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Comment by bcrosby95 | Hacker News Reader

Also, do textbooks actually say that? Because it seems trivially false: if a worker is actually paid that, then there's no money left for investors.

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Yes. In one of my grad Econ classes an entire lecture was devoted to deriving individual pay based on marginal input and aggregate utility functions. The prof ended the derivation with a laugh then discussed all the obvious places wage does not equal marginal societal benefit. Ie school teachers vs entertainers.

The takeaway is that Econ theory only explains what it’s capable of explaining. The real market clearly has a lot more going on than purely rational actors exchanging goods and services.

The rich entertainers are worth more because they provide value to very many people. It adds up. Each teacher only provides value to about 30 people.

Total pay for all teachers is far in excess of total pay for all entertainers. Measured that way, we clearly do value the teachers more.

It's just that an individual teacher is not very productive.

Some entertainers are not productive. Being a clown at small birthday parties is seldom lucrative.

If we could just get entertainers to teach...

You’ve got to think of all the people a teacher teaches to over their career and the strength of the interaction. Yes entertainers can make a song that winds up with astronomical airtime. But teachers inform how people think throughout their entire lives.

Maybe some textbooks? But like - when a software engineer is billed out by a contracting company at 250/hr and only is paid 50/hr it's pretty obvious that the wealth created is not what the worker is paid. It's been a long time since I took microeconomics in college but even the most charitable analysis of that is basically that the worker gives up the other 200/hr for stability and benefits.

And support. That $200 goes to paying accountants, sales staff, executive, marketing, custodians, etc. All of which help keep that $250/hr paycheck rolling in and getting distributed.

When I was working solo, I could not bill out remotely close to what I can as part of a firm. Not to mention that I had to find a cheap accountant, pay for office space myself, etc.

It’s also obviously untrue given the fact that wages in the US have stagnated while productivity has continued to grow. That’s despite a floor on wages.

No it's not obviously untrue. Productivity growth has been driven by capital, not labor.

> Productivity growth has been driven by capital, not labor.

What does capital produce?

What produces capital?

If I dig one hole a day with my hands and ten holes a day with a shovel, I still dug the nine extra holes even if I don't own the shovel.

I believe that colinmhayes' point is that you dug the extra nine holes because there was a shovel, not because you got better at digging holes with your hands. The productivity gain was because a shovel was being used. It didn't matter who owned the shovel, it mattered that you were digging with one.

But that's not completely true, because a person who only knows how to dig with their hands still only digs one hole a day, even if there's a shovel just lying there. Knowing how to use the tools does in fact make you a more productive worker.

It seems to me, then, that part of the gain from the productivity from better tools should go to the worker who knows how to use the tools. And part should go to the person who bought the tools.

Well yeah. But the thing is, someone had to make the shovel to begin with. The gains in productivity of the shovel are just unrealized value of the original labour (and materials).

The shovel maker is paid handsomely. He's the equivalent of a tech worker.

Sure. And ultimately the gains in productively are due to his labour.

Not really sure what you're saying as this is an example of my point. The growth was caused mostly by the shovel, and partly by the worker learning to use the shovel. Wages have grown to show that.

The construction of the shovel itself is ultimately due to past labour and land, as well as by the invention of the shovel (labour). Capital is always ultimately a product of labour and land. In accordance, rises in productivity in the absence of discovery of new land is because of unrealized past labour. Therefore, this newfound productivity is to be attributed almost entirely to labour.

This is why Adam Smith, for example, cites labour as the primary factor of production, followed by land with capital as the last. In modern parlance you might hear that said as "human capital is the most important", but human capital really is a politically correct way of saying "labour potential".

But if you follow that logic further, which you should, it's also true that part of that capital is "human capital", or what some economists called variable capital. I can't think of any increase in productivity which has not been the result of human labour (whether technical, scientific, in discovery of new natural materials, or otherwise). Non-labour ("constant") capital is inert (literally, as physical goods, it just sits in a warehouse) without labourers to work on or with it.

I was responding to this quote:

> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.

You may disagree with my reasoning, but you yourself are making the case that workers are not paid for the value of what they produce.

Over the last 50 years, the combined middle and upper-middle class of the USA has been the part that has grown the most. The lower middle and poverty classes have shrunk. The upper class has grown a small amount. 62% of the country today is middle or upper-middle class today as opposed to 50 years ago when 51% were. [1]

However, the middle class has shrunk quite a bit as the upper middle class has seen tremendous growth while lower middle and poverty classes have seen a good deal of shrinkage.

37% today are lower-middle or poverty class compared with 50 years ago where 48% were. In particular, the poor have shrunk from 24% to 20% today.

So the middle and upper-middle have grown over the last 50 years with the upper-middle in particular growing and lower-middle and poverty has shrunk. However, middle class people may feel left behind as they see more people becoming upper-middle.

[1] https://www.urban.org/sites/default/files/publication/81581/...

I'm sure the theory falls short of describing reality in all sorts of ways but it does not imply there is no profit, that is a misunderstanding that astonishingly few people are pointing out given the amount of discussion it has generated. The revenue generated per worker is their average output, which is higher than the marginal output due to the law of diminishing returns (so yes, you could say that The Economist is being misleading here since "the value of what he produces" is ambiguous and arguably should refer to the average output rather than marginal output).

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