WEBVTT NOTE XXX. Interference with the Structure of Prices (continued) 1 00:00:00.000 --> 00:00:04.700 3. Minimum Wage Rates 2 00:00:04.700 --> 00:00:11.020 The very essence of the interventionist politician's wisdom is to raise the price of labor either 3 00:00:11.020 --> 00:00:17.700 by government decree or by violent action on the part of labor unions. To raise wage 4 00:00:17.700 --> 00:00:23.240 rates above the height at which the unhampered market would determine them is considered 5 00:00:23.240 --> 00:00:29.320 apostolate of the eternal laws of morality as well as indispensable from the economic 6 00:00:29.320 --> 00:00:31.320 Point of View. 7 00:00:31.320 --> 00:00:37.400 Whoever dares to challenge this ethical and economic dogma is scorned both as depraved 8 00:00:37.400 --> 00:00:39.280 and ignorant. 9 00:00:39.280 --> 00:00:44.140 Many of our contemporaries look upon people who are foolhardy enough to cross a picket 10 00:00:44.140 --> 00:00:52.160 line as primitive tribesmen looked upon those who violated the precepts of taboo conceptions. 11 00:00:52.160 --> 00:00:57.720 Millions are jubilant if such scabs receive their well-deserved punishment from the hands 12 00:00:57.720 --> 00:01:18.720 The Market Wage Rate tends toward a height at which all those eager to earn wages get jobs, and all those eager to employ workers can hire as many as they want. 13 00:01:18.720 --> 00:01:24.720 It tends toward the establishment of what is nowadays called full employment. 14 00:01:24.720 --> 00:01:29.440 Where there is neither government nor union interference with the labor market, there 15 00:01:29.440 --> 00:01:33.920 is only voluntary or catallactic unemployment. 16 00:01:33.920 --> 00:01:39.600 But as soon as external pressure and compulsion, be it on the part of the government or on 17 00:01:39.600 --> 00:01:46.800 the part of the unions, tries to fix wage rates at a higher point, institutional unemployment 18 00:01:46.800 --> 00:01:48.640 emerges. 19 00:01:48.640 --> 00:01:54.220 While there prevails on the unhampered labor market a tendency for catallactic unemployment 20 00:01:54.220 --> 00:01:56.740 to Disappear. 21 00:01:56.740 --> 00:02:02.240 Institutional unemployment cannot disappear as long as the government or the unions are 22 00:02:02.240 --> 00:02:06.500 successful in the enforcement of their fiat. 23 00:02:06.500 --> 00:02:12.480 If the minimum wage rate refers only to a part of the various occupations while other 24 00:02:12.480 --> 00:02:18.660 sectors of the labor market are left free, those losing their jobs on its account enter 25 00:02:18.660 --> 00:02:24.600 are the free branches of business and increase the supply of labor in them. 26 00:02:24.600 --> 00:02:30.860 When unionism was restricted to skilled labor mainly, the wage rise achieved by the unions 27 00:02:30.860 --> 00:02:34.520 did not lead to institutional unemployment. 28 00:02:34.520 --> 00:02:40.200 It merely lowered the height of wage rates in those branches in which there were no efficient 29 00:02:40.200 --> 00:02:43.740 unions or no unions at all. 30 00:02:43.740 --> 00:02:51.740 The corollary of the rise in wages for organized workers was a drop in wages for unorganized workers. 31 00:02:51.740 --> 00:02:57.740 But with the spread of government interference with wages and with government support of unionism, 32 00:02:57.740 --> 00:02:59.740 conditions have changed. 33 00:02:59.740 --> 00:03:06.740 Institutional unemployment has become a chronic or permanent mass phenomenon. 34 00:03:06.740 --> 00:03:13.240 Writing in 1930, Lord Beveridge, now an enthusiastic advocate of government and union meddling 35 00:03:13.240 --> 00:03:18.940 with the Labor Market, pointed out that the potential effect of a high wages policy in 36 00:03:18.940 --> 00:03:24.480 causing unemployment is not denied by any competent authority. 37 00:03:24.480 --> 00:03:31.160 In fact, to deny this effect is tantamount to a complete disavowal of any regularity 38 00:03:31.160 --> 00:03:35.840 in the sequence and interconnectedness of market phenomena. 39 00:03:35.840 --> 00:03:41.200 Those earlier economists who sympathized with the unions were fully aware of the fact that 40 00:03:41.200 --> 00:03:48.160 Unionization can achieve its ends only when restricted to a minority of workers. 41 00:03:48.160 --> 00:03:53.880 They approved of unionism as a device beneficial to the group interests of a privileged labor 42 00:03:53.880 --> 00:03:59.440 aristocracy and did not concern themselves about its consequences for the rest of the 43 00:03:59.440 --> 00:04:01.440 wage earners. 44 00:04:01.440 --> 00:04:07.160 No one has ever succeeded in the effort to demonstrate that unionism could improve the 45 00:04:07.160 --> 00:04:20.120 It is important to remember also that Karl Marx did not contend that unions could raise 46 00:04:20.120 --> 00:04:23.040 the average standard of wages. 