52:39.300 Another illustration of the error in attempting to attribute increased productivity to the 489 00:52:39.300 --> 00:52:45.380 workers themselves occurs within the various segments of the labor market. 490 00:52:45.380 --> 00:52:52.660 As we have seen, there is a definite connexity between all the occupations on the labor market, 491 00:52:52.660 --> 00:52:56.860 since labor is the prime non-specific factor. 492 00:52:56.860 --> 00:53:04.220 As a result, while wage rates are not equalized, psychic wage rates will all tend in the long 493 00:53:04.220 --> 00:53:12.100 run to move together and maintain a given skill differential between each occupation. 494 00:53:12.100 --> 00:53:26.900 Therefore, when a certain branch of industry expands its capital and production, an increase in DMVP, and therefore in wage rates, is not confined to that particular branch. 495 00:53:26.900 --> 00:53:40.300 Because of the connexity of the supply of labor, labor tends to leave other industries and enter the new ones, until finally all the wage rates throughout the labor market have risen, 496 00:53:40.300 --> 00:53:44.300 While Maintaining the Same Differentials as Before 497 00:53:44.300 --> 00:53:50.300 Suppose, for example, that there is an expansion of capital in the steel industry. 498 00:53:50.300 --> 00:53:56.300 This assumes, of course, that there is no offsetting decline in capital elsewhere. 499 00:53:56.300 --> 00:54:01.300 If there is, then there will be no general rise in wages. 500 00:54:01.300 --> 00:54:07.300 The MVP of the steel worker increases, and his wage rates go up. 501 00:54:07.300 --> 00:54:17.300 The increase in wage rates, however, is governed by the fact that the rise will attract workers from more poorly paid industries. 502 00:54:17.300 --> 00:54:28.300 For example, suppose that steel workers are receiving 25 grains of gold per hour, while domestic servants receive 15 grains per hour. 503 00:54:28.300 --> 00:54:38.300 Now, under the impetus of expansion, the MVP and hence the wage rate of the steel workers go up to 30 grains. 504 00:54:38.300 --> 00:54:44.300 The differential has been increased, inducing domestic servants to enter the steel industry, 505 00:54:44.300 --> 00:54:53.300 lowering steel wages and especially raising servants' wages, until the differential is re-established. 506 00:54:53.300 --> 00:55:01.300 Thus a rise in capital investment in steel will increase the wages of workers in domestic service. 507 00:55:01.300 --> 00:55:13.300 The latter increase is clearly not caused by some sort of increase in the productivity or in the quality of the output of the domestic servants. 508 00:55:13.300 --> 00:55:22.300 Rather, their marginal value productivity has increased as a result of the greater scarcity of labor in the service trades. 509 00:55:22.300 --> 00:55:37.300 The differentials will not remain precisely constant in practice, of course, since changing investment and changing methods also alter the types of skills required in the economy. 510 00:55:37.300 --> 00:55:43.300 The shift in labor supply will not usually be as abrupt as in our example. 511 00:55:43.300 --> 00:55:51.100 Generally, it will take place from one occupation or one grade to a closely similar grade or 512 00:55:51.100 --> 00:55:52.100 occupation. 513 00:55:52.100 --> 00:55:59.660 Thus, more ditch-diggers might become foremen, more foremen, supervisors, etc., so that shifts 514 00:55:59.660 --> 00:56:03.020 will take place from grade to grade. 515 00:56:03.020 --> 00:56:10.160 It is as if the labor market consisted of linked segments, a change in one segment transmitting 516 00:56:10.160 --> 00:56:24.680 A note on overt and total wage rates It is total wage rates that are determined 517 00:56:24.680 --> 00:56:26.020 on the market. 518 00:56:26.020 --> 00:56:33.240 They tend to be equalized on the market and to be set at the DMVP of the worker. 519 00:56:33.240 --> 00:56:39.020 Total wage rates are the money paid out by the employer for labor services. 