What is The Employer-Employee Relationship?

David Ellerman

Since we contend that the whole capitalism/socialism debate has been wrong-headed, it is incumbent on us to answer the questions:

(1) what is the root problem in both capitalism and socialism, and

(2) how would the third alternative variously called economic democracy, democratic worker ownership, or universal self-employment solve that problem?

The problem is the employer-employee relationship itself. Both capitalism and socialism (as public enterprise capitalism) have assumed that basic relationship and have debated whether workers should all be employed by the government for “the Public Good” or whether they could also be privately employed “for private greed.” Since the employment relation is so pivotal for the negative appraisal of both capitalism and socialism, this chapter gives a preliminary analysis of the employment relation.

The basic normative distinction is between:

(1) the democratic worker-owned firm (or self-employment firm) where labor hires capital and the workers are jointly working for themselves, and

(2) the employment firm where capital hires labor using the employer-employee relationship and where the equity capital can be privately owned (including employee-owned) or publicly owned by the government.

The difference is the hiring relationship, capital hiring labor or labor hiring capital. Capitalism is capital-ist not because it is private enterprise or free enterprise, but because capital hires labor rather than vice-versa. Thus the quintessential capital-ist aspect of our economy is neither private property nor free markets but is that legal relationship wherein capital hires labor, namely the employer-employee relationship. There is astonishing false consciousness concerning the employment relationship in our society. This can be illustrated by an experiment conducted with beginning Economics students.

First the students are told about the system of chattel slavery where workers are bought and sold as movable property. But just as a house or a car can be bought and sold, so one can also rent a house or car. Now instead of buying workers as in a slavery system, suppose we consider a system of renting workers. The students are asked if anyone knows an economic system based on the renting of workers. There is usually a puzzled silence. A Black student points out that during slack times, plantation slaves were rented out to work as stevedores, as hands in factories (for example, turpentine or sugar mills), or as common laborers. The Professor agrees that this happened but notes that it was the exception rather than the rule. We need an example of a whole economic system based on renting people. After another pause, some students offer, “Well, what about feudalism?” The Professor responds that feudalism was a system of indirect ownership of workers. Instead of being owned as chattel or movable property, serfs had the security of being attached to the landed estate which was then owned as real property. Thus we still need an example of a system of renting people. After more embarrassed silence and shuffling feet, finally a student, by the process of elimination if by no other logic, offers the answer: “Well, isn’t that sort of like what we have now?”

Yes, the system of renting people is our system, the employer-employee system. Of course, we do not say people are rented; we say people are “hired.” The students would have had no difficulty thinking of an economic system where workers are hired. The difference a word makes! When applied to things rather than persons, the words “rent” and “hire” are synonyms. One could say either “rent a car” or “hire a car” with the only difference being that Americans favor “rent a car” while the British will tend to “hire a car.” But American and British usage agrees that when people are rented, one says “people are hired.”

From an abstract economic-legal viewpoint, the employer-employee relation is the rental relation applied to persons. What do you buy when you rent something? You buy its services, the right to employ or use the entity within certain limits for a given time period. In terms of the stock-flow distinction in economics, to rent the stock is to buy a flow of services from the stock. When one rents an apartment or a car, one buys not the apartment or car itself but some of its services. If one rents a car for three days, one buys three car-days. If one rents an apartment for six months, one buys the services, six apartment-months. Similarly when one rents a person for eight hours, one buys the labor services of eight man-hours (or person-hours), i.e., the right to employ or use the person within the limits of the contract for an eight hour period.

The labor market is the market for the renting of human beings. Of all rental contracts, the employment contract has been the most modified and attenuated by social constraints. Labor legislation and the countervailing power of unions have both worked to mitigate the commodity nature of labor services and to insure that people are rented in a manner as “human” as possible. But all of these socially mitigating circumstances should not be taken as an excuse to obfuscate the basic fact that the employment contract to buy labor by the day, the week, or the year is the contract to hire or rent the person by the day, the week, or the year.

Wages as Rentals

We say that employees are “rented” rather than “hired” to awaken people (like the Economics students) from the dogmatic slumber in which they do not realize they live in an economic system based on the renting of human beings. Often this statement is intentionally or unintentionally misinterpreted as being hyperbole. For instance, the statement might be “embraced” as follows:

Yes, employees are rented and, indeed, we all sell our souls in this system of wage slavery.