47 00:04:23.040 --> 00:04:30.000 As he saw it, the general tendency of capitalistic production is not to raise but to sink the 48 00:04:30.000 --> 00:04:33.120 average standard of wages. 49 00:04:33.120 --> 00:04:39.040 Such being the tendency of things, all that unionism can achieve with regard to wages is 50 00:04:39.040 --> 00:04:45.240 making the best of the occasional chances for their temporary improvement. 51 00:04:45.240 --> 00:04:51.720 The unions counted for Marx only as far as they attacked the very system of wage slavery 52 00:04:51.720 --> 00:04:54.960 and present-day methods of production. 53 00:04:54.960 --> 00:05:00.680 They should understand that instead of the conservative motto, a fair day's wages for 54 00:05:00.680 --> 00:05:06.640 for a Fair Day's Work, they ought to inscribe on their banner the revolutionary watchword, 55 00:05:06.640 --> 00:05:14.040 abolition of the wages system. Consistent Marxians always opposed attempts to impose 56 00:05:14.040 --> 00:05:20.640 minimum wage rates as detrimental to the interests of the whole labor class. From the beginning 57 00:05:20.640 --> 00:05:26.640 of the modern labor movement, there was always an antagonism between the unions and the revolutionary 58 00:05:26.640 --> 00:05:33.200 Socialists. The older British and American unions were exclusively dedicated to the enforcement 59 00:05:33.200 --> 00:05:40.200 of higher wage rates. They looked askance upon socialism, utopian as well as scientific. 60 00:05:41.120 --> 00:05:46.600 In Germany, there was a rivalry between the adepts of the Marxian creed and the union 61 00:05:46.600 --> 00:05:52.800 leaders. Finally, in the last decades preceding the outbreak of the First World War, the unions 62 00:05:52.800 --> 00:05:58.840 triumphed. They virtually converted the Social Democratic Party to the principles of interventionism 63 00:05:58.840 --> 00:06:05.840 and unionism. In France, Georges Sorrel aimed at imbuing the unions with that spirit of 64 00:06:05.880 --> 00:06:12.760 ruthless aggression and revolutionary bellicosity which Marx wanted to impart to them. There 65 00:06:12.760 --> 00:06:19.760 is today in every non-socialist country a manifest conflict between two irreconcilable factions 66 00:06:19.760 --> 00:06:49.600 The problems of labor unionism have been obfuscated and utterly confused by pseudo-humanitarian 67 00:06:49.600 --> 00:06:51.200 and Blather. 68 00:06:51.200 --> 00:06:56.520 The advocates of minimum wage rates, whether decreed and enforced by the government or 69 00:06:56.520 --> 00:07:02.080 by violent union action, contend that they are fighting for the improvement of the conditions 70 00:07:02.080 --> 00:07:04.200 of the working masses. 71 00:07:04.200 --> 00:07:09.880 They do not permit anyone to question their dogma that minimum wage rates are the only 72 00:07:09.880 --> 00:07:17.540 appropriate means of raising wage rates permanently and for all those eager to earn wages. 73 00:07:17.540 --> 00:07:24.780 They pride themselves on being the only true friends of labor, of the common man, of progress, 74 00:07:24.780 --> 00:07:28.220 and of the eternal principles of social justice. 75 00:07:28.220 --> 00:07:34.440 However, the problem is precisely whether there is any means for raising the standard 76 00:07:34.440 --> 00:07:40.380 of living of all those eager to work, other than raising the marginal productivity of 77 00:07:40.380 --> 00:07:46.760 labor by accelerating the increase of capital as compared with population. 78 00:07:46.760 --> 00:07:52.340 The union doctrinaires are intent upon obscuring this primary issue. 79 00:07:52.340 --> 00:07:58.420 They never refer to the only point that matters, namely the relation between the number of 80 00:07:58.420 --> 00:08:02.720 workers and the quantity of capital goods available. 81 00:08:02.720 --> 00:08:07.860 But certain policies of the unions involve a tacit acknowledgement of the correctness 82 00:08:07.860 --> 00:08:13.700 of the catallactic theorems concerning the determination of wage rates. 83 00:08:13.700 --> 00:08:20.020 Policies are anxious to cut down the supply of labor by anti-immigration laws and by preventing 84 00:08:20.020 --> 00:08:26.820 outsiders and newcomers from competing in the unionized sectors of the labor market. 85 00:08:26.820 --> 00:08:30.220 They are opposed to the export of capital. 86 00:08:30.220 --> 00:08:35.700 These policies would be nonsensical if it were true that the per capita quota of capital 87 00:08:35.700 --> 00:08:41.320 available is of no importance for determination of wage rates. 88 00:08:41.320 --> 00:08:47.360 The essence of the Union Doctrine is implied in the slogan Exploitation. 