4. Catallactic Unemployment
If a job seeker cannot obtain the position he prefers, he must look for another kind
of job. If he cannot find an employer ready to pay him as much as he would like to earn,
he must abate his pretensions. If he refuses, he will not get any job. He remains unemployed.
What causes unemployment is the fact that, contrary to the above-mentioned doctrine of
the worker's inability to wait, those eager to earn wages can and do wait.
A job seeker who does not want to wait will always get a job in the unhampered market
economy in which there is always unused capacity of natural resources and, very often, also
Unused Capacity of Produced Factors of Production.
It is only necessary for him either to reduce the amount of pay he is asking for or to alter
his occupation or his place of work.
There were and still are people who work only for some time and then live for another period
from the savings they have accumulated by working.
In countries in which the cultural state of the masses is low, it is often difficult to
recruit workers who are ready to stay on the job.
The average man there is so callous and inert that he knows of no other use for his earnings
than to buy some leisure time.
He works only in order to remain unemployed for some time.
It is different in the civilized countries.
Here the worker looks upon unemployment as an evil.
He would like to avoid it, provided the sacrifice required is not too grievous.
He chooses between employment and unemployment in the same way in which he proceeds in all
other actions and choices.
He weighs the pros and cons.
If he chooses unemployment, this unemployment is a market phenomenon, whose nature is not
are not different from other market phenomena as they appear in a changing market economy.
We may call this kind of unemployment market-generated or catallactic unemployment.
The various considerations which may induce a man to decide for unemployment can be classified
in this way.
1.
The individual believes that he will find at a later date a remunerative job in his
in his dwelling place and in an occupation which he likes better and for which he has been trained.
He seeks to avoid the expenditure and other disadvantages involved in shifting from one occupation to another
and from one geographical point to another.
There may be special conditions increasing these costs.
A worker who owns a homestead is more firmly linked with the place of his residence than
people living in rented apartments.
A married woman is less mobile than an unmarried girl.
Then there are occupations which impair the worker's ability to resume his previous job
at a later date.
A watchmaker who works for some time as a lumberman may lose the dexterity required
for his previous job.
In all these cases, the individual chooses temporary unemployment because he believes
that this choice pays better in the long run.
2.
There are occupations the demand for which is subject to considerable seasonal variations.
In some months of the year, the demand is very intense.
In other months, it dwindles or disappears altogether.
The structure of wage rates discounts these seasonal fluctuations.
The branches of industry subject to them can compete on the labor market only if the wages
they pay in the good season are high enough to indemnify the wage earners for the disadvantages
resulting from the seasonal irregularity in demand.
Then, many of the workers, having saved a part of their ample earnings in the good season,
3. The individual chooses temporary unemployment for considerations which, in popular speech, are called non-economic or even irrational.
He does not take jobs which are incompatible with his religious, moral and political convictions.
He shuns occupations the exercise of which would impair his social prestige.
Unemployment in the unhampered market is always voluntary.
In the eyes of the unemployed man, unemployment is the minor of two evils between which he
has to choose.
The structure of the market may sometimes cause wage rates to drop.
But on the unhampered market there is always for each type of labor a rate at which all
those eager to work can get a job.
The final wage rate is that rate at which all job seekers get jobs and all employers
as many workers as they want to hire.
Its height is determined by the marginal productivity of each type of work.
Wage-rate fluctuations are the device by means of which the sovereignty of the consumers
manifests itself on the labor market.
They are the measure adopted for the allocation of labor to the various branches of production.
They penalize disobedience by cutting wage rates in the comparatively overmanned branches
and recompense obedience by raising wage rates in the comparatively undermanned branches.
They thus submit the individual to a harsh social pressure.
It is obvious that they indirectly limit the individual's freedom to choose his occupation.
But this coercion is not rigid.
It leaves to the individual a margin in the limits of which he can choose between what
that suits him better and what less.
Within this orbit he is free to act of his own accord.
This amount of freedom is the maximum of freedom that an individual can enjoy in the framework
of the social division of labor, and this amount of coercion is the minimum of coercion
that is indispensable for the preservation of the system of social cooperation.
There is only one alternative left to the catallactic pressure exercised by the wages
system, the assignment of occupations and jobs to each individual by the peremptory
decrees of an authority, a central board planning all production activities.
This is tantamount to the suppression of all freedom.
It is true that under the wages system, the individual is not free to choose permanent
unemployment.
But no other imaginable social system could grant him a right to unlimited leisure.
That man cannot avoid submitting to the disutility of labor is not an outgrowth of any social
institution.