This misinterprets the rental assertion as an example of hyperbole like “selling our souls” or “wage slavery.” But by the standard economic notion of a rental contract, the rental assertion is only a statement of fact couched in jarring language so one might see an old reality from a different perspective. When capital hires labor, the wage or salary payment is the rental payment.

One can even say that wages are the rentals paid for the use of a man’s personal services for a day or a week or a year. This may seem a strange use of terms, but on second thought, one recognizes that every agreement to hire labor is really for some limited period of time. By outright purchase, you might avoid ever renting any kind of land. But in our society, labor is one of the few productive factors that cannot legally be bought outright. Labor can only be rented, and the wage rate is really a rental. [Samuelson 1976, 569]

Much of the traditional criticism of the wage contract has centered on the size of the wage payments or human rentals. However, the amount of the wages will play no role whatsoever in our analysis. Indeed, one could imagine an equally dehumanizing relationship where the payment would go from the employees to the employer. That is, apply the idea of the employment contract to consumption rather than production.

A “Consumption Employment Relationship”

Workers take inputs and add value to produce the outputs. Consumers do the opposite; they take their consumer goods, consume them, and thereby produce scrap or used goods of lower market value. Ordinarily consumptive labor is self-managed; the consumers buy the inputs, make their own consumption decisions, and own the outputs (scrap or used goods). Consumption could be organized using the employment relationship. Since consumptive labor reduces value, the consumers would have to pay someone to employ them to consume goods. Instead of buying a turkey, consuming it, and owning the scraps, a family unit would pay someone to employ them to consume a turkey. The family would not buy the turkey or own the scraps. The analysis and critique developed here of the employment relation in production can be applied, mutatus mutandis, to this hypothetical consumption employment relation. The essence of the analysis is the role of human beings in the relationship, not the money payments one way or the other.

Human Leverage

Some of the implications of the employment relation can be appreciated by considering the notion of capital “leverage.” If the owner of $5,000 can hire or borrow $10,000 and put it all to work in an enterprise, the original $5,000 is called “equity capital” while the borrowed $10,000 is “debt capital” or “loan capital.” The borrowing amplifies or magnifies the effects of the equity capital. With only $5,000 invested, $15,000 is put to work. The equity holder gets the profits and losses from three times the equity capital. Suppose the net income before 10% interest on the loan capital is $2,000. Subtracting the $1,000 interest (10% of $10,000) leaves a $1,000 profit on $5,000 equity for a 20% rate of return. If there was no leverage (i.e., all the $15,000 capital was equity capital), then the $2,000 return on the $15,000 capital would be only a 13.3% rate of return (rather than 20%).

This amplification due to using hired capital is called “financial leverage” (or “gearing” in England). It should be noted that losses are also amplified by leverage. With less leverage, there are less interest expenses and the remaining losses are thinned out over more equity capital. Who’s in, and who’s out? Loan capital, like equity capital, is being used in an enterprise, but the suppliers of the loan capital are outsiders to the enterprise. They are creditors of the enterprise, while the suppliers of equity capital are the “insiders” (from the legal or de jure viewpoint).

The same considerations can be applied to any resources including “human resources” (to use a popular and telling expression from modern business jargon). Since human beings may also be rented, there is the phenomenon of human leverage. The net results of many peoples’ efforts can count as the results of one person’s effort if the one hires the many. The employment relation allows one or a small number of people to “leverage” their enterprise by hiring tens, hundreds, or thousands of other people. The results of human leverage show up in the income distribution. Some researchers found the income distribution of the highest 1% of the population distinctly shooting off with a different trend than the other 99%.

No one would dispute the fact that the wealthy differ from the lower 99% in the manner that they accumulate income. While most people are paid by the hour, or the number of widgets they produce, the wealthy frequently accumulate their extra wealth by some amplification process; that process varying from case to case. … Perhaps one of the most common lower-level modes of amplification is for an individual to organize an operation with others working for him so that his income is amplified through the efforts of others (a modest-sized business, for example). [Montroll 1987, 16-17]

Using income data for 1935-36, the average amplification factor was estimated at 16.8.

