This Monday many of us took a day off from our daily work to celebrate Labor Day — a holiday inspired by the labor movement. Those who dreamed up the holiday, many of them socialists and union activists, hoped it would highlight the plight of the working man and woman in their eternal battle against the capitalists who own the factories, farms, mines, and other “means of production” where laborers toil.
That’s all well and good as far as it goes. Workers should be treated well and paid fairly and on time. If they want to organize to collectively bargain, freedom of association protects their right to do so (unless they’re public employees). But, let’s not forget there are two sides in the labor vs. capital tug of war. And capital is not inherently evil. It is simply the resources that make the job possible.
In fact, without it, labor is fairly useless. Think of the term, “spinning your wheels” — meaning hitting the gas pedal, making the engine labor, burning fuel, all while making no progress because you’re stuck in mud or on ice. Without the proper allocation of capital (whether capital goods, social capital, intellectual capital, or dollars in the bank) labor would just be the useless spinning of wheels to no end.
Re-colonizing North Carolina
To make this point clearer, let’s imagine that a small ship with 10 families shipwrecks onto the beaches of North Carolina and find there are currently no residents of this great state. Lucky for them, they can have their pick of beach-front properties. But how do they go about building a small settlement where they can survive?
Well, they’ll need homes, food, and a source of clean water to start. Is labor enough to provide these goods? Hardly. In addition to the manpower, they will also need:
Capital goods: Some of those from the ship likely brought tools with them, maybe other materials too, that will be useful to these ends.
Intellectual capital: If there is a person among them who has developed knowledge about well building, home building, gardening, gathering, or hunting, this will be a very valuable form of capital. Having people who are creative and can come up with good ideas on how best to achieve their goals will also be important.
Funding: Of course another form of capital is currency. In our own context, this means having money to pay the bills and the workers, among other things. But for a settlement, payment might involve a share of the food, drink, and shelter.
Social capital: If there are any good leaders aboard the ship, or good managers, those will be very valuable. It’s also important to have those with connections to the various families, who can use their established relationships to keep everyone on the same page and be a trusted go-between.
All of this “capital” will be vital for the young colony to survive. Labor by itself may just look like digging holes in a field (granting them the capital good of shovels) if there are no ideas, funding, social capital, or other valuable resources.
Shouldering the risk
We should also be grateful to capital for bearing the risk of the enterprise. For the most part, if a worker completes the hours they agree to work in the way the employment contract called for, they are legally owed compensation for their efforts — as they should be.
But this is not the case on the capital side of the equation. If someone with resources — whether time, creativity, money, connections, real estate, or tools — believes a venture is worth risking these assets, they are not guaranteed any compensation if that risk does not lead to a successful outcome.
In fact, a BLS data cited by UNC Chapel Hill found that about 50% of businesses fail in their first three years. By the 10th year, that number rises to almost 70%. So those risking their own capital on a business idea are not doing so as fat cats who can sit back and enjoy their guaranteed profit, made unjustly on the backs of those providing the real value. They’re contributing to a great sorting of good ideas from bad ones, of efficient businesses models from inefficient ones, of products and services that people want at a price they can afford from those they don’t want or can’t afford.
Yes, the upside of success is often far greater for those investing their own assets to the enterprise, but the potential downside is also far greater (complete loss of those resources) if the project ends in failure. So to all those capitalists out there contributing your great ideas, time, skills, and knowledge; or risking your hard-earned money or other property to a venture you believe has merit, consider today Capital Day in your honor.