Comments (59)

• MatthewWilliam

  Happy Net Capital Investment Day!!

  Published: September 1, 2008 8:18 AM

• michael

  The premise to be upheld, of course, is that somehow one individual laborer, unorganized, is in any kind of position to bargain with a giant conglomerate (or even a mom and pop store owner) as to the terms of employment he considers to be satisfactory. This is simply not so, as everyone well knows.

  Prior to the rise of organized labor, twelve hour days were common, workers had no rights and no tenure, and there was no such thing as benefits or retirement. Pay rates were set as low as would allow for body and soul to be kept intact, so the worker could put in one more day.

  What has made the difference? Collective bargaining. This giant step forward is what Labor Day celebrates.

  It has also been of great benefit to the employers, although none will dare admit it. Because it has prompted a consumer boom that has placed the US economy at the forefront of nations. Suddenly the workers had actual cash in their pockets. So what did they do with it? They spurred production, by buying product off the shelves. Business, for the first time ever, was able to expand.

  Without organized labor to insist on fair living wages and decent working conditions, America would just have ended up another stagnant feudal kingdom, with a few very rich people at the top and a mass of hungry peasants below. Labor has saved us from ourselves by allowing a dynamic consumer economy to expand across the world.

  Published: September 1, 2008 9:19 AM

• RWW

  Suddenly the workers had actual cash in their pockets. So what did they do with it? They spurred production, by buying product off the shelves.

  Can you really not see the problem with your logic here?

  Published: September 1, 2008 9:51 AM

• Inquisitor

  No, he doesn't. He just buys into every line of bullshit emanating from union and government propagandists. It is amusing how the role of capital and competition in labour markets are ignored, and of course all wealth is created by bargaining. Stupid sycophants. Unionism might or might not work in free markets, but to impute to it all gains in wealth is sheer nonsense. We also see the howler that without unionism the US would be a feudal kingdom. Yes, the usual leftist rant about capitalism...

  Published: September 1, 2008 10:20 AM

• kiba

  I read in US government schools that the workers have to fight for higher wages and better working conditions. They often do it with unions.

  I also know that unions tend to be a type of cartel, strangling competition in the workplace and destroying the firm's ability to compete in the marketplace

  I think I am missing something important or was given inaccurate information.

  Published: September 1, 2008 10:32 AM

• magnus

  Michael wins the prize for Most Faithful Regurgitation of Patently False, Mindless Socialist Propaganda. Congratulations. The competition was intense.

  Unfortunately, the prize includes a large, multi-state swath of America stretching from upstate New York to St. Louis, filled with economic stagnation, failure, decay, corruption, and hardship for millions of people.

  Published: September 1, 2008 11:21 AM

• michael

  Me: Suddenly the workers had actual cash in their pockets. So what did they do with it? They spurred production, by buying product off the shelves.

  RWW: "Can you really not see the problem with your logic here?"

  No, I can't. It is obvious that moving product off the shelf is the surest and best way for a manufacturer to earn profits, and seek to earn more by expanding production.

  That in turn requires that he add help, spreading the wealth and creating more "demand centers"-- families able to increase their standard of living by buying more consumer items, stimulating in turn other sectors of the economy.

  Please spell out to me just how this is not so. Don't just sell me some Koolaid. Give me a decent analysis showing how putting money into consumer pockets is bad for the economy.

  Inquisitor: "He just buys into every line of bullshit emanating from union and government propagandists."

  Your level of argument doesn't offer your ideology any benefit. Try instead to refute my argument, so obvious it should go without saying.

  Kiba: "I also know that unions tend to be a type of cartel, strangling competition in the workplace and destroying the firm's ability to compete in the marketplace"

  In the extreme that could happen. When unions enjoy all the power and management none, the result is just as bad as when the power goes the other way. Labor and management should recognize they have goals in common, leaving some of the gravy for shareholders, some for the workers and an extra mite for the bosses.

  Published: September 1, 2008 1:50 PM

• Saoirsí

  "Post an intelligent and civil comment" indeed. Nice work so far, chaps.

  First: but for the International Workers of the World helping to inspire the formation of the ACLU (to defend them), we might not today enjoy the protection of the Bill of Rights in the way that we do. The interpretations that many right-libertarians take for granted, were largely provoked by the ACLU in those court cases (see also "The Conscience of a Socialist" by Clark Stooksbury in the June 30th American Conservative review of "Democracy’s Prisoner: Eugene Debs, the Great War, and the Right to Dissent" by Ernest Freeberg).

  Second: there is a manichean division at work here that suits ideologues of both the left and right: the idea that mental work such as investment, allocation or management is somehow not also labour.

  Why is "human action" not considered labour?

  If labour is defined as the subjective disutility of effort (as by Austrian influenced A.V. Chayanov or Kevin Carson), then there is no great divide between labour theories of value and free-market economics (and no defence of the howler that an entrepreneur is not a "worker" because he is not employed by someone else).

  And third: I don't understand why collective bargaining by capital owners, with state-enforced limited-liability (aka privatising profits, socialising costs) is less odious than collective bargaining as checks-and-balance, by employees of such creatures of the state. Why do firms get preference - shouldn't we all be rugged individualists and sole-trader bargainers?

  I'm not so perturbed by the individual union coming to an accommodation over swapping for religious holidays; I thought they used to do this with Jewish holidays years ago.

  I'd wish you all a Happy Human Action day, except, (shhhh!) it's supposed to be on May 1st...

  Published: September 1, 2008 1:57 PM

• RWW

  The obvious problem with your argument is that, even if my workers spent every extra penny I gave them in my store, I'd have no more money than if I'd kept it all in the first place. It's very odd to me that this simple fact didn't occur to you.

  Published: September 1, 2008 1:58 PM

• RWW

  I don't understand why collective bargaining by capital owners, with state-enforced limited-liability... is less odious than collective bargaining... by employees of such creatures of the state.

  If you expect a defense of state-sponsored corporations, you've come to the wrong place. The root problem in either case is the state.

  Published: September 1, 2008 2:05 PM

• Matt

  Let us not forget...First there is production THEN there is consumption. Manual Labor does not decide what is to be produced. Then of course there is Intellectual Labor, but then who cares about that?, not the Unions that I know of. Then of course there is Private Property
  but then who cares about private property? Let's have a Relaxation Holiday, no one should complain about that. We all deserve that, it's one of our basic rights.

  Published: September 1, 2008 2:13 PM

• Saoirsí

  He might have touched upon that in saying "spreading the wealth and creating more 'demand centers'-- families able to increase their standard of living by buying more consumer items, stimulating in turn other sectors of the economy"; or in other words, creating a broader culture of effective demand and entrepreurial supply - not simply recycling it through a soviet "one big store" or monopoly Buy'n'Large, but spreading it out; again, not simply as a free gift, but in proportion to actual productivity (as opposed to what can be squeezed out by cartelized capital and regulations.)

  And it isn't just state-subsidised companies I meant, but limited-liability corporations themselves: as long as they actually exist as at present, it isn't that unreasonabe for their employees to agitate for a couterbalancing protection agency in the form of unionisation.

  Happy Relaxation day, and pass the turkey (wrong holiday, I know).

  Published: September 1, 2008 2:27 PM

• Nasikabatrachus

  Ah, Labor Day. It just wouldn't be complete without the obligatory repetitive dance about labor unions. First comes the article critiquing labor unions. Then comes the comment about how we'd all be dirt poor and taking showers in mud if it weren't for labor unions.
  Then comes the annoyed rejoinders from libertarians.

  Then comes the irrelevant comment complaining that the annoyed rejoinders/article did not include a criticism of corporations, even though they were not under discussion.

  I'm beginning to think that everyone on the internet is either the same six or seven people or that this is actually a primitive seasonal ritual left over from our evolutionary history as lizards.

  Published: September 1, 2008 3:20 PM

• Anthony Jones

  It is not true that landlords' income has not increased. They have benefitted substantially from increased land prices, which have been created by the activities of communities, and which have allowed them access to additional borrowing (under the current collateral-based finance system). This has led to an increase in wealth for both landowners and money creators.
  We do not need a socialist fix, but there is a need to move to a new economic model based upon capturing the community created economic rent to fund the needs of the community, instead of it providing unearned income for landowners, and thus for financiers.
  The current economic crisis has been caused by this activity; land prices have been driven by excessive money creation to unsustainable levels, which are penalising the poorest in our societies, both in UK and USA. To compound the problem, excessive money creation is permitting speculation, first in land (driving up prices) and now in commodities (in some cases causing starvation).
  Employees are at the bottom of the pile: In economic terms their wages are reduced to the minimum they will accept. That is why trade unions were formed. Until this unjust and exploitative system is modified or replaced this will not change and the spectre of socialism, with all its faults, will look to many as the only alternative.
  Free market capitalism is a free for all, and socialism reduces everything, through envy, to the lowest common denominator. The third way, mentioned above, using the land value created by the community for its own benefit, provides real freedom of opportunity for all.
  
