In my previous post I argued that the object of a purchase/sale transaction cannot be LABOR, but only its EFFECTS. And the effect can be either a tangible or intangible GOOD, or a tangible or intangible SERVICE. There is no other possibility. This thesis can be refuted only if one could point to even one case in which anyone pays for another person’s conscious action WITHOUT REFERRING IT TO THE EXPECTED EFFECT.
For the veracity of this thesis, it is irrelevant whether the purchaser is an individual or a company, whether it is a formal employment contract or an unnamed oral contract, nor, finally, whether it lists the specific results that the hired person must provide, or whether these results are described by various general terms, such as, for example, diligence, punctuality, due care, compliance with legal requirements or with quality standards, etc. Thus, any employment contract is, in essence, a contract for paid SERVICE of a job-related nature. And it is such SERVICE that is then the SUBJECT of the sale-purchase TRANSACTION.
This truth has, as I mentioned, very serious consequences for both economic theory itself and social relations. Let’s start with the theory.
The following conclusions logically follow from the fact that every employee of a company or institution sells to his employer the EFFECT of his work of the nature implied by his position. First, what a person does is an INSOLVABLE ELEMENT of the SYSTEM (mechanism) that is the enterprise. The quality of this element determines the efficiency of any enterprise and any institution. In this regard, it does not matter whether a given employee works in a position directly related to production or provision of services, or whether he works in a deep back office that has nothing to do with the core business of that enterprise.
By the way, it is worth noting that as soon as it turns out that a certain employee or a certain group can be replaced by an automaton or an IT system that will do the same thing flawlessly and cheaper, such an employee is no longer needed in his current role. And this has nothing to do with the callousness of the owner of this enterprise. Who among those reading this text would prefer to hire a typesetter today who folds text by hand and to buy the whole set of metal fonts and other materials and accessories he needs for this instead of buying a laser printer?
Returning to the comparison of the role of employee services in an enterprise with the role of external supplies of goods and services, it is hard to deny that the ill-timing or lack of external supplies of energy, raw materials or other inputs, or the poor quality of products delivered, can cause serious disruption to the operation of an enterprise, and in extreme cases destroy it. But this efficiency can be just as badly affected by an employee’s illness or other fortuitous event affecting an individual or a larger group of employees, not to mention the inexpertness, carelessness or dishonesty of any of them. It is not difficult to imagine the consequences of, for example, the dishonesty of a lab technician monitoring the composition of wastewater discharged into a river, or an accountant neglecting his duties or falsifying financial statements, or, finally, an assembler who forgot to insert a gasket into some component of a space rocket being assembled. Such examples could be multiplied, and each of them could end up with specific disruptions in the operation of the company and related measurable losses or even bankruptcy.
Thus, leaving aside pathological cases, such as the employment of various “cronies” in companies just so that they can wait until the next election, employee services perform exactly the SAME ECONOMIC FUNCTION in a system such as an enterprise, as ALL OTHER SUPPLIES AND SERVICES OF EXTERNAL ENTITIES. The only difference between them is that the former work on the basis of an EMPLOYMENT CONTRACT, while the latter work on the basis of contracts provided for in the Civil Code and the Commercial Companies Code. And since they perform the same function as deliveries of external entities, the RESULTS of their application in this process MUST BE THE SAME.
It is worth recalling here the PRINCIPLE OF EQUIVALENCE of market exchange already mentioned, which applies to all purchase/sale transactions. Well, it follows from it that both the wages paid and the payment to third-party suppliers for supplied raw materials, energy, etc. means of production, are the monetary EQUIVALENT of these goods and services. Importantly, the outlay for these goods and services must be borne in full by every entrepreneur regardless of whether he sells the goods produced at a profit or fails to do so. Neither employees nor third-party suppliers care, of course, what the entrepreneur needs the goods and services for, or what he does with them later. Both are only interested in selling their goods for the most favorable price possible. And when the transaction is finalized, neither party owes the other anything, regardless of whether the object of the transaction was a portion of ice cream from a roadside stand, 1,000 tons of iron ore for a steel mill, or the services of an accountant provided to the same company under an employment contract for 15 years.
Thus, looking at the role of the enterprise’s employees from the point of view of the ECONOMIC EFFECTS of their involvement in the enterprise, it must be said that they are only one of the “cogs” through which the “machine” that is the enterprise gives “at the output” a product with certain physical parameters, for which the owner of this enterprise has paid as much as the total costs of producing this good. It is these INCURRED COSTS that determine the VALUE that this product has for the OWNER at the end of the production process. Properly performed calculus conclusively proves that as a result of the production process, NOTHING IS INCREASED FOR THE OWNER. The only changes that occur in this process are of a QUALITATIVE nature. They consist in the fact that the means of production purchased and used in the production process, as well as the services of employees, CHANGE into a PRODUCT with certain physical parameters. And what happens to this product next depends neither on the workers nor on external suppliers.
How does this relate to economic theory? Well, it has, and a very close one, related to the concept of Gross Domestic Product and its distribution. However, this will be discussed in the next post.
At the end of this post, I still suggest that those unconvinced of the validity of the rationale laid out here, if there are any, answer the question, which of the three people in the following examples is richer and by how much at the time of this mini-analysis?
1. A consumer A spent in the past week 1,500 zlotys on food, 600 zlotys on shoes, 1,500 zlotys on apartment rent and 200 zlotys on fuel.
2. A merchant B bought 3 crates of apples for 120 zlotys, 10 baskets of strawberries for 80 zlotys, a box of lettuce for 30 zlotys and a sack of potatoes for 20 zlotys at the wholesale yard early this morning and opens his stand with this stock of goods.
3. A lawn mower manufacturer has spent 8,000 zlotys on employee salaries, 1,000 zlotys on electric motors, 1,000 zlotys on housings, blades and other steel components, 1,000 zlotys on energy, and has 50 lawn mowers assembled for sale at the moment.