Logo without tagline Miller center demcap logo


Key Takeaways

  1. Labor is an input into economic production that arises from targeted human work. The division of labor and specialization allow for more efficient economic output and growth as markets grow. The price for this labor in modern capitalist market societies is the wage.
  2. Wages and working conditions can cause conflicts between labor and capital in modern industrial societies. Democratic participation in government have yielded interventionist measures that have protected the rights of workers and employers in different times and places.
  3. The relationship between labor and value remains a debated question in modern economic thought. Automation and declining real wages could pose potential threats to labor, necessitating the role of policy and democratic participation to ensure social and economic welfare.

Labor and Capitalism

Labor, in its most fundamental sense, refers to work or activity directed by people towards the production of goods and services. Therefore, along with capital, or productive assets, economists categorize labor as one of the factors of production. The development of modern capitalist societies, as well as earlier notable developments in historical societies, have emerged from changes in what scholars refer to as the division of labor, or the separation of tasks in an economy such that given people can dedicate their more exclusively to given tasks.This specialization allows for increased productivity as it permits for the focus of the aggregation of knowledge on specific processes by individuals and firms. It also eliminates the transitional time between tasks, as would occur if say a craftsman producing ironware had to also farm for their own subsistence, thus necessitating multi tasking over concentrated activity.This specialization of labor, and the efficiencies that it allows, requires trade. This is because people have diverse needs and must therefore either (1) operate as generalists who produce what they need for themselves, or (2) produce specific goods or perform services that they can then exchange with other specialists.1

As Adam Smith observed in the rapidly commercializing world of the eighteenth century, specialization, and thus productivity, is limited by the extent of the market. This means that the more people integrate themselves into large networks of potential exchange relationships, the more likely they will be to specialize. It is from this commercialization, therefore, that the extraordinary pace of labor specialization that accompanied industrialization took place after the late eighteenth and nineteenth centuries.2 Further integration of global markets has since allowed for further division of labor and efficiencies allowed by more extensive specialization. Historical trends toward specialization are not entirely linear insofar as generalist “jack-of-all trades”continue to play significant roles, especially when they experiment with multiple types of tasks, integrate them, and determine new, more productive, means of doing older tasks.3 This why labor, technological innovation, and entrepreneurship often coalesce in moments of social friction in the process of industrialization. During the industrialization of the nineteenth century, for example, popular movements composed of traditional laborers in Europe and America opposed new labor-saving technology that they saw as replacing their roles in society. In some cases, they even destroyed the machinery.4 Such concern over the stability of employment in capitalist societies that incentivize the development of industrial society continues into the present day.Another key consideration underpinning the proper employment of labor in society, as well as the rights of workers, is the wage. The wage in common parlance is the compensation that one receives for tasks or time worked as agreed in one’s terms of employment.One can also think of the wage as the price of labor, constrained, as economists conceptualize it, by the laws of supply and demand in markets.5

Labor and Democracy

The discrepancy that many perceive between market price and a socially optimal wage has resulted in one of the most universal forms of price controls in developed economies, the minimum wage. The degree to which legal prices above market equilibria effects employment and productivity, as well as the price that would constitute a “living wage” under which none should theoretically fall below, are crucial policy considerations in current day democracies.6