89 00:08:47.360 --> 00:08:52.840 According to the Union variety of the Exploitation Doctrine, which differs in some points from 90 00:08:52.840 --> 00:08:59.360 the Marxian creed, labor is the only source of wealth, and expenditure of labor the only 91 00:08:59.360 --> 00:09:01.320 real costs. 92 00:09:01.320 --> 00:09:07.420 By rights, all proceeds from the sale of products should belong to the workers. 93 00:09:07.420 --> 00:09:12.140 The worker has a fair claim to the whole produce of labor. 94 00:09:12.140 --> 00:09:17.700 The wrong that the capitalistic mode of production does to the worker consists in the fact that 95 00:09:17.700 --> 00:09:25.400 it permits landowners, capitalists and entrepreneurs to withhold a part of the worker's portion. 96 00:09:25.400 --> 00:09:30.040 The share which goes to these parasites is unearned income. 97 00:09:30.040 --> 00:09:34.620 It is manifestly a predatory revenue, a theft. 98 00:09:34.620 --> 00:09:40.260 The workers are right in their endeavors to raise wage rates, step by step, to such a 99 00:09:40.260 --> 00:09:45.840 height that finally nothing will be left for the support of a class of idle and socially 100 00:09:45.840 --> 00:09:48.480 useless exploiters. 101 00:09:48.480 --> 00:09:54.580 In aiming at this end, they continue the battle which earlier generations fought for the emancipation 102 00:09:54.580 --> 00:10:01.360 of slaves and serfs, and for the abolition of the imposts, tributes, tithes and unpaid 103 00:10:01.360 --> 00:10:08.360 Statute Labor with which the peasantry was burdened for the benefit of aristocratic landlords. 104 00:10:08.360 --> 00:10:13.720 The labor movement is a struggle for freedom and equality and for the vindication of the 105 00:10:13.720 --> 00:10:16.200 inalienable rights of man. 106 00:10:16.200 --> 00:10:22.320 Its ultimate victory is beyond doubt, for it is the inevitable trend of historical evolution 107 00:10:22.320 --> 00:10:30.040 to wipe out all class privileges and to establish firmly the realm of freedom and equality. 108 00:10:30.040 --> 00:10:36.200 The attempts of reactionary employers to halt progress are doomed. 109 00:10:36.200 --> 00:10:40.000 Such are the tenets of present-day social doctrine. 110 00:10:40.000 --> 00:10:46.320 It is true that some people, although in perfect agreement with its philosophical ideas, support 111 00:10:46.320 --> 00:10:54.120 the practical conclusions derived by the radicals only with certain reservations and qualifications. 112 00:10:54.120 --> 00:10:59.200 These moderates do not propose to abolish management's share altogether. 113 00:10:59.200 --> 00:11:04.160 They would be satisfied with cutting it down to a fair amount. 114 00:11:04.160 --> 00:11:09.580 As the opinions concerning the fairness of the revenues of the entrepreneurs and capitalists 115 00:11:09.580 --> 00:11:15.200 vary widely, the difference between the point of view of the radicals and that of the moderates 116 00:11:15.200 --> 00:11:17.300 is of little moment. 117 00:11:17.300 --> 00:11:23.360 The moderates also endorse the principle that real wage rates should always rise and never 118 00:11:23.360 --> 00:11:24.820 drop. 119 00:11:24.820 --> 00:11:30.660 In both world wars, few voices in the United States disputed the claim of the unions that 120 00:11:30.660 --> 00:11:36.620 the wage earners' take-home pay, even in a national emergency, should go up faster than 121 00:11:36.620 --> 00:11:39.340 the cost of living. 122 00:11:39.340 --> 00:11:45.380 All these sentimental disquisitions leave out of consideration the problems that matter, 123 00:11:45.380 --> 00:11:49.040 namely the economic aspects of the issue. 124 00:11:49.040 --> 00:11:55.480 They take no notice of institutional unemployment, the inescapable result of raising wage rates 125 00:11:55.480 --> 00:12:00.400 above the height determined by the unhampered market. 126 00:12:00.400 --> 00:12:05.800 As the union doctrine sees it, there is no harm in confiscating the specific revenue 127 00:12:05.800 --> 00:12:11.240 of the capitalists and entrepreneurs, partially or altogether. 128 00:12:11.240 --> 00:12:15.800 In dealing with this issue, they speak of profits in the sense in which the classical 129 00:12:15.800 --> 00:12:18.620 economists applied this term. 130 00:12:18.620 --> 00:12:25.260 They do not distinguish between entrepreneurial profit, interest on the capital employed and 131 00:12:25.260 --> 00:12:30.700 compensation for the technical services rendered by the entrepreneur. 132 00:12:30.700 --> 00:12:36.580 We will deal later with the consequences resulting from the confiscation of interest and profits 133 00:12:36.580 --> 00:12:42.580 and with the syndicalist elements involved in the ability to pay principle and in profit 134 00:12:42.580 --> 00:12:44.580 sharing schemes. 135 00:12:44.580 --> 00:12:50.000 We have examined the purchasing power argument as advanced in favor of a policy of raising 136 00:12:50.000 --> 00:12:56.720 wage rates above the potential market rates. What remains is to scrutinize the purport 137 00:12:56.720 --> 00:13:00.740 of the alleged Ricardo effect. 