Unemployment, Unions, and Inflation; S. Petro

UNEMPLOYMENT, UNIONS and INFLATION: of causation and necessity SYLVESTER PETRO AT A MEETING of the Mont Pelerin Society a few years ago, a con troversy arose over the inflation ary role, if any, of unions. Among the celebrated free-market econ omists present, all members of the Society founded by Friedrich Dr. Petro is Professor of Law, Wake Forest University and is the Director of the Wake Forest Institute for Labor Policy Ana lysis. This article is presented here, by permission, from a paper de livered March 20, 1976, at Arden House in Harriman, New York, at the· Fourth Annual Conference of The Committee for Monetary Re search and Education, Inc., P.O. Box 1630, Greenwich, Connecti cut 06830. The theme of the 3-day , conference was "The Many Alleged Causes of Inflation." Hayek shortly after World War II, Milton Friedman led a group which contended that since infla tion is strictly a monetary phen omenon, and since unions do not control the money or credit supply, there can be no sense in accusing the union leaders of bringing about inflation, no matter what other sins they might be guilty of.

Lawrence Fertig took the other side, with an assist from the Eng lish economists present, who pointed out that unions, especially in England, are considerably more than merely worker-representa tives in disputes with employers, and that they have a great deal of influence one way or another, di rectly or indirectly, over themon etary policies of government. 387 388 THE FREEMAN July I contend here that Mr. Fertig and the Englishmen were correct - in fact far more correct than they themselves believed. I will show that unions not only can bring about inflation, but that they absolutely must do so in order to survive in the present context of policy and law, at least in the United States, if not every where in the western world. The Role of Unions Weare hearing a great deal these days from such union lead ers as George Meany and Leonard Woodcock of the vicious inhuman ity of current monetary and fiscal policy, which, according to them, is dooming millions of Americans to the sterile lives which mass un employment creates. These men and hosts of other union leaders and supporting politicians and in tellectuals blame "greedy" busi nessmen for inflation and an "in sensitive" administration and Fed eral Reserve Board for unemploy ment. Everybody is to blame, it' seems, but the unions. In my opin ion there is no hope of a solution of the unemployment-inflation problem till ruling opinion under stands that it is brought about largely by our labor policies and the power and the predicament they have created-for the big unions.

Admittedly, unions alone cannot cause inflation, and if unions disbanded, inflation might still oc cur. Nevertheless, I will show that right here and now - current na tional labor policy being what it is - unions are driven by the instinct of self-preservation to join with other forces to bring about infla tion and that, moreover, they rank today among the most powerful and pervasive of all the inflation ary agencies in the country. In a different setting, some other impulse may take over the infla tionary role that circum stance, policy, and law presently assign to unions. For so long as we have fiat money and legal-tender laws we shall have inflation. Poli ticians and bureaucrats, in office or aspiring, will never be able to resist the temptations extended by the exciting possibilities inherent in what amounts to a license to en gage in counterfeiting. Who could? But while another agency may in another time provide the im petus - or flick the inflationary switch - unions at present fill the role. They constitute the pre-emi nent political pressure group in the country, and all their pres sures coalesce to produce condi tions in which the inflationary measures so congenial to power hungry bureaucrats and dema gogic politicians become politi cally propitious if not mandatory.

1976 UNEMPLOYMENT, UNIONS AND INFLATION 389 I. Inflation Defined in Search fa I' Its Causes Certain aspects of the contro versy concerning unions and inflation trace to unnecessary ter minological difficulties and to con fusion over the causation question. Some define "inflation" as a gen eral increase in price levels, others as any increase in the money sup ply, whether or not such an in crease results in generally higher prices. Let us call the first usage "price-inflationism" and the sec ond "money-inflationism." In this paper I adopt the "mon ey-inflationist" definition, and I do so because it advances and clari fies analysis - a plenty good rea son for preferring one definition over another - while the price-in flationist usage fails to do so, or to do so as well. Thus a price-in flationist is likely to believe that he has exhausted inquiry when he discovers (if he ever does) that a necessary precondition to a rise in the general level of prices is an increase in the quantity of money (in the broad sense) greater than the concurrent increase in pro ductivity. He is likely to announce that bhe cause of inflation has been located and that the cure lies simply in keeping the money ma chine from cranking out exces sive increases in the money supply.