  Anthony Jones FIAM FInstSMM

  Published: September 1, 2008 3:49 PM

• Inquisitor

  "Your level of argument doesn't offer your ideology any benefit. Try instead to refute my argument, so obvious it should go without saying."

  What "argument"? Oh, you mean your socialist rant?

  
  "Why is "human action" not considered labour?

  If labour is defined as the subjective disutility of effort (as by Austrian influenced A.V. Chayanov or Kevin Carson), then there is no great divide between labour theories of value and free-market economics (and no defence of the howler that an entrepreneur is not a "worker" because he is not employed by someone else)."

  I'm not sure what the point of this is?

  
  "They have benefitted substantially from increased land prices"

  ...and? Oh yes, are you going to trot out the Georgist mantra again? That which does not follow unless one accepts that people have right to value? As for the bit on speculation, well then all action should be outlawed, as it is all speculative. Oh no! Now it does become pernicious when combined with central FRB, but that is a separate argument.

  Published: September 1, 2008 4:24 PM

• Bill

  Michael,

  As Matt said "first there is production THEN there is consumption." Wages only come about because of past production (i.e., capital accumulation); they are not the source of production.

  George Riesman explains it well here: http://mises.org/article.aspx?Id=1729

  "Thus, capitalists do not impoverish wage earners, but make it possible for people to be wage earners. For they are responsible not for the phenomenon of profits, but for the phenomenon of wages. They are responsible for the very existence of wages in the production of products for sale. Without capitalists, the only way in which one could survive would be by means of producing and selling one's own products, namely, as a profit earner. But to produce and sell one's own products, one would have to own one's own land, and produce or have inherited one's own tools and materials. Relatively few people could survive in this way. The existence of capitalists makes it possible for people to live by selling their labor rather than attempting to sell the products of their labor. Thus, between wage earners and capitalists there is in fact the closest possible harmony of interests, for capitalists create wages and the ability of people to survive and prosper as wage earners. And if wage earners want a larger relative share for wages and a smaller relative share for profits, they should want a higher economic degree of capitalism—they should want more and bigger capitalists."
  

  Published: September 1, 2008 7:20 PM

• cipher

  When did the practice of global labor arbitrage become a hallowed libertarian principle anyway?

  May 700 Bantu Mohammedans move-in next door to and across the street from each of you - although I'm certain they'd soon blanch then retreat to whence they came (and belong) once all y'all start slinging your term papers, academic theories, and high and mighty rejoinders their way.

  Published: September 1, 2008 8:29 PM

• Saoirsí

  Ok, let's try it again:

  1. Capital investors get joint-stock, limited liability corporations; labour investors / employees get unions. Fair's fair;

  2. Labour isn't simply manual labour, it's all human effort; it creates capital. Human's first in the pecking order, not companies.

  And on the subject of trite, commie wailing: here's one of the anti-christs themselves, Deacon Tom Cornell of St. Mary's Church, Marlboro, N.Y.:

  (*Before you all start flamin' away, just consider whether you would be so blasé if this was small- or medium-sized business men and their local chambers of commerce getting castrated or shot. )

  "The struggle for the forty hour week, for health and safety regulations, for the right to organize for collective bargaining, for social security old age pensions, for workers' compensation for injury on the job, for unemployment compensation, for a minimum wage...
  It cost blood! Yes, there was violence, almost all of it aimed against unarmed workers. Men, women and children were burned to death, men were shot, some were lynched, castrated, dragged through the streets and hanged. Deputy sheriffs near Hazelton, Pennsylvania in 1897 shot down nineteen unarmed Slavic, Hungarian and Sicilian miners because they went out on strike. That stimulated the building of the United Mineworkers Union. Organizers were imprisoned unjustly for as long as twenty years, all for trying to form a union...
  In 1891 Pope Leo XIII gave his answer to the social question in an encyclical that set off the development of modern Catholic Social Teaching, Rerum Novarum, or In These Revolutionary Times. Labor is prior to capital. Work comes first, because work creates capital. People come first because men and women are made in the image and likeness of God...
  Workers have a right, even an obligation, to band together to assert their right to a fair share of the product of their own labor by all honorable means, including the withholding of their labor...
  Even a smaller percentage of our fellow citizens know anything about the terrible long struggle to attain the degree of social justice we enjoy in this land today, the Pullman Strike in 1894, for example. President Grover Cleveland called out 20,000 troops to put it down. They shot thirteen unarmed men dead and wounded fifty-seven more and the courts condemned, not the killers, but the strikers' leader, Eugene Victor Debs, in prison for six months...
  Or the Ludlow Massacre on Easter Night, 1914, when the National Guard in Ludlow, Colorado shot dead a dozen striking coal miners, thirteen of their children and one pregnant woman...
  It wasn't all beer and skittles within the labor movement. Communists vied for control with gangsters. The Association of Catholic Trade Unionists, before and after World War II, set up labor schools all over the country to teach rank-and-file union members how to keep control of their own unions...
  Little is known of the part that organized labor played in the great Civil Rights Movement of the Sixties, but I know because I was there. I know who paid the bills..."
  - Tikkun Magazine, Sept./Oct. 2008

  Published: September 1, 2008 8:39 PM

• Saoirsí

  Despite our disagreements, I hope that we can all at least unite on the Bantu-Mohammedan-threat, which is a-whole-nother story.

  Published: September 1, 2008 8:59 PM

• Saoirsí

  Pat Buchanan: "Would you prefer a million Englishmen or a million Zulus to immigrate here?"

  To which the Irishman responds: "It depends: can the Zulus bring their spears?"

  Badda-boom...tishhhhhh!

  Ah no, I do actually like Pat, and all y'all in Texas too. Any people who can come up with sweet onion ice-cream and frozen pickle juice ain't all bad, despite what everone else on these comment boards say behind your backs. Naw, I'm kiddin'! Go Horned Frogs!

  Published: September 1, 2008 9:11 PM

• Francisco Torres

  Prior to the rise of organized labor, twelve hour days were common, workers had no rights and no tenure, and there was no such thing as benefits or retirement.

  12 hours were common because there was more competition among laborers due to a greater supply of them. Hours started coming down when more companies existed to hire more workers. Labor Unions were created to keep competing laborers OUT, not to simply decrease hours. As for saying workers had no rights, depends on what you are thinking are rights - I hope NOT positive rights, like a right to a nice house or to a higher wage (regardless of productivity or job description). Because workers always had rights, to not being deprived of their life and property, the same as everybody else.

  Pay rates were set as low as would allow for body and soul to be kept intact, so the worker could put in one more day.

  That's not the reason, you only think it is because you have comparing current wage levels to those of past eras. The wage levels were exactly as they should be considering the supply of labor that existed in, for instance, the XIX Century.

  
  It has also been of great benefit to the employers, although none will dare admit it. Because it has prompted a consumer boom that has placed the US economy at the forefront of nations.

  That's silly. Unions just made the cost of labor higher than market rates, making products more expensive for consumers.

  Suddenly the workers had actual cash in their pockets. So what did they do with it? They spurred production, by buying product off the shelves.

  Indeed, for example, workers from the pin and needle factory were able to buy bushels of pins and needles, off the shelves... You NOW see the problem with your logic?

  Published: September 1, 2008 10:32 PM

• Haas

  For all those union worker lovers- the main reason why india is lagging behind china in growth is because they value their culture of unionized labor so much they would rather give a few laborers higher wages at the expense of most unemployed people who would rather get any job that pays any amount of money- unfortunately you cannot get a job even if you want it because of the so called defenders of workers rights- the unions and their backward ideologies...

  saoirsi-"Despite our disagreements, I hope that we can all at least unite on the Bantu-Mohammedan-threat, which is a-whole-nother story."

  So you are not just a left wing socialist puppet you are a racist too...

  Published: September 1, 2008 11:30 PM

• Inquisitor

  Saoirsi, I still fail to see the relevance.

  Published: September 2, 2008 6:36 AM

• gene berman

  Michael;

  Your arguments are stated and organized with a clarity identifying you as serious. And, you are right..none of the other commentors has refuted your arguments with their own. rather, they have provided a few sound-bite-type counters.

  But the fact remains that you are about as far wrong as it possible to be. Moreover, you are of an intelligence level that has been able to absorb the propaganda dispensed by almost all of mainstream American education for well over 70 years and integrate it to a degree worthy of a socialist professor.