This number is not surprising since one of the most common modes of significant income amplification is to organize a modest-sized business with the order of 15-20 employees. [Montroll 1987, 18]

In fact, the business is carried out by all the people working there, but in law it is the enterprise of only the employer. The employees have a legal role like that of an instrument, indeed that of a human lever, working as a means to leverage or amplify the ends of the employer. The employees are not part of the ends of the enterprise. The employer does not act as the representative of the whole group of people working in the firm. The employer acts only in his own name, and the employees are “employed” to that end. The possibility of human leverage also supplies the simplest and most direct explanation for the prevalence of employment firms in a free enterprise economy which allows the employment relation and where there is a sufficient supply of labor willing to accept the employee’s role. The choice of firm structure is exercised by the entrepreneur or entrepreneurial group who organizes the firm. Since (by hypothesis) the firm is expected to be profitable, it is in the self-interest of the organizers to leverage the other people involved in the firm by employing them.

The Comparison with Slavery: Voluntariness

It is crucial to understand the similarities and differences between the employment system and slavery. When the details are stripped away, there are two important differences (in spite of the rhetoric about “wage slavery”): the voluntariness and the duration of the relationship.

In the conventional understanding, slavery was involuntary and the employment relation is voluntary. We accept this standard understanding of the historical facts. However, it is important to see how both assertions have been challenged in various ways. One the one hand, there is a whole school of liberal thinkers who argued that slavery was or could be considered as deriving from voluntary contractual arrangements [viz. Philmore 1982]. One the other hand, there is an old tradition prominently including Karl Marx which argued that the worker’s “choice” to sell his or her labor was a Hobson’s choice, and that the employment contract was “socially involuntary.” But the claim that slavery was voluntary as a matter of historical fact is absurd. And the argument that employment is “socially involuntary” is a rather weak special plea. The labor contract would satisfy any workable juridical notion of voluntariness. The worker, particularly the unionized worker, has considerably more bargaining power than, say, the unorganized consumer who must take price as given.

The involuntariness argument is also not necessary for a critique of the employment contract because voluntariness is a necessary but not a sufficient condition for the juridical validity of a contract. Indeed, if slavery was wrong because it was involuntary, then what about a system of voluntary contractual slavery? In the years prior to the Civil War, there was explicit legislation in six states “to permit a free Negro to become a slave voluntarily” [Gray 1958, 527; quoted in Philmore 1982, 47]. But when slavery was abolished, both involuntary and voluntary slavery was prohibited. The contract to voluntarily sell oneself is no longer considered a juridically valid contract.

We shall argue that the contract to voluntarily rent oneself out, i.e., the employment contract, should also be considered a juridically invalid contract. The immediate retort is that the abolition of renting people would violate the “freedom of contract.” When one thus hears the rhetoric of liberal capitalism, it is important to remember the invalidity of the self-sale contract. For example, there is Sir Henry Maine’s high-minded dictum that the movement of progressive societies has hitherto been a movement from Status to Contract[1861, reprinted 1972, 100]. Yet the abolition of the self-sale contract means precisely that one’s social position as a free person unowned by another person is a matter of status and is not a question of contract. Do free marketeers consider the invalidation of the self-enslavement contract as being retrogressive rather than progressive because it moved personal freedom from the realm of Contract to the realm of Status?

Or consider the oft-heard rhetoric about “free enterprise.” Several centuries ago, enterprise was based on the freedom to own other human beings. And workers even enjoyed the freedom to sell themselves. Those freedoms have now been abolished. Enterprise isn’t as free as it used to be.