There is a fine and perhaps even appealing technical rigor to the analysis, but it is nevertheless seriously deficient, and if one adopts the money-inflationist defi nition, this deficiency appears im mediately. Whereas the price-in flationist may say that inflation is caused by an abnormal increase in the money supply, the money-infla tionist says that inflation ig an abnormal increase in the money supply. Thus, whereas the price inflationist's causal search ends quickly, the money-inflationist's only begins with his definition. The price-inflationist stops thinking when he concludes that abnormal increases in the money supply cause prices to rise ge,nerally. The money-inflationist, on the contrary, is compelled to begin thinking at the point where the price-inflation ist stops. The money-inflationist must ask himself: what is it that induces a nation to want - or even merely to accept - a policy of deliberately tampering with the quantity and hence the objective exchange value of money (in the broad sense which includes all fiduciary media) ?

Surely the laws against counter feiting bespeak a general under standing among the citizenry of the seriousness of counterfeiting as a species of theft. Consider the comments of Tom Buell, the Tory counterfeiter, in Kenneth Roberts' novel, Oliver Wiswell, written about the Revolutionary War from 390 THE FREEMAN July the point of view of American loyalists. Completely contemptu ous of the rebels and of the mob rule and demagogy favored by maJny of them, Buell sneered at the near-worthlessness of their fiat currency and considered the do~ lar bills he produced on his own press in every significant respect as good as those which Congress forced people to accept as legal tender. Said Buell of the Contin ental forty-dollar bill: That's all it's worth now.... That's all it'll ever be worth, after a few more people find out what it's worth, meaning nothing. My forty-dollar bills are just as good as Congress' forty-dollar bills, neither me nor Congress having anything to make 'em good with, so I got just as much right to issue 'em as Congress has.

The rebels called themselves a gov ernment, didn't they, even though you and I and a million other Ameri cans didn't want 'em to do it, and knew they hadn't any business to? All right: I'm a government, too, Oliver! I'm the government of New India, up on Passamaquoddy Bay! This money of mine, it's the legal currency of New India, and I raised it by taxing myself. If I was a pri vate individual, I'd be more careful; but being as I'm a government, I'm privileged to make a God-damned fool of myself in any way I choose, especially by spending a lot more money than I've got or ever will have, and promising to do things that I ain't got a chance of doing. Neither politicians, nor bureau crats, nor citizens are about to accept Buell's position and allow free printing of dollar bills. While that much is obvious, its implica,.. tions and the questions they raise are not. Why do we all approve of the laws prohibiting counterfeit ing while the vast majority of Americans - including distin guished economists - continue to approve the activities of the Fed eral Reserve Board, even though, from the point of view of economic law, there is no difference between an increase in the monetary sup ply brought about by discreet counterfeiting and one brought about by the Federal Reserve Board. (I would go further and say there is no difference from the point of view of sound law, either, but that is another subject.) flicking the Switch The explanation lies in a set of facts from an examination of which the inflationary character of our current unionism clearly emerges. Before we go into detail, however, it seems useful to say something about causation for the benefit of those who believe that only the activities of the legal monetary authority - the Federal Reserve System and its satellite banks - can cause inflation.

If, when I flick the switch, the light goes on, is it not meaningful 1976 UNEMPLOYMENT, UNIONS. AND INFLATION 391 and, in a certain sense at least, correct to say that I have caused the light to go on? I have not been the sole and sufficient cause; there have been many others: the architect, the building-contractor, the electrician, the scientists who learned something about the nat ural forces which we call electri cal, the natural forces themselves, and on and on to the impenetra ble and inexplicable mystery which the ancients called the un moved mover. Yet it remains true that I have been the specific cause in the par ticular case. .For despite their significance and the indispens able character of their contribu tions, the other elements in the causal chain did not produce the result; but for my willed and deliberate action the light would not have come on. I, therefore, have been the cause that matters; they, rela tive to me, have been only the conditions within which my causal impulse has been operative.

