If there is one thing every high school student takes away from lessons on the industrial revolution and the supposed "gilded age", it is the impression that the urban workers lived in unrelenting squalor. They also are given the impression, though it is usually not explicitly stated (unless they have the misfortune to have a terribly ideological teacher), that this squalor was the fault of the capitalists, who somehow forced these individuals into lives much worse than those enjoyed by others. In addition, and in this case it is often explicitly stated, they are led to believe that the only way this ended was the intervention of benevolent government, perhaps with assistance from social activists, who managed to rescue these poor souls from the evil barons of industry.

It makes a nice story, almost a bedtime story for red diaper babies, but, like most fables, it has the drawback of being quite false.

Well, let me amend that slightly. It is false in some regards, and, in others, while true, the meaning given to those truths are misleading. For example, the idea that the government ended the "oppressive" conditions, is, as I argued in "Child Labor and the Industrial Revolution", not true. On the other hand, as will be discussed in this post, the description of living conditions, salaries, and so on is usually true, though sometimes prone to a bit of Stephen Crane-ish (or Upton Sinclair-ish, if you prefer)  hyperbole and scandal mongering, but the facts are then presented out of context in order to lead individuals without sufficient background to the wrong conclusions.

Before I begin, let me say that this is hardly an error exclusive to the left. Many times when I have argued for total freedom in economics, supposed "hardcore conservatives" have asked me how I would control the abuses of industry. And as examples they inevitably turn to the same sources, mostly 19th century yellow journalism and political agitators, that the left uses. (Cf. "Free Market?", "You Lose When You Think You Win", "Conservatives and the "Big Picture"", "Why Health Insurance Isn't Insurance and Related Topics", "The GOP Health Care Plan", "The Insurance Sham", "What We Deserve", "Who Is To Blame?", "What is Wrong with Us", "The Single Greatest Weakness", "Who Is Safer?", "Worker Safety", "Of Wheat and Doctors", "Katrina and BP", "The Difficulty of Principle", "Damn the Torpedoes!".-- Oddly, the same often happens when I argue for the gold standard, though in that case the left and right both argue from the same economists rather than the same long-gone muckrakers. See "Bad Economics Part 7", "Bad Economics Part 8",  "Not Entirely to Blame", "Explaining Past Crashes", "The Inflation Engine", "Nation of Debtors", "The Problem With Economic Debate","Inflation and Uncertainty", "Why Gold?", "Monetary Issues Made Simple Part I", "Monetary Issues Made Simple Part II", "What Is Money?" and "What Is A Dollar? ".) However, while the right has bought into the idea that "unfettered capitalism" is somehow dangerous ("Bad Economics Part 17", "Planning For Imperfection", "Greed Versus Evil", "In Praise of Contracts",  "Production and Consumption ", "Capitalism and Its Consequences ", "Clarifying a Reality of Capitalism", "The Irrationality of Government Redistribution", "Fairness and the Free Market", "The Cost of Big Government", "The Inevitable Corruption of Protectionism"), the left uses it for a definite purpose. As I have argued elsewhere ("The Nature of Evil", "Life Without Villains", "Enemies Into Villains", "Rethinking My Earlier Position", "Moral For Me, But Not For Thee", "He's Bad So He Must Be Wrong"), many political arguments are much more effective if one has a villain to blame. ("Liberalism, Its Origins and Consequences - Chapter 6 - Us and Them") And in this case, the story makes it quite easy to sell the idea that idea that, left to their own devices, capitalists will do all they can to starve the working class. ("Greed Versus Evil") It is the same concept that Marx tried to sell as the "Iron law of Wages", the belief that capitalists would leave workers only the absolute minimum as wages. It is nonsense, for reasons that should be clear to anyone who has ever been in charge of hiring ("The Irrationality of Government Redistribution", "Fairness and the Free Market", "A New Look At Intervention", "Volitional Beings", "What Is Fair? or, How Game Theory Leads Us Astray"), but it was still popular enough in the late 19th century, for that matter even as late as the 1960's, or today in academia, that it provides the background against which many historians view the industrial revolution. And, as a result, they try to make any social ill, any poverty, anything bad, the fault of greedy capitalists. ("How To Blame the Free Market", "Bad Economics Part 17", "Recipe For Disaster", "The Endless Cycle of Intervention",  "The Cycle of Compassion", "Government Quackery") Even if they must view the events with anachronistic eyes , as I will describe soon, they will find something that shows the exploiters abusing the trusting, innocent workers. (Cf. "Anachronism Alive and Well", "Heads I Win, Tails You Lose II", "Bad Economics Part 9" -- as well as "The Conservative Trump Card", "Glaring Anachronism" and "Anachronism" on completely different topics.)

