Why is a donation of cash preferred over an equivalent donation of labor?

Question

Suppose you went down to your local animal shelter or homeless shelter and asked:

I would be happy to volunteer 10 hours every weekend. I will perform general-purpose labor, meaning I will do any task you set me on.

— OR —

I can stay home and write you a check for the equivalent of 10 hours of general-purpose labor. At a local market rate of, say, \$15 per hour, that's a donation of \$150 every week.

Which would you prefer?

We don't even need to speculate. People have actually done this, and the response is instantaneous: "Oh, we would prefer the cash, thank you."

Don't economists have some law or theorem that says the value of labor and the value of capital should equalize, and thus the shelter should have no preference about whether they receive a donation of labor or cash?

Or is it that in this particular bounded microcosm, there is a preference for cash because they can use the cash to not only purchase labor if they need it, but also things like supplies, rent, etc.? Does this preference go some way to explaining Piketty's puzzle about why r > g? Capital is preferred, and therefore rewarded, over labor.

Is there some other bounded microcosm in which they would actually prefer the labor? Maybe some labor-intensive industry, like picking strawberries, harvesting sugarcane, or hand-stitching soccer balls together.

Answer 1

Don't economists have some law or theorem that says the value of labor and the value of capital should equalize, and thus the shelter should have no preference about whether they receive a donation of labor or cash?

Cash is not capital in economics (see for example Mankiws principles of economics or any other econ textbook) so no.

From economic perspective you give the shelter an option of your labor vs option to purchase any labor they desire or capital in case they purchase some equipment or buildings or they can use money to buy some materials etc.

The reason why they prefer money to your labor is that money can be exchanged for both various kinds of labor (maybe they need a specialist) and capital (maybe they need some new leashes for animals) or some materials (eg food for the dogs). Money is more versatile.

Or is it that in this particular bounded microcosm, there is a preference for cash because they can use the cash to not only purchase labor if they need it, but also things like supplies, rent, etc.?

Yes, exactly this.

Does this preference go some way to explaining Piketty's puzzle about why r > g? Capital is preferred, and therefore rewarded, over labor.

No $r>g$ has nothing to do with whether labor is preferred to capital. Cash is again not capital, when Piketty writes about $r>g$ he does not write about cash but actual capital invested in companies. Moreover, cash itself has $r=0$.

Factor returns depend on both demand (given by preferences) and supply of factors. If capital is scarce and labor abundant then $r$ will be high even if in a situation when country has equal amount of capital and labor demand for labor would be higher due to some preference for labor (maybe people like hand made products). Hence a higher preference for a factor won’t guarantee higher return for a factor.

Also the situation you describe does not show capital is preferred to labor, this was already discussed in the previous sections.

Is there some other bounded microcosm in which they would actually prefer the labor? Maybe some labor-intensive industry, like picking strawberries, harvesting sugarcane, or hand-stitching soccer balls together.

Talking from my own personal experience as someone who used to volunteer in dog shelter (when I was still in high school), work at dog shelter is extremely labor intensive. Almost everything has to be done by people (or at least when I was high schooler it had to be).

Again dog shelter prefers the money because money is more versatile. This is why humans use money in the first place as opposed to barter.