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Ludwig Von Mises

Labour Scarcity

Labour is the scarcest of all means of production because every single type of production requires labourers. Although there are other limitations on production such as raw materials, it is labour that determines how much of such materials are available for production. Labour scarcity depends on four factors:

The amount of energy spent by each labourer. The harder we work the more labour there is. But the amount of energy we have to labour is limited.

The number of labourers and their availability. There are only so many people on this planet and they can only work for so long.

The capability of each labourer. Different people have different skills and talents. There are only so many people who can do certain jobs. For example, not everybody is suitable to work as a garbage collector because of the physical demands that the job requires. When we talk about skills and talents we are referring to physical and mental abilities.

Willingness to labour. As we mentioned before, a person will work for as long as the disutility of the labour is smaller than the utility of the end the labour provides.

Production

Production is not the creation of a good or service that did not exist before, but the transformation of elements through arrangement and combination into a product or service according to the laws of nature. This arrangement or combination occurs according to certain designs of reason. It is these designs (recipes, formulas, ideologies) that are created by the mind. It is through these designs that humans attempt to minimize uneasiness. Only a human mind is creative because it directs action and this direction did not previously exist nor can it be manufactured from more basic elements. As such production is the direction that human minds creates for the development of goods and services. Production is not the mechanical process of manufacturing something but the creativity necessary to design such mechanical processes. It is an intellectual phenomenon, a mental change if you like. Material changes are simply the outcome of such mental changes.

Labour is thus a necessary factor in the production of any good or service because it is the means our mind has chosen to act.

Productivity

Understanding the scarcity of labour leads us to understand how we may increase productivity. One way is to increase the number of labourers, but this is limited to the number of people.

Another way is to re-skill labourers for different tasks. But this re-skilling is also limited because we must remove labourers from one task and re-task them for another. Furthermore, many tasks are satisfying many primary needs thus there is a large demand. Labourers working on these tasks would not want to be re-tasked since the utility they are getting for their labour will be higher than the utility of the new task. For example, Garbage collectors are in high demand when compared with garbage pickers in parks. Thus garbage collectors' salaries will be higher than garbage pickers' salaries in parks. Which means that garbage collectors will not be willing to become garbage pickers in parks.

Yet another way of increasing productivity is to increase the utility a labourer obtains through labour. But this increase is limited not only by the willingness of customers to pay for produced goods and services, but also by the disutility/utility calculation that every labourer is doing. The moment that a labourer values leisure more than labour, this person stops working and labour decreases. If this trend continues, then the entirety of society will suffer from a lack of goods and services. It is for this reason that profits are so important. Profits ensure that the disutility/utility calculation is constantly biased towards utility hence ensuring a continuous and large supply of labour... which benefits society.

Increases in productivity are always limited by the scarcest resource and in our world, this is labour.

But we can imagine another world. A world where all material factors of production are fully utilized, thus any increase in labourers would not increase production. But if such world would be capitalist, there wouldn't be enough wages to prevent starvation. People would work for any wages even if insufficient to prevent starvation in the hope of delaying death for as long as possible. If such world would be communist, excess labourers would be consider idle consumers which could not be supported by labourers and will hence die of starvation. Obviously this is not the case and therefore the opposite view is correct.

Unemployment

Labour cannot be left unused for as long as there are needs to be fulfilled. A person in isolation will always have unfulfilled needs and therefore this person will always labour to fulfill those needs.

In the labour market in a truly free market, there may be temporary anomalies but over longer periods of time these anomalies would tend to disappear. In any given society there are all kinds of unsatisfied needs and therefore there are all kinds of tasks requiring labourers. Should a situation occur where there are too many labourers for a given task, these labourers will, on their own accord, drift to other tasks. They will do so because it will be the only way they will achieve the satisfaction of their needs. What this means is that in a truly free market the unemployment should be very low. And if you look at employment history over the last 200+ years you will notice that excluding politicians-made economic calamities (such as financial debacles or military crises), the level of unemployment world-wide has remained more or less steady. This is no coincidence even considering that over the last 200+ or so years markets were not free but manipulated.

Furthermore, high unemployment is typically limited to a specific country. This is simply because of artificial barriers between countries disallowing the free movement of workers, goods and services. This is the only explanation as to why there could be unemployment differences of 10% or more between neighbouring countries, given that both had similar populations and thus needs. It is the artificiality of barriers that create unemployment, not free markets. The world never experienced world-wide and widespread high levels of unemployment; they were always and continue to be localized.

There is also a myth that technology increases unemployment. Technology does not make labourers more plentiful, it only increases the productivity of the methods of production. Although it is true that automation replaces the inefficiency of labourers, it is also true that this only makes a good or service plentiful hence promoting a need of secondary utility to a primary place. For example, the development of street cleaning trucks made human street cleaning obsolete but it created the need for human labourers to manufacture street cleaning trucks. Of course, this seems disingenuous because it is unlikely that street cleaners may be skilful enough to build street cleaning trucks, but on the other hand, this created new jobs for other people. The reality is that in the last 200+ years the world has undergone several technological revolutions and every time there are doom and gloom forecasts about machines producing unemployment and yet this never happens. The latest research indicates that although computers made manufacturing process more efficient, employment did not suffer because of this. People simply found employment in new jobs that were created due to computers.

Of course, this may change in the future. It is conceivable that in the future we may create artificial intelligence capable of creative thought and self-replication. Basically, it is conceivable that we may create a race of robots that will do everything for us. We will be able to replace all labourers in the world with machines. But then again, what this means is that goods and services will approach a point at which they are not scarce (or at least a lot less scarce because labour won't be a bottleneck), which means that we won't need to work because everything that we need will be provided for us by these robots. Which means that we would have achieved the ultimate goal which is leisure. And so, in ultimate analysis technology simply increases productivity and in so doing it increases our wellbeing.

Note: please see the Glossary if you are unfamiliar with certain words.

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