138 00:13:00.740 --> 00:13:05.900 Ricardo is the author of the proposition that a rise in wages will encourage capitalists 139 00:13:05.900 --> 00:13:13.260 to substitute machinery for labor and vice versa. Hence, conclude the union apologists, 140 00:13:13.260 --> 00:13:19.120 A policy of raising wage rates, irrespective of what they would have been on the unhampered 141 00:13:19.120 --> 00:13:26.120 labor market, is always beneficial. It generates technological improvement and raises the productivity 142 00:13:26.660 --> 00:13:33.660 of labor. Higher wage rates always pay for themselves. Enforcing the reluctant employers 143 00:13:33.780 --> 00:13:40.780 to raise wage rates, the unions become the pioneers of progress and prosperity. 144 00:13:40.780 --> 00:13:46.660 Many economists approve of the Ricardian proposition, although few of them are consistent enough 145 00:13:46.660 --> 00:13:51.220 to endorse the inference the union apologists draw from it. 146 00:13:51.220 --> 00:13:57.020 The Ricardo effect is, by and large, a stock in trade of popular economics. 147 00:13:57.020 --> 00:14:03.280 Nonetheless, the theorem involved is one of the worst economic fallacies. 148 00:14:03.280 --> 00:14:09.460 The confusion starts with the misinterpretation of the statement that machinery is substituted 149 00:14:09.460 --> 00:14:11.300 for Labor. 150 00:14:11.300 --> 00:14:17.300 What happens is that labor is rendered more efficient by the aid of machinery. 151 00:14:17.300 --> 00:14:24.260 The same input of labor leads to a greater quantity or a better quality of products. 152 00:14:24.260 --> 00:14:29.900 The employment of machinery itself does not directly result in a reduction of the number 153 00:14:29.900 --> 00:14:35.780 of hands employed in the production of the Article A concerned. 154 00:14:35.780 --> 00:14:41.660 What brings about this secondary effect is the fact that, other things being equal, an 155 00:14:41.660 --> 00:14:48.740 increase in the available supply of A lowers the marginal utility of a unit of A as against 156 00:14:48.740 --> 00:14:54.860 that of the units of other articles and that therefore labor is withdrawn from the production 157 00:14:54.860 --> 00:14:59.880 of A and employed in the turning out of other articles. 158 00:14:59.880 --> 00:15:05.540 The technological improvement in the production of A makes it possible to realize certain 159 00:15:05.540 --> 00:15:11.580 and projects which could not be executed before, because the workers required were employed 160 00:15:11.580 --> 00:15:18.100 for the production of A, for which consumer's demand was more urgent. The reduction of the 161 00:15:18.100 --> 00:15:24.660 number of workers in the A industry is caused by the increased demand of these other branches 162 00:15:24.660 --> 00:15:31.940 to which the opportunity to expand is offered. Incidentally, this insight explodes all talk 163 00:15:31.940 --> 00:15:36.180 Talk About Technological Unemployment 164 00:15:36.180 --> 00:15:43.060 Tools and machinery are primarily not labor-saving devices, but means to increase output per 165 00:15:43.060 --> 00:15:49.900 unit of input. They appear as labor-saving devices if looked upon exclusively from the 166 00:15:49.900 --> 00:15:55.540 point of view of the individual branch of business concerned. Seen from the point of 167 00:15:55.540 --> 00:16:01.260 view of the consumers and the whole of society, they appear as instruments that raise the 168 00:16:01.260 --> 00:16:04.060 The Productivity of Human Effort 169 00:16:04.060 --> 00:16:10.220 They increase supply and make it possible to consume more material goods and to enjoy 170 00:16:10.220 --> 00:16:12.260 more leisure. 171 00:16:12.260 --> 00:16:18.540 Which goods will be consumed in greater quantity and to what extent people will prefer to enjoy 172 00:16:18.540 --> 00:16:23.280 more leisure depends on people's value judgments. 173 00:16:23.280 --> 00:16:29.260 The employment of more and better tools is feasible only to the extent that the capital 174 00:16:29.260 --> 00:16:31.500 All required is available. 175 00:16:31.500 --> 00:16:38.260 Saving, that is, a surplus of production over consumption, is the indispensable condition 176 00:16:38.260 --> 00:16:43.100 of every further step toward technological improvement. 177 00:16:43.100 --> 00:16:49.220 Mere technological knowledge is of no use if the capital needed is lacking. 178 00:16:49.220 --> 00:16:53.580 Chinese businessmen are familiar with American ways of production. 179 00:16:53.580 --> 00:16:59.820 What prevents them from adopting the American methods is not the lowness of Chinese wages, 180 00:16:59.820 --> 00:17:02.420 but lack of capital. 