In the same way, unions are among the causes that matter in producing inflation. To repeat, if we were to abandon fiat-money policies, unions could not bring about inflation; but then nothing else could, either - except rein statement of the fiat-money sys tem. In the kind of fiat-money system we have, the Federal Reserve Board, the printers it em ploys, the paper manufacturers, and the other means by which it transmits its money-and-credit increasing policies-they all oc cupy the same position that the architects, electricians, natural laws, and so forth occupy in the production of light when the switch is flicked. Let us call them conditions in which causes may be operative, rather than causes themselves. The term "cause" we shall re serve for teleological agents - per sons who bring about certain re sults because those results are congruent with or necessary to their purposes.

Who Activates the Presses? In an inquiry of the present nature, this is the only kind of causal analysis which makes any sense. We are not concerned par ticularly to discover laws of na ture or of economics; we don't care about printing technology. What we want to do, if possible, is to eliminate inflation because it threatens the survival of so ciety; and in order to eliminate it we know that we must fix re sponsibility with precision among the human actors involved - simply because that is the only area susceptible to the kind of corrective available to us. For ex ample we should find the prob392 THE FREEMAN July lem insoluble if, by some perver sity, nature inflicted upon every commodity which we adopted as a medium of exchange the same disease of uncontrollable prolif eration which afflicts fiat money. Instead of stopping with the Federal Reserve Board and its quasi-counterfei ting capacities, then, we must ask: who or what turns the Federal Reserve Board on? When we have answered that question we shall have fixed re sponsibility for the inflation we are suffering now.

The ultimate cause - the prime luover - is, speaking comprehen si vely, the desire to have a boom ing economy, in which there are high wages, high profits, and no unemployment, combined with the belief that poverty and unemploy ment must be combatted by easy money, or by deficit spending which amounts· to the same thing. * * * * * To sum up the discussion thus far: in the fiat-money system now operative in the United States, in creases in the money supply may be the immediate "material cause" of inflation, but the ultimate causes lie in those agencies whose activities bring about states of affairs which prevailing opinion believes can be cured only or best by inflationary increases .in the money supply. II. Enter, the Unions Unions fit into this scheme of things as the actors who do and must bring about the conditions which, in the current state of opinion, can be cured only by easy money. As the chief (though by no means unique) producers and pro moters of industrial and financial stagnation and hence of unemploy ment and misery and poverty; as the most tireless advocates of trade-restrictionism and govern mental-expansionism, especially by way -of deficit-spending; and final ly, as the most powerful, arrogant, alnd aggressive political force in the country - our trade unions are easily entitled to be called the pre eminent teleological agents of the inflation now loose in the country.

For their prime directive, the chief purpose of their actions their own survival and aggrandize ment - forces them to hit the in flationary switches constantly. In a more sensible frame of labor law and labor policy, unions would have no more power to bring about inflation than any .other private agency; but as matters now stand, they are forced by their determin ation to survive as the benefici aries of extensive special privilege to bring about states of affairs which produce inflationary in creases in the money supply more or less directly. In order to make the analysis 1976 UNEMPLOYMENT, UNIONS AND INFLATION 393 reasonably complete and convinc ing, I must establish (1) that unions have the power to hring about the conditions which current opinion is determined to remedy by inflationary measures, and (2) that in the current structure of law and policy unions must create those conditions, if they wish to survive. When these things are established we shall understand (3) why unions as political agen cies engage in inflationary activi ties and promote inflationary poli cies.

