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Rule No. 6

May 2024
2min read

The real cost of human labor has risen steadily since the Industrial Revolution.


One very important consequence of both the Industrial Revolution and the Information Revolution has been the steady increase in the value of human labor. Between 1900 and 1970 the average annual wage of American workers, net of inflation, rose by a factor of three. Again, there is more than one reason. The first is that as machines have taken over more and more of the physical work and routine calculations, humans have been able to concentrate on other, more wealth-creating tasks. (Of course, that is a long-term trend. In the short term, there are often severe dislocations as machines compete with and replace human beings in the old jobs.)

The second is that as physical capital has been built up, the productivity of workers has increased. More goods and services are produced for every hour of human labor utilized, and the workers have gotten a share of this. Needless to say, the owners of the physical capital did not volunteer this sharing. The rise of the union movement was another factor in the increase in real wages.

Because of this rising price, those commodities requiring large inputs of human labor in order to be produced have risen greatly in price as well. This goes a long way in explaining such phenomena as changes in architectural style in the twentieth century that are usually attributed to other causes. In the first decade of the 190Os New York City built its magnificent public library for about $10,000,000. To reproduce this building today with its seeming acres of carved marble, its intricate wood and brasswork, its majestic ceilings, would cost in the billions. No city on earth could afford it. The New York Public Library, the greatest Beaux-Arts style building in the country, perhaps the world, is today as irreplaceable as its contents.

So where does all this leave the historian and the reader of history? As we have seen, there is no Rosetta stone, no all-purpose index or formula that can convert the economic universe of, say, 1917 into modern terms at a stroke. Both the past and the present are far too complex for that. In 1917 servants, Fifth Avenue mansions, and live entertainment were, at least compared with today, cheap. Pearl necklaces, European vacations, and private transportation were expensive. Phone calls to London, heart transplants, and the determination of the value of pi to a hundred million decimal places were, in an economic sense, infinitely expensive. For each of these examples, there are a million others that the people living in 1917 had to take into account in deciding what to buy and what to sell.

Because the money of a past era cannot be meaningfully translated into a modern economic idiom by simple statistical manipulation, historians, to do their job, must learn to understand the economic language of the past. A novelist creates the emotional universe that allows the reader to make sense of the characters and their actions. Historians need to re-create the economic universe of the eras about which they write for exactly the same reason. That is not nearly so difficult a job as it may seem, for both the novelist and the historian can rely on the reader’s grasp of human nature.

Once readers gain a sense of the prevailing wage scale and the prices of basic commodities, they will begin to grasp the economic essence of the era under discussion. Human beings, after all, are very intuitive about human situations, whether the situation be economic or emotional.

And just as it is human nature to laugh and to love and to wonder, it is equally human nature to seek the patterns in things, to pursue one’s self-interest, to buy cheap, and to sell dear. The law of supply and demand is inescapable because it is rooted in the very bedrock of what it means to be human.

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