The Father of Anarchism on capitalism

[Borodog]

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2 hypothetical situations from the father of anarchism, Bakunin:

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Gustave de Molinari, the first anarcho-capitalist (although the term would not be coined for 150 more years), was born the same year as Bakunin (1819), so I always find it a little presumptuous when people label Bakunin the "father of anarchism."

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"Suppose that I, a manufacturer, need a hundred workers and that exactly a hundred workers present themselves in the market - only one hundred, for if more came, the supply would exceed demand, resulting in lowered wages. But since only one hundred appear, and since I, the manufacturer, need only that number - neither more nor less - it would seem at first that complete equality was established; that supply and demand being equal in number, they should likewise be equal in other respects. Does it follow that the workers can demand from me a wage and conditions of work assuring them of a truly free, dignified, and human existence? Not at all! If I grant them those conditions and those wages, I, the capitalist, shall not gain thereby any more than they will.
But then, why should I have to plague myself and become ruined by offering them the profits of my capital? If I want to work myself as workers do, I will invest my capital somewhere else, wherever I can get the highest interest, and will offer my labor for sale to some capitalist just as my workers do.

If, profiting by the powerful initiative afforded me by my capital, I ask those hundred workers to fertilize that capital with their labor, it is not because of my sympathy for their sufferings, nor because of a spirit of justice, nor because of love for humanity. The capitalists are by no means philanthropists; they would be ruined if they practiced philanthropy. It is because I hope to draw from the labor of the workers sufficient profit to be able to live comfortably, even richly, while at the same time increasing my capital - and all that without having to work myself. Of course I shall work too, but my work will be of an altogether different kind and I will be remunerated at a much
higher rate than the workers. It will not be the work of production but that of administration and exploitation... I know full well that under these conditions that if I were a capitalist, who needs a hundred workers to fertilize my capital, that on employing these workers, all the advantages are for me, all the disadvantages for them."

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The hypothetical is pathological. Workers not only compete for employment, employers compete for workers. To presume that there is only one capitalist in the world who needs employees is silly.

The fact is that wages tend to the marginal revenue product of the worker, and that, as they say, is that.

Assume you have 100 workers than produce $2,000 of revenue per hour, and that if you were to add one more worker, the produce would increase to $2,015 per hour. The marginal revenue product per worker is then $15 per hour, and the wages of those workers will tend toward $15 per hour. Why is this? There are only 3 choices. One can pay wages higher than the marginal revenue product, less than the marginal revene product, or equal to the marginal revenue product.

If one pays wages higher than the marginal revenue product, the capitalist loses money for each worker he hires. Clearly this cannot be sustained.

If the capitalist pays much less than the marginal revenue product, then the difference is a pure profit he is making off of the labor of the employee. And if there were only one employer in the world, he might get away with this. But there are myriad employers, all competing vigorously for workers to work their capital. For if they don't have workers, they don't have product, and without product they have no profits (those evil capitalists do love their profit). So any significantly underpaid worker is a profit opportunity for another evil greedy capitalist to "exploit", by bidding him away for just slightly more wages for his services. Since the world is full of evil greedy capitalists, and there are always far more potential jobs than there are workers to fill them (if you don't believe me, just think how you would like to have the labor services of five or ten other people, a maid, a landscaper, someone to stand in lines for you, pick up the groceries and the dry cleanng, a chauffeur, etc., if only you could afford their services). Hence competing employers will always bid up wages to the marginal revenue product or thereabouts. It's usually a bit less because there are transaction costs to searching for both jobs and workers, but those transaction costs represent profit opportunities for other entrepreneurs (headhunters, monster.com, etc). And this also ensures that workers tend to get allocated to their most highly valued (by the market) uses (like any other factor of production in the market).

Say a group of workers wants to bake and sell bread. But to bake and sell the bread, they need wheat and other ingredients, which must be grown. They also need capital goods; ovens, pans, knives, a bakery, etc. And all of those necessitate still further capital goods and natural resources, iron ore, lumber, and on and on. To get these things, the workers must save up, defering consumption so that they can afford to by the factors of production they will need. They might have to save up for ten years to be able to afford those things.

But that is exactly what the capitalist is; he has deferred his consumption and saved up either the capital goods he will need or the funds he needs to acquire them. Or perhaps he is the heir of someone who has done this. The function is the same. Capitalists litterally do society's saving, building up the accumulated capital stock required to increase the productivity of labor. The workers could of course do this, but that just turns them into evil capitalists themselves.

Capitalists then compete with each other for workers, because again, without workers, accumulated capital is useless and unproductive. Capitalists are always bidding up wages to their maximum value, and that maximum value is the marginal revenue product of the workers. And capitalists are always trying to INCREASE this value; they are constantly investing in training and improved capital equipment to increase the productivity of their workers because it makes them money, and in turn they have to pay the workers their new, higher marginal revenue product or lose them to competitors.

Capitalists create the phenomenon of wages and deduct them from profits, not the other way around.

By the way, the fact that wages tend to the marginal revenue product does not mean that the capitalist is not making anything on the deal. The wages he pays now are the *discounted* marginal revenue product. If a worker produces a marginal revenue of $15 per hour *in one years time when the goods are sold*, then he might value $14 per hour now more highly than the $15 per one year from now. The $1 differential, an accounting profit for the capitalist, is simply due to time preference and the interest rate. It's not an "excess" profit or "exploitation" of the laborer, because it isn't a profit opportunity that can be exploited by another capitalist. Another capitalist bidding $14.50 per hour would lose money, because he would be paying above the time preference discounted marginal revenue product.

Lastly there is risk, which was improperly characterize in the OP. What if it enetually turns out at the end of the long production process that nobody wants the bread that it took the workers ten years to save up for? They are screwed, and suffer the losses. But if they are wage earners working for a capitalist, he pays them out of his saved funds throughout the entire production process. If the products do not sell for as much as he had hoped, the capitalist bears the loss on his accumulated capital, not the workers. They have been paid all along exactly as much as they were promised. If the capitalist goes out of business, they will lose their jobs and have to find new employment of course, but this would be true even if they themselves were the owners of the failing business.

The rest is as easily debunked, and I'll leave it as an exercise for the reader.