It is an inescapable natural condition of human life and conduct.
It is not expedient to call catalactic unemployment in a metaphor borrowed from mechanics, frictional
unemployment.
In the imaginary construction of the evenly rotating economy, there is no unemployment,
because we have based this construction on such an assumption.
Unemployment is a phenomenon of a changing economy.
The fact that a worker discharged on account of changes occurring in the arrangement of
production processes does not instantly take advantage of every opportunity to get another
job, but waits for a more propitious opportunity is not a consequence of the tardiness of the
adjustment to the change in conditions, but is one of the factors slowing down the pace
of this adjustment.
It is not an automatic reaction to the changes which have occurred, independent of the will
and the choices of the job seekers concerned, but the effect of their intentional actions.
It is speculative, not frictional.
Catalactic unemployment must not be confused with institutional unemployment.
Institutional unemployment is not the outcome of the decisions of the individual jobseekers.
It is the effect of interference with the market phenomena intent upon enforcing by
coercion and compulsion wage rates higher than those the unhampered market would have
determined.
The treatment of institutional unemployment belongs to the analysis of the problems of
interventionism.
5. Gross Wage Rates and Net Wage Rates
What the employer buys on the labor market and what he gets in exchange for the wages
paid is always a definite performance which he appraises according to its market price.
The customs and usages prevailing on the various sectors of the labor market do not influence
Allows the prices paid for definite quantities of specific performances.
Gross wage rates always tend toward the point at which they are equal to the price for which
the increment resulting from the employment of the marginal worker can be sold on the
market, due allowance being made for the price of the required materials and to originary
interest on the capital needed.
In weighing the pros and cons of the hiring of workers, the employer does not ask himself
what the worker gets as take-home wages.
The only relevant question for him is, what is the total price I have to expend for securing
the services of this worker?
In speaking of the determination of wage rates, catallactics always refers to the total price
which the employer must spend for a definite quantity of work of a definite type, that
is, to gross wage rates.
If laws or business customs force the employer to make other expenditures besides the wages
he pays to the employee, the take-home wages are reduced accordingly.
Such accessory expenditures do not affect the gross rate of wages.
Their incidence falls entirely upon the wage earner.
Their total amount reduces the height of take-home wages, that is, of net wage rates.
It is necessary to realize the following consequences of this state of affairs.
1.
It does not matter whether wages are time wages or piecework wages.
Also, where there are time wages, the employer takes only one thing into account, namely,
the average performance he expects to obtain from each worker employed.
His calculation discounts all the opportunities time work offers to shirkers and cheaters.
He discharges workers who do not perform the minimum expected.
On the other hand, a worker eager to earn more must either shift to piecework or seek
a job in which pay is higher because the minimum of achievement expected is greater.
Neither does it matter on an unhampered labor market whether time wages are paid daily,
weekly, monthly or as annual wages.
It does not matter whether the time allowed for notice of discharge is longer or shorter,
Whether agreements are made for definite periods or for the worker's lifetime, whether the
employee is entitled to retirement and a pension for himself, his widow and his orphans, to
paid or unpaid vacations, to certain assistance in case of illness or invalidism, or to any
other benefits and privileges, the question the employer faces is always the same.
Does it or does it not pay for me to enter into such a contract?
Don't I pay too much for what I am getting in return?
2.
Consequently the incidence of all so-called social burdens and gains ultimately falls
upon the worker's net wage rates.
It is irrelevant whether or not the employer is entitled to deduct the contributions to
3. The same holds true with regard to taxes on wages. Here, too, it does not matter whether the employer has or has not the right to deduct them from take-home wages.
4. Neither is a shortening of the hours of work a free gift to the worker. If he does
not compensate for the shorter hours of work by increasing his output accordingly, time
wages will drop correspondingly. If the law decreeing a shortening of the hours of work
prohibits such a reduction in wage rates, all the consequences of a government-decreed
and rise in wage rates appear.
The same is valid with regard to all other so-called social gains, such as paid vacations
and so on.
5.
If the government grants to the employer a subsidy for the employment of certain classes
of workers, their take-home wages are increased by the total amount of such a subsidy.
6.
If the authority's grant to every employed worker whose own earnings lag behind a certain
minimum standard, an allowance raising his income to this minimum, the height of wage
rates is not directly affected.
Indirectly, a drop in wage rates could possibly result as far as this system could induce
people who did not work before to seek jobs, and thus bring about an increase in the supply
In the last years of the 18th century, amidst the distress produced by the protracted war
with France and the inflationary methods of financing it, England resorted to this makeshift,
the Spienhemmland system.