What makes this amusing is that the same strategy is still in use today. For example, it is often the habit of the media, when criticizing a conservative administration, to argue that "the rich got richer", by talking about the increase in wealth or wages for a certain income range. What they often fail to do is provide any context. ("Shocking Numbers", "Mathematical Deception", "Why the Numbers Don't Matter", "Misusing Numbers", "Another Example", "The Nonsensical Nature of Some Statistical Analysis" ) Sometimes they will simply throw out percentage increases, or absolute numbers, and hope the size alone will create outrage. Other times, they will throw out absolute amounts for the richest and poorest, without providing any starting values which might show a greater percentage increase for the poor. Other times they will carefully select two smaller groups that show the greatest disparity, in order to hide the fact that overall most income brackets had comparable change.

Nor is it a tactic limited to this context. For example, when the media was trying to stir up outrage over CEO salaries, they would often describe a CEO who earned so many millions while his company lost a massive amount. What they failed to point out was the even larger amount it lost the year before, or the greater losses suffered by competitors with lesser CEOs. ("A Really Foolish Idea", "Greed", "Greed Part 2", "A Little More On CEO Salaries", "Another Bad Idea") In short, they failed to consider the possibility that all companies take losses in a bad economy, the good CEO earns his salary not always from making money, but sometimes from managing to avoid losses, most often losses which amount to many times his wage¹.

And the list goes on. For example, when oil companies were the target ("Authoritarian Oil Talk"), we often heard two statements. First, we heard how they enjoyed "record profits". Second, we heard they earned "$X billion in revenues". Both are misleading for the reasons we have already described.

First, the "record profits" are meaningless for several reasons, one of which will also explain the reason we should disregard the second statement as well. First, because profits are judged by comparing the cost of resources at purchase and the price at sale. As the replacement stock is bought at the current market price, if a good is rapidly rising in price, you could see high paper profits, but in terms of funding an ongoing concern see very little in real usable profits ("The Inflation Engine"). Similarly, thanks to inflation, monetary figures often mislead, both by amplifying the disparity in purchase cost and sale price I just mentioned, but also by making depreciation allowance absurdly low, underestimating replacement costs and otherwise distorting accounting figures, the principles of which assume a constant value currency. ("Inflation and Uncertainty", "The Rubber Yardstick", "Bad Economics Part 7 ",  "Bad Economics Part 8", "What Is Money?", "What Is A Dollar? ") And, lastly, it is worth noting that while the oil companies were enjoying "record profits", no one mentioned how other companies were faring, nor how a profit that was a "record" for oil companies compared to normal profits for other firms. If you had looked, it would be obvious oil companies were never a right profit sector of the economy, making "record profits" for those firms rather lackluster when compared to more dynamic parts of the economy. In addition, even at the time oil company profits were high, there were many industries with higher profits, as well as better stock performance. ("Oil Company "Profits"") And finally, and most blatantly misleading, many demagogues would simply toss out the raw revenue numbers for oil companies, which seemed quite massive. What they failed to mention was the truly massive capital tied up in those oil companies, which make the return per dollar invested quite unimpressive. Somehow they fail to realize that profits are only meaningful in terms of capital invested. For example, profits that would be exemplary for your corner grocer would be dismal for Wal-Mart. And yet, sadly, many accepted the populist nonsense and repeated those figures over and over, inflaming the economically illiterate with big numbers. Even more depressing many of those doing so were politicians, news casters, even professional economists, those who not only supposedly know better, but claim to help us understand the facts, and yet they spent much of their time intentionally distorting those very facts to win over their audience, rather than living up to their claims of impartially presenting the truth.