Compulsory Collective Bargaining· Taken all in all, the current structure of labor law and labor policy is a vast and infernally com plex machine for eliminating all competition in labor markets by promoting compulsory and monop olistic collective bargaining. The ultimate objectives are variously stated - to produce "industrial peace," to eliminate "commerce impairing strikes," to equalize bar gaining power between powerful employers and powerless employ ees, or, by "taking wages out of competition," to get for workers higher wages and better working conditions than they are able to get by individual bargaining on free labor markets. This is not the place for a de tailed description of the many ways in which prevailing law and policy create in unions the power to secure for their members wages and other labor returns higher than those which would prevail in free labor markets. A brief ac count of two of the most signifi cant features will have to suffice as illustrations.

The first and in my opinion the most significant source of monop olistic union power derives from the virtually universal failure of governments in the United States to prevent unionists from violently excluding competitive workers. A great deal of nonsense is heard on this subject. It has been fashion able, for example, to say that "la bor violence" is now a thing of the past, and that such violence as ex isted in the past was mainly the doing of vicious anti-union em ployers. Both assertions are sheer fabrications. There is at least as much vio lence going on now in labor rela tions as there ever has been, may be more - and this in spite of the fact that relatively few employers, having learned the sad lessons of the past, dare come to a confron tation by operating plants during strikes. If they do, you can· win money betting that there will be violent attempts by the strikers to keep the plants from operating.

And in the past, exactly as now, the aggressors have always been the strikers and their union lead394 THE FREEMAN July ers. Consider the fate of the "lib eral," pro-union, pro-collective bargaining Washington Post in its recent dispute with its printers. Such occasional employer vio lence as has existed has always been in the nature of self-defense, a fact which emerges from even the many biased histories of labor violence, if closely read. For the authors of such works are really saying that employers are in the wrong when they "provoke" union violelnce by rejecting demands for a "living wage," or when they hire private police to protect their plants against violent strike ag gression. Employers would be guilty of the aggressive kinds of violence common to unions only if they went forward violently to compel strikers to return to work. This they have never done, and have never even been accused of doing.

Monopolistic Wages Strike violence produces monop olistic wage structures-wage rates higher than would otherwise pre vail-by denying competitive work ers access to the labor markets in question. It analyzes out as no dif ferent from any other exclusive franchise or monopoly grant. The same is true of the other basic and equally destructive special privi lege that unions possess - this one granted them by contemporary labor relations legislation: exclusive representative status. If a union ga.ins the support of a majority of employees in an appropriate bar gaining unit, that union becomes the exclusive bargaining represent ative of all employees in the unit, no matter how small and contrived the majority may be, no matter how egregiously the NLRB may rig the election, no matter how outrageously the bargaining unit may be gerrymandered. As exclusive bargaining repre sentative, the union is, so long as it retains such status (an impor tant qualification, as we shall see) , what may be called an intra-unit monopolist. It is the only agency tha t the employer may legally d'eal with over wages, hours, and other terms and conditions of employ ment. The employer may not even discuss with dissident employees in the unit any subject which comes wi thin the legally manda tory bargaining range.

If the collective bargaining comes to a bona-fide "impasse" (a literally indefinable condition) the employer is privileged technically to .offer directly to the employees the same wages and other terms and conditions which the union has rejected, but if he departs from them at all he is certain to be held guilty of an unfair practice and ordered to resume bargaining with the union. Probably other more or 1976 UNEMPLOYMENT, UNIONS AND INFLATION 395 less serious penalties will be im posed. If he is guilty of no unfair prac tice during or after the impasse, he is privileged to lock out the unionists, and they are privileged to strike. However, if there is a strike, and if the employer at tempts to keep the business going during the strike by offering strik er-replacements terms of employ ment which the union has rejected, in 99 cases out of a hundred there will be vandalism and violence which the police will in more cases than not be either unwilling or unable to prevent or control.