520 00:56:39.020 --> 00:56:44.320 They do not necessarily correspond to the take-home pay of the worker. 521 00:56:44.320 --> 00:56:48.540 The latter may be called the overt wage rates. 522 00:56:48.540 --> 00:56:55.520 Thus, suppose that there are two competing employers bidding for the same type of labor. 523 00:56:55.520 --> 00:57:02.580 One employer, Mr. A, pays out a certain amount of money, not in direct wages, but in pension 524 00:57:02.580 --> 00:57:05.900 funds or other welfare benefits. 525 00:57:05.900 --> 00:57:11.720 These benefits, it must be realized, will not be added as a gift from the employer to 526 00:57:11.720 --> 00:57:12.800 the workers. 527 00:57:12.800 --> 00:57:17.160 They will not be additions to the total wage rates. 528 00:57:17.160 --> 00:57:24.400 Overt wage rates paid out by Mr. A will instead be correspondingly lower than those paid out 529 00:57:24.400 --> 00:57:31.660 by his rival, Mr. B, who does not have to spend on the welfare benefits. 530 00:57:31.660 --> 00:57:37.060 To the employer, in other words, it makes no difference in what form workers cost him 531 00:57:37.060 --> 00:57:44.220 money, whether in take-home pay or in welfare benefits, but he cannot pay more than the 532 00:57:44.220 --> 00:57:52.780 worker's DMVP, that is, the worker's total wage income is set by this amount. 533 00:57:52.780 --> 00:57:59.800 The worker, in effect, chooses in what form he would like his pay, and in what proportion 534 00:57:59.800 --> 00:58:06.280 of Net Wage Rates to Welfare Benefits Part of these benefits is money that the employer 535 00:58:06.280 --> 00:58:13.280 might spend to provide particularly pleasant or plush working conditions for all or some 536 00:58:13.280 --> 00:58:15.360 of his employees. 537 00:58:15.360 --> 00:58:23.040 This cost is part of the total and is deducted from the overt wage rates of the employee. 538 00:58:23.040 --> 00:58:29.000 The institutional manner of paying wage rates is a matter of complete indifference to our 539 00:58:29.000 --> 00:58:30.000 Analysis. 540 00:58:30.000 --> 00:58:37.020 Thus, while peace rates or time rates may be more convenient in any given industry, 541 00:58:37.020 --> 00:58:39.720 they do not differ in essentials. 542 00:58:39.720 --> 00:58:44.160 Both are wage rates paid for a certain amount of work. 543 00:58:44.160 --> 00:58:50.080 With time rates, the employer has in mind a standard of performance which he expects 544 00:58:50.080 --> 00:58:55.000 from a worker, and he pays according to that rate. 545 00:58:55.000 --> 00:58:59.000 G. The Problem of Unemployment 546 00:58:59.000 --> 00:59:04.000 An economic bugbear of our times is unemployment. 547 00:59:04.000 --> 00:59:10.000 Not only is this considered the preeminent problem of the depression in the business cycle, 548 00:59:10.000 --> 00:59:16.000 it is also generally considered the primary problem of the capitalist system, 549 00:59:16.000 --> 00:59:20.000 that is, of the developed free market economy. 550 00:59:20.000 --> 00:59:26.600 Well, at least socialism solves the unemployment problem, is supposed to be the most persuasive 551 00:59:26.600 --> 00:59:29.120 argument for socialism. 552 00:59:29.120 --> 00:59:35.200 Of particular interest to us is the sudden emergence of the unemployment problem in economic 553 00:59:35.200 --> 00:59:36.400 theory. 554 00:59:36.400 --> 00:59:43.580 The Keynesians in the mid-1930s inaugurated the fashion of declaiming neoclassical economics 555 00:59:43.580 --> 00:59:49.520 is all right for its special area, but it assumes full employment. 556 00:59:49.520 --> 00:59:58.520 Since orthodox economics assumes full employment, it holds true only so long as full employment prevails. 557 00:59:58.520 --> 01:00:07.520 If it does not, we enter a Keynesian wonderland where all economic truths are vitiated or reversed. 558 01:00:07.520 --> 01:00:16.520 Full employment is supposed to be the condition of no unemployment, and therefore the goal at which everyone aims. 559 01:00:16.520 --> 01:00:23.880 In the first place, it should be emphasized that economic theory does not assume full employment. 