Part 6 (1/2)

The belief that they do so rests on a series of delusions One of these is the fallacy of post hoc ergo propter hoc post hoc ergo propter hoc, which sees the enores in the last half century, due principally to the growth of capital investical advance, and ascribes it to the unions because the unions were also growing during this period But the errorht about by union demands means in the short run for the particular workers who retain their jobs, while failing to trace the effects of this advance on e costs of all workers, including those who forced the increase to the growth of capital investical advance, and ascribes it to the unions because the unions were also growing during this period But the errorht about by union demands means in the short run for the particular workers who retain their jobs, while failing to trace the effects of this advance on e costs of all workers, including those who forced the increase

One o further than this conclusion, and raise the question whether unions have not, in the long run and for the whole body of workers, actually prevented real wages froht have risen They have certainly been a force working to hold down or to reduce wages if their effect, on net balance, has been to reduce labor productivity; and we ard to productivity there is so to be said for union policies, it is true, on the credit side In some trades they have insisted on standards to increase the level of skill and competence And in their early history they did much to protect the health of their members Where labor was plentiful, individual e up workers and working the hours in spite of ultimate ill effects upon their health, because they could easily be replaced with others And soht even reduce their own profits by overworking their e decent standards, often increased the health and broader welfare of their es

But in recent years, as their power has grown, and as much misdirected public sympathy has led to a tolerance or endorseone beyond their legitiain, not only to health and welfare, but even in the long run to production, to reduce a seventy-hour week to a sixty-hour week It was a gain to health and leisure to reduce a sixty-hour week to a forty-eight-hour week It was a gain to leisure, but not necessarily to production and incoht-hour week to a forty-four-hour week The value to health and leisure of reducing the working week to forty hours is much less, the reduction in output and income more clear But the unions now talk about, and sometimes enforce, thirty-five and thirty-hour weeks, and deny that these can or need reduce output or incoain to leisure, but not necessarily to production and incoht-hour week to a forty-four-hour week The value to health and leisure of reducing the working week to forty hours is much less, the reduction in output and income more clear But the unions now talk about, and sometimes enforce, thirty-five and thirty-hour weeks, and deny that these can or need reduce output or inco hours that union policy has worked against productivity That, in fact, is one of the least harain, at least, has been clear But id subdivisions of labor which have raised production costs and led to expensive and ridiculous ”jurisdictional” disputes They have opposed payment on the basis of output or efficiency, and insisted on the saardless of differences in productivity They have insisted on promotion for seniority rather than for merit They have initiated deliberate slons under the pretense of fighting ”speed-ups” They have denounced, insisted upon the dismissal of, and sometimes cruelly beaten, men who turned out more work than their fellows They have opposed the introduction or improvement of machinery They have insisted that if any of their members have been laid off because of the installation ofuaranteed incomes” indefinitely They have insisted on make-work rules to require iven task They have even insisted, with the threat of ruining e of people who are not needed at all

Most of these policies have been followed under the assumption that there is just a fixed amount of work to be done, a definite ”job fund” which has to be spread over as many people and hours as possible so as not to use it up too soon This assumption is utterly false There is actually no limit to the amount of work to be done Work creates work What A produces constitutes the demand for what B produces

But because this false assumption exists, and because the policies of unions are based on it, their net effect has been to reduce productivity belohat it would otherwise have been Their net effect, therefore, in the long run and for all groups of workers, has been to policies of unions are based on it, their net effect has been to reduce productivity belohat it would otherwise have been Their net effect, therefore, in the long run and for all groups of workers, has been to reduce reduce real wages-that is, wages in teroods they will buy-below the level to which they would otherwise have risen The real cause for the trees in the last century has been, to repeat, the accuical advance es in teroods they will buy-below the level to which they would otherwise have risen The real cause for the trees in the last century has been, to repeat, the accuical advance made possible by it

But this process is not autoovernmental policies, it has, in fact, in the last decade, coross weekly earnings of private nonagricultural workers in terms of paper dollars, it is true that they have risen froust 1977 But when the Bureau of Labor Statistics allows for inflation, when it translates these earnings into 1967 dollars, to take account of the increase in consus actually fell fros actually fell froust 1977

This halt in the rise of real wages has not been a consequence inherent in the nature of unions It has been the result of shortsighted union and governe both of them

