Comments (17)

• Bruce

  While I'm not surprised that such chicanery occurs on a regular basis, I was hoping that somebody could supply some useful examples of this.

  Published: November 16, 2005 8:43 AM

• Curt Howland

  Bruce, see "Kyoto Treaty".

  Published: November 16, 2005 10:52 AM

• J D

  Bruce,

  A possible thought provoking observation is the need for "real miracle" bridging the clearly brilliant theoretical work of Mises, Rothbard and other free market profits (oops, make that prophets).

  I am so far unaware of any actual movement toward a true free market. It would necessarily require the blessing of those now positioned to enjoy, without effort, the fruits of production -- The World-Wide system of fractional banking. NaGaHappen.

  In Henry VI, part 2 > Act 4, Scene 2 Shakespeare had it wrong when he had Dick the Butcher say:

  "The first thing we do, let's kill all the lawyers."

  If we kill Fractional Banking Lawyers, etc would be forced to change their eating habits, as would arms manufacturors.

  Published: November 16, 2005 11:15 AM

• J D

  Oops!

  Put a comma between "Banking" and "Lawyers" in my previous post.

  Published: November 16, 2005 11:17 AM

• David White

  Go here -- http://www.usagold.com/cpmforum/archives/15200511/default.html -- then scroll down to post #137989 for a MOST interesting prediction about gold, the international monetary system, and the future.

  Personally, I think a miracle will be required for his prediction to come true, or to last if it is tried, for the simple reason that it is still a statist solution to a statist problem.

  Only freedom can solve the problems of mankind, its biggest problem being the state.

  Published: November 16, 2005 11:37 AM

• billwald

  I thought the essay would be an analysis of "Intelligent Design."

  It would interesting to see a comparison of worker benefits in comparable scab and union companies, controlling for local taxes, size of company, and the product produced.

  Published: November 16, 2005 12:08 PM

• Allan Thompson

  Regards the miracle in the assumption that other employers in an industry tend to increase their wages to match union wages, it is not so much a theoretical fact as simple observation.

  Many non-union employers are more than happy to offer a wage equal to or just above the union wage. (or slightly above the union rate less the union dues) By doing so they gain competitive advantage on two fronts:
  1. They can hire the best people away from the union jobs. These people are more efficient, so while their cost per hour may be as high as their union competitor their cost per unit of production is less because they are hiring better workers.
  2. They can introduce incentive pay or other policies which encourage production. Unions tend to absolutely hate these!
  3. Union shops, especially if they have had labour trouble, tend to suffer from a "we/they" mentality which is not good for production and hampers efficiency. Unions, by their very nature, encourage division and discontent.
  So, in the everyday non-academic world the idea that non-union shops increase their pay when uniion wages go up is supported by everyday observation. Interestingly the reasons this is so are a glaring indightment against unions.

  I do understand the supply/demand arguement against this assumption, but when our own observations contradict theory, or when theory flies in the face of "common sence" we tend to believe our eyes. I am reminded of the Philosophy arguements which "prove" through convoluted (and flawed) logic that a human being cannot possibly move. Most of us don't bother to prove the theory wrong. We just accept what we see.

  I think many of the "a miracle happens here" leaps are of this nature. The theoretical arguement, even if correct, is counterintuitive. And most people, especially tenants, unionists and those who vote for protection are not theorists. To convince them we need "nuts and bolts" arguements which appear in harmony with common sence and everyday observation.

  Published: November 16, 2005 5:06 PM

• William

  The ultimate miracle is the magic economic growth created by governments increasing the money supply and increasing their debts. Both of these are practiced to the fullest extent by our respected President and his cabal.

  Published: November 16, 2005 5:39 PM

• V Harris

  Gary Gallis wrote: "By artificially forcing up the cost of hiring their workers, unions reduce rather than increase the number of jobs offered by their employers . . . "

  I wonder what Gallis means by "artificially?" He probably means pushing up wages by 'government fiat' -- as surely there is nothing artificial about the real higher wages union workers are able to extract from unionized employers.

  While most of his points regarding unionized labor are fair, Gallis introduces a bit of his own 'miracle' by completely sidestepping the larger issue of the ability of collective bargaining to raise aggregate wages paid.

  As with any cartel, to the extent that a labor pool is successful in colluding to restrict supply, it will be successful in raising prices nearer to the maximum the buyer is willing to pay -- thus transferring real wealth from the employer to the employee. In a genuine free market we would expect to see this type of collusive labor organization crop up -- a kind of 'labor arbitrage' which takes advantage of the lack of perfect information between buyers and sellers of labor.

