Wages, Unemployment, and Inflation
Ludwig von Mises wrote, "There is only one way that leads to an improvement of the standard of living for the wage-earning masses, viz., the increase in the amount of capital invested. All other methods, however popular they may be, are not only futile, but are actually detrimental to the well-being of those they allegedly want to benefit. … Public opinion believes that the improvement in the conditions of the wage earners is an achievement of the unions and of various legislative measures. … As long as these fallacies prevail upon the minds of the voters, it is vain to expect a resolute departure from the policies that are mistakenly called progressive." FULL ARTICLE
Comments (60)
What of the argument that non-union workers got pay rises because the bosses didn't want them to be unionised and ask for more? If so, was it successful widespread coercion? On the other hand, I do believe workers and unions know the difference between getting more money and having inflation give the appearance of more money. In fact, such inflation would be the tools of businesses and their conservative representatives in government - they know a non-inflationary pay rise is the wealth redistribution that unions and workers want but inflation give the impression of a pay rise.
"Here you go now you are paid double just as you wanted."
"We know very well you used inflation to feign the pay rise because now everything costs twice as much!"
Still, why come down necessarily on unions? Many actors have agents to get money for their work? Blame the governments? Some governments had unions as illegal organisations and used outright physical force to break union strikes. If workers are lobbying hard to governments then bosses should lobby even harder. Even then, why should employers even act surprised - sellers want to high-ball prices and buyers want to low-ball prices and they haggle to some sort of agreement. It'd an employer who'd expect an employee to work very hard for little pay and be grateful for it and not make trouble to be the coercive playa.
Published: July 18, 2008 9:28 PM
Mises got a few things wrong, mainly but not only through imprecise definitions.
"There is only one way that leads to an improvement of the standard of living for the wage-earning masses, viz., the increase in the amount of capital invested. All other methods, however popular they may be, are not only futile, but are actually detrimental to the well-being of those they allegedly want to benefit." is wrong, because what counts is capital per worker - something he brings out elsewhere but not here ("What the unions can generate by forcing the employers to accept wage rates higher than the potential market rates is not inflation and not higher commodity prices, but unemployment of a part of the people anxious to get a job"). You certainly can make workers better off through union-negotiated pay rises or mandated minimum wages; yes, that raises unemployment, but the fact remains that workers end up better off, because the unemployed aren't in that group. Reduce employment this way and, even without increases of capital, there is more capital per worker. It's a thing called "survivor bias", and it gets in when you aren't careful. Mises wasn't careful in that passage because it only looks at the "wage-earning masses" and not at the unemployed.
No, Mises is absolutely wrong in the first two sentences of "There prevails on a free labor market a tendency toward full employment.In fact, the policy of letting the free market determine the height of wage rates is the only reasonable and successful full-employment policy. If wage rates, either by union pressure and compulsion or by government decree, are raised above this height, lasting unemployment of a part of the potential labor force develops." There is an externality in the labour market, even before government intervention. This is from Vagrancy Costs, what you get when there are too many people around with not enough resources; in many countries they are mopped up by benefits and/or by policing and jailing to keep crime from soaring, but the cost of funding those is also spread. The Labour Market would tend to full employment if the externality were eliminated, but without that the market clearing wage can easily turn out to be below what people can make by turning to crime etc. - and then you get your externality. That is, the problems of his last sentence can occur anyway even without the causes he warns against.
Published: July 19, 2008 1:22 AM
pm lawrence says:
There is an externality in the labour market, even before government intervention. This is from Vagrancy Costs, what you get when there are too many people around with not enough resources; in many countries they are mopped up by benefits and/or by policing and jailing to keep crime from soaring..."
this argument doesn't make sense. if there is a lack of resources, from whence the benefits and the police funding?
Published: July 19, 2008 2:01 AM
It's the unemployed who don't have private means - a very common case - who don't have resources; thus, they are "people around with not enough resources" (to support themselves), "people around who do not have enough resources" if you prefer. Funding to deal with them - whether with benefits or policing if they turn to crime - doesn't come from them, the only resources they can ever get are from others.
BTW, that WALL-E thread finally let me comment again, including providing a link to the Kevin Carson blog entry that hosted my rebuttal of your and Rtr's points when it couldn't go on the Mises blog. Have a look at it (I would have emailed you, only you didn't provide a web link of that sort).
Published: July 19, 2008 3:57 AM
to pm lawrence:
of course the unemployed don't have resources, they don't have income! resources do exist in society.
there is never any lack of work, just as human imagination is unlimited. what we have is a pricing issue, where work doesn't get done because it's not worth the outlay for the potential employer, or something better's in the offing for the unemployed (dole, begging or crime).
re: wall-e - it was a pity that the rebuttal couldn't be moved from carsonland to misesland. arguing the point across two websites is less than appealing. i'll keep my powder dry until the next mises thread of some pertinence.
Published: July 19, 2008 4:35 AM
Newson, you're almost right in your summary. In extreme cases, the pricing of labour - the market clearing wage - isn't enough to survive. It's that that makes begging, crime etc. preferable, even in the face of policing and jailing. That was the actual situation for the dispossessed during the Tudor Enclosures, and why the Elizabethan Poor Law was brought in (to mop up the large numbers with a carrot instead of a stick that couldn't cope). In the 18th century, people who were dispossessed could and often did go into mines and factories.
I tried posting the rebuttal at WALL-E again, but again it's "being held for moderation" (read, censorship). You are being kept uninformed. Do please at least read it, and then by all means continue the discussion at WALL-E (if the censors allow it).
Published: July 19, 2008 5:14 AM
It was a very good article.
As for the points of attack presented in the comments - well I will not deal with all of them, but some caught my eye.
Lots of people or a lack of resources does not mean that there is unemployment.
I would like to think that people could understand that just by reasoning - but some people need an historical example.
O.K. Hong Kong in the post W.W.II decades.
It had vast numbers of people fleeing to it (from Red China) and had no resources at all.
Yet unemployment sorted itself out - as people were ALLOWED by the government to sort it out. There were no minimum wage laws, pro union regulations or big welfare schemes in the 1950's, 60's, 70's and so on.
Sure some people "turned to crime" to get more money (or just because they liked doing criminal things - there are such things as bad people), but wages also went UP over time.
And this was not due to credit/money expansion (Hong Kong followed a "tight money" policy) - it was due to work and the investment of real savings.
Of course some people are not impressed either by reasoning or by historical examples - but there we go.
"Some people got more because the bosses decided....."
The myth that "the bosses" decide wage rates on the basis of their goodness or badness of heart (or whatever).
Employers are in competition for employees - wages rates reflect the state of the market for various employees.
If they are allowed to.
If not (for example by pro union regulations) then there is long term involuntary unemployment.
Published: July 19, 2008 6:34 AM
It was a very good article.
As for the points of attack presented in the comments - well I will not deal with all of them, but some caught my eye.
Lots of people or a lack of resources does not mean that there is unemployment.
I would like to think that people could understand that just by reasoning - but some people need an historical example.
O.K. Hong Kong in the post W.W.II decades.
It had vast numbers of people fleeing to it (from Red China) and had no resources at all.
Yet unemployment sorted itself out - as people were ALLOWED by the government to sort it out. There were no minimum wage laws, pro union regulations or big welfare schemes in the 1950's, 60's, 70's and so on.
Sure some people "turned to crime" to get more money (or just because they liked doing criminal things - there are such things as bad people), but wages also went UP over time.
And this was not due to credit/money expansion (Hong Kong followed a "tight money" policy) - it was due to work and the investment of real savings.
Of course some people are not impressed either by reasoning or by historical examples - but there we go.
"Some people got more because the bosses decided....."
The myth that "the bosses" decide wage rates on the basis of their goodness or badness of heart (or whatever).
Employers are in competition for employees - wages rates reflect the state of the market for various employees.
If they are allowed to.
If not (for example by pro union regulations) then there is long term involuntary unemployment.
Published: July 19, 2008 6:37 AM
Paul Marks, if you present an example that is not an extreme case - like that of Hong Kong, in which the labour market clearing wage allowed people to live (we know that, because they did) - why, it doesn't show you that labour markets can always clear that way. To do that you'd either have to show that there are no examples of things going wrong as I have described, ever, or else show that something prevented it ever happening - the empirical or the theoretical approach. But I already showed an example of when things really did go wrong that way, in Tudor England, which defeats both approaches. All you have done is disprove something much stronger than I ever claimed, that the labour market never clears that way - a concealed straw man.
Published: July 19, 2008 6:59 AM
PM Lawrence: "I already showed an example of when things really did go wrong that way, in Tudor England..."
You have to show a free market that didn't clear with full unemployment. There are no historical examples of perfectly free markets. I would imagine even Hong Kong had some government interference in the market. What Mises wrote is that theoretically free markets will employ everyone who wants employment. What history demonstrates is that the freer the markets the lower is unemployment and the higher are wages.
Vagrancy is not an externality of free markets; it's an externality of unions and state intervention in the market. As for crime being caused by low wages, that is always a possibility in any society because if someone has no skills and can do only manual labor, he will never be satisfied with his wages and will always demand more and think he is worth more. That isn't an externality of the market, either. That's a problem of unreasonable expectations. Free markets reward effort at obtaining employable skills. Charity is for those who don't have those skills or refuse to learn them.
Published: July 19, 2008 8:53 AM
As for crime being caused by low wages, that is always a possibility in any society because if someone has no skills and can do only manual labor, he will never be satisfied with his wages and will always demand more and think he is worth more.
What a bizarre generalisation... because only unskilled blue-collar workers commit crimes, right? O_o
If a brain-surgeon believed he could get more benefit from becoming a master jewel-thief, risks and all, she'd do it. It's not the absolute wage level which is important, it's the relative difference between the market wage rates and the particular person's subjective valuation of their most productive activities.
Published: July 19, 2008 10:08 AM
I think I mixed up my he/she pronouns there... presumably the brain-surgeon/jewel-thief was hoping to fund some gender-reassignment surgery...
Published: July 19, 2008 10:17 AM
I came here because, I, too, "picked up" on what seemed a mistake or oversight on Mises' part. And, reading only the part--right in the beginning--which incorporated my idea of a "mistake," I see that others have seized on yet other statement that seem erroneous or at least underelaborated.