  The reason that the economic theory to which this site subscribes and seeks to propogate has not yet succeeded in its aims and, in fact, does expand so relatively slowly is due in part--a significant part--to the fact that it contains no "segments" which can be considered (and either proven or disproven) in isolation from the whole. It is comprehensive and fully integrated, taking as its only "assumption" one underlying reality: that men ACT, that is, men do whatever they do because they prefer that mode to some other at that moment in time. Everything else follows by rigid, absolutely logically irrefutable steps. The process of its absorption is not child's play--it demands a sustained level of attention and a certain predisposition to intellectual tasks. Though I am not knowledgeable enough to blithely assign some "minimum IQ" level to its successful comprehension, I'd further guess that anyone 1 SD above the norm (about 115 or better) is capable--with some significant variation in the length of time required.

  No one can change your mind but you. In matter requiring more than "sound-bit" illustrations and arguments, comment streams such as these are more akin to an arena for display of prowess in rhetorical agility. If you want actually to know something of the arguments and structure of the theory leading to the views of your opponents here, there is simply no other way than to familiarize yourself with them at their source.

  The single best, most comprehensive source is, of course, Mises' HUMAN ACTION. It's not an "easy read" but that should not discourage anyone intent on understanding the truth of such important matters.

  But, just to provoke you a bit, I'll state what anyone--at any time, should be able to comprehend (and actually, to agree with, though on the "other side"):

  Labor unionism is now and has always been in the past, simply a modification of organized-crime "business" commonly referred to as the "protection racket." Any increase in the wage height delivered to members come chiefly at the expense of those excluded from its ranks either by lowering their wages or forcing their unemployment. The effect it has on firms it has "organized" is to drive them to seek legislated advantages (subsidies, import tariffs and quotas, and other "protection") from thus-far-not-yet-organized competitors (i.e., law at both State and Federal level requiring their contractors pay union-level compensation to all employees, whether union or not).

  Published: September 2, 2008 9:29 AM

• gene berman

  Michael:

  One argument you might want to consider is that, in the main, employers have little discretion in the range of rates they're able to pay for the category, "wages." If they offer too little, they will not attract the hands needed for the various performances (and that is because of the competition of other employers offering more). If, on the other hand, they offer "too much," they will be taught as much by a contraction in sales and a lowering both of profits and of the rate of profit (as compared to investment) obtainable from the enterprise. The consumer is the primary determinant in these matters. If the owners rate of profit falls below that of comparable outfits, the attractiveness (and price) of its stock will decline in rough tandem and he amy even experience attempt by competitors (or newcomers) to take over the firm with a view toward managing affairs more sensibly. (Which is why unions are so intent on "organizing' all aspects of a particular industry.)

  If you elect to look more closely, you may even come to learn something not frquently spoken about: the role of industrial "organization" in the incentive for and promotion of world wars.

  Published: September 2, 2008 10:06 AM

• chuckv

  I think it is important to point out that organized labor did not "win" shorter work days, health benefits, or increased compensation for workers. As society became more productive and wealthier, largely thanks to capital and intellectual investments by entrepreneurs which increased the productivity of the average worker, workers chose to accept the manifestation of this new wealth in the form of more leisure time and the increased consumption of medical care and other goods and services which were once luxuries.

  Published: September 2, 2008 11:01 AM

• fundamentalist

  Michael: "Prior to the rise of organized labor, twelve hour days were common, workers had no rights and no tenure, and there was no such thing as benefits or retirement. Pay rates were set as low as would allow for body and soul to be kept intact, so the worker could put in one more day."

  People worked 12-hour days six days a week because that is what they have worked since the beginning of history. As workers began to earn more in the 20th century, they were willing to trade income for days off. Companies had to offer shorter work weeks in order to attract the best employees. Unions had very little to do with it.

  Unions didn't increase pay, either. As Austrian econ demonstrates, higher union wages did nothing but reduce wages in non-union sectors. Then the state would use price inflation to reduce real union wages to the market level. Long term wages increases can happen only with productivity increases, which happen only with capital accumulation and new technologies.

  Published: September 2, 2008 12:17 PM

• michael

  Matt says "Let us not forget...First there is production THEN there is consumption. Manual Labor does not decide what is to be produced."

  I can't imagine what they're teaching you. Consumption absolutely leads production! Why on earth would you ever spend money producing something that no one was going to buy?

  You really have to think these things through. You can't just write down every word your professor says, as though he were Allah speaking to Mohammed.

  Next, RWW says "The obvious problem with your argument is that, even if my workers spent every extra penny I gave them in my store, I'd have no more money than if I'd kept it all in the first place. It's very odd to me that this simple fact didn't occur to you."

  Again, not thought through very well. What matters is cash flow, not a one-time infusion of cash. Your fellow in possession of X amount of cash will one day spend it... like the fellow ending up with a fish who didn't know how to fish. Whereas if he hires others to work in his factory, and sells them something they all want to buy, he has fresh fish on his plate forever. He has initiated a renewable supply of purchasers.

  My model would be Henry Ford-- not exactly considered a dumbbell. He could have paid his workers far less than he decided to. But then they could not have afforded to buy his cars. Further production would have been useless.

  But he gave them more money than he had to, knowing most of it would come back to him. And in the process, built a huge empire based on his consumers' ability to pay.

  Published: September 2, 2008 12:37 PM

• fundamentalist

  Michael: " Why on earth would you ever spend money producing something that no one was going to buy?"

  Matt is only telling you what Austrian econ teaches. You are spouting Keynesian econ. Keynesian econ seems obvious, but the good economist looks beyond the obvious to discover the true working of the economy in the long run. Austrian econ shows that if you stimulate demand for consumer goods, all you get is inflation, lower productivity and the boom/bust business cycle. But if consumers spend less (consume fewer consumer goods) and save more, then the increased investment will increase wages and produce more consumer goods. Increased production of consumer goods coupled with less consumption by the savers creates an abundance of consumers goods and lower prices (higher standards of living).
  

  Published: September 2, 2008 12:48 PM

• michael

  Inquisitor-- With all due respect, I think you're masking a very deep ignorance of how the real world actually works. In my time I've both worked for others, worked for myself alone and employed others to work for me. And I've made a profit at each step of the way. To write off my every comment to some infatuation with Marxist indoctrination is to indicate you're having trouble with the very idea of how labor is employed to create cash flow.

  As to the distinction between an entrepreneur and a laborer, the first works for himself. The second works at the behest of another. Each position has its advantages and disadvantages.

  There's a time to listen and learn. You can't find it all inside a classroom.

  Published: September 2, 2008 12:55 PM

• Hendrik Rood

  Ahum,
  
  Here in the Netherlands we do not have Labour Day as an official holiday. Socialists and Anarchist who want to have festivities on the 1st of May to remember the Haymarket Affair of 1886 and sing the "International", have to do that in their spare time / take a day off.
  
  I was once told that the shift of Labor day in the USA to the 1st Monday in September was a deliberate one, to sever ties to this anarchist uprising and killing of police officers who attempted to strike down a rally.
  
  Off course Libertarians might want to organise for themselves a "Freedom of Contract Day" as that seems to be more under pressure today.

  Published: September 2, 2008 12:59 PM

• michael

  Bill suggests "As Matt said "first there is production THEN there is consumption." Wages only come about because of past production (i.e., capital accumulation); they are not the source of production."

  The workers are one of the two sources of production (along with working capital). They are the people who make it possible to put product on the shelf. They're also the ones who do the consuming, enabling the process of production to be a profitable one. Your tautology has a chicken-or-egg quality about it that doesn't capture the actual processes of production over time.

  Try running a business with no employees, as I have, and you'll see what I mean. You can't grow but so big, if you're printing out the bills and sending them by hand, making your own deliveries, etc.

  To exemplify my larger point: what characterised the slowdown of 2000-2002? It was the inability of poorly paid workers to consume any more output. Assembly lines came to a halt while people who normally bought as many vehicles (for example) as could be financed, instead put up their own used vehicles for sale. The new-car market came to a halt, inventories languished and zero percent financing was invented, just in a frantic attempt to move product.

  What did this do to the highly leveraged, overinvested world of finance? The speculative bubble broke-- erasing between seven and eight TRILLION dollars in investment value.

  Just think what the scenario would have looked like if, instead, those $7-8 trillion had gone into higher wages. There would have been a consumer feeding frenzy such as the world had never before witnessed, sending the Dow to 20,000 and beyond.

  And the increase in the Dow would not have been based on prices being bid up merely by an excess of speculative capital 9as actually happened). They would have been based on that old-timey virtue, NET PROFIT. The investors would have all been rolling in dividends.

  Published: September 2, 2008 1:48 PM

• michael

  fundamentalist says "Austrian econ shows that if you stimulate demand for consumer goods, all you get is inflation, lower productivity and the boom/bust business cycle."

  Austrian econ would here be wrong. If one were to expand the money supply in order to stimulate demand, that could be inflationary. But what I am obviously suggesting is that the worker get his fair cut of the net profits of the operation. Why? Because he contributes to their being actualized, just as surely as do the efforts of the investors and management.