The interplay between labor and capitalist competition has produced tumultuous historical episodes, especially concerning whether workers believe they are receiving a just wage. Protests and strikes have disrupted production and fomented social animosity, while also using collective action to maintain standards for workers.It is in reference to such events that organized labor turns toward democratic government. For example, in 1911, in the rapidly industrializing Manhattan, a garment factory called the Triangle ShirtwaistFactory caught fire, killing 146 garment workers who were packed into the building in which the doors were locked to prevent workers from leaving.The popular outcry against the disaster pressured democratic leadership in the New York State Legislature to mandate factory safety standards. Organized labor additionally responded by forming groups like the Ladies’ Garment Workers’ Union.Industrialists and financiers likewise have turned toward participatory government to protect themselves against what many see as the ability of labor organization and interventionism to limit productivity, economic growth, and national welfare. A particularly contentious, and ultimately violent strike by workers at the Homestead Steel Works near Pittsburg in 1892 ended when the company operator Henry Clay Frick enlisted the help of the state militia to disperse the strikers.7 Appeals to elected government can be used as tools of both workers and owners in cases of labor disputes.This raises the question: if the rights of the laborer and capitalist both find expression in popular government, then is democratic government a neutral forum for issues concerning labor relations?The relationship between democratic government and labor regulation in the United States, and other nations, has allowed for restrictions on child labor, minimum working hours for many workers, and a universal federal minimum wage.8 Simultaneously, state governments vary on the degree to which they give workers the right to unionize without employers being able to terminate their employment in response.Additionally, a significant amount of labor, even in the largest modern economies, falls into the categories of either unpaid labor or “under-the-table” labor in the informal economy, both of which fall outside of the oversight of any democratic regulation.9


The originators of modern economic thought, including both those supportive and critical of capitalism, placed labor at the center of their theories. John Locke famously formalized the labor theory of value in which the positive effects that people experience from access to goods and services emerges as the ultimate step in a process originating first in the input of labor whether through farming, mining, artisanal crafts, etc. This concept continued into the thought at the basis of political economy as it developed as a formal system in the eighteenth century, notably in the work of Adam Smith. Smith begins his Wealth of Nations: “The annual labour[sic]of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes.”10 Karl Marx, in his critique of capitalist thought, including Smith, continued to view labor as the basis of the value derived from subsequent production. He viewed labor as the point of origination of the commodities and capital which allowed for industrial production. It is from this that Marx concludes that ownership of capital by those who do not contribute to labor is contradictory, unstable, and unjust.11Later critics of this position argued that the labor theory of value is tautological in that it simply restates the assumptions of value held by the author. Other critics hold that that labor, rather than being the source of value, is an input with the potential to create value, but that value itself is wholly subjective and experiential, and therefore can only be determined by revealed preferences in markets.12 Key to all of these theories is a perennial question in modern economic and political thought, namely: what is the relationship between labor and value in capitalist societies? The answer to this question has significant implications for modern societies in which technological innovation appears to outpace the ability of the labor force to adapt, where regulations raise debate concerning the right to work and at what wage, and what form labor will take in a more automated and global future.


1 Joyce Appleby, The Relentless Revolution: A History of Capitalism (New York, NY: W.W. Norton, 2010), 15, 25, 63-4, 144, 194, 257.

2 Gary M. Walton and Hugh Rockoff, The American Economy. 13th ed. (Boston, MA: Cengage,2014), 138.

3 Recent work on the roles and successes of generalists, especially in contemporary tech industries, appears in David Epstein, Range: Why Generalists Triumph in a Specialized World(New York, NY:Riverhead Books, 2019).

4 John E. Archer,“4: Industrial Protest.”Social Unrest and Popular Protest in England, 1780-1840 (Cambridge, UK: Cambridge University Press, 2000).

5 Walter J. Wessels, Economics. 5thed. (U.S.: Barron’s, 2012), 93-4, 103-6, 162-72,519-33.

6 Appleby, The Relentless Revolution, 334, 428.

7 David Emory Shi, America: A Narrative History(New York, NY: W.W. Norton, 2019), 821-3, 831, 986-91.

8 Richard H. Fallon, Jr., The Dynamic Constitution: An Introduction to AmericanConstitutional Law and Practice. 2nded.(Cambridge, UK: Cambridge University Press, 2013), 105, 112-6, 125,240.

9 Appleby, The Relentless Revolution, 16,46,58, 66, 70-2,, 83-6, 90, 289.

10 Adam Smith, The Wealth of Nations (1776; U.S: Simon & Brown, 2012), 5.

11 On Marx’s concepts of labor, labor-power, and surplus value, see David Harvey, A Companion to Marx’s Capital (London, UK: Verso, 2010), 85-162.

12 Joan Robinson, An Essay on Marxian Economics(London, UK: 1942).