Labor vs. Capital: Should the Poor, or the Rich, Receive Income Without Working?

Labor vs. Capital: Should the Poor, or the Rich, Receive Income Without Working? January 6, 2018

For those just joining this discussion (as I am):

I’ll pause here and say that I find this argument from Ms. Bruenig to be entirely true:

The lion’s share of poor people are elderly, children or disabled persons; another chunk are caregivers. And while caregiving isn’t compensated as market labor, parents looking after children and people caring for elderly or sick family members are hardly shiftless layabouts. Being both a mother and a writer, I am well aware that the less compensated of my two jobs is the more demanding one.

There may be valid reasons for not wanting to subsidize the work of unpaid caregivers.  But that in no way changes the fact that caregivers are working.  Ask anyone who is caring for someone young, sick, disabled, or elderly.  More to the point: Ask the people who charge for such work, or the people who decline to do it for you for free.

The work needs to be done, and perhaps what we wish is to announce such work can only be done for a paycheck; but to say it is not work  . . . explains many things about what’s wrong with our society.

Now returning to the weakness in Bruenig’s essay:

But what about that small number of people who could work but, for whatever reason, don’t? Shouldn’t they have to? Well, before deciding whether it’s morally right for them to receive income without working, consider a far larger group that takes in far more money without toil: the idle rich. They soak up plenty of unearned money from the economy, in the form of rent, dividends and capital income.

. . .   If we mean to transform our economy into one in which people earn precisely what they work for and no more, and receive nothing from the government lest their work ethic wither, it would be best to start from the top down, where nobody runs any risk of starvation or homelessness if they lose their benefits.

Again, here, she makes some valid points: If we are looking for ways to cut back on government spending, cutting subsidies to the wealthy is the obvious place to begin.  Certainly any self-respecting capitalist would agree that it’s not market forces at work if the market is being subsidized.

But what about the claim that rent, dividends, and capital income are unearned income?

More Types of Work Than People Admit

Darwin argues, and he’s correct as far as it goes, that we pay people not based on the amount of labor they give us, but the amount of value they provide:

However, it’s disingenuous to argue that rent, dividends and capital income are money that is not earned. It’s not earned by direct labor but it is earned in the sense that a return is earned for providing value to another. Labor is one thing that is valued. If Tom comes over and helps me tile my bathroom, I pay Tom for his labor because he’s provided labor that’s of value to me and so I owe him some compensation for the value he’s given me. If I rent a week at a vacation lodge from Fred, he is giving me something of value (access to his vacation lodge for a week) and I compensate him in return. While in the one case the thing of value given me is labor and in the other case it’s access to a capital asset, in both cases I pay the person who provided me value and the payment which I give is earned in that it’s compensation for the value I received.

All this is true.  It would be true even if we accepted the premise (as you’ll see I do not) that renting out a vacation cabin in fact required no labor.

So let’s also recognize another reality: It takes work to maintain capital.

Managing financial instruments takes work.

Maintaining a rental property takes work.

Deploying a fleet of rental cars (even a fleet of one — in Darwin’s example of Bob’s car) takes work.

Try it sometime.  Try not doing any work to maintain your car, and see how long you have a running car.  Try operating a rental business in which you purchase a home and then somehow magically rental income just flows in!  No no no.  You have to do all kind of work to get that “free” income from your rental property.  In addition to maintaining the home, you must market the property, you must handle the logistics of receiving visitors, you must attend to an assortment of regulatory demands — this is why whole companies exist employing people to do the labor required to earn all that “unearned” income.

What about the ultimate in unearned capital, that chunk of money uncle Ted left you, that sits in the bank blowing puffs of interest your way?  Unless somebody manages that money, that money will provide you with no income.  You earn interest (or capital gains on an investment fund) because you have an arrangement to tacitly or expressly pay a banker or fund manager to do the work of investing your money for you.

Try it sometime.  Try taking a wad of cash and causing it to deliver 1% or 2% or 5% income for you each year.  That doesn’t happen stuffed in your mattress. It only happens if you do the work of investing wisely.

Rerum Novarum Wins Again

To answer the question posed in the title of this post: I’m not convinced people can earn income without work. You can receive the fruit of someone else’s labor, yes; but it is the fruit of labor that you are receiving.

Fundamentally the construct of a strict divide between “labor” and “capital” is a false one.  It is false both from a physical standpoint — capital only produces fruit due to labor — and from a social standpoint: Who are these humans who provide only and ever capital, or only and ever labor?

We can and should talk about what the wealthy owe the poor.  But when we want to talk about the fruits of human labor, let’s be honest and recognize that much human labor — perhaps most of it — isn’t something that you’ll get a W-2 for.  Let go of your inner Marxist.  Read Rerum Novarum.  It’s still true.  It’s like the very nature of humanity really hasn’t changed these past 130 years.

File:Leo XIII..jpg

Leo XIII grimaces as he endures your nonsense.  Photo courtesy of Wikimedia, Public Domain.

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