First, my objection was with Mises' saying that such investment was the "only" way to achieve higher wages. My immediate thought is that advancement of all, on average, also takes place as the result of innovation (and, theoretically, quite apart from the investment aspect of such innovation). But, when I got to the comments and read them, I went back to read the essay more completely (and thoroughly).
What I gathered was that, simply put, Mises was not engaged in expounding theory but rather, on the basis of important aspects of (previously well-established) theory, identifying the policy or even primary tenor of public opinion that need prevail in order to achieve such regular increase. I think that slant on the intent of the passage not only makes entirely good sense of it but also disposes adequately of each objection, including my own.
With respect to my "discovery" of the "neglect" of innovation as a source of increasing standard of living, no sense whatever can be made of telling people, whether the public or policymakers, that the way for the whole to get ahead is to have innovation. What Mises avers is true: the only thing that society as a whole can do in that regard is to reduce or cease altogether interference with the regular tendency to increase investment wherever opportunity seems to present to those seeking profit (and which allocations entirely subsume even the "per worker" aspect).
Published: July 19, 2008 11:10 AM
P.M. Lawrence:
I think you'll find that, though, technically, those unemployed because they cannot be profitably employed due to increase in labor costs caused by union/government interference are, throughout Mises, to be yet considered as among the "wage-earning masses"; in other places, he's used phrases of the general form "all those earning or anxious to earn wages." The separation pushing certain of the "wage-earning masses" into special categories unable to earn wages is simply not an outgrowth of market forces but of deliberate attempts to interfere with the shape of conditions the market would otherwise bring about. I'd make the same comment about the significance of enclosure.
Published: July 19, 2008 11:27 AM
Full employment always exists because action always exists. There is no scarcity shortage of work to be done because there is no scarcity of action. Just as there is no such artificially called thing as "trade deficits" there is also no such artificially called thing as "unemployment". People only act because the value of acting is greater than the value of not acting. In cases where people don't act, the value of that not acting is greater than the value of acting as such.
Thus, people may choose not to seek employment in a particular job branch because those people subjectively value not working in that particular job branch for the wages which could be received more than working in that particular job branch for the wages which would be received. But there is never a finite static limited amount of work which increases wealth which is and can be undertaken at any time. Nobody works 24/7/365 from birth to death. At all moments in time, work is only occurring because the marginal utility value of that work is worth more than the marginal utility value of that work not occurring. When people are resting and sleeping, the marginal utility value of that resting and sleeping is more than the marginal utility value of any work which could have otherwise been undertaken during that time. At all moments of action choices, full employment exists.
All posts to mises.org (and everywhere on the internet) only occur because the marginal utility value of writing and posting is greater than the marginal utility value of not writing and not posting. That's the *only* reason any posts are made. Work is subjective and subjectively valued action. Even the government pension retiree performs work when he uses effort to open the letter which contains his pension check. He works when he takes time to deposit his check in his bank.
One person's work can be another person's leisure, such as a mountain climbing guide being paid to lead a party of climbers to the top of Mount Everest. In any particular employment job the number of people doing that job is subtracted from the total population. It would be nonsensical to call people not employed in any particular job "unemployed". They are merely not employed in that particular line of work job or endeavor. The accountant is not an unemployed assembly line automobile factory worker. He is by choice employed elsewhere. So to is the retiree by choice employed elsewhere; he prefers the marginal value of his subjectively valued leisure more than the marginal value of working as an accountant or a factory worker. And so too is the person who will not work for what he considers "low wages" not unemployed but employed in preferring the marginal utility value of not undertaking assembly line factory work for a specific wage to undertaking assembly line factory work for a specific wage.
Employment is 100% full by voluntary market choice as is all other pursuits which occur by voluntary market choice 100% full. The choice to spend a Saturday morning mowing the lawn or floating in the pool (working on a tan, or working on pleasure received) is always *maximizing* subjectively valued marginal utility. Thus, action choices represent at all times 100% full employment.
Published: July 19, 2008 11:41 AM
P.M. Lawrence:
I went to the wiki "enclosure" and "vagrancy" treatments. Got about the same impression of vagrancy as I already had. But the "enclosure" treatment was quite interesting and a good deal more complex, especially over time, than my limited, ordinary "history" knowledge.
I have no doubt that many of the antagonisms were fueled simply by avarice and then-prevailing ideas of status and personal worth but can't escape the suspicion that much unpleasantness and even impoverishment and death might have been avoided had there been, firstly, some idea of just how much trouble would ultimately attend the "working out" of the processes and, secondly, some forum or institution for those of opposing interests to "sit down and talk things over," and, lastly, more common acquaintance of the various potential legal means to share ownership, such as joint stock companies or even cooperatives. Something like the last even existed in SW England (meadow associations) in the 19th century but I don't know how old the idea was or if people saw beyond such relatively simple applications.
I have a local friend, a building contractor (89 in Oct.); I met him when I first moved here--about 37 years ago. He had bought a parcel of land from just such a "meadows association." He probably thought that he might ultimately get a buildable lot or two out of it but his purpose was grander. He hoped, by deepening the "ditches" or watery channels that ran through the property, he could ultimately create waterways, even medium-sized lakes, and a bit of terra firma--a water-sports and recreational hot-spot for the general area.
Hoping to turn up some potential information assistance for him, I began looking into matters of land reclamation in general; soon, I learned from Britannica ('64) that precisely the same sort of activity had been tried for quite some years (in SW England) for the purpose of just getting a bit more decent grazing land. But nature had a different mind: the volume of the soggy land actually requires its aqueous content for its continued existence as land. Over time, deepening of the existing water-courses did, indeed, drain the sogginess. But, over the same time, that land, little by little, compacted and got lower and lower. Ultimately, most of what had been soggy, not-very-valuable meadow ended up as the bottom, inundated from whatever sources of water were in the area--often even being lost to the sea.
Telling my friend what I'd learned did no good at all--just got me some good-natured derision about the value of "smarts that come out of an encycopedia." But Britannica was right and that land is all a foot or or more lower than before (in a place where the average is only about 8' above sea level and we need flood-gates to keep the river from inundating the lowest areas periodically).
Published: July 19, 2008 2:59 PM
rtrus maximus: /Throws the swordly point up against every reader's computer monitor screen.
rtrus maximus: "r you not entertained?"
rtrus maximus: "r you not entertained!"
Published: July 19, 2008 6:56 PM
Possible Austrian Economics rESEARCH tOPICS rEDUX, as started by Mises: "Ludwig von Mises's Suggested Research Topics, 1950-1968"
http://mises.org/story/2167
1.) "Economics Gladiator: The Rise of rtr as the Foremost Economics Expert of Our Time"
2.) "Kung Fu Marketing", the forthcoming second volume work of rtr after "Strict Barter"
:P
Published: July 19, 2008 7:31 PM
Congratulations on mastering what "marginal utility" means rtr, but we're talking about unionism, real wages growth and full employment here. Keep reading, you'll get to 'em.
Published: July 19, 2008 10:37 PM
Did you read the link, DUMBASS?
"Equation of exchange"
"balance of payments" is mentioned how many times?
Yeah, bitch. I in just one stroke of "Strict Barter" earned ALL the Books, the M.A. Degrees, the Ph.D. Degrees, and Notoriety that were deigned Worthy by One Ludwig von Mises.
I Am The Best Economist, Ever, So Far. I PWN The Title.
The last post just tied it all together.
Here's a snippet of PWN:
"Max Weber (1864-1920) once discussed the possibility of a doctor's thesis on the subject of Goethe's teeth — could be interesting from several points of view:
1. history of dentistry;
2. food and diet of that time;
3. effect on the writings of Goethe."
I'm going to Enjoy this Major Mega Advancement in the Academic Scientific Discipline of Economics.
Re-read the link, my friend, from start to finish.
Ok? "hayesy"? Congratulations on your forthcoming mastery of strict barter, the epistemological and economic implications of trade.
Published: July 19, 2008 11:21 PM
gene berman says:
"My immediate thought is that advancement of all, on average, also takes place as the result of innovation (and, theoretically, quite apart from the investment aspect of such innovation)."
but when you think about innovation, even the intellectual process follows the accumulation of capital. like steve jobs starting apple computers - a garage was required, tools, and most importantly, time. the time was available presumably because jobs' family had invested and accumulated capital.
there are probably stacks of potential jobs and wozniaks toiling away with not enough time to devote to their pet projects. i think the term investment covers innovation perfectly adequately.
Published: July 19, 2008 11:37 PM
"You have to show a free market that didn't clear with full unemployment. There are no historical examples of perfectly free markets. I would imagine even Hong Kong had some government interference in the market. What Mises wrote is that theoretically free markets will employ everyone who wants employment. What history demonstrates is that the freer the markets the lower is unemployment and the higher are wages."
The first sentence by Fundamentalist is key - to prove that the externalities you speak of exist, PM Lawrence, you need to show an example of a free (or as close to free as possible in the real world) market with said externalities.
Published: July 19, 2008 11:59 PM
to rtr:
only dead people get to appear on the mises t-shirts.
as a live superhero, i'd suggest a cape instead.
Published: July 20, 2008 2:04 AM
No? Nothing else to say? Would you mind stepping out of the sandbox, "hayesy", so that your intellectual equal colleagues can have their "fair share" turn for the photo op? Ooh, is that "Voltron"? That wage real enough for ya?
Damn right. I earn my advancement through utter humiliation of posters just like you. 'Cause I want you to be Bitter! I want you to try with all your elementary school short bus Might to put me in my place. I hopefully await one day of being upbraided at the annual "hayesy" special olympics. "Keep reading" you smug DUMBFUCK. Oh lookie who has "carte blanche" to say what he wants? Ain't you, dummy.
But yeah, let's keep the Original Insults on a Civil plane. Somebody please hold "hayesy's" hand; give him a big boy escort to the microphone for his talk on "unionism, real wages growth and full employment here. Keep reading, you'll get to 'em." Welllll ... we're waiting .... Astound Me. LOL. Make me better than I already Am.
Any other grown up talk idea/theories you wish to display? Stop being so stingy with the M.A. degree/"mastering" bequethments. So what are "we're" talking about now?
Published: July 20, 2008 4:15 AM
Wow, the Mises Blog just turned into the World Wrestling Federation for a second. Thanks for the yuks.
