21: The Theory of Economic Causation

A society may seem to be static, its capital not increasing, while there is a steady flow of goods through its supply chain. Goods are being produced and consumed, everyone is making wages/interest/profit for producing the goods, and no-one perceives that there is any problem at all with their economy. And, indeed, there is not - in fact, such an economy is very well arranged to produce the goods and services that customers desire, no more and no less, prices cover the costs and provide enough wealth to satisfy all involved.

He then returns again to his "law of final productivity" that maintains that the value produced by the last unit of labor (or capital) determines the amount of the aggregate return that is attributed to all. This sometimes leads to the erroneous conclusion that additional workers diminish the compensation of their predecessors - that if the first worker creates 100 units of value and the hundredth creates 50 units of value, then all are paid for producing 50 units. Hence every worker except the last man is robbed by part of what he produces. This is not at all the case, as the amount is considered in aggregate. That is, all 100 workers are creating 5,000 units of value, or 50 units apiece. The first is not personally creating 100 units. The same can be said of capital.

If it were possible in a productive operation to add only capital or to add only labor, then it would be possible to determine, on a unitary basis, the specific productivity of labor and capital separately. But again, this is not the customary approach to achieve practical outcomes: labor and capital are added in tandem - one more man and one more set of tools, or ten more men to attend one more machine, and so on - as one is incapable of making a meaningful contribution without the other.

Then, there comes the tedious mathematics and graphs that illustrate the diminishing marginal return. This goes on for quite some time, and fails to come to any point, or perhaps it's simply lost on me.