The reason I mention all of this is that many of the same tactics are used in painting such a grim picture of the Industrial Revolution and Gilded Age, as well as making monsters of mankind's benefactors, those early industrialists².In fact, in many ways, the arguments developed in the criticism of this era have been recycled to describe current events. Maybe it is because the left sees everything through the same ideological framework, and so they always make the same arguments. Maybe it is because they imagine the 19th century is some sort of template for capitalist exploitations, making it a model on which all other exploitation is based. Or maybe it is just because they spent so much energy tearing down the era of our greatest industrial and economic triumphs that they perfected the arguments there, allowing them to reuse them again and again. Whatever the reason, the arguments against the Industrial Revolution and Gilded Age seem to reappear over and over, whenever capitalism, the free market or small government is the target. Nor is it just the general strategy, or the outline of the argument, most often it will be an almost word for word reproduction, using not only the same talking points, but even the same obfuscations and deceptions.

Let us take one more example, as it perfectly demonstrates how an argument from the Gilded Age has been reused for an analogous situation. Not only does it show how the same argument is used, repeated in its entirety, but even more telling, the very same significant omissions are used as were used in the earlier case. (An omission which will also help us to segue into our main point.)

The argument we shall examine is one of the more lazy duplications of a Gilded Age argument to a present day issue, taking the argument almost word for word, ignoring all of the same issues, obfuscating the same details, and generally distorting the facts in exactly the same way today as they were manipulated when discussing the Gilded Age and the Industrial Revolution. And that modern incarnation of this specific argument is the premise that foreign workers employed by much maligned "multinational corporations"³ are somehow being exploited by their employers.

Let me start by saying that "exploit" is one of those words which are effectively meaningless. ("Protean Terminology") Like the words "want" and "need", or "luxury" and "necessity" ("The Most Misleading Word", "Luxury and Necessity"), or my other least favorite word "fair" ("Fairness and the Free Market", "Unfair Advantage and Foreign Trade"), they are words that are both inherently subjective, and, worse still, have been used so often in such highly politicized or partisan manners that the word either has no useful meaning, or has a meaning which is defined by one's own political predispositions. Despite the claims of some advocated of "fair trade" and "economic justice" ("Fair Trade", "Unfair Advantage and Foreign Trade", "Retaliatory Tariffs", "Bad Economics Part 6"), there is no economic definition of exploitation, and any attempt to create one is simply to codify one's own arbitrary meaning. ("The Inherent Disappointment of Authoritarianism", "The Right Way")  However, despite there being no real meaning to such terms, for purposes of this essay, I will adopt a compromise definition, and try to understand "exploit" in a common sense manner. And so, for our purposes, I will assume exploitation means either paying someone less than he would be worth on the market or paying him much less than the value he brings to a product.

Having written on this topic numerous times ("Exploited Labor", "Exploiting Workers?", "Capital Investment", "Fairness and the Free Market"), I am absolutely certain that by no meaningful definition is the employment of foreign workers exploitation⁴. And the argument is quite easy to make, as it is the familiar argument explaining why it is impossible to pay substandard wages domestically. There are a few other complications, I admit, such as uncertainty about government policies, political stability, the costs of transportation, import duties, the possibility of political impediments overseas, the need to transport some domestic staff overseas for certain positions and so on. But once we account for all those costs, the remaining value is close to what is paid for workers, as should anyone pay less he will create a potential for above average profits, which will draw either competitors, or else funding to create new competitors, and the profit potential will be exploited as soon as possible. Especially now, with information so easily shared around the world and easy access to market information from any even slightly developed nation, the response is faster than ever. There is simply no more way to underpay foreign workers than there is domestic, without attracting competition⁵.

In an effort to rebut this, those claiming exploitation will tend to ask the same questions. Why are domestic workers paid so much more than foreign workers? How can a foreign worker survive on $1 a day? Why is a company making $100 dollars for a pair of shoes if they pay those who sew them $0.05 an hour? and so on. Of course the numbers are a bit suspect, and often prove to be somewhat misleading, usually taking the lowest possible number and applying it to everyone, but even granting the numbers the benefit of the doubt, there is an easy way to explain most such questions.