181 00:17:02.420 --> 00:17:08.820 On the other hand, capitalist saving necessarily causes employment of additional tools and 182 00:17:08.820 --> 00:17:10.520 machinery. 183 00:17:10.520 --> 00:17:16.820 The role that plain saving, that is, the piling up of stocks of consumers' goods as a reserve 184 00:17:16.820 --> 00:17:22.260 for rainy days, plays in the market economy, is negligible. 185 00:17:22.260 --> 00:17:27.540 For capitalism, saving is as a rule capitalist saving. 186 00:17:27.540 --> 00:17:32.840 The excess of production over consumption is invested either directly in the saver's 187 00:17:32.840 --> 00:17:39.340 own business or farm, or indirectly in other people's enterprises through the instrumentality 188 00:17:39.340 --> 00:17:46.780 of savings deposits, common and preferred stock, bonds, debentures and mortgages. 189 00:17:46.780 --> 00:17:51.740 As we are dealing here with the conditions of the unhampered market economy, we may 190 00:17:51.740 --> 00:17:57.540 They disregard the capital-consuming effects of government borrowing. 191 00:17:57.540 --> 00:18:03.900 To the extent to which people keep their consumption below their net income, additional capital 192 00:18:03.900 --> 00:18:10.060 is created, and at the same time employed for the expansion of the capital equipment 193 00:18:10.060 --> 00:18:12.660 of the apparatus of production. 194 00:18:12.660 --> 00:18:19.240 As has been pointed out, this outcome cannot be affected by any synchronous tendency toward 195 00:18:19.240 --> 00:18:22.560 and an increase in cash holdings. 196 00:18:22.560 --> 00:18:28.640 On one hand, what is unconditionally needed for the employment of more and better tools 197 00:18:28.640 --> 00:18:32.120 is additional accumulation of capital. 198 00:18:32.120 --> 00:18:37.680 On the other hand, there is no employment available for additional capital other than 199 00:18:37.680 --> 00:18:43.520 that provided by the application of more and better tools. 200 00:18:43.520 --> 00:18:49.600 Plato's proposition and the union doctrine derived from it turn things upside down. 201 00:18:49.600 --> 00:18:56.000 A tendency toward higher wage rates is not the cause, but the effect of technological 202 00:18:56.000 --> 00:18:58.000 improvement. 203 00:18:58.000 --> 00:19:04.440 Profit-seeking business is compelled to employ the most efficient methods of production. 204 00:19:04.440 --> 00:19:10.080 What checks a businessman's endeavors to improve the equipment of his firm is only 205 00:19:10.080 --> 00:19:12.200 lack of capital. 206 00:19:12.200 --> 00:19:19.240 If the capital required is not available, no meddling with wage rates can provide it. 207 00:19:19.240 --> 00:19:24.760 All that minimum wage rates can accomplish with regard to the employment of machinery 208 00:19:24.760 --> 00:19:30.320 is to shift additional investment from one branch into another. 209 00:19:30.320 --> 00:19:37.020 Let us assume that in an economically backward country, Ruritania, the Stevedores Union succeeds 210 00:19:37.020 --> 00:19:42.780 is enforcing the entrepreneurs to pay wage rates which are comparatively much higher 211 00:19:42.780 --> 00:19:46.740 than those paid in the rest of the country's industries. 212 00:19:46.740 --> 00:19:52.440 Then it may result that the most profitable employment for additional capital is to utilize 213 00:19:52.440 --> 00:19:57.420 mechanical devices in the loading and unloading of ships. 214 00:19:57.420 --> 00:20:03.940 But the capital thus employed is withheld from other branches of ruritania's business, 215 00:20:03.940 --> 00:20:09.700 in which, in the absence of the Union's policy, it would have been employed in a more profitable 216 00:20:09.700 --> 00:20:11.020 way. 217 00:20:11.020 --> 00:20:17.580 The effect of the high wages of the stevedores is not an increase, but a drop in Ruritania's 218 00:20:17.580 --> 00:20:19.860 total production. 219 00:20:19.860 --> 00:20:22.740 The example is merely hypothetical. 220 00:20:22.740 --> 00:20:28.380 Such a powerful Union would probably prohibit the employment of mechanical devices in the 221 00:20:28.380 --> 00:20:35.020 The Loading and Unloading of Ships in Order to Create More Jobs 222 00:20:35.020 --> 00:20:42.100 Real wage rates can rise only to the extent that, other things being equal, capital becomes 223 00:20:42.100 --> 00:20:43.960 more plentiful. 