560 01:00:23.880 --> 01:00:31.400 Economics, in fact, assumes nothing. The whole discussion of alleged assumptions reflects the 561 01:00:31.400 --> 01:00:38.520 bias of the epistemology of physics, where assumptions are made without originally knowing 562 01:00:38.520 --> 01:00:45.240 their validity and are eventually tested to see whether or not their consequences are correct. 563 01:00:45.240 --> 01:01:03.240 The economist does not assume. He knows. He concludes on the basis of logical deduction from self-evident axioms, that is, axioms that are either logically or empirically incontrovertible. 564 01:01:03.240 --> 01:01:10.240 Now, what does economics conclude on the matter of unemployment or full employment? 565 01:01:10.240 --> 01:01:18.240 In the first place, there is no problem involved in the unemployment of either land or capital goods factors. 566 01:01:18.240 --> 01:01:24.240 The latter condition is often known as idle or unused capacity. 567 01:01:24.240 --> 01:01:31.240 We have seen that a crucial distinction between land and labor is that labor is relatively scarce. 568 01:01:31.240 --> 01:01:39.240 As a result, there will always be land factors remaining unused or unemployed. 569 01:01:39.240 --> 01:01:51.240 Capital goods will remain unemployed because of previous entrepreneurial error, that is, investing in the wrong type of capital goods. 570 01:01:51.240 --> 01:02:02.240 As a further result, labor factors will always be fully employed on the free market, to the extent that laborers are so willing. 571 01:02:02.240 --> 01:02:10.240 There is no problem of unemployed land, since land remains unused for a good reason. 572 01:02:10.240 --> 01:02:19.240 Indeed, if this were not so, and it is conceivable that someday it will not be, the situation would be most unpleasant. 573 01:02:19.240 --> 01:02:26.240 If there is ever a time when land is scarcer than labor, then land will be fully employed, 574 01:02:26.240 --> 01:02:34.240 and some labor factors will either get a zero wage or else a wage below minimum subsistence level. 575 01:02:34.240 --> 01:02:43.240 This is the old classical bugbear of population pressing the food supply down to below subsistence levels 576 01:02:43.240 --> 01:02:47.240 and certainly this is theoretically possible in the future. 577 01:02:47.240 --> 01:02:56.240 This is the only case in which an unemployment problem might be said to apply in the free market. 578 01:02:56.240 --> 01:03:04.240 But even here, if we consider the problem carefully, we see that there is no unemployment problem per se. 579 01:03:04.240 --> 01:03:14.240 For if what a man wants is simply a job, he could work for zero wages, or even pay his employer to work for him. 580 01:03:14.240 --> 01:03:15.240 for him. 581 01:03:15.240 --> 01:03:19.600 In other words, he could earn a negative wage. 582 01:03:19.600 --> 01:03:25.760 Now this could never happen, for the good reason that labor is a disutility, especially 583 01:03:25.760 --> 01:03:28.960 as compared to leisure or play. 584 01:03:28.960 --> 01:03:36.400 Yet all the worry about full employment makes it appear that the job, and not the income 585 01:03:36.400 --> 01:03:40.400 from the job, is the great desideratum. 586 01:03:40.400 --> 01:03:47.320 If that were really the case, then there would be negative wages, and there would be no unemployment 587 01:03:47.320 --> 01:03:48.920 problem either. 