First, let us start with the question about $100 shoes and $0.05 an hour employees. First, and most important, there is an implicit assumption in this question that somehow cost of production and price are related, that price should be "cost plus a 'fair' profit" and that is absurd. It is an old fallacy, I admit, one that figures prominently in both Marxist theory and many older capitalist beliefs, but it is still wrong. Sale price is set by nothing more than the desires of the buyers combined with their ability to pay. There is a bit more to it than that⁶, but the important point is that it has nothing to do with cost of production.

On the other hand, profit does relate to both, and if the low cost of production allows a high enough profit, far above the general market level, then the massive returns will begin to attract competition, and prices will either fall, or competitors will begin to steal market share. And that is also what would happen here. If the seller is truly getting $100 a pair for shoes and paying a pittance for labor, then other costs, be it materials, advertising, licensing, promotion to build brand loyalty, or anything else, must keep profits well within the market norms, or else competitors would be eating into the market share pretty significantly.

Which makes me skeptical of most such claims.

Now let us turn to a few more points. Specifically why wages are so low overseas, why workers accept such jobs, and why employers want to hire overseas. There are more issues, but this should be enough to make clear the points I want to make later about the Industrial Revolution.

First, why wages are so low. There are two explanations for this, though one is more elaborate than the other.The first explanation sounds stupid, but is a very simple truth many forget. Workers are paid so little because they are willing to perform the job for that wage. We often forget this, but those overseas workers took those jobs voluntarily, and so employers agreed to pay them a salary they would accept⁷. However, as workers in our nation ("When Help Hurts", "Who Will Decide", "Capitalism and Its Consequences", "Symmetry and Greed", "Hope You Like Unpaid Internships", "A New Look At Intervention"), workers in other nations will negotiate for the best pay they can get. And if they do not actively do so, if they are under paid, other employers will still offer them higher wages to take advantage of their low salaries. ("Fairness and the Free Market", "Greed Versus Evil") Their pay will, in general, rise or fall to the level suitable for the market in which they are competing. And given the modern tendency to export jobs worldwide, the labor market is, more and more, a worldwide market.

Which brings us to the second point, workers in other nations are paid what they are paid because that is what they are worth. In other words, someone getting $1.00 a day is adding value to the product which amounts to about $1 a day. Now, many will claim that this is absurd, as workers in other nations are no less productive than workers in the US, but they ignore one major factor. The workers themselves may be every bit as diligent and industrious, but they lack the capital investment that workers here have. ("Capital Investment") And by that I do not just mean education and training for the workers, or factory improvements, but also all the other investments that we rarely consider, such as infrastructure, medical care, and all the other niceties that make it possible for western workers to get to work on time, to work consistently and regularly, and generally to be as efficient as possible. Other nations often lack one or more of these niceties, and it makes a much more significant impact than many imagine.

Which actually helps answer the next question, why workers would take the salaries offered. With their productivity low, they are unlikely to get a better offer. As I said, they will generally be paid what they are worth. And since they voluntarily took the job, they must have thought it was the best pay they could get. And one other factor we tend to forget, in those nations with such low productivity, with little capital investment, the cost of living is usually much lower. Admittedly, part of that is because the standard of living is lower as well, but if one is content with local foodstuffs and products, it is relatively cheap to live in such nations, and so a wage that seems a pittance to us is often a comfortable salary⁸.

And so we come to the last question, why employers would want to employ such workers if their productivity is so low. And there the argument becomes a bit more involved. Some of it having to with economic efficiency, and some with government regulation.

Let us look at a job such as hand stitching. This is a tedious, labor intensive task that requires little in the way of machinery. In the US it is often hard to find those willing to perform such tasks, as the pay per hour is relatively low, since the value added is minimal. Given the productivity possible to even a poorly educated American, there are usually better wages available than are offered for such work, and so it is unlikely many native workers would take such jobs. And, even if they would, it may be hard to find them, as the minimum wage laws mandate a higher hourly salary than the job would support^9,10. And so companies tend to export such jobs overseas. When they find jobs that are labor intensive, yet require a low level of skill and little capital, they find even with the costs of working overseas and transporting goods, it is still cheaper to ship the jobs offshore¹¹.

