The Balancing Act Between Labor and Capital: Why the World Feels Crazy Right Now
- Rafael von Hertzen
- Dec 7, 2024
- 7 min read
Updated: Dec 9, 2024
Since the dawn of agrarian civilization, human society has been shaped by an enduring struggle between labor and capital. Each seeks to assert dominance over the other, yet their mutual dependence makes victory for either side impossible. Bound together by necessity, they are fated to wage this conflict endlessly — not to win, but simply to persist.
The Balancing Act
Human society is a vast web of interlinked variables, together forming a system of extraordinary complexity. Like a chemical reaction seeking equilibrium, this system constantly adjusts itself. When one variable shifts too far, disrupting the balance, the collective force of the other variables works to restore it.
An example of this dynamic can be found in the perpetual struggle between labor and capital. Labor seeks higher wages for their work, but higher wages mean lower profits for businesses. Capital seeks higher returns on investment, but higher profits mean lower wages for the workforce.
Despite their opposing goals, labor and capital remain deeply dependent on each other:
If labor becomes too strong, businesses will become unprofitable, forcing them to shut down. The very jobs that sustain workers’ wages would disappear.
If capital becomes too strong, workers will be unable to meet their basic needs. Without sufficiently good incentives, workers will stop working, destroying the ability of businesses to generate value.
This interdependence ensures that neither side can achieve total dominance without jeopardizing themselves in the process.
However, real human society is far more complex than a simple balance between two variables. When one variable becomes unbalanced, it sets off a chain reaction, affecting countless other interconnected variables. This cascade of side effects ripples through society, trying its best to regain equilibrium.
Is Capital Winning the War Right Now?
I believe that in the United States, the societal system is out of balance, and capital has grown too powerful. Below are key reasons why I believe this is the case:
Stagnation of Real Wages
Since the 1970s, real wages in the U.S. have stagnated, even as real GDP has steadily grown. This implies that the wealth generated by increased production has been distributed to shareholders, not the workforce.
Increase of the Numbers of Wealthy
Over the past 50 years, the number of decamillionaires per capita (adjusted for inflation) has skyrocketed. This confirms that the wealth generated from increased production has been disproportionately concentrated in the upper echelons of society.
Women Entering the Workforce & Immigration
In recent decades, the labor supply has grown significantly, driven by the influx of women entering the workforce, as well as increased immigration. This surge in labor supply has far outpaced the growth in labor demand, exerting strong downward pressure on wages, as competition for jobs has grown.
High Demand for Degrees
As life becomes more challenging for the general populace, it’s natural to expect people to seek upward mobility. This is exactly what we’ve seen, with demand for higher education soaring. More people than ever are pursuing degrees, while institutions have capitalized on this demand by charging exorbitant tuition fees.
However, simply producing more graduates does not automatically create more jobs in their respective fields. As a result, an increasing number of graduates are forced to accept positions that should not require such an extensive education. Only a select few, the top performers, secure the roles they originally aspired to.
This creates a large pool of well-educated, intelligent, and ambitious individuals who feel betrayed by a system that promised more than it delivered.
High Polarization in Politics
As the number of wealthy individuals in the society has expanded, the proportion of people who belong to the elite has bloated. However, the number of seats in politics remains fixed, leading to intensified competition among elites for these coveted positions. As this competition grows, politicians are compelled to make increasingly grandiose promises and vilify their opponents, fueling a deeply polarized political climate.
This polarized climate creates fertile ground for the rise of counter-elites. These are elites who failed to secure positions within the existing power structures, who along with the aforementioned unhappy elite-aspirants, seek to dismantle the system altogether through mobilizing the general populace in populist movements.
Are We Living Through a Period of Correction?
If the system is truly self-correcting, and capital has recently started to become too strong, we should see signs of it attempting to restore equilibrium. I believe this is the case. Below are some early signs of this:
Indicators of Poor Wellbeing of the General Populace
Low rates of marriage
Low rates of childbirth
High suicide rates
High rates of mental illness
In this context, I want to highlight how these dynamics affect the labor supply. Childbirth has fallen to alarmingly low levels, which will ultimately lead to a shortage of new workers to replace retiring ones, a looming supply shock for the workforce. Additionally, rising rates of mental illness and suicide are further depleting the labor pool. Such supply shocks will eventually exert upwards pressure on wages, as firms compete over fewer employees.
