A guy called Adam owned a button factory. He estimated his cost of production [the actual labor involved] was eight dollars per thousand units. The commodity yielded him $10. Here is how he arrived at this cost:
Raw Material: $2 payment for total labor costs of production of the source.
Plant Equipment and Maintenance: $1 Rent: 50¢
Delivery: 50¢
Labor: $4 representing the individual labor of end product.
Adam reasoned that though the worker theoretically is entitled to the full fruits of his labor, that is $4, the labor would not exist had it not been for his investment in material and instruments of labor. Therefore, he deducted 40% from each unit of labor to cover his investment and pocket some change for himself in addition to the market value. [$2+1.60]
But Adam was now in trouble because a competitor called Karl forced the price of the commodity down to $9 per thousand buttons even though the cost of production seemed higher:
Raw Materials: $3.50 [volume discount]
Plant Equipment and Maintenance: $1.50 [more bang for the buck]
Rent: 50¢
Delivery: 75¢ [volume discount]
Labor: $4
Karl returned to his shop to tally up the day’s costs and to make up the customary daily payroll. His ten workers came in together for their wage.
One of them spoke up rather timidly: “It hardly seems fair, sir, that our pay is...”
Karl broke in, “What are you complaining about I pay you 20¢ more than Smith paid his workers!”
The timid worker choked out, “Yeah, but they only work eight hours, we have to work sixteen!“ The other workers shook their heads and grumbled as he went on, “We have all decided that we will not work unless we get $4.80 for the long day or we go to work for Adam."
Karl laughed. Then said menacingly, “Adam’s workers will be reporting here in the morning — Adam is out of the button business. Get a good night’s rest, fellers, so you’re ready to go in the morning — you wouldn’t want the new workers to show you up, now, would you?”
Of course, Karl was able to cut his price because his costs were against the market value x 2 [the 16 hour day] whereby the labor costs were the same as Adam’s for double the labor time.
Is there a moral? Indeed, capital is the extent to which labor is unpaid for its service.
Since some forty years when capital producers packed up and went to the southern states, labor was caught up in the time warp of the 19th century; globalization has taken it back to the days of the industrial revolution.