But this is not an essay about the off-shoring of jobs,  or even misunderstanding economics in general. I intended to write about our mistaken beliefs about the Industrial Revolution and the Gilded Age, and that is where we shall go next. And fortunately, the topic we last covered is one which offers us a perfect introduction, as many of the same arguments about "exploiting" labor were used, in more subtle ways, to indict the "robber barons" and the rest of the luminaries of the Gilded Age, criticizing them for supposed ills of early industrialization which, viewed realistically, were never ills at all¹².

Let us start with the closest parallel to the idea of "exploited labor". That would be the tales of the horrible working and living conditions of the early industrial era. The tales of people living 10 to a room, living in squalid conditions with too little to eat, children forced to work, 16 hour days, and the rest. We have all heard these tales, and have been taught that they were the consequence of industrialization, were brought about by the greed of the early capitalists, and were only cured by the government.

We won't deal with that last one, not yet, but let us look at the first two, and ask a simple question. If things were so bad, why did workers flock to the cities? Why were workers fleeing farms for factories? Why did immigrants flee Europe for the US, and the countryside for cities?

The reason is simple, and the same reason workers now take "exploitative" jobs. Life on the farm was worse. Though we hear about the horrors of the industrial cities, the critics compare them to life today, not to life in times before then, or in the farms at the same time. Yes, cities were crowded and dirty, children worked, and adults worked long hours, but the same was true of farms. For all the bemoaning of "child labor", does anyone think pre-industrial children lived a life of leisure? They worked harder than children in industry did. And does anyone think serfs and peasants, or tenant farmers put in short days? Lived in pristine conditions? Lived two to a room? Of course not. The city was crowded and dirty, work was hard and long, pay was low, and yet it drew the people in droves. What does that tell us about the conditions in the countryside?

The second myth is that industrialists happily exposed their workers to dangers, risked their lives and otherwise exploited them, as they did not care about their well being. But this argument, a quite anachronistic one¹³, ignores the fact that industrialization itself argues against this. In fact, the economic forces at work in the Industrial Revolution suggest that labor was subject to quite jealous conservation rather than being exploited and wasted.

The simple fact is, we accept the greater productivity of industrial methods for granted, and so imagine that mechanization was an obvious improvement. As a consequence, we do not think about what general industrialization means.

But history tells us a different story. The means to automate certain tasks, such as threshing and grinding grain, fulling cloth and milling wood was known from classical times, or perhaps only slightly later. However, outside of certain low population regions, such methods were rarely used until the black death eliminated a third of Europe's population. Why not? Because while labor is abundant and cheap, there simply is no reason to invest time and money into replacing labor with machines. Rationally, those who need work done see that the work and money put into machinery will never be recouped during the life of the machine, labor is simply cheaper.

Similarly, the Industrial Revolution was largely the result of a combination of a shortage of labor and, once it was underway, increasing demand, rising faster than labor could be provided¹⁴. And we can see this clearly in the fact that machines were substituted for labor. Not only were machines substituted, but labor was costly enough that individuals could earn money by developing mechanical alternatives to labor. The simple fact that industrialization continued at such a rapid pace should tell us that labor was costly.

And that alone should be enough proof to argue employers were not about to let their employees come to needless harm. If labor is in short supply, you definitely do not needlessly waste labor. In addition, as I have argued elsewhere, all good employers also know that reliable labor, and labor which has gained on the job knowledge, is worth keeping, as replacing them is costly in terms of money and time.

What probably makes some confused, other than political bias which finds exploitation in every employer, is, again, an anachronistic view of worker safety. Yes, the working conditions were often less safe than today. Yes,  health was often poorly protected. Workers were exposed to unsanitary conditions, to particle filled air, to machinery without proper safeguards, and all the rest, but that was because of many factors present at the time. First, many threats we now recognize were either poorly understood or not understood at all. Germ theory is much more recent than many realize, and the threat of suspended particulates is an even more recent discovery, making those threats simply invisible to men in the past. As far as other safety measures are concerned, often it was either a question of excessive cost, or of risks being technologically insoluble. (Eg. Modern machines often have safety switches which stop a machine if a hand enters a dangerous area. At the time, with one central shaft driving belts operating hundreds of machines, this would have been either impossible or so complex it would have been unmaintainable.) Of course some will bemoan the "greed" that finds safety too costly, but that ignores a simple truth. If a safety measure is expensive enough it would prevent a tasks from being profitable, then it means we trade a worker's job for his safety. And, as he took the job, obviously he preferred the opposite trade off. So how can we assert that he would be better off safe, but without a job, when he says the opposite? He accepted that risk, and so did his employer, that should tell us something about the attitudes of the time about safety measures.