  The reason this is omitted from the teachings of Austrian econ is that any recognition of this obvious fact would entail both management and the investors having to settle for a smaller cut. Such a view is myopic, and in the long run leads to diminishing returns as the business founders... for lack of business.

  Published: September 2, 2008 2:02 PM

• fundamentalist

  Michael: “. But what I am obviously suggesting is that the worker get his fair cut of the net profits of the operation.”

  I misunderstood. But then you have to ask who will determine what is fair?

  Michael: “Because he contributes to their being actualized, just as surely as do the efforts of the investors and management.”
  Austrian and Keynesian economics proposes that the worker get paid his marginal contribution. His marginal contribution increases through productivity increases, not through better negotiations. Suppose that workers were able to negotiate wages above their marginal contribution. Several scenarios might develop:

  1) If capitalists decided to accept lower profits, then the return on investment would be lower. If the ROI were lower than the natural rate of interest, then people would quit investing in businesses and switch to something like government bonds. Business would suffer from lack of investment and productivity would fall.

  2) Capitalists might decide to pass on the extra cost of labor to the consumer, in which case higher prices would destroy the gains that labor thought they had made in wage increases.

  3) If neither of the above happened, capitalists might reduce their demand for material inputs and force suppliers to pay for the increased costs of labor. In that case, the gap between union and non-union wages would widen, forcing non-union labor to pay for the increased cost of union labor.

  Michael: “The reason this is omitted from the teachings of Austrian econ is that any recognition of this obvious fact would entail both management and the investors having to settle for a smaller cut.”

  Austrian econ doesn’t need me to defend it. But as I mentioned above, investors require a minimum return on investment before they will invest savings in a company. This minimum return is based on time preference and risk. If investors don’t get the minimum they desire, they won’t invest. Without constant investment to replace worn out equipment and purchase raw materials, businesses would grind to a halt.

  Labor can’t always ask for more and expect capitalists to settle for less because all wages are paid out of capital and if capitalists don’t get the return they want, they’ll quit investing. Sales don’t pay for labor. Profits go to the owners who then deicde how much of the profit they will consume and how much they will re-invest in the business. One of the main reasons that manufacturing jobs go overseas is that taxes, regulations and unions have reduced the ROI on so many investments that capitalists have to look overseas for investments that will give a decent ROI.
  

  Published: September 2, 2008 3:08 PM

• Jacob Steelman

  The yardstick by which to judge the importance of a decision between employer and employee (the suppliers of labor services) or between the employer business and any other of the factors of production is the consumer reaction in the marketplace. Businesses are merely agents of consumers whose job it is to coordinate the factors of production to supply goods and services demanded by the consumers. Whether or not the employer business and employees of that employer business do a good job in supplying the goods and services demanded by the consumer at the price the consumer is willing to pay is voted on everyday in the marketplace. That is the only yardstick that counts.

  Published: September 2, 2008 3:11 PM

• Bill

  Michael,

  Your example of Henry Ford is a misunderstanding of history. He didn't pay his employees more because he wanted them to buy his cars. He payed them more because it was cheaper in the long run due to the high costs of employee turnover.

  Besides, selling Ford cars to Ford employees is not going to build you a 'huge empire' - the market is just too small.

  Published: September 2, 2008 3:14 PM

• Anthony Jones

  Michael -

  1. Wages will always be reduced to the minimum a labourer will accept; why would an employer pay more? A fair deal for employees is only possible if there is a labour shortage!
  2. US Dollars continue to be created in ever larger amounts, which doesn't cause inflation if the rest of the World trust them; it allows US to continue to live beyond its means and keep land prices as high as possible, keeping the rich happy.

  Inquisitor -

  Critcise George if you must, but it is totally reasonable that no one is properly entitled to value they haven't created. The free gift of what in economics is termed as 'land' (natural resources) has no value (it's a gift!!!). However, communities create a value by human activity and desire.
  Land ownership is a privilege granted by a community to an individual, family, firm etc. Every privilege has a correspondant duty; in this case not to steal this value. It is the way of conflict, an expression of injustice.

  Published: September 2, 2008 5:47 PM

• Francisco Torres

  Consumption absolutely leads production!

  Before the Apple II was invented, not one consumed Apple II computers. Your assertion is fallacious.

  Why on earth would you ever spend money producing something that no one was going to buy?

  Investors look for things like: projections, market investigations, try-outs, free samples, et cetera. It is not as if producers just go off producing willy-nilly - their investors will want some assurances first.

  
  What matters is cash flow, not a one-time infusion of cash. Your fellow in possession of X amount of cash will one day spend it... like the fellow ending up with a fish who didn't know how to fish. Whereas if he hires others to work in his factory, and sells them something they all want to buy, he has fresh fish on his plate forever. He has initiated a renewable supply of purchasers.

  You are confusing things. A producer makes products with a specific market in mind and not his workers. I could have a company with 100 employees making a million widgets per year - would my workers buy 10,000 widgets per year to keep the company going? Producers do not pay workers so they can consume what they produce - they pay workers according to the market rate for a certain job and based on the marginal utility that worker provides. In other terms, the worker gets exactly what he is willing to receive for his services.

  My model would be Henry Ford-- not exactly considered a dumbbell. He could have paid his workers far less than he decided to. But then they could not have afforded to buy his cars. Further production would have been useless.

  That's not what he thought when paying more - he wanted to avoid turn over costs. He certainly did not employ enough workers to consume the 15 million Model Ts the company produced, that would have been absurd. Besides, wasn't supposed to be the labor unions that increased wage levels, and not Mr. Ford? Or haven't you seen that contradiction yet?

  And in the process, built a huge empire based on his consumers' ability to pay.

  He actually did it by lowering the cost of producing each car, not by paying his workers more.

  Published: September 2, 2008 6:54 PM

• gene berman

  Michael:

  Henry Ford was certainly not "dumb," as you say. The entire world is indebted to him in a certain respect, for his institution of "assembly-line" production.

  He was, however, a moralizing socialist, intent on controlling the lives and living conditions of his employees and of being in position to command such control. That was at least part of his plan to pay higher-than-going-rate wages. That, and as has been indicated by others, that he wished to assemble a work-force characterized by a low turnover of the aforementioned highly selected hands.

  But there's another aspect of the Ford history of which you seem quite unaware. Henry Ford was not spending or "distributing" his own money as higher wages. He, too, was an employee, the supervisor of an auto plant owned by the Dodge brothers. His plan worked well enough for a few years but proved disastrous when sales turned down. The Dodges told him to reduce the wages to be more in line with those elsewhere available. Ford refused and continued to operate the plant on the same basis, whereupon the Dodges fired him and entered suit to recover from him the amounts by which he'd overpaid since being told to do otherwise. Eventually, the case went to the U.S. Supreme Court, whose verdict, like those of each of the lower courts, found in favor of the Dodges on all counts.
  Of course, Ford did manage to get into the business successfully for himself. But, in managing Ford Motor Co. for himself (and other investors), he no longer maintained the same wages policy--preferring to pay lower (but still higher-than-normal
  prices to induce loyalty, industry, and low turnover) rates than he formerly favored paying out of the Dodges' pockets. He had his share of labor troubles, including hiring (Pinkertons, I think) security guards experienced in fighting pitched gun battles with union strikers.

  I do repeat the advice given formerly. These arguments--snippets, really--get nowhere quickly and cannot be resolved by mere repetition or continuation. From any considered intellectual viewpoint, they're almost childish. Take the actual challenge: read Mises. If you learn anything, you'll change your mind.

  Published: September 2, 2008 8:17 PM

• RWW

  ...it is totally reasonable that no one is properly entitled to value they haven't created. The free gift of what in economics is termed as 'land' (natural resources) has no value (it's a gift!!!)... Land ownership is a privilege granted by a community to an individual, family, firm etc.

  Unless you believe "communities" have some existence independent of their members, you are contradicting yourself. Georgism is an ugly, ill-considered philosophy, dangerous in its pretensions of justice.

  Published: September 2, 2008 8:36 PM

• magnus

  He certainly did not employ enough workers to consume the 15 million Model Ts the company produced, that would have been absurd.

  And yet, it persists, like a fungus that just won't die.

  Published: September 2, 2008 8:46 PM

• David Ch

  Without responding to the details of the debate that has gone before, Id like to point out that unions are not after a 'fair deal' for their members. They are after an unfair deal for their members, at the expense of both the employers AND the unemployed, who are locked out of the market by minumum wage agreements.

  Why is it that competition is regarded as a Good Thing when its between producers, but as a Bad thing when its between workers? Even when there is a labour shortage, employers will still aim at employing the best and compete for them, making higher wage offers for particularly productive individuals. Which is as it should be.

  So, collective bargaining tends to shut out the least productive from any employment at all, while assuring that the most productive are paid less than they should be. THATS why unions are evil - they don't play fair.