Since slavery was abolished, human earning power is forbidden by law to be capitalized. A man is not even free to sell himself: he must rent himself at a wage. [Samuelson 1976, 52 (his italics)]

This quotation from the predominant liberal capitalist economist of our time is important for several reasons. Samuelson acknowledges a major limitation on the “free enterprise” rhetoric, and he forthrightly recognizes that a person rents himself out in the employment relation. Testimony against one’s own interest is particularly valuable. Samuelson is not attacking the employment relation in favor of democratic worker ownership. He is simply giving a no-nonsense description of the employer-employee relation without the usual linguistic sugar-coating involved in saying employees are “hired,” “employed,” “given a job,” or “invited to join the firm. Given the conventional enthusiasm for the freedom of enterprise to rent human beings, one might expect capitalist philosophers and economists to promote extending these freedoms by revalidating the self-sale contract. Robert Nozick of Harvard University, a leading moral philosopher, has argued on libertarian grounds to allow all “capitalist acts between consenting adults.” This includes the contract of political subjugation, the Hobbesian pactum subjectionis, wherein people renounce their democratic rights and voluntarily become the subjects of a ruler or ruling association. A group of people might sell the right to self-government to a “dominant protective association” and an individual might do likewise.

The comparable question about an individual is whether a free system will allow him to sell himself into slavery. I believe that it would. [Nozick 1974, 331]

Conventional economists constantly make social recommendations based on a utilitarian social philosophy that views all rights actually or potentially as marketable property rights (ignoring inalienable personal or human rights) and that views the efficiency gained from market exchange as the primary criterion of institutional choice. As Nobel laureate James Tobin has noted:

Any good second year graduate student in economics could write a short examination paper proving that voluntary transactions in votes would increase the welfare of the sellers as well as the buyers. [Tobin 1970, 269]

Indeed, conventional economic philosophy implies: (1) that people should be allowed to sell their political votes, (2) that people should further be allowed to individually or collectively sell all their democratic rights in a pactum subjectionis, and (3) that people should be allowed to sell all their labor in a voluntary self-enslavement contract. All of these contracts could find willing buyers and sellers among fully informed adults so they should be permitted according to capitalist social philosophy. Yet there is enough social acceptance of the natural rights philosophy descending from the political democratic revolutions of the past that capitalist economists and philosophers usually refrain from actually making such recommendations. Robert Nozick is the exception either because he is more intellectually forthright or perhaps just more fashionably naughty.

The Comparison with Slavery: Duration and Extent

In addition to voluntariness, the employment relation is distinguished from the historical master-slave relation by the duration and extent of the relationship. The difference is essentially the difference between renting and buying. Buying a house gives one the right to the entire future stream of services provided by the house, while renting only procures the housing services for a discrete time period. The slave owner owned all of the slave’s labor, while the employer only purchases certain labor services over a given time period. This relation between owning and renting people has been understood at least since antiquity. In the third century, the Stoic philosopher, Chrysippus, held that

no man is a slave “by nature” and that a slave should be treated as a “laborer hired for life,” … . [Sabine 1958, 150]

The comparison between slaves and “hirelings” was commonplace in the South during the antebellum debate over slavery.

Our property in man is a right and title to human labor. And where is it that this right and title does not exist on the part of those who have money to buy it? The only difference in any two cases is the tenure. [Bryan 1858, 10; quoted in Philmore 1982, Ê 43]

James Mill expounded on the distinction between buying and renting people from the employer’s viewpoint.

The only difference is, in the mode of purchasing. The owner of the slave purchases, at once, the whole of the labour, which the man can ever perform: he, who pays wages, purchases only so much of a man’s labour as he can perform in a day, or any other stipulated time. [James Mill 1826, Chapter I, section II]

If the employment contract is compared not to the historical master-slave relation but to a hypothetical self-sale contract, then the only basic difference is the duration and extent of the two voluntary contracts. Accordingly, a number of classical liberal writers condoned civilized versions of the self-sale contract prior to the actual abolition of all slavery. In John Locke’s influential Two Treatises of Government(1690), he would not condone a contract which gave the master the power of life of death over the slave.

For a Man, not having the Power of his own Life, cannot, by Compact or his own Consent, enslave himself to any one, nor put himself under the Absolute, Arbitrary Power of another, to take away his Life, when he pleases. [Second Treatise, section 23]

But once the contract was put on a civilized footing, it would be a rather severe form of the master-servant relationship.