Published: July 20, 2008 5:09 AM
You Should Be Thankful,
/bow
Published: July 20, 2008 5:20 AM
tlwp sam says:
"Some governments had unions as illegal organisations and used outright physical force to break union strikes."
what you mean to say by "strike-breaking" is that governments have used force to break up picket-lines, something quite different. often police (unionized, after all) hold sympathies for the strikers.
pickets often use force and intimidation against "scabs" - those willing to substitute the strikers.
it would be good if, along with the anti-monopoly legislation (goodbye accc), all industrial relations legislation were scrapped. unions and employers could then fight it out with no holds barred. even the carsonoids would probably approve.
instead, howard further regulated ir, made "liberalization" a dirty word, and created even more work for the lawyers and human resourcers. (sorry yanks, australian comment only).
Published: July 20, 2008 5:22 AM
newson:
No disagreement whatever except that was specifically
what I had alluded to (in parentheses).
Innovation itself isn't dependent--only its realization (though a quibble could be raised as to whether an unrealized innovation would qualify for the term).
Somewhere (and I believe, though can't remember, it's somewhere in Mises) it has been observed that economic conditions could improve, virtually forever, without any "new invention" taking place. There is already a "pile" of inventions and other innovations unrealized simply because of the current capital state. We could improve the "economicalness" of roads--increasing their longevity--simply by making them thicker--if it were not for more urgent employments of the resources. Every economic improvement opens new choices of potential improvement. The very simplest illustration is afforded by price changes rearranging priorities mines opening or closing in response to markets in the metal. etc.
Published: July 20, 2008 9:12 AM
newson:
More than twenty years ago, I tried to cross a picket-line--driving my car into a driveway of a wholesale produce market being picketed. The pickets were unwary, so I got partway into the driveway at low speed--but they sprang into action, piling on my hood, standing in front.
I persisted--at the slowest manageable crawl--and was actually pushing the mass. But I was halted by
the appearance of a policeman (in plainclothes) flashing a badge. It soon became evident that he was also in communication with others in hidden positions.
He upbraided me, criticizing my "assault" on the mob. He threatened arrest, impoundment of the vehicle, charges of attempted murder, etc., etc. but finally told me to go and sin no more. He'd given me his card, identifying him as head of the "civil disobediance squad."
When I got home (across the river in another state),
I called into the FBI directorate which covered both states (and others). I rung the number listed for the "District Director." A man answered, identifying himself as an FBI agent and secretary to the director. Briefly, I related the events and expressed that I was interested in pursuing the matter of certain charges against the police intervention in support of the strikers' attempt to deny me access, etc.
"I know all about it," he said. "Who do you think you are--trying to cross a legitimate picket line? You're nothing but a fucking scab. But just remember one thing--we know who you are and where you live!"
And, with that, he slammed the phone down.
Sometimes, the game is rigged.
Published: July 20, 2008 9:37 AM
Hi, I'm Kevin Carson. Whenever I see any intervention into the market whatsoever, I halt any attempt to analyze the situation and immedately conclude that anyone conducting any economic activity in any way, shape, or form, must be the most brutal of all statist activities because it's no longer a 100% pure, absolute, platonic free market.
If there is a .000000000000001% tax, everyone selling anything is an arm of the state.
Also, it is completely impossible for everyone to be gainfully employed in an Austrian-style free market and anyone who has ever committed any crime, ever, in any largely-free market (which doesn't exist because every system is either mutualist, or state capitalist btw) who was part of the poorer classes, must have done so because of the impossibility of attainment of full employment.
*takes bong hit again*
Published: July 21, 2008 10:03 AM
Hi, I'm Person. I have the incredible ability to fail to understand any sort of nuanced argument that does not fit my narrow view of the world. Heck, I even have a hard time understanding basic logic without all the nuances and complexities. Therefore, I slip into saracasm to cover my shortcomings; otherwise I would have to hide in my room all day, sucking my thumb and muttering: "It just ain't so Kevin, it just ain't so....It can't be...."
Published: July 21, 2008 1:51 PM
Hi, I'm DMajor. I just interpreted a critique of inability to appreciate nuance, as a preference for unnuanced arguments.
Published: July 21, 2008 3:00 PM
Person,
"Hi, I'm DMajor. I just interpreted a critique of inability to appreciate nuance, as a preference for unnuanced arguments."
OH? Is that what your original post was? To me it sounded like someone who either ignores or cannot understand the nuances of another's arguments (Carson's or P.M. Lawrence's) and so slips into sarcasm-perhaps even sarcasm that accuses the other of lacking nuance- so they do not have to address the other persons actual arguments.
But oh well, I tire of this. I only responded to begin with because it was a case of the pot calling the kettle black...
Published: July 21, 2008 4:01 PM
Fundamentalist wrote (and Jeremy echoed) "You have to show a free market that didn't clear with full unemployment [I think he meant full employment]. There are no historical examples of perfectly free markets. I would imagine even Hong Kong had some government interference in the market."
Actually, the burden of proof lies with people who claim that a free labour market's clearing wage is always enough to live on, e.g. Mises in "What Mises wrote is that theoretically free markets will employ everyone who wants employment" (unless he meant they could all be employed if only they were willing to starve while doing it, which in my book isn't employment). It so happens that Mises is wrong, and since I can show it I might as well. On the one hand it should be obvious than if you ever do hit Malthusian limits there literally isn't enough for everybody to live on. However, since some people are bound to deny that that can ever happen in a free market, it's probably better to use other counterexamples. Try Australia in the 19th century, in those colonies that weren't protectionist. Or try the West Indies after the end of the coolie system about a century ago; V.S.Naipaul describes the plight of former coolies who had been turned out in the middle of their contracts.
"What history demonstrates is that the freer the markets the lower is unemployment and the higher are wages" - no argument there, only, that doesn't mean that wage rates are always higher (wages per worker, as opposed to total wages), and it doesn't mean you can always get full employment with wage rates high enough to live on.
"Vagrancy is not an externality of free markets; it's an externality of unions and state intervention in the market". Well, that wasn't the case in the aftermath of the Tudor Enclosures, but if you don't like that, try this: Trollope described how 19th century Australian squatters had to "hire" passing swagmen that weren't worth hiring, because if they didn't they got mysterious fires (he wrote a fact book on Australia, and also a fact-based short novel called "Harry Heathcote of Gangoil").
"As for crime being caused by low wages, that is always a possibility in any society because if someone has no skills and can do only manual labor, he will never be satisfied with his wages and will always demand more and think he is worth more. That isn't an externality of the market, either. That's a problem of unreasonable expectations. Free markets reward effort at obtaining employable skills. Charity is for those who don't have those skills or refuse to learn them." I never said that that was the externality, nor that it was reasonable to expect wage rates to be enough to live. In fact, my point was that it is sometimes reasonable that they won't be. No, the externality comes when people who can't earn enough to live start to prey on others (or when benefits buy them off, since the benefits are also funded by a spread burden).
And that last is the final killer argument: you only have to look at real life cases of countries with benefits like that to see an externality. Yes, that is indeed state intervention - but people like Bismark brought them in because of the other kind of externality, their own experience of Vagrancy Costs. So, read up on why Bismark et al did what they did.
Gene berman wrote 'I think you'll find that, though, technically, those unemployed because they cannot be profitably employed due to increase in labor costs caused by union/government interference are, throughout Mises, to be yet considered as among the "wage-earning masses"; in other places, he's used phrases of the general form "all those earning or anxious to earn wages." The separation pushing certain of the "wage-earning masses" into special categories unable to earn wages is simply not an outgrowth of market forces but of deliberate attempts to interfere with the shape of conditions the market would otherwise bring about. I'd make the same comment about the significance of enclosure.'
I quite agree, I was getting at the loopholes that get created when you are too loose with your definitions. I did note that Mises was more precise elsewhere.
Rtr wrote 'Full employment always exists because action always exists. There is no scarcity shortage of work to be done because there is no scarcity of action. Just as there is no such artificially called thing as "trade deficits" there is also no such artificially called thing as "unemployment". People only act because the value of acting is greater than the value of not acting. In cases where people don't act, the value of that not acting is greater than the value of acting as such.' and so on.
Have a look at what I just now wrote. The key point is that it isn't necessarily always going to reach full employment with everybody able to live on earnings, if the clearing wage rate happens to be too low. Sure, you can clear the unemployment - but not always without people preferring predatory behaviour for entirely rational reasons (like survival).
Gene berman also wrote 'I have no doubt that many of the antagonisms were fueled simply by avarice and then-prevailing ideas of status and personal worth but can't escape the suspicion that much unpleasantness and even impoverishment and death might have been avoided had there been, firstly, some idea of just how much trouble would ultimately attend the "working out" of the processes and, secondly, some forum or institution for those of opposing interests to "sit down and talk things over," and, lastly, more common acquaintance of the various potential legal means to share ownership, such as joint stock companies or even cooperatives. Something like the last even existed in SW England (meadow associations) in the 19th century but I don't know how old the idea was or if people saw beyond such relatively simple applications.' Actually, there were many voices speaking out against what was happening, e.g. Sir Thomas More. It wasn't a failure to negotiate, it was the simple fact that enclosing and evicting to make way for sheep really was the best possible outcome for the magnates. The peasants didn't have anything to bring to the table, economically speaking.
Newson wrote "...when you think about innovation, even the intellectual process follows the accumulation of capital. like steve jobs starting apple computers - a garage was required, tools, and most importantly, time. the time was available presumably because jobs' family had invested and accumulated capital". Actually, in the late 19th century there was some argument like this about the factors of production. At that stage it made sense to talk about land, labour and capital, but some thinkers suggested having entrepreneurship as well. In the end they thought that it was adequately covered by capital.
Published: July 21, 2008 11:41 PM
PM: “Actually, the burden of proof lies with people who claim that a free labour market's clearing wage is always enough to live on…”
I didn’t realize you were talking about a living wage. No one is guaranteed a “living wage” whatever that is, under a free market because no one is guaranteed a wage of any kind. If someone has no marketable skills, they won’t earn enough money to live by themselves, let alone support a family. Only socialism can guarantee a wage.
PM: “…only, that doesn't mean that wage rates are always higher (wages per worker, as opposed to total wages)…”
Yes, it means that wages in a freer market will always be higher than in a less free market, all other things being equal.