588 01:03:48.920 --> 01:03:55.160 The fact that no one will work for zero or negative wages implies that in addition to 589 01:03:55.160 --> 01:04:02.400 whatever enjoyment he receives, the laborer requires a monetary income from his work. 590 01:04:02.400 --> 01:04:09.540 So what the worker wants is not just employment, which he could always get in the last resort 591 01:04:09.540 --> 01:04:15.300 by paying for it, but employment at a wage. 592 01:04:15.300 --> 01:04:21.780 But once this is recognized, the whole modern and Keynesian emphasis on employment has to 593 01:04:21.780 --> 01:04:29.300 be revalued, for the great missing link in their discussion of unemployment is precisely 594 01:04:29.300 --> 01:04:31.060 the wage rate. 595 01:04:31.060 --> 01:04:37.900 To talk of unemployment or employment without reference to a wage rate is as meaningless 596 01:04:37.900 --> 01:04:46.540 is talking of supply or demand without reference to a price, and it is precisely analogous. 597 01:04:46.540 --> 01:04:52.780 The demand for a commodity makes sense only with reference to a certain price. 598 01:04:52.780 --> 01:04:58.840 In a market for goods, it is obvious that whatever stock is offered as supply, it will 599 01:04:58.840 --> 01:05:06.080 be cleared, that is, sold, at a price determined by the demand of the consumers. 600 01:05:06.080 --> 01:05:10.760 No good need remain unsold if the seller wants to sell it. 601 01:05:10.760 --> 01:05:17.740 All he need do is lower the price sufficiently, in extreme cases even below zero if there 602 01:05:17.740 --> 01:05:22.560 is no demand for the good and he wants to get it off his hands. 603 01:05:22.560 --> 01:05:25.640 The situation is precisely the same here. 604 01:05:25.640 --> 01:05:28.640 Here we are dealing with labor services. 605 01:05:28.640 --> 01:05:35.640 Whatever supply of labor services is brought to market can be sold, but only if wages are 606 01:05:35.640 --> 01:05:40.200 are set at whatever rate will clear the market. 607 01:05:40.200 --> 01:05:47.080 We conclude that there can never be on the free market an unemployment problem. 608 01:05:47.080 --> 01:05:53.540 If a man wishes to be employed, he will be, provided the wage rate is adjusted according 609 01:05:53.540 --> 01:05:56.140 to his DMVP. 610 01:05:56.140 --> 01:06:02.120 But since no one wants to be simply employed without getting what he considers sufficient 611 01:06:02.120 --> 01:06:10.520 Payment, we conclude that employment per se is not even a desired goal of human action, 612 01:06:10.520 --> 01:06:13.180 let alone a problem. 613 01:06:13.180 --> 01:06:20.760 The problem, then, is not employment, but employment at an above subsistence wage. 614 01:06:20.760 --> 01:06:26.640 There is no guarantee that this situation will always obtain on the free market. 615 01:06:26.640 --> 01:06:33.300 The case mentioned above, scarcity of land in relation to labor can lead to a situation 616 01:06:33.300 --> 01:06:39.340 where a worker's DMVP is below a subsistence wage for him. 617 01:06:39.340 --> 01:06:46.440 There also may be so little capital invested per worker that any wage will be below subsistence 618 01:06:46.440 --> 01:06:48.340 for many people. 619 01:06:48.340 --> 01:06:55.200 Even in a relatively prosperous society, there may be individual workers so infirm or lacking 620 01:06:55.200 --> 01:07:23.540 In those cases, of course, where a worker insists on a certain type of job, or a certain 621 01:07:23.540 --> 01:07:25.540 The Theory of Money and Credit 622 01:07:53.540 --> 01:08:00.660 Going on, there may be a shift of industry away from one town or region and toward another. 623 01:08:00.660 --> 01:08:06.080 A worker may decide that he wants to remain in the old town and insists on looking for 624 01:08:06.080 --> 01:08:07.540 a job there. 625 01:08:07.540 --> 01:08:13.980 If he fails to get one, however, the fault lies with himself and not with the capitalist 626 01:08:13.980 --> 01:08:14.980 system. 627 01:08:14.980 --> 01:08:21.180 The same is true of a clerk who insists on working only in the TV industry, or of a radio 628 01:08:21.180 --> 01:08:27.940 Radio Employee who refuses to leave for television and insists on working only in radio. 629 01:08:27.940 --> 01:08:33.520 We are not condemning these workers here, we are simply saying that by their decisions 630 01:08:33.520 --> 01:08:38.920 they are themselves choosing not to be employed. 