Of the numerous cases I have read about or observed first hand, I can say with confidence that in not a single one has a resisted strike been free of violence and in timidation, overt or covert. By necessary inference, the terms and cond"itions of employment negoti ated under the r,egime of the ex clusive representation principle, complemented by the virtual legit imization of union violence in bar gaining impasses, must therefore be regarded as containing a mo nopoly premium. Labor costs under such a system must be higher than they would be in freely competi tive labor markets. Collective bargaining must not only produce a monopoly premi urn in the form of labor returns high er than those which would have been forthcoming from individual bargaining. Much more important ly, from the point of view of the union leadership, the existing un ion members must be convinced that they have made such a monop oly gain. Otherwise they will leave the union, and the union leader ship would, by virtue of the laws which gave it to them, lose their sta tus and power.

Leaders Must Convince Members Concerning Monopoly Gains We reach here a critical point. If they wish to retain power, un ion leaders must convince their members that they have been the beneficiaries of monopoly gains. But such gai,ns carry with them as an inseparable cost that which is implicit in every significant mo nopoly: namely, a reduction in the production which would have oc curred but for the monopoly condi tion. The necessary consequence of monopolistic labor returns is rela tive unemployment. The cost of compulsory, m01nopolistic collective bargaining is continuous and pro gressive unemployment. No union leader can stop with one monopoly gain. His members are not content to continue paying dues forever on the strength of one large increase in the past. Each union member is always asking of his leadership: "What have you done for me lately?"

396 THE FREEMAN July Hence union leaders under cur rent labor law and policy are driv en to a never-·ending career of mo nopolistic wage-setting. This is an other way of saying that they are doomed eternally to use every poli t ical, economic, and physical mea sure available which will tend to (a) produce as many employment opportuni ties for their members as possible and (b) to eliminate as many contenders for those employ ment opportunities as possible. Like all monopolists, unions must be interested equally in the shape of their demand and supply curves. Besides their vital interest in eliminating as much competitive labor as possible and expanding job opportunities to the greatest possible extent for their own mem bers, union leaders are driven by one more unremitting goad: they must keep alive the destructive myths and superstitions upon which class-warfare thrives. If the union leaders for one mo ment admitted to their members the obvious truth that employers and employees are bound together by the strongest bonds of mutual and reciprocal self-interest known to mankind - perhaps exceeding even the family bond - the party would be over as far as the union leaders were concerned. They might continue to exist in certain special cases, but as founts of the kind of glory, power, opulence, and influence which they now enjoy, they would be ciphers.

Once employees learned tha t they have deeper and more perma nent common interests with their employers than they do with their union leaders" unions as we now know them would be no more. Hence, the third of the ineluctable necessities which account for the inflationary activities of unions is the necessity to discredit and to undercut the business community and to deride the rights and privi leges indispensable to the survival of the enterprise system. III. Political Action of Unions Having now examined the im peratives at work in the quest among labor leaders for survival and power, let us observe the union leaders in political action. For in doing so we shall be able to double check the analysis thus far. If we find that their political activities fall dominantly in the categories of (1) elimination of competitive labor, (2) creation of as many jobs as possible, useless or not, for their own members, and (3) advance ment of measures designed to de bilitate the enterprise system, we can be fairly confident that we have been correct. Furthermore, if we find that all their activities add up to conditions in which infla tionary measures are made politi cally irresistible, then we can be 1976 UNEMPLOYMENT, UNIONS AND INFLATION 397 sure that we have been correct on that score, too.

A standard economic analysis holds that unions cannot be re sponsible for inflation because if they push labor costs and hence prices above market levels in the sectors where they have monopoly power, the ensuing unemployment, owing to labor mobility, tends to push wages and hence prices down in the competitive sectors. Thus no general increase in wages and prices (and no "inflation" as that term is often defined) occurs. As Albert Rees pu~ it, unionism "alters the wage structure in a way that impedes the growth of employment in sectors of the econ omy where productivity and in come are naturally high and that leaves too much labor in low income sectors of the economy." All right as far as it goes, the analysis does not go far enough. The economics are sound, but the more significant political analysis is nonexistent. Unions are not con tent to let the unhampered market take care of the unemployment they have created. They are not content to do so because they can not afford to do so. Experience and common-sense economics have taught them that their positions are fatally threatened whenever and wherever they leave labor mar kets free.

