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Now how about a capital day?

Yesterday was Labor Day when, according to Sen. Franken, “we honor American workers and we thank organized labor for things like the eight-hour workday, the weekend, overtime pay, the minimum wage, and child labor laws”. Fine things, but shouldn’t we have a day to celebrate the role of inventors and entrepreneurs in bringing us those things as well?

When labor was king

Recently I wrote about how economies grow. Well, for most of human history they didn’t. The chart below shows estimates of world per capita GDP; one (Maddison’s) going back to the birth of Christ and the other (DeLong’s) to the end of the last Ice Age. They tell a very similar story. Materially, for the majority of human history people got no better off. Century after century, generation after generation, roll by with the standard of living stagnant.

During this flatlining period, labor was, indeed, the source of a large share of what little wealth there was. People worked hard to put food on the table, a roof over their heads, and clothes on their backs. Around 1750, the production of textiles was a ‘cottage industry’, meaning it was based in the home with the family as workforce. A typical weaving family would own one hand loom which would be operated by the man with help of his son. The wife and daughters would make the yarn for that loom.

During these long labor intensive centuries there was no eight-hour workday or weekend. Every minute of the day was needed to produce the textiles to purchase food and shelter. There were no child labor laws because every pair of hands, no matter how little, were needed for the same purpose. All wages were at the real minimum, that necessary to avoid starvation.

Enter capital

As both lines on our chart show, from about 1750, this changed and did so rapidly.

In 1734, John Kay invented the flying shuttle. This allowed a single weaver to weave much wider fabrics. It could be mechanized, which allowed for automatic machine looms. These were, on average, twice as productive as the old hand looms. Each worker could now produce twice as much textile in a given period.

This was followed by a string of inventions and innovations which has continued to the present day. These inventions and innovations are known as Total Factor Productivity in the jargon. They have served to make labor more productive. For a fraction of the effort expended by a hand loom operator in 1700 just to secure food and shelter, we can secure not only necessities, but luxuries that a monarch of 1700 couldn’t dream of.

And, in doing so, they enable us to clock off on time, spend the weekend with the family, and send our kids to school instead of work. When we look at Sen. Franken’s list of labor union achievements in the light of economic history, we see that each and every one of them was the result, not of organized labor, but of invention and innovation allowing us to leverage labor. Indeed, our escape from a labor intensive economy was also our escape from poverty.

John Phelan is an economist at Center of the American Experiment. 




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