Labor and Leisure

Labor and leisure are complementary human actions that pertain production and consumption of economic goods. Labor is the process of consumption to produce an economic good (production). Leisure is the process of consumption that does not produce an economic good. Consumption without utility is the process of waste.

labor always involves the forgoing of leisure, a desirable good

Rothbard: Man Economy and State

This subtle error implies that both labor and leisure are economic goods. Yet goods neither create nor consume goods. Labor (production of economic goods) and leisure (production of non-economic goods) are human actions that consume capital over time. As shown in Expression Principle, both labor and leisure are processes that consume one's property. In the purest sense, production (including labor and leisure) implies the consumption of the actor’s body.

In each hour he will expend his effort toward producing that good whose marginal product is highest on his value scale. If he must give up an hour of labor, he will give up a unit of that good whose marginal utility is lowest on his value scale. At each point he will balance the utility of the product on his value scale against the disutility of further work. We know that a man's marginal utility of goods provided by effort will decline as his expenditure of effort increases. On the other hand, with each new expenditure of effort, the marginal disutility of the effort continues to increase. Therefore, a man will expend his labor as long as the marginal utility of the return exceeds the marginal disutility of the labor effort . A man will stop work when the marginal disutility of labor is greater than the marginal utility of the increased goods provided by the effort.

Then, as his consumption of leisure [time] increases, the marginal utility of leisure will decline, while the marginal utility of the goods forgone increases, until finally the utility of the marginal products forgone becomes greater than the marginal utility of leisure, and the actor will resume labor again.

This analysis of the laws of labor effort has been deduced from the implications of the action axiom and the assumption of leisure as a consumers' good.

It is neither correct nor necessary to assume leisure is a good, and by doing so imply that labor is an anti-good. It is similarly not necessary to construct a concept of negative utility (“disutility”). Value is simply a preference for higher utility over lower utility. Both labor and leisure exhibit positive utility. It is time preference that implies leisure utility is greater than labor utility.

By properly accounting for a person's body as property, "leisure preference" derives directly from time preference. As the above quote implies, this is the result of a trade of time without ones’s property (labor time) for the amount of interest that offsets the value one attributes to time with his body (leisure time).

Time, space and goods are the factors of all production, while labor is the process of production. Labor and production are distinct names for the same human action. The act of producing is labor; the act of laboring is production. The pure bank provides the model of all production. This cycle is clearly evident in the case of self-employment, which is just the example of production. In the case of a wage-earner there are two producers, the employee and the employer.

A pure wage-earning employee obtains borrowed capital and thereby trades for food, education, and equipment, as required for a job. A fraction of his capital is reserved and the rest is loaned to the employer. The employer pays the employee interest (wages) for the term of this loan. The employee recovers his depreciated principal at the end of the job.

The wage rate is a real interest rate, as described by the Fisher Hypothesis, offsetting both time preference for the loaned amount (nominal interest rate) and principal depreciation (inflation rate) during the term of the loan. The amount of principal and interest less depreciation of the fraction reserved is returned to the employee's creditor. In the case where his capital investment is borrowed from his own hoard, the employee is his own creditor. The return is then consumed or reinvested in future labor (or otherwise).

A real employer and employee each obtain a market rate of interest. The employee's interest rate is his wage rate. The employer's interest rate is the price obtained for the work product over the time of its production. The employer's production expense is the consumption of his borrowed capital, reserved over that time, just as for the employee. The amount by which interest exceeds depreciation is the increase in wealth to both parties.

The nominal interest rate obtained by both parties is the same. The difference in amounts returned is strictly a function of the amount of capital invested, either in individual production (employee) or in collective production (employer). The market valuation of the employee’s labor capital (i.e. its fraction of his wealth) can be inferred from his wage rate, by discounting the implied principal by the market’s nominal interest rate.

The employee trades leisure time for labor time to the extent that he values the amount of interest above the value he attributes to leisure time. Leisure preference is a restatement of time preference, where the value of one's own body is the economic good being traded.