The real aim was to prevent agricultural workers from leaving their jobs and going into the
factories where they could earn more.
The Spenumland system was thus a disguised subsidy for the landed gentry, saving them
the expense of higher wages.
6. Wages and Subsistence
The life of primitive man was an unceasing struggle against the scantiness of the nature-given
means for his sustenance.
In this desperate effort to secure bare survival, many individuals and whole families, tribes
and Races succumbed.
Primitive man was always haunted by the specter of death from starvation.
Civilization has freed us from these perils.
Human life is menaced day and night by innumerable dangers.
It can be destroyed at any instant by natural forces which are beyond control, or at least
cannot be controlled at the present stage of our knowledge and our potentialities.
But the horror of starvation no longer terrifies people living in a capitalist society.
He who is able to work earns much more than is needed for bare sustenance.
There are also, of course, disabled people who are incapable of work.
Then there are invalids who can perform a small quantity of work, but their disability
prevents them from earning as much as normal workers do.
Because the wage rates they could earn are so low that they could not maintain themselves.
These people can keep body and soul together only if other people help them.
The next of kin, friends, the charity of benefactors and endowments, and communal poor relief take
care of the destitute.
Almsfolk do not cooperate in the social process of production.
As far as the provision of the means for the satisfaction of wants is concerned, they do
not act.
They live because other people look after them.
The problems of poor relief are problems of the arrangement of consumption, not of the
arrangement of production activities.
They are, as such, beyond the frame of a theory of human action which refers only to the provision
of the Means Required for Consumption, not to the way in which these means are consumed.
Catalactic theory deals with the methods adopted for the charitable support of the destitute
only as far as they can possibly affect the supply of labor.
It has sometimes happened that the policies applied in poor relief have encouraged unwillingness
to work and the idleness of able-bodied adults.
In the capitalist society there prevails a tendency toward a steady increase in the per-capita
quota of capital invested.
The accumulation of capital soars above the increase in population figures.
Consequently, the marginal productivity of labor, wage rates and the wage earner's standard
of living tend to rise continually.
But this improvement in well-being is not the manifestation of the operation of an inevitable
law of human evolution.
It is a tendency resulting from the interplay of forces which can freely produce their effects
only under capitalism.
It is possible, and if we take into account the direction of present-day policies, even
It is then not unlikely that capital consumption, on the one hand, and an increase or an insufficient
drop in population figures, on the other hand, will reverse things.
Then it could happen that men will again learn literally what starvation means, and that
the relation of the quantity of capital goods available and population figures will become
seem so unfavorable as to make part of the workers earn less than a bare subsistence.
The mere approach to such conditions would certainly cause irreconcilable dissensions
within society, conflicts the violence of which must result in a complete disintegration
of all societal bonds.
The social division of labor cannot be preserved if part of the cooperating members of society
are doomed to earn less than a bare subsistence.
The notion of a physiological minimum of subsistence to which the iron law of wages refers and
which demagogues put forward again and again is of no use for a catalactic theory of the
determination of wage rates.
One of the foundations upon which social cooperation rests is the fact that labor performed according
According to the principle of the division of labor is so much more productive than the
efforts of isolated individuals, that able-bodied people are not troubled by the fear of starvation
which daily threaten their forebears.
Within a capitalist commonwealth, the minimum of subsistence plays no catallactic role.
Furthermore, the notion of a physiological minimum of subsistence lacks that precision
Human and scientific rigor which people have ascribed to it.
Primitive man, adjusted to a more animal-like than human existence, could keep himself alive
under conditions which are literally unbearable to his dainty scions pampered by capitalism.
There is no such thing as a physiologically and biologically determined minimum of subsistence,
valid for every specimen of the zoological species homo sapiens.
No more tenable is the idea that a definite quantity of calories is needed to keep a man
healthy and progenitive, and a further definite quantity to replace the energy expended in
working.
The appeal to such notions of cattle breeding and the vivisection of guinea pigs does not
aid the economist in his endeavors to comprehend the problems of purposive human action.
The iron law of wages and the essentially identical Marxian doctrine of the determination
of the value of labor power by the working time necessary for its production, consequently
also for its reproduction, are the least tenable of all that has ever been taught in the field
of catallactics.
But it was possible to attach some meaning to the ideas implied in the iron law of wages.
If one sees in the wage earner merely a chattel and believes that he plays no other role in
society, if one assumes that he aims at no other satisfaction than feeding and proliferation
and does not know of any employment for his earnings other than the procurement of those
as Animal Satisfactions, one may consider the iron law as a theory of the determination
of wage rates.