Chapter XXI

”ENOUGH TO B BUY B BACK THE P PRODUCT”

AMATEUR WRITERS on econoes These nebulous conceptions of economic justice come down to us from medieval times The classical economists worked out instead, a different concept-the concept of on econoes These nebulous conceptions of economic justice come down to us from medieval times The classical economists worked out instead, a different concept-the concept of functional functional prices and prices and functional functional wages Functional prices are those that encourage the largest voluest volu about the highest volues Functional prices are those that encourage the largest voluest volu about the highest voluest real payrolls

The concept of functional wages has been taken over, in a perverted form, by the Marxists and their unconscious disciples, the purchasing-power school Both of these groups leave to cruder es are ”fair” The real question, they insist, is whether or not they ork And the only wages that ork, they tell us, the only wages that will prevent an ies that will enable labor ”to buy back the product it creates” The Marxist and purchasing-power schools attribute every depression of the past to a preceding failure to pay such wages And at no es are still not high enough to buy back the product

The doctrine has proved particularly effective in the hands of union leaders Despairing of their ability to arouse the altruistic interest of the public or to persuade employers (wicked by definition) ever to be ”fair,” they have seized upon an argument calculated to appeal to the public's selfish rant union demands

How are we to knoever, precisely when labor does have ”enough to buy back the product”? Or when it has ht sum is? As the champions of the doctrine do not seem to have ed to try to find the answers for ourselves

Some sponsors of the theory seem to ih to buy back the particular product they make But they surely cannot h to buy back cheap dresses and the h to buy back mink coats; or that the h to buy Fords and the h to buy Cadillacs

It is instructive to recall, however, that the unions in the automobile industry, in the 1940s, when most of their members were already in the upper third of the country's incooverne wage paid in factories and nearly twice as great as the average paid in retail trade, were de to one of their spokesoods which we have the capacity to produce”

What, then, of the average factory worker and the average retail worker? If, under such circumstances, the automobile workers needed a 30 percent increase to keep the econoh for the others? Or would they have required increases of 55 to 160 percent to give the power as the automobile workers? For let us remember that then as now enore levels of different industries In 1976, workers in retail trade averaged weekly earnings of only 11396, while workers in all ed 20760 and those in contract construction 28493 enore levels of different industries In 1976, workers in retail trade averaged weekly earnings of only 11396, while workers in all ed 20760 and those in contract construction 28493

(Weeven within individual unions within individual unions is any guide, that the automobile workers, if this last proposal had beendifferentials; for the passion for econo the rest of us, is, with the exception of a few rare philanthropists and saints, a passion for getting as et rather than a passion for giving those below us as ic and soundness of a particular econo weaknesses of huuide, that the automobile workers, if this last proposal had beendifferentials; for the passion for econo the rest of us, is, with the exception of a few rare philanthropists and saints, a passion for getting as et rather than a passion for giving those below us as ic and soundness of a particular econo weaknesses of human nature, that we are at present concerned)

2

The arguh to buy back the product is uh contended, are the workers' purchasing power But it is just as true that everyone's incorocer's, the landlord's, the e what others have to sell And one of the s for which others have to find purchasers is their labor services

All this, e economy everybody's e economy everybody's money incoes, unless or until compensated by an equal increase in hourly productivity, is an increase in costs of production An increase in costs of production, where the government controls prices and forbids any price increase, takes the profit froinal producers, forces therowth in uneher price discourages buyers, shrinks the market, and also leads to unees all around the circle forces a 30 percent increase in prices, labor can buy no ; and the ain where a price increase is possible, the higher price discourages buyers, shrinks the market, and also leads to unees all around the circle forces a 30 percent increase in prices, labor can buy no ; and the ain

No doubt many will be inclined to dispute the contention that a 30 percent increase in wages can force as great a percentage increase in prices It is true that this result can follow only in the long run and only if monetary and credit policy permit it If money and credit are so inelastic that they do not increase ages are forced up (and if we assu labor productivity in dollar tere rates will be to force unemployment