  Published: September 3, 2008 4:35 AM

• JAQO

  I really enjoyed reading your thoughts on Labor and Freedom, particularly because you briefly pointed out many fallacies attached to the celebration of Labor Day, the labor movement, etc. that are pretty much non-existent in our intellectual life. However, you comment to the effect that we are a so-called nation of immigrants is just as much a canard as those you expose in your writing. If one were to follow the type of illogic that characterizes such a common misconception to its logical conclusion every single human being would be an immigrant rendering it moot. At what point, however, do you cease to be considered as such in the U.S.? After the first generation? Based on some arbitrary percentage of assimilation? Do you consider yourself an immigrant? Why? If one were, e.g., to descend from people that came to the U.S. a couple of centuries ago, or more, are you an immigrant? 20 years ago? 50 years ago? I don't think so. I was born and raised in Puerto Rico and have no reason to consider myself an immigrant in the U.S. Legally and culturally we are as North American as people of Russian and Eskimo descent in Alaska, or Hawaiian islanders, or the Portuguese in Conneticut.

  Published: September 3, 2008 7:42 AM

• David Ch

  SOrry, typo. IN my previous post,
  'Even when there is a labour shortage, employers ....' should have read 'even when there is a labour SURPLUS, employers............'

  Published: September 3, 2008 8:20 AM

• michael

  Fundamentalist, this is actually becoming a useful exchange:

  To my comment that laborers should be paid fairly, you offer "But then you have to ask who will determine what is fair?"

  A great many of us are being paid adequately for our efforts, and they do not concern me. But about one third of the labor force are being paid far below the cost of making an adequate living in this country. They are also being paid below the value they add to their company's fortunes... which would not exist without such efforts.

  Their lives are necessarily squalid and insecure, and basic necessities like health care and higher education are pretty much beyond their means. Their existence indicates a societal malfunction.

  I am a humanist, meaning that I consider the welfare of the population to be of greater importance than the welfare of some economic unit like the dollar. So I consider that the current trend, toward more very poor and very rich, with fewer among us in the comfortable middle, to be one in need of correction.

  I also have the experience of having been an employer, and know there are many areas where the extra net gain from which one might increase pay rates is just not there. In those cases, I have to tell employees who need more money they should think about getting a better job; I can't help them. There's just no more money in the operation.

  But there are a great many jobs where rapacious employers are milking their serfs beyond any need, simply because they have the power. I know WalMart employees, for instance, who admit the prices are low but say they still can't afford to shop there. The pay is just too crappy. Meanwhile five of the nation's ten wealthiest people are named Walton. This is an inappropriate bleeding of profits to an insignificant number of people-- people, moreover, who do not contribute one iota to the bottom line.

  No problem for the money, you might say. It's merely a huge social problem. The costs manifest themselves in other ways, as we pay for the collective support of that part of the population who are chronically below the water line.

  Your next comment:
  ”Austrian and Keynesian economics proposes that the worker get paid his marginal contribution. His marginal contribution increases through productivity increases, not through better negotiations."

  The productivity increases have already occurred. Between 1973 (a convenient watershed year) and 2004, productivity increased nineteen percent, while real wages increased about one percent. In fact, as the measure of inflation is being kept artificially low, wages have actually dropped abround a negative two percent, relative to purchasing power.

  This indicates that the problem, regarding a fair allocation of gains according to merit, is one of negotiation.

  In your view, the aura of money is so golden that anyone who has a bit extra enjoys the right to place his chips, take the entire profit of the operation he's betting on off the top, waiting placidly on the terrace for his dividend, while the people whose efforts make that profit possible are only able to eke out the most marginal of existences due to the miracle of readily available credit. Being below the water line, they are no longer working for cash... they are working to repay debt.

  I guess you don't know any of these people. A shame. There are fifty or sixty million of them in this country, working long hours for subpar wages. But you do make one more valid point:

  "Capitalists might decide to pass on the extra cost of labor to the consumer, in which case higher prices would destroy the gains that labor thought they had made in wage increases."

  No. Capitalists would be FORCED to hike consumer prices, in many instances. Dollar stores would become buck and a quarter stores. A 99 cent burger would cost $1.25. The price of many cheap consumer items would be going up.

  But there would still be a net societal gain to be made, pulling up the bottom (the maintenance of a huge crowd of poor people is expensive for the reat of us). And there would even be a gain for medium- and top-end retailers, as more people could then afford their stores. There would be fewer write-offs at hospitals, for the rest of us to repay in the hidden form of higher hospital bills. And there would be an immense increase in tax revenues, enabling the country to begin repaying its runaway debt.

  In short, such an economy would normalize, relative to the way it operates today. It's top heavy now, with too much idle investment money looking for a home, coupled with too much want at the bottom. But this is the stuff you can't learn in school.

  Published: September 3, 2008 8:26 AM

• michael

  Gene-- You're right-- the inside details of this obscure stockholder rebellion were unknown to me. But I think it's hyperbole, to say as you have that "He, too, was an employee, the supervisor of an auto plant owned by the Dodge brothers." In fact, at the time of the Dodge Brothers lawsuit, they owned 100 shares (ten percent of the stock) between the two brothers. While Henry Ford owned 585 shares.

  Check this out:
  http://www.abelard.org/ford/ford2-business.php

  And whether or not Mr Ford was some kind of "socialist" is immaterial. He was a businessman... and his model made his company more money than did the companies of any other auto entrepreneur of his day. So the proper word for Henry Ford would be "more successful".

  The model involved (1) giving the workers enough excess spendable cash to buy his product, and (2) pricing the product lower than those being offered elsewhere. It was effected through the magic of mass production.

  In the end, had the Dodges retired their complaint, kept their mouths shut and just kept their money in Ford Motors, the would have become more than adequately rich without the need to go off and start Dodge Motor Cars.

  Moral: it's always good to read more than one version of events before taking what you've read as gospel.

  Published: September 3, 2008 8:45 AM

• michael

  Me: "Consumption absolutely leads production!"

  FT: "Before the Apple II was invented, not one consumed Apple II computers. Your assertion is fallacious."

  Had the first batch of Apples not been purchased, there would have been no second batch. The company would have folded, until they found a product that sold. A fuller statement would have included the fact that "Production sometimes precedes consumption... but it anticipates, and is dependent upon, consumption to be viable."

  Me: "Why on earth would you ever spend money producing something that no one was going to buy?"

  FT: "Investors look for things like: projections, market investigations, try-outs, free samples, et cetera. It is not as if producers just go off producing willy-nilly - their investors will want some assurances first."

  But if the product doesn't sell, the model fails. Unles, of course, the business model is to bilk investors by promoting an IPO designed just to get their money and run.

  Me: "What matters is cash flow, not a one-time infusion of cash. Your fellow in possession of X amount of cash will one day spend it... like the fellow ending up with a fish who didn't know how to fish. Whereas if he hires others to work in his factory, and sells them something they all want to buy, he has fresh fish on his plate forever. He has initiated a renewable supply of purchasers."

  FT: "You are confusing things. A producer makes products with a specific market in mind and not his workers. I could have a company with 100 employees making a million widgets per year - would my workers buy 10,000 widgets per year to keep the company going? Producers do not pay workers so they can consume what they produce - they pay workers according to the market rate for a certain job and based on the marginal utility that worker provides. In other terms, the worker gets exactly what he is willing to receive for his services."

  I'm not the one trying to confuse things. A "producer" should be thought of as the whole triumvirate: bosses, workers and investors. They should be united around the common purpose of developing a business plan that can reward all for their common venture. And, naturally, they generally produce for the world market or some subsection of it. Rarely do they produce for themselves alone.

  However it was different with Mr Ford. Capitalism was in its infancy, and consumer demand was insufficiently developed. Thus he hit upon the idea of increasing his consumer base by paying his workers more.

  I'm sure this new pay scale had the effect of helping lift other pay scales. And the effect was to increase the number of consumers affluent enough to be able to purchase a motor car. It was a giant step forward, enabling the establishment of a widespread, capitalist, consumer-based economy. Previously the economy was largely based on the carriage trade and on the wants of poor people.

  Me: "My model would be Henry Ford-- not exactly considered a dumbbell. He could have paid his workers far less than he decided to. But then they could not have afforded to buy his cars. Further production would have been useless."

  FT: "That's not what he thought when paying more - he wanted to avoid turn over costs. He certainly did not employ enough workers to consume the 15 million Model Ts the company produced, that would have been absurd. Besides, wasn't supposed to be the labor unions that increased wage levels, and not Mr. Ford? Or haven't you seen that contradiction yet?"

  I am commonly finding this intellectual flaw in the posts of a great many people. You seem to be following the sole-source theory of causality... that there can be one and only one cause for any given event.