I could go on, but it should be obvious by now that much of what we imagine we know about the Industrial Revolution and the Gilded Age is the result of two complimentary errors. First, critics find flaws by ignoring the conditions of the time in other, non-industrial jobs. While life may have been rough in the cities, the fact is that life was hardly idyllic on the farms, which at the time were virtually unchanged from the dark ages. There had been some small improvements in technology, but the life of a farmer had improved little. The black death brought a slight decline in rents, and had improved the terms under which many farmed the land, but they still were living a life farm more squalid than the city dwellers. Second, critics make the era seem worse by comparing it to the modern age, ignoring the many changes which have come between the two. By ignoring our great improvements in wealth and technology, they silently compare the past to the present and, for obvious reasons, find it wanting.

The truth is life was hard for those who came to the cities, yet they came in droves. And they came in droves because life was harder still in those places from which they came. Whatever may be said of the cities of the time, they were still appealing enough to attract those great masses of people. And that fact should be enough to tell us that many of the beliefs we have been taught are simply wrong.

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1. Not that I am arguing all CEOs earned their pay. As with any human endeavor, there is error. Some companies paid their CEO more than he was worth. And other CEOs were worth what they were paid, but later made mistakes that reduced their value. That is part of the reality of imperfect knowledge and human fallibility. Still, it is grossly unfair to imply a CEO is evil if he takes a large salary from a company losing money. Would we suggest a baseball player should give back his salary if his team doesn't win the World Series? Or has a losing record? So why do we have different rules for CEOs? (Other than the fact that envy, and lack of comprehension, make them easy targets for populist agitators -- "Envy Kills", "Envy And Analogy", "He's Bad So He Must Be Wrong", "Sour Grapes as a Political Philosophy", "Beware Populist Deception", "Fear of the "Big"", "Moral For Me, But Not For Thee", "The Plural of Anecdote is Not Data")

2. Oddly, historians will often give a pass to certain industrialists, and those are almost inevitably the men who made their money through government subsidy, favoritism or trade restrictions. For instance, the men who built the transcontinental railways using government subsidies, land grants and other favors are sometimes treated as saints, while those who built up profitable industries, who employed thousands and added a fortune to the sum total of human wealth are treated as demons. It is hard to imagine such a bias is intentional, but it is a strange quirk that makes so many prone to praise those who rely on the state for their success. ("Anti-Business Businesses", "Bureaucratic Management and Self-Policing", "Bureaucracy Revisited", "The Inevitability of Bureaucratic Management in Government Enterprises","Bureaucratic Management", "The Bureaucratic Mind", "The Inherent Disappointment of Authoritarianism", "Transparency, Corruption and Reform", "How the Government Corrupts Relationships", "What Is Fair? or, How Game Theory Leads Us Astray", "Individual and Aggregate", "Bad Economics Part 18", "Who Will Decide")

3. "Multinational corporations" is the ultimate "Swiss Army Knife" criticism, as it plays into every possible demagoguery on both sides of the nominal aisle. (See "The Political Spectrum" for a discussion of why I am skeptical about the nominal right and left.) "Corporation", of course, is a buzz word for those distrusting business, and so is an easy plea to the left. And recently, with "globalization" becoming a hot button for certain members of the left, the first word has appeal to that ideology as well. On the nominal right, "multinational" suggest foreign involvement, which tends to stir up nationalist sentiments, especially among the paleo-cons and like-minded individuals ("Thoughts on the Irrationality of Nationalism", "A Perfect Example", "He's Bad So He Must Be Wrong", "Who Does It Harm?"), as well as disturbing both protectionists ("Protectionism", "Free Trade, Employment, Outsourcing, and Protectionism", "The Inevitable Corruption of Protectionism", "Fear of Trade",  "Protectionism Right and Left") and those who fear "big" anything ("Beware Populist Deception", "Fear of the "Big""). The only problem is that, except for telling us about the legal organization of the business, and the fact that it operates in more than one company, "multinational corporation" says absolutely nothing about a company, and certainly none of the things those using it wish to imply.