In fact, the classical economists, frustrated by their abortive value theory, could not
think of any other solution of the problem involved.
For Torrance and Ricardo, the theorem that the natural price of labor is the price which
which enables the wage earners to subsist and to perpetuate their race, without any
increase or diminution, was the logically inescapable inference from their untenable
value theory.
But when their epigones saw that they could no longer satisfy themselves with this manifestly
preposterous law, they resorted to a modification of it, which was tantamount to a complete
abandonment of any attempt to provide an economic explanation of the determination of wage rates.
They tried to preserve the cherished notion of the minimum of subsistence by substituting
the concept of a social minimum for the concept of a physiological minimum.
They no longer spoke of the minimum required for the necessary subsistence of the laborer
and for the preservation of an undiminished supply of labor.
They spoke instead of the minimum required for the preservation of a standard of living
sanctified by historical tradition and inherited customs and habits.
While daily experience taught impressively that under capitalism real wage rates and
the wage earner's standard of living were steadily rising, while it became from day
Today more obvious that the traditional walls separating the various strata of the population
could no longer be preserved because the social improvement in the conditions of the industrial
workers demolished the vested ideas of social rank and dignity.
These doctrinaires announce that old customs and social convention determine the height
of wage rates.
Only people blinded by preconceived prejudices and party bias could resort to such an explanation
in an age in which industry supplies the consumption of the masses again and again with new commodities
hitherto unknown and makes accessible to the average worker satisfactions of which no king
could dream in the past.
It is not especially remarkable that the Prussian historical school of the wirtschaftliche Staatswissenschaften
viewed wage rates no less than commodity prices and interest rates as historical categories,
and that in dealing with wage rates it had recourse to the concept of income adequate
to the individual's hierarchical station in the social scale of ranks.
It was the essence of the teachings of this school to deny the existence of economics
and to substitute history for it.
But it is amazing that Marx and the Marxians did not recognize that their endorsement of
this spurious doctrine entirely disintegrated the body of the so-called Marxian system of
economics.
When the articles and dissertations published in England in the early sixties convinced Marx
that it was no longer permissible to cling unswervingly to the wage theory of the classical
economists, he modified his theory of the value of labor power.
He declared that the extent of the so-called natural wants and the manner in which they
are satisfied are in themselves a product of historical evolution, and depend to a large
are of large extent on the degree of civilization attained by any given country, and among other factors, especially on the conditions and customs and pretensions concerning the standard of life under which the class of free laborers has been formed.
Thus, a historical and moral element enter into the determination of the value of labor power.
But when Marx adds that nonetheless, for a given country at any given time, the average quantity of indispensable necessaries of life is a given fact, he contradicts himself and misleads the reader.
What he has in mind is no longer the indispensable necessaries, but the things considered indispensable
from a traditional point of view, the means necessary for the preservation of a standard
of living adequate to the workers' station in the traditional social hierarchy.
The recourse to such an explanation means virtually the renunciation of any economic
In the beginning of the 20th century, there was a dramatic or catallactic elucidation of the determination of wage rates.
Wage rates are explained as a datum of history. They are no longer seen as a market phenomenon, but as a factor originating outside of the interplay of the forces operating on the market.
However, even those who believe that the height of wage rates as they are actually paid and
received in reality are forced upon the market from without, as a datum, cannot avoid developing
a theory which explains the determination of wage rates as the outcome of the valuations
and decisions of the consumers.
Without such a catalactic theory of wages, no economic analysis of the market can be
complete and logically satisfactory.
It is simply nonsensical to restrict the catalactic disquisitions to the problems of the determination
of commodity prices and interest rates, and to accept wage rates as a historical datum.
An economic theory worthy of the name must be in a position to assert with regard to
to Wage Rates more than that they are determined by a historical and moral element.
The characteristic mark of economics is that it explains the exchange ratios manifested
in market transactions as market phenomena, the determination of which is subject to irregularity
in the concatenation and sequence of events.
It is precisely this that distinguishes economic conception from the historical understanding,
theory from history.
We can well imagine a historical situation in which the height of wage rates is forced
upon the market by the interference of external compulsion and coercion.
Such institutional fixing of wage rates is one of the most important features of our
age of interventionist policies.
But with regard to such a state of affairs, it is the task of economics to investigate
what effects are brought about by the disparity between the two wage rates, the potential
rate which the unhampered market would have produced by the interplay of the supply of
and the demand for labor on the one hand, and on the other the rate which external compulsion
and Coercion impose upon the parties to the market transactions.