  True, in the extant US labor system, laborers are not well served by the governmentally imposed system. Most importantly, there is no way to transfer wealth from the successful labor seller to the unsuccessful labor seller in exchange for his agreement to restrict his labor. This prohibition means that in the extant system all workers are compelled to compete and unsuccessful laborers lose all wages.

  But it is disingenuous for Gallis to imply that this failure of unions to raise the wages for everyone somehow also means that aggregate wages paid to labor cannot be raised by agreement among labors to restrict supply. This must be Gallis' own little 'miracle.'

  A truly free market would produce pools of organized labor formed specifically to extract the highest possible total wages from employers, with some of the proceeds being distributed to some laborers specifically for withholding their labor from the bidding process. In this way, organized labor will increase the wages of everyone -- some for working and some for not working.

  The problem with organized labor is not labor -- the problem is with government's intrusion into organized labor.

  Gallis would do a real service for Austrian Economic Thought by articulating how collective bargaining would work in a free market, rather than focusing on how collective bargaining fails to work now -- as a creation of Leviathan.

  V Harris
  

  Published: November 17, 2005 1:34 AM

• V Harris

  OOPS, make that Galles - sorry `bout that.

  Published: November 17, 2005 1:42 AM

• Vince Daliessio

  V Harris;

  You are sidestepping the rather glaring fact that unions are only able to exercise economic power to raise wages or benefits because they are protected from competition by the Federal government. Employers are not free to bargain with unions or not, they must bargain with a union if the Federal government "certifies" it. The employer is not a free participant in the negotiation. Remember the equation Wage = Marginal Revenue Product of labor. No amount of unionizing can alter that equation.

  Published: November 17, 2005 9:43 AM

• Paul Edwards

  V Harris:

  The conditions that strike me that are the most favorable to the formation of cartels in a free market, would be where there are a handful of entities competing in a market that has an inelastic demand curve near the price we're talking about and where entry into the market has natural barriers and an agreement can be made and freely monitored.

  It just seems to me that conditions in a free market are highly unfavorable for cartelization of many segments of the labour market based on the lack of the above conditions. I can imagine it perhaps to some extent in the very highly skilled areas such as law, and medicine, where there seems a hope of identifying and organizing participants, and there is also a natural barrier to entry in that it seems to require extensive training and perhaps scarcer talent. Also, i can at least imagine that the demand for legal and medical services is somewhat less elastic than labour in general. However, in general, it is not clear to me how today's style of trade unions would succeed in a free market.

  Published: November 17, 2005 11:44 AM

• Paul Edwards

  I just discovered in the "Restrictionist Pricing of Labor" section of MES that my comments above regarding cartelization of the labour force were incorrect.

  I said: "It just seems to me that conditions in a free market are highly unfavorable for cartelization of many segments of the labour market based on the lack of the above conditions."

  But cartelization of the labour market is in fact completely impossible because it requires that members of the cartel monopolize the labour factor. In other words, the cartel must be able to own and hold off part of the supply of the factor. But, in a free market, no one can own all the individuals who constitute the labour force. Each individual is a self owner, and no one owns anyone else. Those individuals who remained employed in the union will benefit from the restriction, however, others will lose their jobs and income completely and be forced into a lower paying non-restricted sector of the labour market.

  I said: "I can imagine it perhaps to some extent in the very highly skilled areas such as law, and medicine, where there seems a hope of identifying and organizing participants, and there is also a natural barrier to entry in that it seems to require extensive training and perhaps scarcer talent."

  The members of a professional association can restrict entry into the profession, but again, only those in the association will benefit and those restricted will have to forgo the income and try another profession.

  I said: "Also, i can at least imagine that the demand for legal and medical services is somewhat less elastic than labour in general."

  Regardless, this is purely "Restrictionist Pricing" and not monopoly pricing.

  Finally, I said: "However, in general, it is not clear to me how today's style of trade unions would succeed in a free market."

  As pointed out by Rothbard, the only way this can happen is by unions successfully "spreading the idea through society that anyone who accepts such an offer [to replace a striking employee]—the “strikebreaker�—is the lowest form of human life."

  "To the extent, then, that nonunion workers feel ashamed or guilty about “strike-breaking� or other forms of undercutting union-proclaimed wage scales, the displaced or unemployed work­ers agree to their own fate. These workers, in effect, are being displaced to poorer and less satisfying jobs voluntarily and re­main unemployed for long stretches of time voluntarily. It is voluntary because that is the consequence of their voluntary ac­ceptance of the mystique of “not crossing the picket line� or of not being a strikebreaker."

  Published: November 27, 2005 2:06 AM

• V Harris

  I posted last week but it was deleted from the blog. I'll try to recreate the gist of that post and add a few thoughts.