631 01:08:38.920 --> 01:08:45.580 The able-bodied in a developed economy can always find work, and work that will pay an 632 01:08:45.580 --> 01:08:47.860 over-subsistence wage. 633 01:08:47.860 --> 01:08:54.960 This is so because labor is scarcer than land, and enough capital has been invested to raise 634 01:08:54.960 --> 01:09:01.060 the marginal value product of laborers sufficiently to pay such a wage. 635 01:09:01.060 --> 01:09:07.680 But while this is true in the general labor market, it is not necessarily true for particular 636 01:09:07.680 --> 01:09:14.940 labor markets, for particular regions or occupations, as we have just seen. 637 01:09:14.940 --> 01:09:20.620 If a worker can withdraw from the labor market by insisting on a certain type of work or 638 01:09:20.620 --> 01:09:27.700 location of work, he can also withdraw by insisting on a certain minimum wage payment. 639 01:09:27.700 --> 01:09:34.040 Suppose a man insisted that he would not work at any job unless he is paid 500 gold ounces 640 01:09:34.040 --> 01:09:35.420 per year. 641 01:09:35.420 --> 01:09:44.140 If his best available DMVP is only 100 gold ounces per year, he will remain unemployed. 642 01:09:44.140 --> 01:09:51.940 Whenever a man insists on a wage higher than his DMVP, he will remain unemployed. 643 01:09:51.940 --> 01:09:57.240 That is, unemployed at the wage that he insists upon. 644 01:09:57.240 --> 01:10:03.580 But then, this unemployment is not a problem, but a voluntary choice on the part of the 645 01:10:03.580 --> 01:10:05.620 idle person. 646 01:10:05.620 --> 01:10:13.280 As Mises concludes, unemployment in the unhampered market is always voluntary, particularly 647 01:10:13.280 --> 01:10:27.160 The full employment provided by the free market is employment to the extent that workers wish 648 01:10:27.160 --> 01:10:28.940 to be employed. 649 01:10:28.940 --> 01:10:35.580 If they refuse to be employed except at places, in occupations, or at wage rates they would 650 01:10:35.580 --> 01:10:42.580 The Theory of Money and Credit The Theory of Money and Credit 651 01:11:05.580 --> 01:11:11.580 This, however, applies to the owner of any goods up for sale. 652 01:11:11.580 --> 01:11:20.580 The very function of marketing is the acquisition and dissemination of information about the goods or services available for sale. 653 01:11:20.580 --> 01:11:28.580 Except to those writers who posit a fantastic world where everyone has perfect knowledge of all relevant data, 654 01:11:28.580 --> 01:11:33.580 the marketing function is a vital aspect of the production structure. 655 01:11:33.580 --> 01:11:48.580 The marketing function can be performed in the labor market as well as in any other, through agencies or other means for the discovery of who or where the potential buyers and sellers of a particular service may be. 656 01:11:48.580 --> 01:11:59.580 In the labor market, this has been done through want ads in the newspapers, employment agencies used by both employer and employee, etc. 657 01:11:59.580 --> 01:12:08.580 Of course, full employment as an absolute ideal is absurd in a world where leisure is a positive good. 658 01:12:08.580 --> 01:12:12.580 A man may choose idleness in order to obtain leisure. 659 01:12:12.580 --> 01:12:18.580 He benefits, or believes he benefits, more from this than from working at a job. 660 01:12:18.580 --> 01:12:24.580 The idleness referred to here is catallactic and not necessarily total. 661 01:12:24.580 --> 01:12:34.580 In other words, it means that a man does not seek to sell his labor services for money, and therefore does not enter the societal labor market. 662 01:12:34.580 --> 01:12:39.580 He might well be very busy, working at hobbies, etc. 663 01:12:39.580 --> 01:12:44.580 We can see this truth more clearly if we consider the hours of the work week. 664 01:12:44.580 --> 01:12:51.580 Will anyone maintain that an 80-hour work week is necessarily better than a 40-hour week? 665 01:12:51.580 --> 01:12:57.580 Yet the former clearly represents a fuller employment of labor than the latter. 