224 00:20:43.960 --> 00:20:48.860 If the government or the unions succeed in enforcing wage rates which are higher than 225 00:20:48.860 --> 00:20:54.900 those the unhampered labor market would have determined, the supply of labor exceeds the 226 00:20:54.900 --> 00:21:00.900 The Demand for Labor, Institutional Unemployment Emerges 227 00:21:00.900 --> 00:21:07.700 Firmly committed to the principles of interventionism, governments try to check this undesired result 228 00:21:07.700 --> 00:21:13.740 of their interference by resorting to those measures which are nowadays called full employment 229 00:21:13.740 --> 00:21:21.300 policy, unemployment doles, arbitration of labor disputes, public works by means of lavish 230 00:21:21.300 --> 00:21:27.860 Fresh Public Spending, Inflation and Credit Expansion. All these remedies are worse than 231 00:21:27.860 --> 00:21:34.540 the evil they are designed to remove. Assistance granted to the unemployed does not dispose 232 00:21:34.540 --> 00:21:40.580 of unemployment. It makes it easier for the unemployed to remain idle. The nearer the 233 00:21:40.580 --> 00:21:45.620 allowance comes to the height at which the unhampered market would have fixed the wage 234 00:21:45.620 --> 00:21:51.820 Wage Rate, the less incentive it offers to the beneficiary to look for a new job. 235 00:21:51.820 --> 00:21:58.020 It is a means of making unemployment last, rather than of making it disappear. 236 00:21:58.020 --> 00:22:05.060 The disastrous financial implications of unemployment benefits are manifest. 237 00:22:05.060 --> 00:22:09.180 Arbitration is not an appropriate method for the settlement of disputes concerning the 238 00:22:09.180 --> 00:22:11.280 height of wage rates. 239 00:22:11.280 --> 00:22:17.480 If the arbitrator's award fixes wage rates exactly at the potential market rate or below 240 00:22:17.480 --> 00:22:20.800 that rate, it is supererogatory. 241 00:22:20.800 --> 00:22:26.640 If it fixes wage rates above the potential market rate, the consequences are the same 242 00:22:26.640 --> 00:22:33.000 that any other mode of fixing minimum wage rates above the market height brings about, 243 00:22:33.000 --> 00:22:36.300 namely institutional unemployment. 244 00:22:36.300 --> 00:22:43.180 It does not matter to what pretext the arbitrator resorts in order to justify his decision. 245 00:22:43.180 --> 00:22:49.740 What matters is not whether wages are fair or unfair by some arbitrary standard, but 246 00:22:49.740 --> 00:22:57.260 whether they do or do not bring about an excess of supply of labor over demand for labor. 247 00:22:57.260 --> 00:23:03.180 It may seem fair to some people to fix wage rates at such a height that a great part of 248 00:23:03.180 --> 00:23:09.340 The potential labor force is doomed to lasting unemployment, but nobody can assert that it 249 00:23:09.340 --> 00:23:13.780 is expedient and beneficial to society. 250 00:23:13.780 --> 00:23:19.960 If government spending is financed by taxing the citizens or borrowing from them, the citizens' 251 00:23:19.960 --> 00:23:26.400 power to spend and invest is curtailed to the same extent as that of the public treasury 252 00:23:26.400 --> 00:23:28.160 expands. 253 00:23:28.160 --> 00:23:32.320 No additional jobs are created. 254 00:23:32.320 --> 00:23:38.040 But if the government finances its spending program by inflation, by an increase in the 255 00:23:38.040 --> 00:23:44.720 quantity of money and by credit expansion, it causes a general cash-induced rise in the 256 00:23:44.720 --> 00:23:48.840 prices of all commodities and services. 257 00:23:48.840 --> 00:23:54.440 If in the course of such an inflation the rise in wage rates sufficiently lags behind 258 00:23:54.440 --> 00:24:01.440 the rise in the prices of commodities, institutional unemployment may shrink or disappear altogether. 259 00:24:02.320 --> 00:24:12.320 But what makes it shrink or disappear is precisely the fact that such an outcome is tantamount to a drop in real wage rates. 260 00:24:12.320 --> 00:24:19.320 Lord Keynes considered credit expansion an efficient method for the abolition of unemployment. 261 00:24:19.320 --> 00:24:26.320 He believed that gradual and automatic lowering of real wages as a result of rising prices 262 00:24:26.320 --> 00:24:33.320 would not be so strongly resisted by labor as any attempt to lower money wage rates. 263 00:24:33.320 --> 00:24:43.320 However, the success of such a cunning plan would require an unlikely degree of ignorance and stupidity on the part of the wage earners. 264 00:24:43.320 --> 00:24:52.320 As long as workers believe that minimum wage rates benefit them, they will not let themselves be cheated by such clever tricks. 265 00:24:52.320 --> 00:25:03.320 In practice, all these devices of an alleged full-employment policy finally lead to the establishment of socialism of the German pattern. 266 00:25:03.320 --> 00:25:14.320 As the members of an arbitration court whom the employers have appointed, and those whom the unions have appointed, never agree with regard to the fairness of a definite rate, 267 00:25:14.320 --> 00:25:19.320 The decision virtually devolves upon the members appointed by the government. 268 00:25:19.320 --> 00:25:25.320 The power to determine the height of wage rates is thus vested in the government. 