  But events are always complex; there are multiple contributing causes. So positing another contributory cause doesn't "contradict" the one I've suggested. Ford's business model and the rise of organized labor both helped increase the pay of the American worker.

  And no, Ford did not sell fifteen million Model Ts only to his own workers. It took him a good many years to sell 15 million units, during a time when the consumer-based economy was rapidly expanding. Many more families, in addition to those of his employees, were seeing such increases in pay as to enable them to buy new cars, refrigerators, washers and other affordable wonders of the modern age.

  My underlying point, of course, was that if everyone's workers had been kept to starvation wages, none of this would have been possible. We'd still have had a few very rich masters and a vast horde of downtrodden masses.

  And that is why we celebrate Labor Day.

  Published: September 3, 2008 10:12 AM

• fundamentalist

  Michael: “But about one third of the labor force are being paid far below the cost of making an adequate living in this country.”

  That’s probably true, althugh I might disagree with the percentage. But for the most part, with exceptions, these a young people and immigrants working at entry-level jobs. Entry-level jobs aren’t supposed to pay a living wage because new workers don’t have the necessary skills. They need a lot of training. Mobility out of entry level jobs is quite high. If employers were forced to pay a living wage to these workers, they could not afford them. Say we raised the minimum wage to $20. Employers would be forced to get rid of a lot of jobs, such as pizza delivery, and they would hire only highly experienced people for the remaining jobs. Entry level workers would have to work for free until they gained the needed experience.

  Michael: “I am a humanist, meaning that I consider the welfare of the population to be of greater importance than the welfare of some economic unit like the dollar.”

  Don’t think that the two are necessarily opposed to each other. The welfare of the poor is intricately tied to the value of a dollar.

  Michael: “So I consider that the current trend, toward more very poor and very rich, with fewer among us in the comfortable middle, to be one in need of correction.”

  I agree completely and Dr. Reisman has a good article on the site about inequality and how the state makes it worse with taxation and inflation policies.

  Michael: “Meanwhile five of the nation's ten wealthiest people are named Walton. This is an inappropriate bleeding of profits to an insignificant number of people-- people, moreover, who do not contribute one iota to the bottom line.”

  The wealth of the Walton family is tied up in stock in Wal-Mart. They got that wealth by growing a business with only average profits. In addition, they didn’t capture all of the wealth their businesses created. They created thousands of jobs for entry level workers and reduced the costs of food and clothing for consumers. Some have written that Wal-Mart has done more for poor people than all the efforts of the Fed’s “war on poverty” over the past 40 years simply by reducing their costs of living. The jobs they created are for entry level workers who have little or not skills. Without Wal-Mart, many of those workers would have no job opportunities at all. It’s true that the Walton heirs don’t contribute to the running of the company today, but is that a valid reason for taking away their money, which their dad earned by working very hard?

  Michael: “The productivity increases have already occurred. Between 1973 (a convenient watershed year) and 2004, productivity increased nineteen percent, while real wages increased about one percent.”

  Actually, productivity fell from 1973 until about 1992, then rebounded until about 2001 and has been flat since. Average real wages lost ground from ’73 until ’92, then rebounded with productivity. Most of the wage erosion was due to high inflation rates because wages rarely keep up with price inflation. But part was due to lower capital accumulation and investment in business because of taxes and inflation. Wages rise when business owners can buy better equipment for workers to use. Heavy borrowing by the Fed’s also hinders business investment. Roger Garrison in his “Time and Money” estimates that the Feds took 30% of all US savings in 2001.

  Michael: “I guess you don't know any of these people. A shame.”

  That’s not fare. I was one of those people in my younger days and I know a lot of them. I got interested in economics decades ago because I wanted to know how to help the poor. The difference between socialist/Keynesian economics and Austrian econ is that the socialists pit workers and owners against each other while Austrians rightly see how dependent each is on the other.

  Michael: “No. Capitalists would be FORCED to hike consumer prices, in many instances…But there would still be a net societal gain to be made, pulling up the bottom…”

  Price inflation does not cause a net societal gain. If prices rise the same amount as wages, there is not net gain. In reality, Fed monetary pumping causes prices to rise faster than wage increases so that poorer workers never get ahead.

  Michael: “It's top heavy now, with too much idle investment money looking for a home, coupled with too much want at the bottom.”

  I agree completely. But the problem is not with the free market. The problem lies in the socialist policies of the government. Most people think that the US is a capitalist nation. It is far from it. We differ from European socialism in insignificant ways. We have the second highest tax on corporations in the world, and state regulation in laws like SOX are even more burdensome. Businesses can not pay workers more because the state takes such a high percentage of profits, adds huge costs to operating a business through regulation, then steals even more through price inflation.
  

  Published: September 3, 2008 10:21 AM

• magnus

  There are many fallacies underlying your comments, Michael. I urge you to think deeply and logically on the matter.

  A great many of us are being paid adequately for our efforts, and they do not concern me. But about one third of the labor force are being paid far below the cost of making an adequate living in this country.

  Neither you nor anyone else has any means of making an evaluation of the "adequacy" or "fairness" of any price for anything EXCEPT by reference to the market in which it exists.

  Therefore, anyone's unilateral, subjective, hypothetical, disinterested opinion about what you think that someone else ought to pay a third party is, by definition, arbitrary and meaningless.

  This is a key point. Please think it over thoroughly.

  They are also being paid below the value they add to their company's fortunes... which would not exist without such efforts.

  Ah, the Marxist Labor Theory of Value rears its ugly head.

  The price of anything (including labor) is not determined by the "value" it supposedly adds to the good that is sold. The good is sold on the market, and prices fall to market-clearing levels, having nothing whatsoever to do with the cost of producing it. See above re: how prices are determined.

  Of course, goods that sell at a price below the cost of production tend to disappear rather quickly (unless you have a government subsidy, for example). But the market price of labor (just like anything else) is not determined by the "value" it supposedly adds.

  Their lives are necessarily squalid and insecure, and basic necessities like health care and higher education are pretty much beyond their means. Their existence indicates a societal malfunction.

  Where to begin?

  A. I don't know who "they" are exactly, but many people who earn a relatively low wage do so because they are part-timers or students or simply young or unskilled.

  B. Not every job is worth the amount of money it costs to own a house and a car and a flat-screen TV, and no amount of legislation will ever change that fact, any more than legislation will repeal the law of gravity.

  C. Medical care and a higher education are not basic necessities. Food, clothing and shelter are. Obesity is a far greater problem in America, particularly among the poor, than lack of true basic necessities.

  I am a humanist, meaning that I consider the welfare of the population to be of greater importance than the welfare of some economic unit like the dollar.

  This is absolutely meaningless. The dollar has no welfare. Free markets produce the greatest welfare. Therefore, any law or regulation that interferes with free markets, by definition, creates a sub-optimal economy, thereby reducing the population's welfare.

  Besides, if you want to help the "population," then you should produce a valuable good or service at the lowest market price. You will have done far more to save people money and improve the economic conditions of everyone you deal with than you will by supporting the crimes of this Mafia organization called "government."

  So I consider that the current trend, toward more very poor and very rich, with fewer among us in the comfortable middle, to be one in need of correction.

  Free markets create a middle class. Freer markets expand their ranks. Government intervention, including unionism, destroys the middle class by limiting opportunities for entrepreneurship, creating de facto and de jure monopolies, imposing arbitrary restrictions that favor existing producers and exclude newcomers, etc.

  There are a great many jobs where rapacious employers are milking their serfs beyond any need, simply because they have the power. I know WalMart employees, for instance, who admit the prices are low but say they still can't afford to shop there.

  I wholeheartedly suggest that you start a business competing with these rapacious serf-milkers immediately.

  By your own admission, there is an "excess profit" being made. You therefore are in a position to provide a competing good or service at a lower market price.

  Given the apparent magnitude of the rapaciousness of these serf-milkers you have identified, there is probably room in that obscene profit margin for you to both pay your employees more than any other employer, while also lowering your prices to outsell the competition.

  Your employees will love you for freeing them from the squalid state of milked-serfdom, and your customers will hail you as a genius and a godsend for selling your goods at prices far lower than anybody else, thus saving them even more money to help lift them out of their squalid milked-serfdom.

  Or, I guess, you could get the government to just take all the money. And then you could pat yourself on the back for being a humanitarian.

  Published: September 3, 2008 10:40 AM

• fundamentalist

  The socialist worldview since its beginnings in the early 19th century has always seen the interest of workers and that of employers as being antagonistic to each other and that one can gain only at the expense of the other.

  The source of this worldview is the ancient idea, going back millennia that wealth is limited and no man can gain wealth except by taking it from another. This view of wealth was true for most of history because productivity gains were very, very low and most rich people got their wealth by stealing it.