666 01:12:57.580 --> 01:13:07.080 One alleged example of a possible case of involuntary unemployment on the free market has been suggested by Professor Hayek. 667 01:13:07.080 --> 01:13:12.580 Hayek maintains that when there is a shift from investment to consumption, 668 01:13:12.580 --> 01:13:16.580 and therefore a shortening of the production structure on the market, 669 01:13:16.580 --> 01:13:30.180 There will be a necessary temporary unemployment of workmen thrown out of work in the higher stages, lasting until they can be reabsorbed in the shorter processes of the later stages. 670 01:13:30.180 --> 01:13:38.420 It is true that there is a loss in income as well as a loss in capital from a shift to shorter processes. 671 01:13:38.420 --> 01:13:52.420 It is also true that the shortening of the structure means that there is a transition period when, at final wage rates, there will be unemployment of the men displaced from the longer processes. 672 01:13:52.420 --> 01:14:06.420 However, during this transition period, there is no reason why these workers cannot bid down wage rates until they are low enough to enable the employment of all the workers during the transition. 673 01:14:06.420 --> 01:14:13.340 This transition wage rate will be lower than the new equilibrium wage rate, but at no time 674 01:14:13.340 --> 01:14:17.580 is there a necessity for unemployment. 675 01:14:17.580 --> 01:14:24.660 The ever-recurring doctrine of technological unemployment, man displaced by the machine, 676 01:14:24.660 --> 01:14:27.700 is hardly worthy of extended analysis. 677 01:14:27.700 --> 01:14:33.300 Its absurdity is evident when we look at the advanced economy and compare it with the primitive 678 01:14:33.300 --> 01:14:34.300 one. 679 01:14:34.300 --> 01:14:47.300 In the former, there is an abundance of machines and processes completely unknown to the latter, yet in the former, standards of living are far higher for far greater numbers of people. 680 01:14:47.300 --> 01:14:52.300 How many workers have been displaced because of the invention of the shovel? 681 01:14:52.300 --> 01:15:07.300 The technological unemployment motif is encouraged by the use of the term labor-saving devices for capital goods, which to some minds conjure up visions of laborers being simply discarded. 682 01:15:07.300 --> 01:15:19.300 Labor needs to be saved because it is the pre-eminently scarce good, and because man's wants for exchangeable goods are far from satisfied. 683 01:15:19.300 --> 01:15:20.300 ." 684 01:15:20.300 --> 01:15:25.580 Furthermore, these wants would not be satisfied at all if the capital goods structure were 685 01:15:25.580 --> 01:15:27.280 not maintained. 686 01:15:27.280 --> 01:15:30.980 The more labor is saved, the better. 687 01:15:30.980 --> 01:15:38.400 For then, labor is using more and better capital goods to satisfy more of its wants in a shorter 688 01:15:38.400 --> 01:15:40.700 amount of time. 689 01:15:40.700 --> 01:15:47.140 Of course, there will be unemployment if, as we have stated, workers insist on their 690 01:15:47.140 --> 01:15:49.140 The Theory of Money and Credit 691 01:16:17.140 --> 01:16:19.260 of the Automobile. 692 01:16:19.260 --> 01:16:26.260 A technological improvement in an industry will tend to increase employment in that industry 693 01:16:26.260 --> 01:16:33.420 if the demand for the product is elastic downward, so that the greater supply of goods induces 694 01:16:33.420 --> 01:16:35.700 greater consumer spending. 695 01:16:35.700 --> 01:16:42.220 On the other hand, an innovation in an industry with inelastic demand downward will cause 696 01:16:42.220 --> 01:16:50.220 It allows consumers to spend less on the more abundant products, contracting employment in that industry. 697 01:16:50.220 --> 01:17:00.220 In short, the process of technological innovation shifts workers from the inelastic demand to the elastic demand industries. 698 01:17:00.220 --> 01:17:07.220 One of the major sources of new employment demand is in the industry making the new machines.