How Should We Value a Dollar?

A concept I’ve been interested in lately is the way we value a unit of currency, or rather what the currency as a concept represents. The dollar of course represents a unit of currency which, as evidenced on the front of the bill, is “legal tender for all debts, public and private”. Setting aside for a moment the fact that it is debt that is referenced, the Dollar has had a storied legacy within domestic and international economic policy. The macroeconomic factors which have enabled the dollar to presume a structural advantage, are also the same factors which domestically drive a lot of the dollar’s value.

An interesting argument against communism I’ve come across goes as follows: Communism will never work because a communist economy, or the production and sale of goods in a communist market, cannot propotionately reward productivity or skill when producing a good or service. That is, because the cost/benefit to society derived by a unit of work within a given occupation is irrelevant to the compensation awarded to it (to each according to their need, from each according to their ability) the communist market cannot support growth and innovation. This argument holds as evidenced by history, especially when compared to its capitalist counterparts.

The mechanics of supply and demand are fundamentally altered in a communist economy to a point where the currency cannot adequately represent a unit of value. How then does this relate to the capitalist economy of the US, given that our central bank prints currency according to techocratic monetary policy?

This itself is the primary thrust of the argument: a Dollar represents a given discrete value within the economy. For capitalistic societies, value can be achieved in one of two ways: through labor or through capital. Either you produce value through your job or you have a stock of capital which you can put into the economy to produce a return, either by investing in a new business, stocks, bonds, or other ventures – even by doing nothing with it and saving.

In a communist society, the value your labor provides by definition cannot return you more capital based on variable levels of output, nor can you accumulate capital to put to market. Hence, a unit of currency in a communist society means something very different than a capitalistic one. A capitalist society defines a unit of value according to a time-tested methodology centered, among other things, on supply and demand. If the labor you provide is in high demand, and there is a small labor supply pool, your value increases. If the labor you provide is in low demand, and there is a large labor pool willing to provide the same labor, your labor value decreases.

This can quickly become troublesome if there are a whole bunch of people competing for the same job. If the job was already paying a mediocre salary, then that job’s wage will drop even further, because now there is a glut of labor supply. Why would there be a large group of people competing for a shitty, low-paying job you might ask? Well, there are a great number of reasons, primarily that if you don’t have many options you still need to work in order to put food on the table. It could also be that the economy tanked and a large segment of the economy was laid off. Maybe you live in an economically depressed area which only employs unskilled labor, which exists in plenty. It could be the case that the reason for many workers competing for the same low paying job is also a primary driver of economic inequality.

Whereas critics of communism point out that the economy cannot effectively valuate a unit of purchasing power derived by labor, critics of capitalism will point out that, yes, the capitalist economy can effectively value currency earned from labor according to the laws of supply and demand but that neither accurately assesses a worker’s value. A middle class worker subject to any of the conditions above may be forced into a low paying job despite being educated, trained, and extremely productive at their job. This means a skilled, highly paid worker must in some circumstances forego a commensurate position for a low skill low paying position. If we believe that our economy is based on the idea of meritocracy (i.e. that a worker develops human capital through training and experience and is paid accordingly), shouldn’t our economic system in general prevent these large swaths of dead-weight loss to our economy?

In many cases, the lack of stable employment can prevent the average worker from developing that human capital. For instance, the gig economy is the largest growing job type. Gigs are temporary, short term, contract, or independent contractor types of jobs with little to no benefits and do not often provide a predictable salary. Instead of paying an employee a predictable salary with meaningful benefits, a company can instead hire them temporarily and let them go as necessary. The implication here is that with many millions of workers now chasing two, three, or even four “gigs” to pay the bills. The economic uncertainty they face forces them to accept these gigs at lower prices. Have the laws of supply and demand valued a unit of value provided by their labor effectively? I would argue not especially, given that the external factors of their employment dictate so much of the price of their labor.

As one parting example, TIME Magazine calculated the median wage of an Amazon worker compared to the increase of wealth Jeff Bezos earned in 2018 so far. Many of these workers are contract or temporary workers employed for the holiday seasons. The median salary for an Amazon worker is $28,000/yr, meaning half of the employees earned more and half less. Jeff Bezos earned $3,182 per second in 2018. Now, Bezos is the CEO and I don’t think any reasonable person would argue that an hour’s worth of his labor is equal to the median worker. His skill and talent have made Amazon enormously successful. The question, rather, is this: If it takes Bezos less than 10 seconds to earn the median yearly salary at his company, is Amazon effectively valuing a unit of labor based on productivity, merit and skill? I would argue not.