4. I am here talking about actual employment, a process by which a worker agrees to accept pay from an employer voluntarily. I am not speaking about the use of prison labor, slave labor or other practices that have been alleged to take place in other nations. Those are not employment, and thus do not fit this essay. I am, obviously, opposed to the use of slaves in any form, and have serious reservations about using prison labor -- at least where the wages are not paid to the prisoners, even if the prisoners are then billed for their care -- especially in nations where prisoners are not noted for being treated well, or where political, religious or ethnic differences can land one in prison. But as I am writing about voluntary employment, and not the dubious practice of buying involuntary labor from authoritarian governments, I am not going to address those issues.

5. There is some room for variations on the domestic model here. For example, companies which, for whatever reason, have lower operating costs in a foreign land than their competitors can pay workers slightly less, to the degree their advantage makes up the difference. On the other hand, there is likely SOMEONE out there with as much or more advantage, even if it is only by starting a local subcontractor which rents its labor to overseas firms. And so trying to exploit one's advantage may do nothing but bring an even more efficient competitor into the market. So even if a company is capable of paying slightly below market wages, the ability will be very short lived.

6. The subjective value school often phrases it by saying price is set by the least valuable marginal utility, but that is confusing. What they mean is that the price is set by the last buyer added, whose utility is the lowest of those who are purchasing. But the way they phrase it is confusing, as there are others with lesser utilities who are not buying, though their description seems to include them. So, let us say that the price is set in such a way that the marginal utility of the last buyer added tends to equal the sale price of the good. And yes, cost of production plays a part in the sale price, and so final price does incorporate cost of production in some part, but it is not the determining factor many older theories make it.

7. This will be very significant in the coming arguments about the Industrial Revolution. We must always bear in mind that exchanges are voluntary. There are cases, such as slave labor today, or serfdom in the past, where labor is or was not free, but those are exceptions. In general labor is voluntary and we need to treat it as such.

8. This is part of the reason retirees often move to Mexico or Costa Rica or other less developed nations. So long as they are content with local products, they can live very cheaply, making their US retirement income last much longer and go much farther. The only problem is when they want imported goods. In such nations imported goods tend to be much more expensive than they would be in the nation in which they were made.

9. One way in which this legal issue is avoided is the use of piece work, paying per unit completed. However, that does not get around the other problem, that it is hard to find workers in the US willing to work for the wages offered. Even immigrants often will not take the job, as the simple capital investment in social infrastructure makes higher salaries possible even for the absolutely uneducated, new immigrants and other, less employable, individuals. Thus piece work is at best a partial solution.

10. The minimum wage is one of the reasons that certain jobs are performed by illegal immigrants. As they can accept an illegally low wage, they are one of the only groups which perform certain jobs at a reasonable cost. In general, minimum wage tends to do one of four things. Push jobs overseas, encourage the employment of illegals, encourage automation, if possible, and finally cause a task to remain unfinished. Some jobs, such as picking lettuce, are difficult to automate, and in others automation would be costly to either design or implement, and so it is cheaper to ship overseas or employ illegals than automate. However, it varies from industry to industry, and even firm to firm, so it is hard to propose any general rules.

11. In modern times other jobs have started to move overseas, though they still seem to be more labor intensive. Again, we have shipped the physical assembly of high tech devices, the labor intensive part, overseas, while software design still resides here. Similarly, the administrative and managerial parts of companies are here, while call centers and billing, the labor intensive portions, are moved overseas. So, while we have gone from physical tasks to more intellectual tasks, it is still the more labor intensive tasks which has gone overseas, and, in both cases, we have still be shipping jobs which require less capital investment. (Though recent trends in technology mean there has to be some investment overseas, just not as much as we have.)

12. This is not the same as my argument in "Bad Economics Part 11" or even "Two Perspectives". In those cases I argued a single event could be good and bad depending on whose perspective one adopted. In this case I am arguing that we see something as an ill because we compare it to either modern circumstances, or, in some cases, an imaginary pastoral utopia that never was, while in reality it was clearly an improvement. But that point will be made soon, so I will say no more here in the footnotes.