For, if once Compact enter between them, and make an agreement for a limited Power on the one side, and Obedience on the other, the State of War and Slavery ceases, as long as the Compact endures…. I confess, we find among the Jews, as well as other Nations, that Men did sell themselves; but, ’tis plain, this was only to Drudgery, not to Slavery. For, it is evident, the Person sold was not under an Absolute, Arbitrary, Despotical Power. [Second Treatise, section 24]

With the exception of Nozick’s libertarian atavism, the self-sale contract has not been a topic of active discussion since the abolition of slavery. Yet the self-sale contract as a sell-labor-by-the-lifetime employment contract has had a curious secret life in economic theory. A capitalist market economy cannot be fully efficient if there are restrictions on trade for any commodities with willing buyers and sellers. By removing the restrictions, trade will make the buyers and sellers better off and efficiency will be improved. There is one basic theorem which is so important in capitalist economics that it is called the “Fundamental Theorem of Welfare Economics,” namely the theorem that a competitive equilibrium in a capitalist economy is allocatively efficient. If the sale of future-dated labor services was forbidden, the Fundamental Theorem would not hold. A buyer and seller might each be made better off if labor were sold over arbitrary time periods, e.g., by the lifetime. In theoretical models of competitive capitalism, complete future markets are assumed to exist for all commodities including labor. A consumer/worker

is to choose (and carry out) a consumption plan made now for the whole future, i.e., a specification of the quantities of all his inputs and all his outputs. [Debreu 1959, 50]

In such Arrow-Debreu models [Arrow and Debreu 1954], a consumer/worker is viewed as making a lifetime of labor contracts all at that initial time (not necessarily all with the same employer). Restrictions on the sale of future-dated labor services would be market imperfections precluding the allocative efficiency of competitive equilibrium. The fundamental efficiency theorem of capitalist economic theory must assume that the self-sale or lifetime labor contract is legally valid, even though the contract is now legally invalid. It is not surprising that capitalist economists absolutely loathe to admit this. One exception is the economist and econometrician Carl Christ who made the point in no less a forum than Congressional testimony.

Now it is time to state the conditions under which private property and free contract will lead to an optimal allocation of resources…. The institution of private property and free contract as we know it is modified to permit individuals to sell or mortgage their persons in return for present and/or future benefits. [Christ 1975, 334; quoted in Philmore 1982, 52].

The efficiency of perfect competition is surely the most thoroughly analyzed and discussed topic in mainstream economics. Yet in the textbooks or literature of the “science” of economics, the author has not been able to find a single other admission that capitalist efficiency requires that contract law be “modified to permit individuals to sell or mortgage their persons in return for present and/or future benefits.” In a society allegedly free of thought control, one would expect to find at least one textbook that would mention such a point.

The Language of the Employer-Employee Relation

This preliminary analysis of the employment relation must include consideration of the language of employment because “words tell a story.” We previously noted that a good many people are not even aware that they live in a society based on the renting of human beings. But before we suggest that “The Big Lie” or ideological false consciousness may also exist on this side of the erstwhile Iron Curtain, we should check if people at least know the traditional legal name of the employment relation. Slaves knew they were slaves, but do employees know their legal name? “Employer-employee” is not the traditional name; it is newspeak which has only come into English usage within the last century. Society seems to have “covered up” in the popular consciousness the fact that the traditional name is “master and servant.” Without special legal or historical education, one would think “servant” refers only to domestics. But domestic servants are only domestic servants, while all employees are servants in the technical legal sense of the word. The master-servant language was used by the 18th century Blackstone, but in the 19th century it had acquired such negative connotations that it had passed out of common usage. For instance, John Stuart Mill has no standard name for employee/servants in his classic Principles of Political Economy (1848) since the oldspeak of “servants” was unacceptable but the newspeak of “employees” had not yet been imported from the French. Mill referred to employees as hired “operatives,” “workpeople,” “labourers,” or even “the employed.” Even around the turn of this century, the English version “employee” of the French “employ” was not fully accepted. In 1890, Webster’s Unabridged Dictionarynotes:

The English form of this word, viz., employee, though perfectly conformable to analogy, and therefore perfectly legitimate, is not sanctioned by the usage of good writers.

The traditional language of master and servant is still used today in the area of agency law, the law governing the relationships between principal and agent, and any involved third parties. The relevant distinction is between a servant (i.e., an employee) and an independent contractor. A lawyer or plumber in independent practice is an independent contractor while a lawyer or plumber on the staff of a corporation would be a servant or employee. The Chicago economist, Ronald Coase, quoted from a lawbook to describe the “legal relationship normally called that of ‘master and servant’ or ’employer and employee'” [Coase 1937, 403].