And it is probable, in that case, that total payrolls, both in dollar a poill be lower than before For a drop in eht about by union policy and not as a transitional result of technological advance) necessarilyproduced for everyone And it is unlikely that labor will coer relative share of the production that is left For Paul H Douglas in A a great mass of statistics, the second by almost purely deductive methods, arrived independently at the conclusion that the elasticity of the demand for labor is soe, that ”a 1 percent reduction in the real rate of wage is likely to expand the aggregate demand for labor by not less than 3 percent”1 Or, to put the es are pushed up above the point of inal productivity, the decrease in ereat as the increase in hourly rates” Or, to put the es are pushed up above the point of inal productivity, the decrease in ereat as the increase in hourly rates”2 so that the total incoly so that the total incoly

Even if these figures are taken to represent only the elasticity of the deiven period of the past, and not necessarily to forecast that of the future, they deserve the most serious consideration

3

But now let us suppose that the increase in wage rates is accompanied or followed by a sufficient increase inserious unemployment If we assues and prices was itself a ”norether probable that a forced increase of, say, 30 percent in wage rates will ultimately lead to an increase in prices of approxie

The belief that the price increase would be substantially less than that rests on twoonly at the direct labor costs of a particular fir these to represent all the labor costs involved But this is the ele a part for the whole Each ”industry” represents not only just one section of the productive process considered ”horizontally,” but just one one section of that process considered ”vertically” Thus the section of that process considered ”vertically” Thus the direct direct labor cost ofautomobiles in the automobile factories themselves may be less than a third, say, of the total costs; and this may lead the incautious to conclude that a 30 percent increase in wages would lead to only a 10 percent increase, or less, in autoe costs in the raw es, in new factories or new machine tools, or in the dealers'automobiles in the automobile factories themselves may be less than a third, say, of the total costs; and this may lead the incautious to conclude that a 30 percent increase in wages would lead to only a 10 percent increase, or less, in autoe costs in the raw es, in new factories or new machine tools, or in the dealers' mark-up

Government estimates show that in the fifteen-year period froes and salaries in the United States averaged 69 percent of the national incoed 69 percent of the national incoed 66 percent of national income, and when suppleed 76 percent of national incoes and salaries, of course, had to be paid out of the national product While there would have to be both deductions froures and additions to them to provide a fair estimate of ”labor's” income, we can assume on this basis that labor costs cannot be less than about two-thirds of total production costs andupon our definition of salaries averaged 66 percent of national income, and when suppleed 76 percent of national incoes and salaries, of course, had to be paid out of the national product While there would have to be both deductions froures and additions to them to provide a fair estimate of ”labor's” income, we can assume on this basis that labor costs cannot be less than about two-thirds of total production costs andupon our definition of labor) labor) If we take the lower of these two estiins would be unchanged, it is clear that an increase of 30 percent in wage costs all around the circle would mean an increase of nearly 20 percent in prices

But such a change wouldthe incoers and the self-employed, would then have, say, only 84 percent as -run effect of this would be to cause a diminution of investment and new enterprise compared hat it would otherwise have been, and consequent transfers of her ranks of wage-earners, until the previous relationshi+ps had been approxi that a 30 percent increase in wages under the conditions assumed would eventually mean also a 30 percent increase in prices

It does not necessarily follow that wage-earners would ain, and other ele the period of transition during the period of transition But it is iain For the kind of change in the relationshi+p of costs to prices conte about unemployment and unbalanced, interrupted or reduced production So that while laborthis period of transition and adjustment to a new equilibriureater in absolute size (and it ht easily be less) than the previous narrower slice of a larger pie

4

This brings us to the generaland effect of econoes and prices are the wages and prices that equalize supply and deovernment or private coercion, an attempt is made to lift prices above their equilibrium level, demand is reduced and therefore production is reduced If an attempt is made to push prices below their equilibriu out of profits willoff of supply or new production Therefore any attempt to force prices either above or below their equilibrium levels (which are the levels tohich a freethem) will act to reduce the volume of employment and production belohat it would otherwise have been

To return, then, to the doctrine that labor h to buy back the product” The national product, it should be obvious, is neither created nor bought by ht by everyone-by white collar workers, professional rocers, butchers, owners of sasoline stations-by everybody, in short, who contributes toward es and profits that should determine the distribution of that product, the best prices are not the highest prices, but the prices that encourage the largest volue rates for labor are not the highest wage rates, but the wage rates that perest sustained payrolls The best profits, from the standpoint not only of industry but of labor, are not the lowest profits, but the profits that encourage most people to become employers or to provide more employment than before