269 00:25:25.320 --> 00:25:30.320 The more public works expand and the more the government undertakes 270 00:25:30.320 --> 00:25:37.320 in order to fill the gap left by private enterprises' inability to provide jobs for all, 271 00:25:37.320 --> 00:25:41.320 the more the realm of private enterprise shrinks. 272 00:25:41.320 --> 00:25:47.480 Thus, we are again faced with the alternative of capitalism or socialism. 273 00:25:47.480 --> 00:25:56.280 There cannot be any question of a lasting policy of minimum wage rates. 274 00:25:56.280 --> 00:26:03.480 The Catalactic Aspects of Labor Unionism The only catalactic problem with regard to 275 00:26:03.480 --> 00:26:09.040 labor unions is the question of whether or not it is possible to raise by pressure and 276 00:26:09.040 --> 00:26:15.820 and Compulsion, the wage rates of all those eager to earn wages above the height the unhampered 277 00:26:15.820 --> 00:26:19.400 market would have determined. 278 00:26:19.400 --> 00:26:26.040 In all countries, the labor unions have actually acquired the privilege of violent action. 279 00:26:26.040 --> 00:26:31.320 The governments have abandoned in their favor the essential attribute of government, the 280 00:26:31.320 --> 00:26:37.720 exclusive power and right to resort to violent coercion and compulsion. 281 00:26:37.720 --> 00:26:43.200 Of course, the laws which make it a criminal offense for any citizen to resort, except 282 00:26:43.200 --> 00:26:49.880 in case of self-defense, to violent action, have not been formally repealed or amended. 283 00:26:49.880 --> 00:26:56.160 However, actually labor union violence is tolerated within broad limits. 284 00:26:56.160 --> 00:27:02.260 The labor unions are practically free to prevent by force anybody from defying their orders 285 00:27:02.260 --> 00:27:06.220 concerning wage rates and other labor conditions. 286 00:27:06.220 --> 00:27:12.940 They are free to inflict with impunity bodily evils upon strikebreakers and upon entrepreneurs 287 00:27:12.940 --> 00:27:17.980 and mandatories of entrepreneurs who employ strikebreakers. 288 00:27:17.980 --> 00:27:24.060 They are free to destroy property of such employers and even to injure customers patronizing 289 00:27:24.060 --> 00:27:25.740 their shops. 290 00:27:25.740 --> 00:27:31.300 The authorities, with the approval of public opinion, condone such acts. 291 00:27:31.300 --> 00:27:34.000 The police do not stop such offenders. 292 00:27:34.000 --> 00:27:39.280 The state attorneys do not arraign them, and no opportunity is offered to the penal courts 293 00:27:39.280 --> 00:27:42.320 to pass judgment on their actions. 294 00:27:42.320 --> 00:27:48.880 In excessive cases, if the deeds of violence go too far, some lame and timid attempts at 295 00:27:48.880 --> 00:27:51.800 repression and prevention are ventured. 296 00:27:51.800 --> 00:27:53.980 But as a rule, they fail. 297 00:27:53.980 --> 00:27:59.660 Their failure is sometimes due to bureaucratic inefficiency or to the insufficiency of the 298 00:27:59.660 --> 00:28:05.060 and the means at the disposal of the authorities, but more often to the unwillingness of the 299 00:28:05.060 --> 00:28:10.660 whole governmental apparatus to interfere successfully. 300 00:28:10.660 --> 00:28:16.100 Such has been the state of affairs for a long time in all non-socialist countries. 301 00:28:16.100 --> 00:28:21.080 The economist, in establishing these facts, neither blames nor accuses. 302 00:28:21.080 --> 00:28:27.100 He merely explains what conditions have given to the unions the power to enforce their minimum 303 00:28:27.100 --> 00:28:34.100 from Wage Rates and What the Real Meaning of the Term Collective Bargaining is. 304 00:28:34.100 --> 00:28:39.740 As union advocates explain the term collective bargaining, it merely means the substitution 305 00:28:39.740 --> 00:28:45.540 of a union's bargaining for the individual bargaining of the individual workers. 306 00:28:45.540 --> 00:28:51.260 In the fully developed market economy, bargaining concerning those commodities and services 307 00:28:51.260 --> 00:28:57.840 of which homogeneous items are frequently bought and sold in great quantities, is not affected 308 00:28:57.840 --> 00:29:03.820 by the manner in which non-fungible commodities and services are traded. 309 00:29:03.820 --> 00:29:11.340 The buyer or seller of fungible consumer goods or of fungible services fixes a price tentatively 310 00:29:11.340 --> 00:29:17.260 and adjusts it later according to the response his offer meets from those interested, until 311 00:29:17.260 --> 00:29:23.400 While he is in a position to buy or to sell as much as he plans, technically no other 312 00:29:23.400 --> 00:29:25.820 procedure is feasible. 313 00:29:25.820 --> 00:29:29.500 The department store cannot haggle with its patrons. 314 00:29:29.500 --> 00:29:32.940 It fixes the price of an article and waits. 