  Vince: I'm not sidestepping the fact that government intervention is wreaking havoc on an otherwise free-market balance between capital and labor. Rather, I'm suggesting that Austrian Economists, rather than denigrating the extant government-controlled system, should concentrate on describing what a free-market system might look like.

  But more to the point. If, as you say, "Wage = Marginal Revenue Product of Labor," is it then your position that it is impossible for employees to accept less than the MRPL?

  If, on the other hand, employees do sometimes labor at wages less than the MRPL, there is still wage money being left on the table, and that money should be recoverable by the laborer. Some type of labor collective or co-op or cartel could help labor recover that money from employers.

  There is no mystery here. Austrian Economists ought to quit berating or wholly discounting the very concept of organized labor and instead concentrate on how labor might organize in a genuinely free market to maximize wages -- just as capitalists will organize to maximize profit.

  V Harris
  

  Published: November 28, 2005 11:14 AM

• Paul Edwards

  V Harris:

  "If, on the other hand, employees do sometimes labor at wages less than the MRPL,..."

  Rothbard addresses this question in his section on "Indeterminacy" in MES:

  "In the first place, the scope of indeterminacy is very small in the modern world. We have seen above that, in a two-person barter situation, there is likely to be a large zone of indeterminacy between the buyer’s maximum demand price and the seller’s minimum supply price for a quantity of a good. Within this zone, we can only leave the determination of the price to bargaining. However, it is precisely the characteristic of an advanced monetary economy that these zones are ever and ever narrowed and lose their importance. The zone is only between the “marginal pairs� of buyers and sellers, and this zone is constantly dwindling as the number of people and alternatives in the market increase. Growing civilization, therefore, is always narrowing the importance of indeterminacies.

  "Secondly, there is no reason whatever why a zone of indeterminacy should be more important for the labor market than for the market for the price of any other good.

  "Thirdly, suppose that there is a zone of indeterminacy for a labor market, and let us assume that no union is present. This means that there is a certain zone, the length of which can be said to equal a zone of the discounted marginal value product of the factor. This, parenthetically, is far less likely than the existence of a zone for a consumers’ good, since in the former case there is a specific amount, a DMVP, to be estimated. But the maximum of the supposed zone is the highest point at which the wage equals the DMVP. Now, competition among employers will tend to raise factor prices to precisely that height at which profits will be wiped out. In other words, wages will tend to be raised to the maximum of any zone of the DMVP.

  "Rather than wages being habitually at the bottom of a zone, presenting unions with a golden opportunity to raise wages to the top, the truth is quite the reverse. Assuming the highly unlikely case that any zone exists at all, wages will tend to be at the top, so that the only remaining indeterminacy is downward. Unions would have no room for increasing wages within that zone."

  Published: November 28, 2005 11:43 AM

• V Harris

  Paul: In a perfect market, this Austrian position regarding labor seems reasonable. But markets aren't perfect, meaning workers frequently receive wages lower than a perfect-market analysis would suggest.

  The same thing that causes 'sticky wages' is one of the things that would favor labor organization.

  For instance, a small cartel of organized workers should be able to threaten, or to actually walk off work at a producer's critical times. As long as the local cartel has correctly estimated the employers actual labor-replacement costs, a labor cartel should be able to extract wages and benefits (if any) from that employer up to the labor replacement cost.

  A labor cartel needn't be market-wide. It only needs to be a 'strategic' cartel. As long as the cartel members are effective in colluding among others in the 'strategic' cartel, it should function properly to extract higher wages and benefits.

  This might be one way, in an imperfect market, employees could push wages to the limit that employers are able to pay.

  If Austrian Economists concentrated on examining ways in which, in a free market, laborers could maximize wages, it would go a long way toward creating a compelling argument for laborers to favor a free-labor market over the extant coerced-labor market.

  V Harris
  

  Published: November 28, 2005 12:06 PM

• Paul Edwards

  V,

  I think Rothbard's analysis already assumes an imperfect free market, rather than a "perfect" market, which had no useful meaning to him. In a real and unhampered free market then, "competition among employers will tend to raise factor prices to precisely that height at which profits will be wiped out. In other words, wages will tend to be raised to the maximum of any zone of the DMVP." So in a free (not perfect) market, laborers do tend to maximize wages because employers do tend to bid wages up to their DMVP.

  Whether or not a laborer will favor a free market or not will probably depend more on whether he perceives himself as a beneficiary of "Restrictionist Pricing of Labor" (union or trade activity), or a victim of it.

  Published: November 28, 2005 12:33 PM