PM: “Well, that wasn't the case in the aftermath of the Tudor Enclosures…”
The Tudor Enclosures weren’t part of a free market with property rights. They were theft, pure and simple. As for your other examples, you’ll have to enlighten me because I don’t know anything about them.
PM: “No, the externality comes when people who can't earn enough to live start to prey on others (or when benefits buy them off, since the benefits are also funded by a spread burden).”
Crime is not an externality caused by free markets. People who can’t earn enough to live on, such as young people, have other options besides crime. They can live with family or with other friends where they can share costs. Controlled markets will make the wages of the unskilled much lower than they would be in a free market and increase the problem you describe.
Published: July 22, 2008 8:56 AM
PM: “And that last is the final killer argument: you only have to look at real life cases of countries with benefits like that to see an externality. Yes, that is indeed state intervention - but people like Bismark brought them in because of the other kind of externality, their own experience of Vagrancy Costs. So, read up on why Bismark et al did what they did.”
I would be interested in your summary of what Bismark did. All I know about him is what Mises has written, which emphasized his socialism. But this hilites an important contribution of capitalism that Mises brings out—its socialization process. Because capitalism doesn’t guarantee anyone a “living wage,” people must change in order to get one. They have to learn marketable skills and certain “civilized” traits such as patience, hard work, thrift, getting along with others, self-discipline, and other traits that we associate with civilization. Socialism short-circuits that process by taking from those who have achieved success by learning those skills and traits and giving to those who refuse or can’t learn them. That’s why Mises wrote that socialism destroys civilization. The former USSR is a good example.
Published: July 22, 2008 9:47 AM
DMajor: I'll start believing what you have to say, when Kevin Carson stops using the existence of ANY market intervention he can find, as justification for the claim that none of the regular workings of the market apply.
Published: July 22, 2008 1:31 PM
Fundamentalist wrote "I didn't realize you were talking about a living wage. No one is guaranteed a 'living wage' whatever that is, under a free market because no one is guaranteed a wage of any kind. If someone has no marketable skills, they won't earn enough money to live by themselves, let alone support a family."
I wasn't precisely talking about a living wage. In fact, I was making the very point that market clearing wages on offer might not be enough for survival. It's just that, when they aren't, at the margins people switch to predatory behaviour.
"Only socialism can guarantee a wage."
Actually, even socialism can't, in extreme cases, and on the other, there are non-socialist ways of doing it when things aren't that bad.
"Yes, it means that wages in a freer market will always be higher than in a less free market, all other things being equal."
Actually, that does not happen to be the case. For instance, in the 19th century the White Australia Policy was a restriction on the immigration of cheap labour among other things, which kept wage rates higher than they would have been otherwise. Total wages paid would probably have been higher if they had been allowed in.
Myself: "Well, that wasn't the case in the aftermath of the Tudor Enclosures", then Fundamentalist: "The Tudor Enclosures weren't part of a free market with property rights. They were theft, pure and simple."
Not quite pure and simple, but that's missing the point. The aftermath - after the expropriations - had a whole load of people trying to fend for themselves. They were in a fairly free market at that point (not quite, but no socialism, unions or benefits/safety net, and a range of occupations that weren't under guild control).
"As for your other examples, you'll have to enlighten me because I don't know anything about them."
No, I don't have to enlighten you. I gave references, so you can either follow them or decide whether to take my word for it or reject it without bothering to look. Looking for yourself is more instructive.
"Crime is not an externality caused by free markets".
It's not crime that is the externality, it's vagrancy. Some crime isn't caused by that, and contrariwise the crime that is, is a symptom.
"People who can't earn enough to live on, such as young people, have other options besides crime. They can live with family or with other friends where they can share costs."
No, not always.
"Controlled markets will make the wages of the unskilled much lower than they would be in a free market and increase the problem you describe".
That depends on the controls, but that isn't the point. The point is, these problems actually can come up even without harmful intervention. That is, even a free market can show these problems.
"I would be interested in your summary of what Bismark did. All I know about him is what Mises has written, which emphasized his socialism."
No, go and research it for yourself. You'll learn more that way. But I will mention, he was no socialist, he just adopted some measures that socialists approve of, but for quite different and very pragmatic motives. It's those that you will find instructive.
"Because capitalism doesn't guarantee anyone a 'living wage,' people must change in order to get one".
No, that doesn't always work. No guarantee, remember?
"They have to learn marketable skills and certain 'civilized' traits such as patience, hard work, thrift, getting along with others, self-discipline, and other traits that we associate with civilization. Socialism short-circuits that process by taking from those who have achieved success by learning those skills and traits and giving to those who refuse or can't learn them. That's why Mises wrote that socialism destroys civilization. The former USSR is a good example."
However, even if people give up their values in this way, they may get either not enough or a drip feed keeping them permanently dependent. What's more, there's "what doth it profit a man if he gain the whole world, if he lose his own soul?" - the price concealed within that description may well be that high, not worth paying (more precisely, it may be better for those people to start preying on others; somewhere around, there is the confession of a pirate just before he was hanged, that made pretty much this point).
Published: July 23, 2008 3:56 AM
PM: “I wasn't precisely talking about a living wage. In fact, I was making the very point that market clearing wages on offer might not be enough for survival.”
You’re talking in aggregates. Let’s break the market for wages down, at least into skilled and unskilled labor. It’s true that a free market will never pay a living wage for unskilled labor. But it’s also true that a free market will always pay a living wage for skilled labor.
PM: “It's just that, when they aren't, at the margins people switch to predatory behaviour.”
That’s simply not true. Visit the inner cities of Chicago, New York and LA, or rural Oklahoma where the poor are most concentrated. The crime rate is higher, but the vast majority of poor people don’t resort to predatory behavior and history will show you that they never have. The tired old leftist idea that poverty causes crime flies in the face of facts. How do you explain the 90% of poor people who don’t become criminals?
PM: “White Australia Policy was a restriction on the immigration of cheap labour among other things, which kept wage rates higher than they would have been otherwise.”
That denies everything we know about economics. If what you say is true, then economists might as well quit their jobs and go wash cars because they don’t know anything. Even Keynesians know that productivity, not labor shortages, raises wages over the long run. You can raise wages through worker shortages for only a short period of time. Artificially high wages will either cause businessmen to switch to labor-saving equipment or send production outside the country where wages are lower. The only way to have long-term wage growth is through growth in worker productivity.
PM: “The aftermath - after the expropriations - had a whole load of people trying to fend for themselves. They were in a fairly free market at that point…”
And didn’t the industrial revolution solve the problem created by the theft by creating jobs that absorbed the masses of unskilled people who lost their lands?
PM: “No, I don't have to enlighten you. I gave references, so you can either follow them or decide whether to take my word for it or reject it without bothering to look.”
I’m not one of your junior high school students. The purpose of a blog is to discuss ideas, not to give homework assignments. If you don’t know the material well enough to summarize it in a few paragraphs, then just say so.
PM: “It's not crime that is the externality, it's vagrancy. Some crime isn't caused by that, and contrariwise the crime that is, is a symptom.”
You’re splitting hairs. You claim that free markets causes vagrancy which causes crime. It’s not a big leap to say that free markets cause crime. Neither vagrancy nor crime is an externality of free markets, but they are externalities of state intervention in the market or a lack of property rights enforcement.
PM: “The point is, these problems actually can come up even without harmful intervention. That is, even a free market can show these problems.”
These problems can not happen in a free market. Logically, they can’t, as Austrian econ demonstrates, and historically they haven’t. You haven’t shown any historical instance in which relatively free markets caused these problems.
Me: "Because capitalism doesn't guarantee anyone a 'living wage,' people must change in order to get one".
PM: “No, that doesn't always work. No guarantee, remember?”
There is no guarantee of a living wage for unskilled labor, but there is a guarantee that skilled labor will earn a living wage. If it didn’t, then human action would be totally irrational and we could have no science of economics.
PM: “However, even if people give up their values in this way, they may get either not enough or a drip feed keeping them permanently dependent.”
I ‘m not sure what you mean here. But if you refer to people giving up on learning a skill that would earn a higher wage and instead getting on government support, then the drip feed and permanent dependence is exactly what they’ll get. And many are happy with that.
PM: “What's more, there's "what doth it profit a man if he gain the whole world, if he lose his own soul?" - the price concealed within that description may well be that high, not worth paying (more precisely, it may be better for those people to start preying on others; somewhere around, there is the confession of a pirate just before he was hanged, that made pretty much this point).”
I don’t understand how you can equate learning a skill and developing good character traits with losing one’s soul. Of course some people prefer criminal activity to hard work. That’s a trite point. What do you suggest, that we bribe them away from criminal activity with larger handouts? That’s the protection racket where shop keepers pay thugs to not destroy their shop. That would lead to the same decay of civilization that socialism causes. Capitalism has a much better idea: free the markets so that everyone has ample opportunity to learn a skill and earn a good wage. Those who refuse to take advantage of those opportunities and prefer criminal activity should either be expelled or locked up.
Published: July 23, 2008 8:50 AM
P. M. Lawrence,
I just wanted to say that I admire your ability with argument. The point you are trying to make is an interesting one.
I do have one question, though. Is it not the case that when wage rates are too low to support life, the reason for this is because total production is too low to support the population?
If this were not the case, some individual or individuals would have an excess of goods in his posession adequate to supporting the unemployed. And if said individuals did have such excess, why would they not invest it? Any individual who can produce more than he consumes to live would be employed in order to provide the employer with the surplus product of his labor.
On the other hand if indeed production does not equal the needs of the populace, then no government benefit program can stave off death for some portion of the populace.
Further, if we are simply comparing the costs to the benefits of theft and violence, then we must note that these evaluations are subjective, and we can certainly imagine a populace where many people could steal more than they can produce. The raiding nomads of history are a good example. If you already have adequate defence and police forces, which I claim are necessary to a free market, why pay to feed when you've already paid to kill those who choose theft?
Published: July 23, 2008 10:07 AM
to pm lawrence:
the imposition of immigration controls like the white australia policy says nothing about the freedom or lack thereof in the domestic market, merely that the labour market would be less competitive than would be the case in a borderless world.
where the state calls almost all the shots (the here-and-now), it is possible (and not inconsistent) to be for free trade in goods and services, whilst at the same time not favouring an open borders policy. hoppe is probably the most outspoken spokesman for this camp.