  However, the Dutch Republic of the 17th century made it very difficult to steal another’s wealth as nobility had done for millennia. And the Dutch perfected capitalism which caused productivity rates to grow for the first time in history. Under capitalism, especially after the industrial revolution, enormous amounts of new wealth were created, and the creators had to share the wealth with workers in higher wages and with the public through lower prices of goods. For the first time in history it became possible to gain wealth by creating new wealth rather than taking the wealth of a neighbor. The interests of workers and employers are not antagonistic, but complementary and absolutely dependent on each other.

  Keynesian/socialist econ follows the old, pre-industrial revolution worldview of antagonism and limited wealth. Austrian econ, with took up the torch from classical liberal econ, follows the post-industrial revolution worldview of expanding wealth and cooperation/dependency made necessary by the division of labor that Smith emphasized. It’s up to you to figure out which worldview matches reality the best.
  

  Published: September 3, 2008 10:41 AM

• jp

  michael:
  You are concerned with fairness which is always a worthy concern.

  It's important to understand why the modern union isn't a fair institution. In Ontario, for instance, law says that a shop can choose to unionize with the agreement of only 50% of employees. With the union thereby in place, the other 50% can choose to join the union or not, but regardless they must pay the same union dues that the union members pay (about 2.5% of their salary).

  In other words, even if they don't support the aims and wishes of the union, dissenting workers are required by law to financially support those aims. This amounts to forced participation in a group and amounts to a major violation of individual rights. About the only thing an individual who doesn't support a union can do is quit. But if their chosen profession can only ever be exercised in a union-controlled environment, quitting is not an option. Thus unions in Ontario prosper on the backs of unwilling members.

  Governments in Canada, the US, and Europe have all created labour laws that limit the rights of individuals not to join unions, though it's probably the worst in Canada. If you think it's fair that the majority uses law to exert force over the minority, then we'll just have to disagree. But if you see the unfairness in that, you'll have to reconsider your support for the modern union.

  The only fair unions are those that operate in a free society that has rid itself of laws that force participation.

  Published: September 3, 2008 10:49 AM

• michael

  David, you say "Without responding to the details of the debate that has gone before, Id like to point out that unions are not after a 'fair deal' for their members. They are after an unfair deal for their members, at the expense of both the employers AND the unemployed, who are locked out of the market by minumum wage agreements."

  Both sides of the bargain are looking for advantage. There's no doubt that if labor were to hold the power (as they briefly did after WW Two) they would demand more than they were owed-- just as presently the management is in a dominating position, and takes far more from both labor and the shareholders than can be justified. That is in the nature of the human beast.

  IMO, the proper approach to all this is not to further juggle control in favor of the guys currently on top, but to endorse a system where each side of the triangle has a roughly equivalent say in how the pie is to be cut.

  Bosses are certainly worth something to the company, as are investors. But to say the workers are irrelevant and worth no more than whatever pennies are tossed on the ground for them is, I think, a distortion.

  A note on the minimum wage. Yes, there are people without rights today, who work for less than the minimum, fill these dirt jobs and cower in fear that they will be discovered. They are called the "illegals".

  Let's say they earn four bucks an hour, or $8,320 a year. And let's say they want to put a roof over their heads, and the cheapest trailer they can rent is $600 a month. Using the 30% rule, it would require the earnings of three of them just to pay for one trailer. And that in fact is how they live.

  So you see, we're already there. We have no minimum wage. Most fry cooks and shelf stockers earn more than the official minimum anyway, so it's absolutely not a limit to employment figures.

  ICE recently raided the big hog plant down the road in Tar Heel, losing most of their workers to deportation. So did they them just dip into the huge pool of unemployed labor, locked out of the market by the minimum wage? No, they advertised and found no takers. Even offering twelve bucks an hour, no one else wanted to do the work. Just desperate Mexicans.

  The lowest paid US citizens here would be illiterate ex-felons with no more than an eighth grade education. Their pay rate starts at about $6.50. Hardly anyone was affected by the increase in the minimum wage.

  Published: September 3, 2008 10:55 AM

• Jeremy

  Michael,

  Your commentary is great - I guess I say so because my thoughts and opinions used to square with yours 100% (_especially_ after majoring in Economics in school, and taking classes like Labor Economics, Economics of the Public Sector, etc).

  The only difference is the framework that we look at things through - _everything_ changed for me when I read several very influential works in Austrian economics.

  The initial responses to your comments were not so great, but they improved very quickly - Magnus' were especially on the mark, and I hope you carefully read and respond to them.

  You may see us as ignorant and squaring against the interests of the worker, but the truth is that no one is more concerned about the worker than Austrian economists.

  If you take the time to begin reading some of the clearer books that address the issues you have brought up, your views on these issues are likely to change dramatically. I recommend:

  -> Economics in One Lesson
  -> Economics for Real People (These two books address your issues directly, and are both simple, straightforward, and rewarding reads about what we think of as real economics)
  -> Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto (the clearest book on the Austrian Business Cycle theory and monetary policy, period, written only in 2006 - money and monetary policy are the most confusing and conflicted areas in economics - this book refutes Keynsianism, Monetarism, Neo-classical theory, and shows step by step how inflation of the money supply enriches some at the expense of many and cause recessions and depressions. 100% recommended)

  If you can read all three of these books and not undergo a complete change in the way you look at the world, I would be very surprised.

  Please try to take the time to read these (the last two are available as free downloads on Mises.org), and see if they don't cause you to look at things in entirely different ways than now.

  Published: September 3, 2008 8:22 PM

• newson

  to michael:
  the fact that the minimum wage is below the market wage doesn't justify keeping the rule on the statute books. abolishing it would not fill the abattoir with willing workers at below market rates, as you've said.
  re: hog city - who's the winner here? the "exploited" foreign workers, who get forcibly repatriated, or the plant which closes through staff shortages? perhaps once those illegals get dumped across the border, and we no longer have to consider their lot, then we can all feel better about ourselves. seems to me these people voted with their feet. are they all fools?

  Published: September 3, 2008 10:19 PM

• michael

  First, I know everyone here has missed my pithy comments on Austrian School economics yesterday. My apologies, I was at jury duty.

  Next, Gene Berman has hit a number of nails on the head. And your comments deserve a proper response.

  Gene, you say "Your arguments are stated and organized with a clarity identifying you as serious. And, you are right..none of the other commentors has refuted your arguments with their own. rather, they have provided a few sound-bite-type counters."

  Thank you for the left handed compliment. I braced myself for the following "But..." phrase. And you do not disappoint.

  "But the fact remains that you are about as far wrong as it possible to be. Moreover, you are of an intelligence level that has been able to absorb the propaganda dispensed by almost all of mainstream American education for well over 70 years and integrate it to a degree worthy of a socialist professor."

  As it turns out, my experience is not in academia. I never thrived in that arid environment. And back in ancient times, when I was an undergrad, the profs, hired by this right-to-work state to inculcate the young, didn't lean left in any fashion. Not even in the social sciences-- history, sociology and anthropology. So I missed my dose of propaganda, subsequently going out into the world to form my own impressions as to where the gears and levers were located.

  My experience has largely been in personnel management, where I directed the labors of others. So all my comments come from the school of Reality, where I had to balance payroll according to the needs of my work force as well as against the value of their efforts to the company.

  "The reason that the economic theory to which this site subscribes and seeks to propogate has not yet succeeded in its aims and, in fact, does expand so relatively slowly is due in part--a significant part--to the fact that it contains no "segments" which can be considered (and either proven or disproven) in isolation from the whole. It is comprehensive and fully integrated, taking as its only "assumption" one underlying reality: that men ACT, that is, men do whatever they do because they prefer that mode to some other at that moment in time."

  I am avidly reading and learning at this site. And I've formed one solid observation thus far: that it is the Austrian School that is composed of academics with scant experience of the real world, and that the elixir they're selling is based upon an internally consistent bubble of theory, divorced from the actualities of the workplace and marketplace. Put another way, I strongly suspect that the advocates I encounter on these pages have never had to butt heads in the actual workaday battleground of management vs labor. Thus, respectfully, you have formed some outlandish ideas as to what is actually taking place there.

  In my world, the consumer and the producer are one. This individual both works for money and spends it, and hopes that the net balance between those activities is a positive one. Sadly, since about 1973, this person has been steadily losing ground.

  I attribute the reason to our country's adoption of "trickle down" theory, according to the tenets of Mr Milton Friedman and under the direction of the character actor Ronald Reagan. And observe that over the duration of this experiment, those being trickled down upon have gotten poorer and poorer, until the typical net worth of the family unit has approached zero.

  And I have further observed that the money being taken from their pay checks has accrued in the pockets of capitalist investors, growing fat on the accumulation of unearned income.

  And that the needs of the two groups have intersected at the moment of easily available consumer credit. So much cash has piled up that it can't find a home in the financial markets without causing huge speculative bubbles, where too much money chases a finite store of value. So it has been loaned out to the desperate wage earner to help his ship from sinking.

