Occasionally we post a blog not because people want it, but because we think they need it. Can we force anyone to read it? No, of course not. Do we think that everyone is going to understand it or even care about it? No. That, however, doesn't mean that we should remain silent. (Or that we should post illustrations when we can't think of any. . . .)
You’d think from
the data coming out of the Bureau of Labor Statistics that human labor is the
only factor of production. Not the most
important factor, not the predominant factor — the only factor. Why? Because the Bureau of Labor Statistics
defines “productivity” as “output” (i.e.,
production) divided by the number of hours of human labor that went into it. This means that “productivity” is the rate of
production per hour of labor, regardless
of any other inputs.
Granted, this has
the advantage of simplicity . . . or simple mindedness; we always get those two
confused.
The problem is
that if you don’t factor anything other than labor into the equation, then the
results that come from the equation won’t take anything else into account,
either — “garbage in, garbage out” as the computer guys say.
Thus, what you
end up with — mathematically speaking — is
P = O/L
where “P” is “Productivity,” “O” is
“Output” or “Production,” and “L” is “Labor Hours.”
This means that
O = P x
L
or Output equals Productivity (the
rate of production) times the number of hours of Labor devoted to production —
nothing else. According to this
equation, as long as you input hours of human labor, you will have production .
. . whether or not you add anything else
into the process!
Mathematically
speaking, that is.
And that —
mathematically speaking — is nonsense.
Given the
classical factors of production, then (land, labor, and capital), the equation
for the rate of production should be somewhat more complex. We’ll start with “O” — output — for that is
the same no matter what equation you use, e.g.,
whether you travel for ten hours at 100 miles per hour, or a hundred hours at
10 mph, you have still gone 1,000 miles, no more, no less.
We can, however,
make things a little easier by using two factors in our equation instead of the
classical three. We’ll use the Kelsonian
“human” (labor) and “non-human” (capital), instead of land, labor, and
capital. We also need a different word
than “productivity” for the total package (the relationship between labor and
capital) because “productivity” means the rate of production, not the
proportion or relationship among the different factors. We’ll use “productiveness.”
We will therefore
use x as the rate of labor
productivity, and y as the rate of
capital productivity. This means that Lx gives us the output attributable to
labor, and Cy (we’re using “C” for
“capital hours”) for the output attributable to capital (all the non-human
factors of production). This gives us:
Lx + Cy
= O
This is a
straightforward quadratic equation [oops — our memory is flawed; we just realized 02/19/2016 that it's a plain, old equation]. Once
you know how x and y relate to each other (their relative
productiveness), you can calculate how many labor or capital hours you will
need to produce a desired amount of output.
The solution will be a straight line on a graph.
This is the
concept of “binary productiveness.” It
is obviously more useful than the concept used by the Bureau of Labor
Statistics and All the Best Economists.
There is just one
problem: how do you calculate the relationship between labor and capital? We’ll give that a go on Monday.
#30#