Published: July 23, 2008 10:47 AM
Fundamentalist wrote "You're talking in aggregates. Let's break the market for wages down, at least into skilled and unskilled labor. It's true that a free market will never pay a living wage for unskilled labor. But it's also true that a free market will always pay a living wage for skilled labor."
I wasn't talking aggregates, I was talking lower bounds. That's what should highlight the problem of that description. If skilled labour is defined to be that which is in demand, it's a tautology; only, it doesn't help. There's a fallacy of composition if you think that if we took a snapshot of what those skills are at some point in time, then everybody got them, they would all be in demand then - the fenceposts would have moved. But looking at the lower bound should keep that clear.
Myself: "It's just that, when they aren't, at the margins people switch to predatory behaviour", then Fundamentalist: "That's simply not true. Visit the inner cities of Chicago, New York and LA, or rural Oklahoma where the poor are most concentrated. The crime rate is higher, but the vast majority of poor people don't resort to predatory behavior and history will show you that they never have. The tired old leftist idea that poverty causes crime flies in the face of facts. How do you explain the 90% of poor people who don't become criminals?"
Either you are overstating what I pointed out, or you missed it. What you describe is just precisely what you would expect to happen, under my description, with people turning predatory at the margins.
Myself: "White Australia Policy was a restriction on the immigration of cheap labour among other things, which kept wage rates higher than they would have been otherwise", then Fundamentalist: "That denies everything we know about economics. If what you say is true, then economists might as well quit their jobs and go wash cars because they don't know anything. Even Keynesians know that productivity, not labor shortages, raises wages over the long run. You can raise wages through worker shortages for only a short period of time. Artificially high wages will either cause businessmen to switch to labor-saving equipment or send production outside the country where wages are lower. The only way to have long-term wage growth is through growth in worker productivity."
Again, this is misunderstanding, at several levels.
What I say is true, but it does not contradict what we know about economics (though maybe there is something you have yet to learn). Productivity does not, in and of itself, raise wages over the long run, it is a precondition for that (something might come up so that wages did not rise, even with productivity gains). Also, this is a short/medium term thing that happened, and also, I made it quite clear that wages would probably have been higher without that policy, it was just wage rates that it kept up. As it happens, the policy was sustainable in the medium term even with those ideas about businessmen switching processes or investing elsewhere because it rested on Australia's natural resource base.
Myself: "The aftermath - after the expropriations - had a whole load of people trying to fend for themselves. They were in a fairly free market at that point", then Fundamentalist: "And didn't the industrial revolution solve the problem created by the theft by creating jobs that absorbed the masses of unskilled people who lost their lands?"
No. That came along after the 18th century phase of Enclosures, and this was talking about the Tudor one. Anyway, it didn't solve even the former, it mitigated it; that is, people still ended up worse off than they had been, it's just that most of them made it through.
Myself: "No, I don't have to enlighten you. I gave references, so you can either follow them or decide whether to take my word for it or reject it without bothering to look", then Fundamentalist: "I'm not one of your junior high school students. The purpose of a blog is to discuss ideas, not to give homework assignments. If you don't know the material well enough to summarize it in a few paragraphs, then just say so." I gave that summary, you were asking for backing. There is literally no way I can give that without your active involvement, because it takes an effort at your end to take it in. The thing is, anything I tell you is just my word unless and until you check it out yourself - so the final step has to be yours (or don't, but then other people will see you prefer not to know).
Myself: "It's not crime that is the externality, it's vagrancy. Some crime isn't caused by that, and contrariwise the crime that is, is a symptom.", then Fundamentalist: "You're splitting hairs. You claim that free markets causes vagrancy which causes crime. It's not a big leap to say that free markets cause crime. Neither vagrancy nor crime is an externality of free markets, but they are externalities of state intervention in the market or a lack of property rights enforcement."
I'm not splitting hairs, I'm sticking to careful definitions because sloppy ones let you slide to things like "It's not a big leap to say that free markets cause crime"; the whole point is, if you think careful definitions are no big deal, you are going to end up mistakenly supposing that things like that are no big leap. But they are; as Einstein said, make things as simple as possible but no simpler. As for that assertion about only states causing externalities, well, you have chosen to ignore what I said about swagmen. That means that you won't take my word for it and - as we just established - you won't go and look for yourself.
Myself: "The point is, these problems actually can come up even without harmful intervention. That is, even a free market can show these problems.", then Fundamentalist: "These problems can not happen in a free market. Logically, they can't, as Austrian econ demonstrates, and historically they haven't. You haven't shown any historical instance in which relatively free markets caused these problems." See end of last paragraph.
Fundamentalist: "Because capitalism doesn't guarantee anyone a 'living wage,' people must change in order to get one".", then Fundamentalist: "There is no guarantee of a living wage for unskilled labor, but there is a guarantee that skilled labor will earn a living wage. If it didn't, then human action would be totally irrational and we could have no science of economics." See fallacy of composition discussion at the head of this comment.
Myself: "However, even if people give up their values in this way, they may get either not enough or a drip feed keeping them permanently dependent", then Fundamentalist: "I'm not sure what you mean here. But if you refer to people giving up on learning a skill that would earn a higher wage and instead getting on government support, then the drip feed and permanent dependence is exactly what they'll get. And many are happy with that."
No, I'm referring to the whole "who moved my cheese" sort of thing, that aims at giving people what they want so that they like what they are given - or sometimes, only promised, on the "jam tomorrow but never jam today" principle - and which can lead to a never ending round of remaking and degradation.
Myself: 'What's more, there's "what doth it profit a man if he gain the whole world, if he lose his own soul?" - the price concealed within that description may well be that high, not worth paying (more precisely, it may be better for those people to start preying on others; somewhere around, there is the confession of a pirate just before he was hanged, that made pretty much this point)', then Fundamentalist: "I don't understand how you can equate learning a skill and developing good character traits with losing one's soul". See previous paragraph.
Fundamentalist: "Of course some people prefer criminal activity to hard work. That's a trite point. What do you suggest, that we bribe them away from criminal activity with larger handouts? That's the protection racket where shop keepers pay thugs to not destroy their shop. That would lead to the same decay of civilization that socialism causes. Capitalism has a much better idea: free the markets so that everyone has ample opportunity to learn a skill and earn a good wage. Those who refuse to take advantage of those opportunities and prefer criminal activity should either be expelled or locked up."
I think someone once said that if an idea doesn't work, it's not a good idea. The fallacy of composition thing means that, at least when conditions are wrong (which I think they are here and now, judging by results), you can't deliver enough to everybody that way, unless of course you engineer out the externalities I was talking about as part of the freeing up. Even that won't help once we hit Malthusian limits. As for the expelled or locked up idea - that's a spread policing cost, which I already mentioned (expulsion might look cheap, but not once you count the cost of getting other countries to put up with it).
Published: July 24, 2008 3:38 AM
J. W. asks "I do have one question, though. Is it not the case that when wage rates are too low to support life, the reason for this is because total production is too low to support the population?"
That Malthusian limit case would certainly do it, but unfortunately we have hit the problems rather sooner, since...
"If this were not the case, some individual or individuals would have an excess of goods in his posession adequate to supporting the unemployed. And if said individuals did have such excess, why would they not invest it? Any individual who can produce more than he consumes to live would be employed in order to provide the employer with the surplus product of his labor." Unfortunately, not always. Sometimes the numbers come out that what a person is worth - even working to provide investment - don't cover survival needs. In fact, in his famous work on wages Nassau Senior even identified a special case in which working in this way could even reduce food production and lower the Malthusian limit!
J. W.: "On the other hand if indeed production does not equal the needs of the populace, then no government benefit program can stave off death for some portion of the populace" - no question, but we're not there yet.
J. W.: "Further, if we are simply comparing the costs to the benefits of theft and violence, then we must note that these evaluations are subjective, and we can certainly imagine a populace where many people could steal more than they can produce. The raiding nomads of history are a good example. If you already have adequate defence and police forces, which I claim are necessary to a free market, why pay to feed when you've already paid to kill those who choose theft?" Well, those costs aren't a constant overhead. And certainly Bismark decided that the carrot would work out more cost effective than the stick, or he would have chosen the stick (not being any sort of socialist or bleeding heart).
Newson points out: "the imposition of immigration controls like the white australia policy says nothing about the freedom or lack thereof in the domestic market, merely that the labour market would be less competitive than would be the case in a borderless world. where the state calls almost all the shots (the here-and-now), it is possible (and not inconsistent) to be for free trade in goods and services, whilst at the same time not favouring an open borders policy. hoppe is probably the most outspoken spokesman for this camp." Still, the White Australia Policy was in large part a protectionist measure, to keep wage rates up. The thing is, the people being kept out were precisely the sort that ended up going to other British colonies as coolie labour, e.g. going to Fiji, Mauritius, or the West Indies, and they were brought from British possessions like India or Hong Kong. In that world, it wasn't a political border issue but an economic one.
Published: July 24, 2008 3:41 AM
to pm lawrence:
yes, i know the motivation behind the white australia policy, but that still doesn't negate that within a closed population (enforced via immigration restrictions), there still can be substantial internal freedom in labour markets.
australia may or may not have been better off economically had the white australia policy never been enacted (who knows?), but that's a political call.
i would say this is still the case with australia vs. most of continental europe. the former has a much tighter border-control but more liberalized labour regime, the latter more rigid labour laws, but porous borders.
Published: July 24, 2008 10:24 AM
PM: “There's a fallacy of composition if you think that if we took a snapshot of what those skills are at some point in time, then everybody got them, they would all be in demand then - the fenceposts would have moved.”
Skills that are in demand don’t change that rapidly. If everyone got those skills, everyone would earn higher wages. In fact, that’s exactly what happens today. Most workers start out as unskilled. Even college graduates need years of on-the-job training before they become productive workers. OJT makes people skilled workers. If you took a snapshot of all of the unskilled workers in the country at one point in time, then took another snapshot ten years later, most would be skilled workers after ten years. The ranks of unskilled workers would be filled by immigrants and young people seeking their first job.
PM: “What you describe is just precisely what you would expect to happen, under my description, with people turning predatory at the margins.”