Sentiment Around Immigration is Turning
Immigration introduces an additional source of labor, effectively increasing the labor supply. Across much of the Western world, public sentiment is shifting toward a desire to close borders and limit this influx of labor. A move that would, again, place upwards pressure on wages.
Rise of Alternative Currencies
Bitcoin is gaining ground. While much of its rise can be attributed to speculative gambling by a struggling populace seeking upward mobility, it’s also undeniable that the true adoption of Bitcoin is growing at an exponential pace.
For consumers (labor), a deflationary currency is advantageous, as it preserves purchasing power over time. In contrast, an inflationary government currency acts as a mechanism for wealth transfer, from ordinary people who hold the currency to those who can produce more of it at low cost, namely governments and banks. The owner class (capital) is less affected by this transfer, as inflation drives up asset prices, which the owner class are holders of.
If labor must regain strength to restore equilibrium in the system, a shift toward a deflationary currency like Bitcoin makes logical sense.
Why the World Feels Crazy
The world feels chaotic because many long-running trends, some spanning for almost 80 years, are approaching a breaking point where reversal is inevitable. Our world is currently out of balance, and trying to trigger a return to equilibrium. Political instability is a symptom of this, and it seems many people are struggling to make sense of it.
Donald Trump’s rise to power is often misunderstood. While he certainly has a dedicated base of die-hard supporters, his election as President is not a result of people believing he is an exceptional individual, morally good, or even a particularly capable leader. Instead, he is a symbol for change.
For much of the general populace, the existing power structure has failed them. Their quality of life is stagnating, or worse, declining, and this has gone on for too long. Faced with the status quo, many have chosen change, even with no guarantees it will be for the better. In Trump, whether their belief is misguided or not, they see a glimmer of hope.
What's Next?
For U.S. society to return to a healthy equilibrium, labor must regain strength in its struggle against capital. The exact path this process will take is impossible to predict, but one way or another, I believe it is bound to happen.
I fear, based on historical patterns and the events unfolding around us, that the existing power structures will refuse to let go of their dominance. If that is the case, an escalation into violence is inevitable.
In fact, recent events indicate a troubling trend toward societal unrest. The assassination of UnitedHealthcare CEO Brian Thompson in New York City has been met with widespread applause from the public rather than condemnation. This reaction reflects deep-seated frustration with the current political and economic systems. These grievances must be addressed — and quickly.
How Does this Affect the Rest of the World?
Global Geopolitics
On a broader geopolitical level, over recent decades we have witnessed an era of remarkable peace. Historically, such periods usually tend to occur when there is just a single dominant world power. The dominant power then proceeds to act as a global policeman, usually driven by a desire to secure the safety of its international trade routes. In recent history, the U.S. has acted in this role.
However, with mounting domestic issues to address, it’s reasonable to expect the U.S. to adopt a more isolationist foreign policy. At the same time, the rise of China challenges the U.S.'s hegemony as the sole dominant world power. Therefore, without a global policeman around, border disputes and territorial conflicts are likely to continue to become more frequent across the world.
European Domestic Politics
Here in Europe, while many of us mock Americans for electing a figure like Trump, we fail to recognize that our own societies are on a very similar trajectory. In Finland, wage stagnation began in the 1990s, so we could expect to be some 20 or so years behind the U.S. in the progression of our own 'labor vs. capital' cycle.
If nothing changes, we should brace ourselves for the rise of our own version of "Trumpism" in the coming decades, quietly watching ourselves descend into the very same madness we are currently laughing at. Alternatively, we could choose to learn from the mistakes of others. By urging our political and economic elite to voluntarily correct course, we might be able to avoid such a descent into madness altogether.
As a side note, I want to emphasize that the message above is apolitical. In my view, both the political right and the political left are guilty of pursuing shortsighted, self-serving policies. On both sides of the aisle, their actions seem more focused on placating their political bases to secure re-election, rather than pursuing policies aimed at the common good for all.
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