13. Those who talk critically of losing fingers and limbs in machinery forget how much more common serious injury once was. We take the safety our great wealth buys us for granted, and forget that even into the 1950's boiler explosions could occasionally level buildings in cities. My grandfather worked as a brakeman on the railroads and he was unusual in having all the joints of every finger. No, people were not oblivious to such threats, but with safety of the sort we take for granted being too costly for even the middle class to enjoy, they simply had no choice but to accept a greater degree of risk.

14. I am aware of Say's Law, and so obviously you cannot rationally have demand without supply. On the other hand, with automation, productive capacity rose very quickly, often faster than wages. This allowed the accumulation of wealth for a time in the hands of owners, investors and managers. Their demand drove the system at first, creating demand for more labor. However, as wages adjusted, existing industrial labor also created new demand. Combined with the unsatisfied demand from before, this demand exceeded the available labor. Over time the unsatisfied demand was eventually reduced, but for a time there was a real shortage of labor relative to demand.

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POSTSCRIPT

I have often wondered why this particular era elicits so many strong feelings, as well as so much distortion of historical fact. And, while I cannot know for certain, I tend to think it is because it was the one era in which is it possible to find both something close to a free society, as well as a sufficiently modern economy to allow a meaningful comparison to the present. (cf "A Passing Thought", "The Political Spectrum", "The Best Historical Example", "Rethinking the Scopes Trial". The other free period, during the Jacksonian Era, was far too early in the settlement of this nation to give a meaningful comparison. See "Depressing Realization", "Silly Hypothetical Questions" and "Ah, Nonsense!".) For those who have strong faith in the power of regulation ("Bad Economics Part 2", "Bad Economics Part 3", "Bad Economics Part 5", "Bad Economics Part 6", "Bad Economics Part 10", "Bad Economics Part 12", "A New Look At Intervention", "Adaptability and Government", "The Inevitable Spread of Regulation", "Gun Control, The FDA and Regulating the Law Abiding", "Professional Education", "Licensing", "Business Licensing and Regulation", "Bad Economics Part 12", "Real Life and Regulation", "Insider Trading", "Worker Safety", "Who Is Safer?") and big government in general, it is a very damaging comparison. And so, they have a tendency to find things in this era to criticize, as well as emphasizing the negatives and minimizing the positives. I could probably go on about this, but it is fairly obvious, as the era immediately following this was characterized by both the birth of the regulatory state, and the advent of the "boom-bust cycle", kicking off with the Great Depression, if anyone had a realistic impression of the "Gilded Age", they would be much more prone to skepticism about the benefits of the modern omnipotent regulatory state.

POSTSCRIPT II

I am not going to discuss here the many arguments against the Industrial Revolution offered by the neo-luddites and environmentalists, as those tend to be of a different nature, resting as they do on the strange perceptual framework of environmentalism. ("The Lie of Environmentalism", "Bad Economics Part 1") I may write about that topic again in a future essay, as the hatred of technology is an interesting aspect of several modern thinkers, as well as some modern political movements.But, as it will require much more time than I have at the moment, I will refer readers to the posts linked a few sentences back, as well as "Salt, Transfats, DDT, Bad Science and Even Worse Law", "Environmentalists Puzzle Me, And So Does CSPI" and "Green Kills", and, for a more general perspective "The Citizen Dichotomy", "The Essence of Liberalism", "Appealing to Arrogance", "Man's Nature and Government", "Symmetry and Asymmetry in Government" and "Culture and Government", and, perhaps the most comprehensive treatment, if in more general terms, my series of essays entitled "Liberalism, Its Origins and Consequences". I don't know if those posts will provide a sufficient depiction of my thoughts, but they will at least provide some idea of what I believe is at the root of this anti-industry philosophy.

POSTSCRIPT III

Rather than explain how the government failed to correct the supposed ills of the early cities, I will refer readers to "Child Labor and the Industrial Revolution", "Who Is Safer?" and "Worker Safety". For a more general argument, perhaps "Fairness and the Free Market" or "Fairness and the Free Market" would be a better starting place. Whichever you choose, the truth is that wealth was responsible for the improvements brought about, and government intervention almost always amounted to nothing more than the government taking credit for a problem which was already on the way to being cured.