Labor Commodity Pricing

 

I have been repeatedly challenged on account of my supposedly weird economic views. The ALCOA story illustrates what is happening in the Global Capitalist world, which is quite different from what most people believe about Capitalism, but supports my ideas.

As taught in Economics 101, marginal business profits decline to zero (that means nothing) when demand is saturated. The whole idea of making a profit in Capitalism is based on the notion of scarcity. Without scarcity, there are no bidders for the product, hence no pricing power. Scarcity can be relative or absolute, real or virtual (artificial). Absolute scarcity occurs when there is a physical limit on the availability of product; e.g., there is only one me in this world, and (gasp!) it is unlikely there will ever be another. Absolute scarcity is always real.  Relative scarcity occurs when there is a shortage of product relative to demand; e.g., there are not enough red, white and blue marbles at this store. Relative scarcity may be real, as when there aren't enough marble producers to meet marble demand. Relative scarcity may be artificial, as when advertising induces a demand for the product. Most demand in today's First World markets is induced.

When demand, whether real or virtual, is swamped by product, there is no "market" for the product and the price falls. Who wants last year's Podunk newspaper? When prices fall enough, producers stop making money. They are stuck with inventory. Supposedly, according to Economics 101, production should stop. But, in reality, it cannot stop, because most modern producers have hundreds of millions, even billions,  of dollars invested in plant, equipment, distribution, etc. They have to keep going, no matter what. So, they make sales at ever lower prices until they go bankrupt. That's what has happened to the American car manufacturers. It is what is happening at ALCOA and every other corporate giant.

The corporate giants are still profitable because they do make money on their overall production. Lately, they don't make money on marginal sales; i.e., the last beer can is sold without profit. This is a result of  two factors: (1) they are unable to stimulate demand to ever greater heights, and (2) information technology has reduced the cost of production as well as speeded it up, so there is a surfeit of product. This last factor - the effect of computers - is far and away the most important in maintaining corporate profits.

Automation has reduced the cost of producing almost everything that involves no human labor. Stated differently, wherever human labor can be replaced or eliminated, production costs go down. Robots don't eat or sleep, and don't get retirement benefits, even if they do need a human machine doctor (technician) now and then. The computer revolution has introduced a very low cost form of labor into industry against which humans cannot compete. That is the simple truth of it: people are unable to compete against robots.

Most of the work in traditional industries, such as aluminum production, can be done cheaply, effectively and safely by robots. That fact implies that there will be less and less pay and benefits for people as more and more industries are automated. This leaves humans to do human work; more accurately, humans are forced to find human work to do. This is true globally, not just in the United States. Companies that fled to Southeast Asia to obtain low cost labor are just backward in their refusal to automate. Sooner or later, oppressive Thai sweatshops will be replaced by robotic manufacturers. People, even the cheapest Asian peasants, cannot compete with automation.

The post-modern computer revolution is the ultimate reason wages and benefits are dropping through the floor. It is also a reason why prices are stable or falling. In the long run, it is the reason corporations will become profitless.

If you think this through, I hope you will see that Capitalism is dead. Automation is killing it, even if some entrepreneurs make fortunes on the changeover. Political economy has to be based on a different theory and different social arrangements.

This forces people to create a human society dedicated to human purposes. That does not mean going to work every day at the same old thing.