What do you mean by “at the margins.” I thought all poor people were at the margins. Do you mean only the poorest resort to crime? I don’t think you can demonstrate that. Or do you mean the most recent poor people turn to crime while the one who have been poor for a while don’t? I don’t think you can demonstrate that either. The simple fact is that the vast majority of the poorest people, those at the margins, do not resort to crime.
PM: “Productivity does not, in and of itself, raise wages over the long run, it is a precondition for that (something might come up so that wages did not rise, even with productivity gains).”
If productivity doesn’t raise wages in the long run, what does? Economics doesn’t have another answer. And what would keep wages down in the long run when worker productivity increased?
PM: “No. That came along after the 18th century phase of Enclosures, and this was talking about the Tudor one. Anyway, it didn't solve even the former, it mitigated it; that is, people still ended up worse off than they had been, it's just that most of them made it through.”
OK. The enclosure movement took place in the 18th century and the industrial revolution in the 19th century. So what happened to the people kicked off their land in the 18th century? And who were the factories hiring in the 19th century if not landless poor? I don’t think you can put a hard date of 1800 for the industrial revolution, anyway. Some historians think it began in 17th century Dutch Republic. There was some industrialization in the 18th century. As for the landless poor ending up worse than they were before, what does that have to do with the discussion? We are discussing whether vagrancy is an externality of free markets. Factory workers in the 19th century may have been worse off than peasants before enclosure, but that would be a hard position to prove. You would have to argue that average wages for unskilled labor had not increased in England for over a century.
PM: “I gave that summary, you were asking for backing.”
No you did not give a summary. Go back and look at what you wrote.
PM: “I'm not splitting hairs, I'm sticking to careful definitions because sloppy ones let you slide to things like "It's not a big leap to say that free markets cause crime.”
So where was I wrong? Did you not claim that vagrancy is an externality of free markets? And did you not claim that vagrancy causes crime? So where is the flaw in my conclusion that you claim that free markets cause crime?
PM: “As for that assertion about only states causing externalities, well, you have chosen to ignore what I said about swagmen.”
Here’s what you wrote about swagmen: “Trollope described how 19th century Australian squatters had to "hire" passing swagmen that weren't worth hiring, because if they didn't they got mysterious fires…” I can only assume from your post that you think free markets caused swagmen to be unemployed and forced them to resort to crime. The swagmen were just thugs using the old protection racket to earn money instead of working. What does that have to do with free markets? Capitalism, which is free markets with the rule of law, would have thrown the thugs in jail. I honestly no longer understand what you’re trying to argue. You seem to be going in circles. Do you think that anyone claims that free markets would eliminate crime completely?
PM: “See fallacy of composition discussion at the head of this comment.”
You clearly don’t understand what the fallacy of composition is.
PM: “No, I'm referring to the whole "who moved my cheese" sort of thing, that aims at giving people what they want so that they like what they are given - or sometimes, only promised, on the "jam tomorrow but never jam today" principle - and which can lead to a never ending round of remaking and degradation.”
I have no idea what you mean in this paragraph or your last one.
Published: July 24, 2008 10:34 AM
to pm lawrence:
another point; trollope was a novelist, not an historian. taking what dickens wrote on the industrial revolution as reliable history would be a similar error.
the same would apply to upton sinclair; i mean "the jungle" is quite a yarn, but the latter part turns into a paean to socialism, and makes one wonder how much is spin.
Published: July 24, 2008 11:21 AM
Myself: "There's a fallacy of composition if you think that if we took a snapshot of what those skills are at some point in time, then everybody got them, they would all be in demand then - the fenceposts would have moved", then Fundamentalist: "Skills that are in demand don't change that rapidly. If everyone got those skills, everyone would earn higher wages. In fact, that's exactly what happens today. Most workers start out as unskilled. Even college graduates need years of on-the-job training before they become productive workers. OJT makes people skilled workers. If you took a snapshot of all of the unskilled workers in the country at one point in time, then took another snapshot ten years later, most would be skilled workers after ten years. The ranks of unskilled workers would be filled by immigrants and young people seeking their first job."
It's not that the skills in demand change rapidly; that would need the demand curve to shift. It's that if the supply increases, you move along the demand curve. The demand curve isn't enough to give everybody enough to live off, if they all come along offering those skills. And, that is not "exactly what happens today". What happens now does not have everybody offering skills. Even on that scenario, there are people around without the skills.
Myself: "What you describe is just precisely what you would expect to happen, under my description, with people turning predatory at the margins", then Fundamentalist: "What do you mean by 'at the margins.' I thought all poor people were at the margins. Do you mean only the poorest resort to crime? I don't think you can demonstrate that. Or do you mean the most recent poor people turn to crime while the one who have been poor for a while don't? I don't think you can demonstrate that either. The simple fact is that the vast majority of the poorest people, those at the margins, do not resort to crime."
Sorry, I thought that if we were talking economics you would know some of the technical terms. It's just that you start getting predatory behaviour in a dribble from those people with the right combination of pressures on them and the right combination of tendencies that way. We don't know just who will go first, but we do know that it won't be the whole lot at once. That's why people used to be concerned about vagrancy as a breeding ground for crime, but they didn't think that it was crime itself, as such, until they passed laws against vagrants hanging around - laws that were motivated by that underlying concern.
Myself: "Productivity does not, in and of itself, raise wages over the long run, it is a precondition for that (something might come up so that wages did not rise, even with productivity gains)", then Fundamentalist: "If productivity doesn't raise wages in the long run, what does?" To do that, you have to avoid productivity becoming a bottleneck, but actually delivering it needs bargaining power.
Fundamentalist: "Economics doesn't have another answer". Well, actually, quite a few people have made suggestions - negative income tax, distributism, the Kim Swales approach, whatever.
Fundamentalist: "And what would keep wages down in the long run when worker productivity increased?" Lack of bargaining power, of course. See a recent post at Limitedinc for some discussion.
Myself: "No. That came along after the 18th century phase of Enclosures, and this was talking about the Tudor one. Anyway, it didn't solve even the former, it mitigated it; that is, people still ended up worse off than they had been, it's just that most of them made it through.", then Fundamentalist: "OK. The enclosure movement took place in the 18th century and the industrial revolution in the 19th century". Wrong - that was just the beginning of the last phase of the enclosures. We were talking about the Tudor phase.
Fundamentalist: "So what happened to the people kicked off their land in the 18th century? And who were the factories hiring in the 19th century if not landless poor? I don't think you can put a hard date of 1800 for the industrial revolution, anyway. Some historians think it began in 17th century Dutch Republic. There was some industrialization in the 18th century. As for the landless poor ending up worse than they were before, what does that have to do with the discussion?"
Everything; you used the term "solve". If you get diabetes and then you get insulin treatment, that isn't a cure; it's the same thing here.
Fundamentalist: "We are discussing whether vagrancy is an externality of free markets. Factory workers in the 19th century may have been worse off than peasants before enclosure, but that would be a hard position to prove. You would have to argue that average wages for unskilled labor had not increased in England for over a century."
It's dead easy to prove, just by looking at the cases like the Leverburgh fish processing factory where the locals still had their old options. They stuck with those, given the chance.
Myself: 'I'm not splitting hairs, I'm sticking to careful definitions because sloppy ones let you slide to things like "It's not a big leap to say that free markets cause crime', then Fundamentalist: "So where was I wrong? Did you not claim that vagrancy is an externality of free markets? And did you not claim that vagrancy causes crime? So where is the flaw in my conclusion that you claim that free markets cause crime?"
Sigh. Vagrancy is not an externality of free markets in general, only of ones where certain conditions apply, i.e. where there are people without adequate resources of their own to survive (counting their own labour, if wages on offer are too low). Vagrancy is a cause of crime (not the cause), and even then only when certain conditions are met. So, your assertion is an inference of yours, not a claim of mine, which you arrived at by assuming all the missing preconditions always apply.
Fundamentalist: "Here's what you wrote about swagmen: 'Trollope described how 19th century Australian squatters had to "hire" passing swagmen that weren't worth hiring, because if they didn't they got mysterious fires'. I can only assume from your post that you think free markets caused swagmen to be unemployed and forced them to resort to crime." Sigh. What you should take from that is just precisely what I wrote, that the state did not cause that externality. I didn't state what did.
Fundamentalist: "The swagmen were just thugs using the old protection racket to earn money instead of working. What does that have to do with free markets? Capitalism, which is free markets with the rule of law, would have thrown the thugs in jail. I honestly no longer understand what you're trying to argue. You seem to be going in circles. Do you think that anyone claims that free markets would eliminate crime completely?" What indeed has that got to do with free markets, other than the fact that they were there? The free markets didn't cause this behaviour, as you so rightly point out, but the key thing is that state intervention didn't. I am not trying to prove anything so strong as you suppose, only to shoot down misunderstandings about just what really does come from states. Oh, and free markets would not have used jail for this - policing this sort of thing wasn't cost effective. That's why it didn't happen.
Published: July 25, 2008 9:32 PM
Newson wrote "another point; trollope was a novelist, not an historian. taking what dickens wrote on the industrial revolution as reliable history would be a similar error. the same would apply to upton sinclair; i mean "the jungle" is quite a yarn, but the latter part turns into a paean to socialism, and makes one wonder how much is spin."
Actually, Trollope was a lot more than just a novelist. He commented in depth on current events. His two volume work on North America is a reliable contemporary source for the US civil war (Geoffrey Blainey used it in his History of the World), and his two volume work on Australia was specifically intended to tell people in the UK about conditions there, especially so would be migrants would be better informed. Trollope wrote each during long visits, based on his own direct research and observation and careful interviews with people with direct knowledge of areas he couldn't get to. I mentioned his short novel because it also draws on this research for its background, and because I forget off hand just where he mentions the swagmen. It is a reliable source, with no novelistic spin for the background.
My rebuttal to Fundamentalist is being held, so he will probably never get it.