315 00:29:32.940 --> 00:29:37.980 If the public does not buy sufficient quantities, it lowers the price. 316 00:29:37.980 --> 00:29:44.860 A factory that needs 500 welders fixes a wage rate which, as it expects, will enable it 317 00:29:44.860 --> 00:29:53.180 to hire 500 men. If only a minor number turns up, it is forced to allow a higher rate. 318 00:29:53.180 --> 00:29:59.460 Every employer must raise the wages he offers up to the point at which no competitor lures 319 00:29:59.460 --> 00:30:06.620 the workers away by overbidding. What makes the enforcement of minimum wage rates futile 320 00:30:06.620 --> 00:30:12.940 is precisely the fact that with wages raised above this point, competitors do not turn 321 00:30:12.940 --> 00:30:18.820 end up with a demand for labor big enough to absorb the whole supply. 322 00:30:18.820 --> 00:30:24.180 If the unions were really bargaining agencies, their collective bargaining could not raise 323 00:30:24.180 --> 00:30:29.140 the height of wage rates above the point of the unhampered market. 324 00:30:29.140 --> 00:30:35.240 As long as there still are unemployed workers available, there is no reason for an employer 325 00:30:35.240 --> 00:30:37.680 to raise his offer. 326 00:30:37.680 --> 00:30:43.100 Individual collective bargaining would not differ catallactically from individual bargaining. 327 00:30:43.100 --> 00:30:48.400 It would, like individual bargaining, give a virtual voice to those job seekers who have 328 00:30:48.400 --> 00:30:51.760 not yet found the jobs they are looking for. 329 00:30:51.760 --> 00:30:58.420 However, what is euphemistically called collective bargaining by union leaders and pro-labor 330 00:30:58.420 --> 00:31:02.280 legislation is of a quite different character. 331 00:31:02.280 --> 00:31:04.880 It is bargaining at the point of a gun. 332 00:31:04.880 --> 00:31:12.680 It is bargaining between an armed party ready to use its weapons and an unarmed party under duress. 333 00:31:12.680 --> 00:31:15.560 It is not a market transaction. 334 00:31:15.560 --> 00:31:21.240 It is a dictate forced upon the employer, and its effects do not differ from those of 335 00:31:21.240 --> 00:31:26.520 a government decree for the enforcement of which the police power and the penal courts 336 00:31:26.520 --> 00:31:27.920 are used. 337 00:31:27.920 --> 00:31:32.040 It produces institutional unemployment. 338 00:31:32.040 --> 00:31:37.840 The treatment of the problems involved by public opinion and the vast number of pseudo-economic 339 00:31:37.840 --> 00:31:40.840 writings is utterly misleading. 340 00:31:40.840 --> 00:31:44.960 The issue is not the right to form associations. 341 00:31:44.960 --> 00:31:50.600 It is whether or not any association of private citizens should be granted the privilege of 342 00:31:50.600 --> 00:31:54.360 resorting with impunity to violent action. 343 00:31:54.360 --> 00:32:00.280 It is the same problem that relates to the activities of the Ku Klux Klan. 344 00:32:00.280 --> 00:32:05.880 Neither is it correct to look upon the matter from the point of view of a right to strike. 345 00:32:05.880 --> 00:32:12.800 The problem is not the right to strike, but the right by intimidation or violence to force 346 00:32:12.800 --> 00:32:18.800 other people to strike, and the further right to prevent anybody from working in a shop 347 00:32:18.800 --> 00:32:22.560 in which a union has called a strike. 348 00:32:22.560 --> 00:32:27.840 When the unions invoke the right to strike in justification of such intimidation and 349 00:32:27.840 --> 00:32:38.840 and the Deeds of Violence, they are on no better ground than a religious group would be in invoking the right of freedom of conscience as a justification of persecuting dissenters. 350 00:32:39.840 --> 00:32:54.840 When in the past the laws of some countries denied to employees the right to form unions, they were guided by the idea that such unions have no objective other than to resort to violent action and intimidation. 351 00:32:54.840 --> 00:33:21.840 When the authorities in the past sometimes directed their armed forces to protect the employers, their mandataries and their property against the onslaught of strikers, they were not guilty of acts hostile to labor. They simply did what every government considers its main duty. They tried to preserve their exclusive right to resort to violent action. 352 00:33:21.840 --> 00:33:39.840 There is no need for economics to enter into an examination of the problems of jurisdictional strikes and of various laws, especially of the American New Deal, which were admittedly loaded against the employers and which assigned a privileged position to the unions. 353 00:33:39.840 --> 00:33:55.840 There is only one point that matters. If a government decree or labor union pressure and compulsion fix wage rates above the height of the potential market rates, institutional unemployment results.