In my recent post, The Wielders of One-Bladed Scissors, I talked about why supply and demand does not automatically lead to the conclusion that the more workers there are, the lower wages become, and that it is a fallacy to conclude that “more labor means cheaper labor.” After writing it down, a thought experiment occurred to me that helps make this point, and possibly sheds light on some different background assumptions that might lead to different conclusions.
So here’s the thought experiment.
Scenario one – think of a situation like in the movie Castaway starring Tom Hanks. In this film, Hanks portrays a man who survives a plane crashing into the ocean. And because minimal probability films are given as much leeway as they want, he just happens to wash up on a deserted but fertile island. He must survive on his own, using the meager resources he can gather from the rubble that has washed ashore, combined with what he can harvest from the island. The island has more than enough resources to support him – but he lacks the ability to use those resources very productively when working alone. He survives, but at a very low standard of living.
Scenario two – think about a situation like the crash Uruguayan Air Force Flight 571dramatized in the 1993 film Alive. In this case, a plane crashes in the Andes Mountains, but many of the occupants initially survive the crash. The survivors are forced to try to salvage as many supplies as possible from the plane and whatever it was carrying in their desperate fight for survival.
What would happen in the first scenario if the castaway were stranded on the island, due to a glitch in the laws of probability, and suddenly discovered that another person had washed up, who was now also stranded on the island? This would be an incredible stroke of luck. Working alone, he was able to harvest enough resources to survive, but just barely. But when two people work together, things can improve dramatically. They could join forces and divide tasks. ‘I concentrate on foraging for fruits, tubers and other food, you concentrate on hunting game. I will focus on building better shelters, you on growing a garden to make harvesting food easier in the future.” And so on. The problem facing the lonely castaway is not a lack of resources, but a lack of ability to make productive use of the resources on their own.
To look at it from a less fictionalized angle, consider the case of the Tongan castawayssix teenage boys who washed up on the deserted island of Ata in the Pacific Ocean. Working together, they managed to survive and remain on the island in good health for over fifteen months before, by a stroke of luck, they were found and rescued. What if instead of six teenagers stranded together, it was one teenager stranded alone. The lack of people to work with and combine would not have been an advantage for that lonely stranded teenager – it would probably have been a downfall.
But in scenario two, things are different. Suppose the survivors, huddled among the wreckage of the plane, heard some noise outside one day and were shocked to discover that a small group of lost cross-country skiers had stumbled into the crash site. (Perhaps one of those skiers insisted he “knew a shortcut” and stubbornly refused to admit he was lost.) In this scenario, things would be very different. The addition of new people would not be a happy opportunity to improve everyone’s living standards by creating new wealth through cooperation. In this case, the arrival of new people would mean that everyone at the crash site would be worse off – there would be even fewer resources available to any given person. The survivors of the crash might reasonably have felt that the arrival of the skiers resembled a hostile invasion.
And that also brings up the difference between the two scenarios. In the castaways scenario (both in the fictional and real world), additional people would be useful as it could create a division of labor and in turn allow the castaways to harvest more resources and improve their condition. In the mountain crash scenario, resources are fixed and their distribution is a zero-sum game. The only way for one person to get more is for someone else to get less. In that case, adding more people would necessarily lower the living conditions of those already there.
The idea I criticized in my previous post tacitly assumes something like the mountain crash scenario. The idea that more labor means a lowering of the living standards of the existing labor would be true if we assume a situation in which all transactions are zero-sum, in which to make a profit one person must lose another, and that the supply of wealth is both exogenous and exogenous. solved, which already exists there somehow so that more people means smaller slices for everyone.
On the other hand, if you see things not as something fixed and static, but as part of an active and ongoing dynamic process, in which wealth is continually and newly created on the basis of productive, mutually beneficial interaction, rather than being distributed from a previously existing process, existing, fixed supply, then the addition of new people is not a harbinger of disaster. It is an opportunity for growth and for mutual benefit. You stop seeing new people as outsiders and threats that must be suppressed to maintain your well-being, and you begin to see them as fellow human beings who can help you be better off and whom you can, in turn, make better off.