Published: July 25, 2008 9:35 PM
to pm lawrence:
unlike the other authors, i've not read trollope.
as far as the swagman bit goes, i'm not sure that it strengthens your case. a quick search dragged up this:
"When Trollope visited his son, in squatter in western new South Wales, in the 1870's, stock-stealing was still an accepted custom. The novelist compare it with -
smuggling, or illicit distillation, or sedition, or the seduction of women. There is little or no shame attached to it among those with whom the cattle-stealers live. ... A man may be a cattle-stealer, and yet in his way a decent fellow.
given its origin as a penal colony, where many of those deported had been guilty of stealing food in the old country, it would seem fair to state that their was a great deal of public tolerance for such behaviour. this snippet is from boldrewood's "robbery under arms"
"Most of the Nomah people looked upon fellows stealing cattle or horses, in small lots or big, just like most people look at boys stealing fruit out of an orchard, or as they used to talk of smugglers on the English coast, as I've heard father tell of. Any man might take a turn of that sort of thing, now and then, and not be such a bad chap after all. It was the duty of the police to catch him. If they caught him, well and good, it was so much the worse for him; if they didn't, that was their look-out. It wasn't anybody else's business anyhow. And a man that wasn't caught, or that got turned up at his trial, was about as good as the general run of people, and there was no reason for anyone to look shy at him."
Published: July 25, 2008 11:18 PM
as a postscript to the above: whilst stock-rustling is not strictly a swagman's business (waltzing matilda would suggest there was crossover), it does show how lax attitudes were to property rights in those early colonial days.
Published: July 25, 2008 11:36 PM
Oh, there's a lot to be said on the area. I was just bringing out that one feature, how the Vagrancy Costs externality showed up in a situation where you really couldn't claim it was a consequence of a state intervention.
Published: July 26, 2008 1:56 AM
to pm lawrence:
well, i think it was the dereliction of duty by the state, whose role was to protect property, rather than any active intervention in the labour market, the real root of the vagrancy problem.
the peculiar nature of australian colonial society probably was the most significant factor. i imagine that ex-cons began to appreciate property and law enforcement only when they too acquired assets.
Published: July 26, 2008 5:11 AM
Trying again.
Myself: "There's a fallacy of composition if you think that if we took a snapshot of what those skills are at some point in time, then everybody got them, they would all be in demand then - the fenceposts would have moved", then Fundamentalist: "Skills that are in demand don't change that rapidly. If everyone got those skills, everyone would earn higher wages. In fact, that's exactly what happens today. Most workers start out as unskilled. Even college graduates need years of on-the-job training before they become productive workers. OJT makes people skilled workers. If you took a snapshot of all of the unskilled workers in the country at one point in time, then took another snapshot ten years later, most would be skilled workers after ten years. The ranks of unskilled workers would be filled by immigrants and young people seeking their first job."
It's not that the skills in demand change rapidly; that would need the demand curve to shift. It's that if the supply increases, you move along the demand curve. The demand curve isn't enough to give everybody enough to live off, if they all come along offering those skills. And, that is not "exactly what happens today". What happens now does not have everybody offering skills. Even on that scenario, there are people around without the skills.
Myself: "What you describe is just precisely what you would expect to happen, under my description, with people turning predatory at the margins", then Fundamentalist: "What do you mean by 'at the margins.' I thought all poor people were at the margins. Do you mean only the poorest resort to crime? I don't think you can demonstrate that. Or do you mean the most recent poor people turn to crime while the one who have been poor for a while don't? I don't think you can demonstrate that either. The simple fact is that the vast majority of the poorest people, those at the margins, do not resort to crime."
Sorry, I thought that if we were talking economics you would know some of the technical terms. It's just that you start getting predatory behaviour in a dribble from those people with the right combination of pressures on them and the right combination of tendencies that way. We don't know just who will go first, but we do know that it won't be the whole lot at once. That's why people used to be concerned about vagrancy as a breeding ground for crime, but they didn't think that it was crime itself, as such, until they passed laws against vagrants hanging around - laws that were motivated by that underlying concern.
Myself: "Productivity does not, in and of itself, raise wages over the long run, it is a precondition for that (something might come up so that wages did not rise, even with productivity gains)", then Fundamentalist: "If productivity doesn't raise wages in the long run, what does?" To do that, you have to avoid productivity becoming a bottleneck, but actually delivering it needs bargaining power.
Fundamentalist: "Economics doesn't have another answer". Well, actually, quite a few people have made suggestions - negative income tax, distributism, the en.wikipedia.org/wiki/Kim_Swales approach, whatever.
Fundamentalist: "And what would keep wages down in the long run when worker productivity increased?" Lack of bargaining power, of course. See a limitedinc.blogspot.com/2008/07/lies-damn-lies-and-conventional-wisdom.html at Limitedinc for some discussion.
Myself: "No. That came along after the 18th century phase of Enclosures, and this was talking about the Tudor one. Anyway, it didn't solve even the former, it mitigated it; that is, people still ended up worse off than they had been, it's just that most of them made it through.", then Fundamentalist: "OK. The enclosure movement took place in the 18th century and the industrial revolution in the 19th century". Wrong - that was just the beginning of the last phase of the enclosures. We were talking about the Tudor phase.
Fundamentalist: "So what happened to the people kicked off their land in the 18th century? And who were the factories hiring in the 19th century if not landless poor? I don't think you can put a hard date of 1800 for the industrial revolution, anyway. Some historians think it began in 17th century Dutch Republic. There was some industrialization in the 18th century. As for the landless poor ending up worse than they were before, what does that have to do with the discussion?"
Everything; you used the term "solve". If you get diabetes and then you get insulin treatment, that isn't a cure; it's the same thing here.
Fundamentalist: "We are discussing whether vagrancy is an externality of free markets. Factory workers in the 19th century may have been worse off than peasants before enclosure, but that would be a hard position to prove. You would have to argue that average wages for unskilled labor had not increased in England for over a century."
It's dead easy to prove, just by looking at the cases like the Leverburgh fish processing factory where the locals still had their old options. They stuck with those, given the chance.
Myself: 'I'm not splitting hairs, I'm sticking to careful definitions because sloppy ones let you slide to things like "It's not a big leap to say that free markets cause crime', then Fundamentalist: "So where was I wrong? Did you not claim that vagrancy is an externality of free markets? And did you not claim that vagrancy causes crime? So where is the flaw in my conclusion that you claim that free markets cause crime?"
Sigh. Vagrancy is not an externality of free markets in general, only of ones where certain conditions apply, i.e. where there are people without adequate resources of their own to survive (counting their own labour, if wages on offer are too low). Vagrancy is a cause of crime (not the cause), and even then only when certain conditions are met. So, your assertion is an inference of yours, not a claim of mine, which you arrived at by assuming all the missing preconditions always apply.
Fundamentalist: "Here's what you wrote about swagmen: 'Trollope described how 19th century Australian squatters had to "hire" passing swagmen that weren't worth hiring, because if they didn't they got mysterious fires'. I can only assume from your post that you think free markets caused swagmen to be unemployed and forced them to resort to crime." Sigh. What you should take from that is just precisely what I wrote, that the state did not cause that externality. I didn't state what did.
Fundamentalist: "The swagmen were just thugs using the old protection racket to earn money instead of working. What does that have to do with free markets? Capitalism, which is free markets with the rule of law, would have thrown the thugs in jail. I honestly no longer understand what you're trying to argue. You seem to be going in circles. Do you think that anyone claims that free markets would eliminate crime completely?" What indeed has that got to do with free markets, other than the fact that they were there? The free markets didn't cause this behaviour, as you so rightly point out, but the key thing is that state intervention didn't. I am not trying to prove anything so strong as you suppose, only to shoot down misunderstandings about just what really does come from states. Oh, and free markets would not have used jail for this - policing this sort of thing wasn't cost effective. That's why it didn't happen.
Published: July 27, 2008 2:21 AM
Newson, you're reaching. You're trying to make any departure or inactivity of the state count as intervention, as though its active presence was the default to use as a reference. There are lots of reasons why that doesn't work, including the fact that any entity can only do a finite number of things at particular points and inherently omits infinities over open spans of time and space. You can't invert the two, since there is no symmetry.
Also, you're doing special pleading about how people in Australia behaved, based on presumed convict culture. Didn't aborigines also raid livestock as though that was wild game in their hunting grounds, and didn't bushmen in South Africa do the same, getting each occasionally classified as vermin as a result? And what precisely is vermin, here, but human predatory behaviour?
Published: July 27, 2008 2:34 AM
to pm lawrence:
no, that's not what i'm doing at all. i'm disputing the "externality" you maintain existed without state intervention.
where the state is unable or unwilling to do its job (justice being its bailiwick), then extortion and other crimes will flourish. the state's lack of active presence is the reference, because there did not exist competing justice systems. granting of the monopoly function of justice is the intervention. so we're talking about a dereliction of duty, not a legal void.
as for special pleading for the colonial australians, no, this is just my guess at why such lawlessness (insofar as property was concerned) was tolerated to a greater extent than it would be today. it's merely a personal curiosity.
Published: July 27, 2008 6:05 AM
addendum:
"History offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages." (paul krugman, "pop internationalism", the mit press 1997, p. 56).
and i don't think krugman would qualify as a friend of the free market!
Published: July 27, 2008 6:20 AM
PM: “The demand curve isn't enough to give everybody enough to live off, if they all come along offering those skills. And, that is not "exactly what happens today". What happens now does not have everybody offering skills. Even on that scenario, there are people around without the skills.”
In the socialist economy we have had for the past half-century you’re right. But in a free market the demand curve certainly is enough to “give everybody enough to live off”, especially skilled workers. That’s what Say’s law teaches. And I didn’t write that we see everybody offering skills. I said that the unskilled become trained on the job and develop skills. That’s true for the majority. Very few people remain unskilled and almost all of the unskilled in the labor market are teenagers and immigrants.
PM: “It's just that you start getting predatory behaviour in a dribble from those people with the right combination of pressures on them and the right combination of tendencies that way.”
Sounds like you’re talking about people at Enron. What you describe will happen in any group of people, wealthy or poor. “Vagrancy causes crime” still doesn’t follow logically or empirically. Those vagrants who resort to crime probably had less pressure on them financially than the many poorer people didn’t follow crime. You’re trying to make it sound as if the poor who resort to crime had no choice, that some kind of economic determinism forced them into their crime. I don’t accept any kind of determinism.
PM: “To do that, you have to avoid productivity becoming a bottleneck, but actually delivering it needs bargaining power.”