It is true wage earners are imbued with the idea that wages must be at least high enough
to enable them to maintain a standard of living adequate to their station in the hierarchical
gradation of society.
Every single worker has his particular opinion about the claims he is entitled to raise on
in account of status, rank, tradition and custom in the same way as he has his particular
opinion about his own efficiency and his own achievements.
But such pretensions and self-complacent assumptions are without any relevance for the determination
of wage rates.
They limit neither the upward nor the downward movement of wage rates.
The wage earner must sometimes satisfy himself with much less than what, according to his
opinion, is adequate to his rank and efficiency.
If he is offered more than he expected, he pockets the surplus without a qualm.
The age of laissez-faire, for which the iron law and Marx's doctrine of the historically
determined formation of wage rates claim validity, witnessed a progressive, although sometimes
The labor unions temporarily interrupted tendency for real wage rates to rise.
The wage earner's standard of living rose to a height unprecedented in history and never
thought of in earlier periods.
The labor unions pretend that nominal wage rates at least must always be raised in accordance
with the changes occurring in the monetary unit's purchasing power, in such a way as
is to secure to the wage earner the unabated enjoyment of the previous standard of living.
They raise these claims also with regard to wartime conditions and the measures adopted
for the financing of war expenditure.
In their opinion, even in wartime, neither inflation nor the withholding of income taxes
must affect the workers' take-home real wage rates.
This doctrine tacitly implies the thesis of the Communist Manifesto that the working men
have no country and have nothing to lose but their chains.
Consequently, they are neutral in the wars waged by the bourgeois exploiters and do not
care whether their nation conquers or is conquered.
It is not the task of economics to scrutinize these statements.
It only has to establish the fact that it does not matter what kind of justification is advanced
in favor of the enforcement of wage rates higher than those the unhampered labor market
would have determined.
If as a result of such claims, real wage rates are really raised above the height consonant
with the marginal productivity of the various types of labor concerned, the unavoidable
The same is valid with regard to the confused doctrine that wage earners are entitled to claim for themselves all the benefits derived from improvements in what union officers call the productivity of labor.
On the unhampered labor market, wage rates always tend toward the point at which they
coincide with the marginal productivity of labor.
The concept of the productivity of labor in general is no less empty than all other universal
concepts of this kind, for example, the concept of the value of iron or gold in general.
To speak of the productivity of labor in a sense other than that of the marginal productivity
is meaningless.
What these union officers have in mind is an ethical justification of their policies.
However, the economic consequences of these policies are not affected by the pretexts
advanced in their favor.
Wage rates are ultimately determined by the value which the wage earner's fellow citizens
is attached to his services and achievements. Labor is appraised like a commodity, not
because the entrepreneurs and capitalists are hard-hearted and callous, but because
they are unconditionally subject to the supremacy of the pitiless consumers. The consumers are
not prepared to satisfy anybody's pretensions, presumptions, and self-conceit. They want
to be Served in the Cheapest Way A Comparison between the Historical Explanation
of Wage Rates and the Regression Theorem It may be useful to compare the doctrine
of Marxism and the Prussian historical school, according to which wage rates are a historical
datum and not a catalactic phenomenon, with the regression theorem of money's purchasing
Purchasing Power.
The regression theorem establishes the fact that no good can be employed for the function
of a medium of exchange which at the very beginning of its use for this purpose did
not have exchange value on account of other employments.
This fact does not substantially affect the daily determination of money's purchasing
Banking Power as it is produced by the interplay of the supply of and the demand for money
on the part of people intent upon keeping cash.
The regression theorem does not assert that any actual exchange ratio between money on
the one hand and commodities and services on the other hand is a historical datum not
dependent on today's market situation.
It merely explains how a new kind of media of exchange can come into use and remain in
use.
In this sense, it says that there is a historical component in money's purchasing power.
It is quite different with the Marxian and Prussian theorem.
As this doctrine sees it, the actual height of wage rates as it appears on the market
is a historical datum.
The valuations of the consumers who immediately are the buyers of labor and those of the wage earners,
the sellers of labor, are of no avail.
Wage rates are fixed by historical events of the past.
They can neither rise above nor drop below this height.
The fact that wage rates are today higher in Switzerland than in China can be explained
only by history, just as only history can explain why Napoleon I became a Frenchman
and not an Italian, an emperor and not a Corsican lawyer. It is impossible in the explanation
of the discrepancy between the wage rates of shepherds or of bricklayers in these two
countries to resort to factors unconditionally in operation on every market. An explanation
Man can only be provided by the history of these two nations.