By Lincoln’s presidency, America’s conquest of land was largely done. Lincoln and the New Republicans shifted the focus from acquiring new land to creating new capital. As a result, the value of land rose. Dramatically.
When Lincoln took office, New York City still had farmland and single-story housing. In 1910, the average price per square foot for an apartment was $8. It is now $1,300. That is even more dramatic than it sounds. If your average building is 2 stories high, $8 per square foot works out to about $700,000 per acre. If your average building is 10 stories high (and more than 7,000 buildings in New York are at least this high), $1,300 works out to over $500 million per acre.
Capital made land more valuable. Steel and elevators made it possible to build skyscrapers. Trains and cars made it possible to draw workers from a wider circle. All of these require capital and as cities created more capital, the value of land rose.
From the start of Lincoln’s presidency in 1861 to the end of Herbert Hoover’s presidency in 1933, Republicans focused on creating capital. After that, policies shifted to the problem of keeping labor fully employed and making labor more valuable. The result for capital was very similar to what happened to land after 1860.
The Federal Reserve has a simple charter: keep unemployment and inflation low. There is nothing there about ensuring that capital gets a high return. Financial markets are no longer subordinate to capital; they are subordinated to labor.
So, what happened to capital after the Fed found tools to better fulfill its charter? In 1945, household net worth in the US was $11.5 trillion. (Adjusted for inflation.) At the end of 2020, household net worth had reached $130 trillion, 11X more.
When the limit shifted from capital to labor, capital did fine. At the risk of hyperbole, you might even say it has done spectacularly. One of many reasons is that a growing number of employees are also capitalists: through pension funds, 401(k) accounts, and home ownership most workers also have a stake in the country’s assets.
Want to increase the value of land? Create more capital.
Want to increase wealth? Develop labor.
Want to raise wages? Make more people more entrepreneurial.
What evidence do we have of this? Well, for now it is anecdotal but the wages in Silicon Valley and Seattle are absurdly high by national – much less global – standards.
Do we need minimum wage laws? I think so.
Are minimum wage laws a good way to raise wages for folks outside the bottom 20%? Probably not.
The way to drive up average wages is to create so much demand for labor through startups that the limit to the number of startups has far less to do with capital than labor. And if that is the case – the priority by which startups get funded is determined by which key people they can get and not which investors they can find (and spoiler alert – that is already happening in places like Seattle and Silicon Valley) – it will drive up wages. Silicon Valley is not just the region with the highest wages in the country; it is the region where wages are growing the fastest. Based on weekly wages in the third quarter of 2020, the average wage in the US is $61,000, up 7.4% in the last year. In San Mateo, San Francisco, and Santa Clara, California, average wages are $148,000 – up more than 20% in the last year. Silicon Valley not only gets more venture capital funding than any other region in the US but more than any other country in the world. One of the many ways that Silicon Valley leads is that it is a place where a relative abundance of entrepreneurship is driving the demand for knowledge workers and raising wages to record levels. In King County, Washington, home to Amazon and Microsoft, the average wage for information workers in the third quarter of 2020 was $327,000. That’s five times the national average for all workers, which means that these workers are making each day what the average American worker makes in a week.
You may be inclined to dismiss these high wages as something reserved for only knowledge workers, arguing that these wage premiums only go to college graduates. It actually raises wages more broadly. Enrico Moretti, in his The New Geography of Jobs, writes, “Compare San Jose, number five from the top [by the measure of percent of workforce with BA or more], with Merced, at the very bottom. Both cities are in California, less than 100 miles apart, but their labor markets belong to two different universes. San Jose, in the heart of Silicon Valley, has more than four times the number of college graduates per capita as Merced and salaries that are 40 percent higher for college graduates and a whopping 130 percent higher for workers with a high school diploma.”
A barber cutting hair for folks making $30,000 a year will make less than a barber cutting the hair of folks making $300,000.
The way to drive up average wages is to create so much demand for labor through startups that the limit to the number of startups has far less to do with capital than labor. And if that is the case – the priority by which startups get funded is determined by which key people they can get and not which investors they can find (and spoiler alert – that is already happening in places like Seattle and Silicon Valley) – it will drive up wages. Silicon Valley is not just the region with the highest wages in the country; it is the region where wages are growing the fastest. Based on weekly wages in the third quarter of 2020, the average wage in the US is $61,000, up 7.4% in the last year. In San Mateo, San Francisco, and Santa Clara, California, average wages are $148,000 – up more than 20% in the last year. Silicon Valley not only gets more venture capital funding than any other region in the US but more than any other country in the world. One of the many ways that Silicon Valley leads is that it is a place where a relative abundance of entrepreneurship is driving the demand for knowledge workers and raising wages to record levels. In King County, Washington, home to Amazon and Microsoft, the average wage for information workers in the third quarter of 2020 was $327,000. That’s five times the national average for all workers, which means that these workers are making each day what the average American worker makes in a week.
You may be inclined to dismiss these high wages as something reserved for only knowledge workers, arguing that these wage premiums only go to college graduates. It actually raises wages more broadly. Enrico Moretti, in his The New Geography of Jobs, writes, “Compare San Jose, number five from the top [by the measure of percent of workforce with BA or more], with Merced, at the very bottom. Both cities are in California, less than 100 miles apart, but their labor markets belong to two different universes. San Jose, in the heart of Silicon Valley, has more than four times the number of college graduates per capita as Merced and salaries that are 40 percent higher for college graduates and a whopping 130 percent higher for workers with a high school diploma.”
A barber cutting hair for folks making $30,000 a year will make less than a barber cutting the hair of folks making $300,000.
Wages in a region go up with levels of entrepreneurship. We raised the price of land with more capital. We will raise wages by making more people more entrepreneurial which will create more demand for labor in the same way that New York's financial markets, subways and skyscrapers created more demand for land.
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