The master must have the right to control the servant’s work, either personally or by another servant or agent. It is this right of control or interference, of being entitled to tell the servant when to work (within the hours of service) or when not to work, and what work to do and how to do it (within the terms of such service), which is the dominant characteristic in this relation and marks off the servant from an independent contractor, or from one employed merely to give to his employer the fruits or results of his labor. [Batt 1967, 8; quoted in Coase 1937, 403]

In addition to not being independent (e.g., not paying for one’s inputs), the servant is marked off from the independent contractor by the employer’s control over the execution of the work. An agent could be either a servant or an independent contractor. In agency law, the distinction is quite important for the imputation of legal liability when a third part is injured within the scope of the agent’s work. If the agent worked as a servant rather than as an independent contractor, the injured party can also sue the master or employer who would have a “deeper pocket” than the employee. The legal responsibility of the employer is called “strict liability” or “vicarious liability” since the injury to the third party was not actually the fruits of the employer’s labor. Modern labor legislation uses the newspeak of “employer-employee.” The continuing use of the traditional “masterservant” language in agency law is not without controversy. Some writers consider the “master-servant” language to be so archaic that it can be used as technical terminology without any undue negative connotations. Other writers disagree.

Another interesting variation in the literature of vicarious liability relates to the language in which the subject is discussed. Justice Holt spoke of “masters” and “servants,” which were current coin in 17th century speech. These terms are perpetuated today in many judicial decisions, and in the Restatement of Agency. Students should be familiar with them but should not, we think, acquire the habit of using them. Defenders of the Restatement contend that these words, precisely because they are archaic, are neutral tokens of communication. It is clear, however, that the terms are still alive enough to be offensive to laborers and labor representatives. [Conrad, 1972, 104]

For our purposes it suffices to highlight the social adjustment mechanism involved in the evolution from “masterservant” to “employer-employee.” When the social role of being rented acquired excessive negative connotations, society changed the name rather than change the relationship itself. There are other examples of proposed or actual language changes to alleviate social stress. For instance, in the slavery debates before the Civil War, some planters were quite willing to admit that the “master-slave” language could be objectionable so they suggested some newspeak.

Slavery is the duty and obligation of the slave to labor for the mutual benefit of both master and slave, under a warrant to the slave of protection, and a comfortable subsistence, under all circumstances. The person of the slave is not property, no matter what the fictions of the law may say; but the right to his labor is property, and may be transferred like any other property, or as the right to the services of a minor or apprentice may be transferred…. Such is American slavery, or as Mr. Henry Hughes happily terms it, “Warranteeism.” [Elliott 1860, vii]

The “warrantor-warrantee” newspeak for “master-slave” did not take hold since the relationship itself was soon abolished. The same social pressures are at work today. It “sounds bad” to say that people are rented so one is supposed to say s omething else.

Labor History: Servus, Serf, Servant

The etymology of the word “servant” is of interest. Western history has seen three general types of economic systems: slavery in ancient times, feudalism in the Middle Ages, and capitalism (private and public) in modern times. The worker’s role in this evolution can be traced in the evolution of his name. The Latin word for slave “servus” evolved into the French “serf” (and Italian “servo”) under feudalism, which in turn became “servant” under capitalism. If the three word version of Economics is “Supply and Demand,” the three word version of Labor History is “Servus, Serf, Servant.” During the Middle Ages in France and Italy, there were a few slaves, often of Eastern European origin, in addition to the multitude of serfs. The presence of the lowly slaves caused some linguistic dissonance since “serf,” “servo” and sometimes even the original “servus” were used to refer to the serf who had a higher station. In this case, language readjusted by renaming the actual servi as “slaves.”

By the end of the thirteenth century and perhaps in imitation of the Italians, they were called by a name that recalled the origin of many of them and that gradually slipped from its ethnic meaning to a purely juridical one: slaves, i.e., Slavs. [Bloch 1975, 64]

The disturbing linguistic association of “serf” and “servus” also led to newspeak for “serf.”