  The beauty of the plan is that the cash being loaned allows the lender to continue living off the fruits of his wealth, enabling him to become an idler and no longer have to contribute anything to society. The borrower enters the cycle of debt, and pays out to his owner many times the amount of money he has borrowed. So for millions of Americans, life is possible at the disadvantage of becoming a wage slave.

  My approach was to always give a little more in wages, and to ask a little more in effort. And I've found that to be a workable approach to management.

  Interestingly the credit trap also works on an international scale. Have you noticed the resemblance between the worker's reliance on debt and America's reliance on overseas dollars? We make very little now, but have accumulated an inordinate share of the world's capital. So we trade our dollars-- pictures of presidents-- for real goods. Then the makers of the products we consume loan the money back to us, enabling us to buy more. Thuis gradually, nations like the Chinese come to own us... as our trade imbalance and federal budget become ever increasingly out of kilter.

  The money, here, is not real. But the trap is... and both the American worker and the nation itself have become ensnared in it.

  It is fashionable to parcel out blame to one of the two political parties-- usually, for some reason, to the Democrats. But surely everyone can't have missed the fact that this is a bipartisan effort. Spend, spend, spend... but never tax. That way the party rolls merrily on, and no one ever has to pay the piper!
  

  Published: September 5, 2008 8:52 AM

• michael

  Hi Gene, me again. My response was overlong, so under separate cover I am here commenting (briefly, I'm sure we all hope) on two subjects: organized labor as extortion racket and the market value of wages.

  In the first case, anyone's evaluation must be seen as subjective. If you're an employee, the bosses keep it all to themselves, hanging out on the golf course while you pay their bills. And if you're in the investor class, you see a need to beat your agents (executive management) mercilessly with a stick to see that they don't give away all your God given income to a bunch of rabble with dirty collars.

  But certainly we all see the tripartite nature of employment: there is labor, there is management and there is ownership. For this admirable economic system to work, there should be some sort of parity between their rewards.

  Demonstrably, there is not. Again, using the convenient period 1973-present as our field of study, we find tremendous gains during the period on behalf of capital and management, with levels of remuneration hitherto undreamed of... at the expense of the guys who actually do all the work. Even a brief glance at the econometrics will offer abundant evidence that this is so.

  If you admit, and find all this equitable and fair, I think that just identifies you by class.

  My own class identity, if you're still wondering, was forged in the crack where the demands of ownership on upper management, those of management on the serfs below, and the needs of my labor force all came at loggerheads. I came to see outcomes as being victorious if all three parties came away from my negotiation equally disgruntled.

  And I got pretty good at it. That brings us to the action of the laws of supply and demand on labor rates.

  Here I think mere theory ill equips us to the task of keeping the economic engine in good tune. After toiling in the fields of others, I took what I learned and formed my own company.

  Further, I had the elemental good sense not to sell control to faceless investors, by incorporating. I stuck with a field I could self-finance.

  So there was no onus to please either ownership or management. I could do as I pleased. And I found the most satisfying course to be (1) that I got more business by charging my customers a little less, and (2) I paid my employees a little more, keeping them both happy and motivated to do good work.

  Naturally this formula gained me less profit (a concept I interpreted as my wages for running the show). I only made double or triple what my employees took home, as opposed to several hundred times-- as one sees in executive pay packages nowadays. Yet I was still able to retire on schedule, with a clean conscience, and I have enough cash to meet all my needs without having to scrimp.

  Funny how that all worked out. I would call it a life successfully lived.
  

  Published: September 5, 2008 9:28 AM

• michael

  Jacob S writes "The yardstick by which to judge the importance of a decision between employer and employee (the suppliers of labor services) or between the employer business and any other of the factors of production is the consumer reaction in the marketplace. Businesses are merely agents of consumers whose job it is to coordinate the factors of production to supply goods and services demanded by the consumers. Whether or not the employer business and employees of that employer business do a good job in supplying the goods and services demanded by the consumer at the price the consumer is willing to pay is voted on everyday in the marketplace. That is the only yardstick that counts."

  Quite so, JS. And I would point out that the employee and the consumer are one and the same person. And that his wants, needs and preferences, when you come right down to it, are indivisible. By whatever means necessary, he or she would like to finish up the month in the black. And the current model, of less pay and cheaper prices, has over the years put him or her increasingly in the red.

  Anyone seeking to see if improvement could be gained would suggest we try the other model for a while. It is working quite well in Europe, and the value of the Euro continues to maintain a quite healthy level.

  Published: September 5, 2008 10:00 AM

• Pennsylvania Law

  I think all too often these holidays are used as a day off work and not utilized the intended purpose. Labor Day is an important day and all would do well to do some research on the history of this holiday.

  Published: September 5, 2008 3:16 PM

• michael

  Michael: “But about one third of the labor force are being paid far below the cost of making an adequate living in this country.”

  fundamentalist: "That’s probably true, althugh I might disagree with the percentage. But for the most part, with exceptions, these a young people and immigrants working at entry-level jobs. Entry-level jobs aren’t supposed to pay a living wage because new workers don’t have the necessary skills." etc.

  It's amazing how cloistered your view is yet, how certain you are of its truth. No, there are 35 or 40 million among us ensnared in low wage jobs and all that goes with that kind of poverty. And not just black people, nor in Appalachia. Every state in the union (well, maybe not Massachusetts) has its population unable to rise from poverty. The condition is multigenerational.

  A few, like yourself apparently, rise from this condition and congratulate yourselves endlessly. But the way out you took is not available to all, for reasons of intellect and education. Many are just hopelessly stuck.

  "Say we raised the minimum wage to $20."

  That's just silly. Positing absurdities doesn't prove your argument.

  In any case, minimum wage increases are not necessarily the best approach to take. There are those among us who like the negative income tax, for people filing with low wage earnings. I think Cato has some interesting speculations in this area.

  Michael: “I am a humanist, meaning that I consider the welfare of the population to be of greater importance than the welfare of some economic unit like the dollar.”

  fun: "Don’t think that the two are necessarily opposed to each other. The welfare of the poor is intricately tied to the value of a dollar."

  It's a simple equation. By paying the low-level workers whose efforts create their fortunes less, investors make more. So regardless of the value of one purchasing unit, over time the buying power of the one group diminishes... while the buying power of the other grows beyond their ability to consume. So they must then look for ever newer vehicles for investment, else be compelled to stack their vast fortunes in warehouses.

  A logical move is to expand consumer credit, further enabling their workers to survive for the moment on borrowed funds.

  You then offer an extended paean to the Waltons, who are merely the inert relatives of the guy who built the empire (now deceased). Collectively they have the acumen and drive of a sackful of doorknobs. Yes, jobs have been created at the stores. But they are far fewer in number than the low-paying jobs that were extinguished by those stores.

  Collectively, payroll has decreased per unit of sales. That greater efficiency is expressed in lower prices. But it results in fewer employees, getting paid less than before Wally forced the mom and pop stores off the employment map. The net result is a diminution of value for working people: fewer jobs, each paying less than before.

  Michael: “The productivity increases have already occurred. Between 1973 (a convenient watershed year) and 2004, productivity increased nineteen percent, while real wages increased about one percent.”

  fun: "Actually, productivity fell from 1973 until about 1992, then rebounded until about 2001 and has been flat since."

  Not so. Take a look at chart no. 2:

  http://www.econedlink.org/lessons/index.cfm?lesson=EM221

  Which says: From 1950 to 1973, productivity grew at an average annual rate of 2.8 percent. But from 1973 to 1995, growth in productivity slowed to an increase at an annual rate of 1.4 percent. From 1996 to 2000, productivity increased at an annual rate of 2.5 percent, almost equal to the 1950 to 1973 rate.

  fun: "Average real wages lost ground from ’73 until ’92, then rebounded with productivity."

  I'd be happy to look at any source you can find for this.

  fun: "The difference between socialist/Keynesian economics and Austrian econ is that the socialists pit workers and owners against each other while Austrians rightly see how dependent each is on the other."

  What a crock. The tone of the article here is that the contribution the workers make toward perpetuating our generally prosperous economy is nil. No one, not even the Chicago School, more belittles the worth of labor in the value-added process of(for example) transforming ore in the ground to automobiles, computers and the like.

  fun: "Price inflation does not cause a net societal gain. If prices rise the same amount as wages, there is not net gain."

  I didn't say it did. You didn't take the time to comprehend my argument... which is that when labor gains a greater share of the total pie, prices may rise but purchasing power increases even more. While when ownership gains the greater share, prices drop but even more so does purchasing power among low-end workers.

  This has nothing to do with the size of the total money supply. It has only to do with the way the pie is cut.
  

  Published: September 5, 2008 4:42 PM