Nonsense. Productivity never becomes a bottleneck and can’t. Productivity benefits the workers, the owners and the consumer. All share in the benefits. Consumers get lower prices; workers get higher wages and owners get greater profits. What’s there to bargain about?
PM: “Well, actually, quite a few people have made suggestions - negative income tax, distributism, the en.wikipedia.org/wiki/Kim_Swales approach, whatever.”
For creating higher wages in the long run, real economics has no other answer than productivity increases. Any nut can make suggestions. Bargaining power, by which I guess you mean unions, will have no effect on long term wages. All unions do are create unemployment in non-unionized industries. They have done nothing to increase wages for anyone but unionized workers, and the Feds have thwarted that for the most part with inflation. In fact Keynes recommended intentional inflation in order to reduce the real wages of union members.
PM: “It's dead easy to prove, just by looking at the cases like the Leverburgh fish processing factory where the locals still had their old options. They stuck with those, given the chance.”
You didn’t answer my charge. I wrote: You would have to argue that average wages for unskilled labor had not increased in England for over a century. How does your example show that wages had not increased over a century? And I assume that the "locals" had farms to work when we were talking about landless peasants.
PM: “Vagrancy is not an externality of free markets in general, only of ones where certain conditions apply, i.e. where there are people without adequate resources of their own to survive (counting their own labour, if wages on offer are too low). Vagrancy is a cause of crime (not the cause), and even then only when certain conditions are met. So, your assertion is an inference of yours, not a claim of mine, which you arrived at by assuming all the missing preconditions always apply.”
You’re as slippery as a greased pig, always changing your claims when cornered. Austrian econ asserts that free markets will have no unemployment that is not voluntary. If voluntary vagrancy is one of your preconditions, then I’ll have to concede. But almost all involuntary unemployment is caused by state intervention through taxation, monetary policy, regulation of business and support of unions. The rest is caused by lack of property rights and their enforcement. As for vagrancy causing crime under certain conditions, you’re right and the condition is that the vagrant chooses crime; nothing forces him into it.
PM: “What you should take from that is just precisely what I wrote, that the state did not cause that externality.”
You’re right that the lack of law enforcement can cause criminal activity. That has always been assumed by even anarcho-capitalists who hate the state. But the lack of law enforcement of property rights is not free markets; it’s anarchy. Yes anarchy has some unpleasant externalities. Free markets require the rule of law and honest enforcement or criminals take over. Free markets can't exist without the rule of law. If farmers give in to extortion, that in itself is evidence that free markets don't exist in that place and time.
PM: “I am not trying to prove anything so strong as you suppose, only to shoot down misunderstandings about just what really does come from states. Oh, and free markets would not have used jail for this - policing this sort of thing wasn't cost effective. That's why it didn't happen.”
As I wrote above, I agree completely that lawlessness destroyes free markets. But that is not the problem we face today or have faced for over a century. We suffer from too much law and government, not too little as existed in the wild west. Real free markets would have jailed the arsonists whether it was cost effective or not because free markets cannot exist without the rule of law. Even the most ardent supporter of a stateless society knows that. That's why Hoppe has recommended insurance companies and private judges to provide and enforce the law.
Published: July 27, 2008 6:42 AM
to fundamentalist:
albeit off message, but have you read huerta de soto's tome on banking? i'm a good way through, and don't know why i didn't read it earlier.
Published: July 27, 2008 8:49 AM
Newson wrote 'no, that's not what i'm doing at all. i'm disputing the "externality" you maintain existed without state intervention.
where the state is unable or unwilling to do its job (justice being its bailiwick), then extortion and other crimes will flourish. the state's lack of active presence is the reference, because there did not exist competing justice systems. granting of the monopoly function of justice is the intervention. so we're talking about a dereliction of duty, not a legal void.'
Clearly we disagree very much about this, but as it happens it doesn't affect whether there is an externality or not, so I'll leave that aside for now. For now, it's enough to note that even if the state did act, that too would impose the costs of policing - costs which are also spread.
Newson also quoted Paul Krugman: "History offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages".
Actually, there is evidence the other way, e.g. the graph referenced in the Art of the Possible post theartofthepossible.net/2008/07/21/when-you-see-a-turtle-sitting-on-a-fencepost illustrating "Virtually the entire increase in economic output over the past thirty years has gone to the rentier classes and to corporate management" at washingtonmonthly.com/archives/individual/2007_12/012733.php, as well as what Limitedinc posted (see above).
Published: July 30, 2008 9:57 PM
Myself: 'The demand curve isn't enough to give everybody enough to live off, if they all come along offering those skills. And, that is not "exactly what happens today". What happens now does not have everybody offering skills. Even on that scenario, there are people around without the skills.', then Fundamentalist: 'In the socialist economy we have had for the past half-century you're right. But in a free market the demand curve certainly is enough to "give everybody enough to live off", especially skilled workers. That's what Say's law teaches. And I didn't write that we see everybody offering skills. I said that the unskilled become trained on the job and develop skills. That's true for the majority. Very few people remain unskilled and almost all of the unskilled in the labor market are teenagers and immigrants.'
That is not what Say's Law teaches. That just says that aggregate demand will match up at a low enough wage, not that everybody wanting work will get it at a survival wage. And I know that what you wrote doesn't amount to everybody offering all the skills - that was the point I was making, that it is not that. Only, just before you offered it as a counterexample that did that. It was the part just before that was the serious mistake.
Myself: "It's just that you start getting predatory behaviour in a dribble from those people with the right combination of pressures on them and the right combination of tendencies that way", then Fundamentalist: '... What you describe will happen in any group of people, wealthy or poor. "Vagrancy causes crime" still doesn't follow logically or empirically.'
That is absolutely correct - and I never said it did. I was pointing out that it drove it at one remove, providing fuel for the fire rather than lighting it. And that has lots of logical and empirical evidence, e.g. how towns experienced large numbers of wobblies (IWW) descending on them.
Fundamentalist: "... You're trying to make it sound as if the poor who resort to crime had no choice, that some kind of economic determinism forced them into their crime. I don't accept any kind of determinism."
The only options some have, in those circumstances, are taking or dying. Once some take, other options open up for the rest, e.g. the work indirectly created by the policing when spending on that trickles down, so at that level no particular individual has to do it - but some always have to, or perish.
Myself: "To do that [allow the benefits of productivity increases to flow through to wage earners], you have to avoid productivity becoming a bottleneck, but actually delivering it needs bargaining power", then Fundamentalist: "Nonsense. Productivity never becomes a bottleneck and can't."
It could, if some sort of intervention frustrated it. That means you can't take it for granted, you have to make sure nobody interferes with the markets. We're not talking about what happens in free markets, we're talking about what can happen in the real world that can interfere, that we should keep on a watch list so to speak.
Fundamentalist: "Productivity benefits the workers, the owners and the consumer. All share in the benefits. Consumers get lower prices; workers get higher wages and owners get greater profits. What's there to bargain about?"
Only, that's not what actually happens unless the market is near enough free. Have a look at the graph at washingtonmonthly.com/archives/individual/2007_12/012733.php; that suggests something has interfered, because some groups are actually getting worse off in absolute terms.
Fundamentalist: "For creating higher wages in the long run, real economics has no other answer than productivity increases".
I've told you before, that is not the immediate cause, it is something that sets up for it so that productivity does not become a bottleneck that stops it. However, productivity increases are not enough by themselves; if workers didn't haggle in the labour market for more, employers would be quite happy not to pass it on.
Fundamentalist: "Any nut can make suggestions".
Well, that's a straight line! But I'll pass it up. Professor Swales is no nut, but a qualified economist who has researched the matter.
Fundamentalist: "Bargaining power, by which I guess you mean unions, will have no effect on long term wages".
No, I just mean what workers have to offer employers. Unions may well get involved. The effect bargaining power has is, it makes sure gains flow through, it doesn't cause there to be anything there to flow through - but without it, nothing does.
Myself: "It's dead easy to prove, just by looking at the cases like the Leverburgh fish processing factory where the locals still had their old options. They stuck with those, given the chance.", then Fundamentalist: 'You didn't answer my charge. I wrote: You would have to argue that average wages for unskilled labor had not increased in England for over a century. How does your example show that wages had not increased over a century? And I assume that the "locals" had farms to work when we were talking about landless peasants.'
I did answer the charge. The charge was not "You would have to argue that average wages for unskilled labor had not increased in England for over a century", that was the straw man after "Factory workers in the 19th century may have been worse off than peasants before enclosure, but that would be a hard position to prove". Since I could easily show that peasants with their own resources were better off sticking to that than going into factories with an example, I gave one. I did not have to consider whether average wages fell at all. Incidentally, we were not talking about landless peasants, we were doing a comparison between factory workers and peasants before enclosure - who did have their own resources.
Fundamentalist: "You're as slippery as a greased pig, always changing your claims when cornered".
No, I keep trying to clarify when you misread. At this point it's more for the benefit of anyone else coming into the middle of the discussion.
Fundamentalist: "Austrian econ asserts that free markets will have no unemployment that is not voluntary. If voluntary vagrancy is one of your preconditions, then I'll have to concede."
That will entirely depend on your definition of voluntary. Would you call it voluntary if someone on a sinking ship dives in and starts swimming rather than be sucked down by the undertow? To me the dive and the swimming are voluntary, but the going in the water at all is involuntary - even if someone looking at just those few seconds might think it was voluntary from not realising the ship was sinking. In the same sense, someone who couldn't find work that paid enough to live might be called voluntarily unemployed, to have chosen vagrancy as a way of looking for opportunities instead. But I don't call that voluntary, myself.
Myself: "What you should take from that is just precisely what I wrote, that the state did not cause that externality", then Fundamentalist: "You're right that the lack of law enforcement can cause criminal activity. That has always been assumed by even anarcho-capitalists who hate the state. But the lack of law enforcement of property rights is not free markets; it's anarchy. Yes anarchy has some unpleasant externalities. Free markets require the rule of law and honest enforcement or criminals take over. Free markets can't exist without the rule of law. If farmers give in to extortion, that in itself is evidence that free markets don't exist in that place and time."
Then you're adopting Newson's position, that the state is the reference point, and there is the same objection, that you get still get an externality from funding policing costs and/or welfare to buy people off. That applies whether it comes via tax for a state or premiums for insurance companies.
Published: July 30, 2008 10:01 PM