In order to prevent any misunderstanding and although everyday language, unafraid of confusion with Roman law, continued to use daily the word serf, many notaries henceforth carefully avoided servus, judged inconveniently equivocal, and replaced it in deeds by various synonyms, notably homme de corps. [Bloch 1975, Ê63-64]

In the course of its career, the word “servant” has denoted workers from the slave to the modern employee as if its own ontogeny had to recapitulate the servus-serf-servant phylogeny. Although servants are never called “slaves” (except as hyperbole), slaves were often called “servants” in premodern times. Even within recent decades, some dictionaries such as the 1959 Webster’s New Collegiate lists “A slave” as a second definition of “servant.” At the same time, lawbooks use “servant” as the technical legal term for the modern employee. Thus the three word version of Labor History could be shortened to one word, “Servant.”


Most people who work, work as employees. Yet they do not know employment is the rental relation applied to persons and they do not know the traditional name of the relationship. The system of social indoctrination has been so successful that the employer-employee relation is not even perceived as something that could be different. “To be employed” has become synonymous with “having a job,” to be “unemployed” is to be without work so “employment” has become the same as work. The employment relationship is accepted as part of the furniture of the social universe. We have even described the opposite system without the employment relationship as “universal self-employment” [which is akin to describing the opposite of the slavery system as universal self-ownership]. How could this happen? Part of the answer must be Marxism. Capitalism has been able to define its distinguishing features by the contrast with Marxism. The debate with Marxism has been focused on so many sideline issues that it gives new meaning to the phrase “red herring.” Since Marxist socialism models the economy as one big capitalist firm, the worker has the choice of being a cog on a private wheel or a cog on one big public wheel. It is as if slavery apologists had been able to successfully redefine the issue as the choice between public or private slave plantations. By diverting the debate, Marxism has been an absolute godsend to capitalist apologetics. If Marxism did not exist, capitalist ideology would have to invent it. The capitalism/socialism debate has not only diverted attention away from the renting of human beings, it has allowed capitalism to be positively identified with democracy, equality, justice in property, and treating people as persons rather than things. Yet the employment relation inherently denies all these ideals in the workplace. Slavery has been abolished both as an involuntary or as a voluntary relationship. But instead of creating a form of enterprise where people are treated as persons rather than things, we only have a system where workers are rented rather than owned. The transition from workers being an owned input to their being a hired input was certainly a moral improvement. But the capitalism/socialism debate has paid little attention to the alternative form of work where the human element is not “employed” at all by public or private employers where people rent only things rather than the owners of things renting people. Consider equality. There is a basic equality of rights in the political sphere. But prior to the democratic revolutions, there was a fundamental political inequality between ruler and the ruled where the ruler governed in his own name, and was not selected by and did not represent the ruled. Today in the economic sphere, that same type of authority relationship exists between the master and servant where the employer governs in his own name, and is not selected by and does not represent the employees. Or consider democracy. The capitalist democracies stands for democracy, but not in the workplace [viz. Dahl 1985]. In the next chapter, we will review the non-democratic tradition of liberal thought which founded autocracy on a voluntary contract, the pactum subjectionis. With the triumph of the democratic revolutions inspired by the natural rights philosophy of the Enlightenment, that non-democratic liberalism retreated to the capitalist workplace where it has flourished ever since as part of capitalist ideology. The employment contract is the pactum subjectionis of the employment firm. Or consider justice in the private property system. Under capitalism, doesn’t everyone get what they produce, the fruits of their labor? We will see quite the opposite, that when labor is hired, the fruits of labor go elsewhere. Labor is the natural basis for the appropriation of newly produced property; the natural “wages” of labor are the fruits. Instead of somehow being the economic system realizing justice in private property, capitalism systematically violates the basic labor principle of private property appropriation. It is again the employment relation which sets up the misappropriation of private property. In each case, we trace the root cause of the problem to be the renting of human beings, the employer-employee relationship. The alternative to the employment relation is not having everyone employed by the state. It is having everyone working for themselves (individually or jointly). This means restructuring companies so the membership rights are personal rights attached to the functional role of working in the firm. Then there is no human “employment” since working in the firm makes one a member so people are always jointly working for themselves.

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