Unions cannot afford to have vast numbers of unemployed over hanging the labor market, even if they are able to erect impenetra ble monopolistic walls around the sectors of the labor market that they wish to control. The free en terprise system is too flexible, too resilient, too adaptable, too mobile. If they leave freedom anywhere, the stultified, monopolized areas will soon die, as the textile indus try has died in New England only to emerge more productive than ever in the still nonunion South. The only way they can retain their monopolies, the union leaders have found, is by destroying these char acteristics of the system, and hence the system itself. Never take the anti-communist, anti-fascist protestations of the union leaders and their economic advisers and apologists seriously. Th.y may not know what kind of a system they are building, but disinterested ob servation should certainly be able to see how their efforts, inten tionally or not, are destroying the enterprise system.

Eliminate Competition Unions are preoccupied first and foremost to eliminate entirely from all labor markets any com petition that would endanger their monopoly positions. This motiva tion explains the overwhelming energies they expend in promoting laws forbidding child labor and 398 THE FREEMAN July fixing mInIm urn wages high enough to reduce white teenage labor and virtually to nullify black teenage labor. It also explains the otherwise inexplicable union pres sure for welfare payments so high that they create a permanent corps of unemployed. And there is no need to say much here about union efforts to eliminate competition from imports, for these are a way to eliminate competition from for eign workers, just as high mini~ mum-wage laws eliminate competi tion from marginal domestic work ers. Everyone should be able to think of other· such competi tion excluding political pressures by unions.

What has to be grasped· here is that if unions do not in one way or another either exclude people entirely from labor markets or bribe them to quit looking: for work, the enterprise system is bound to put them to work, pro vided the private sector is allowed to retain some of the capital it creates. One might think that unions would find it desirable to promote all political measures de signed to provide ever-increasing private-sector employment : reduc tion of corporate taxes, elimina tion of capital-gains taxes, allow ance of realistic accounting, re moval of nonsensical and debilitat ing regulatory schemes, and so ou. The only possible reason for their thus far successful opposition to such obviously beneficial policies is that they cannot afford to either let the enterprise system run loose or admit that capitalists and en trepreneurs are by far the best if not indeed the only members of society who can be called uniquely consumer-servants. If they allowed the enterprise system to run loose, it would soon seal them off, leaving them in little pockets of scar tissue, and the action would move to the areas in which they lacked monopoly power.

In fact, something like that is going on right now. In spite of our determined efforts over the last generation to 'destroy the enter prise system, it is still producing and, closer to our purpose, it is simply going around the unions. Consider companies such as I.B.M. with no unions at all; G.E., no more than half-unionized; the con struction industry, where unions are losing ground day by day; the printing industry, likewise. Con sider also the flight of the textile industry to the nonunion South, already mentioned. Consider finally that even in the representation elections often rigged by the Na tional Labor Relations Board in favor of unions, year after year at least one-half of the votes, and usually more, are against union representation. Yes, indeed, union leaders, like 1976 UNEMPLOYMENT, UNIONS AND INFLATION 399 all legally sheltered monopolists, have much to fear from the un hampered market economy.

Preserve Jobs for Members Besides the necessity of ousting as much competitive labor as pos sible, unions are faced with the need of preserving as many jobs f or their own members as they can. If they do not, they cannot hope to keep the power-base so vital to the political influence and the eco nomic affluence which they cherish. This inexorable drive also must be channeled along destructive ways. Their class-warfare anticapital ism and their promises of labor re turns higher than those produced by competitive labor markets pre vent them from encouraging the growth of employment in construc tive and productive ways. So how do they direct their awesome poli tical influence? While innumerable examples of destructi ve poli tical action by unions are available, let us focus attention on only two of their most recent endeavors. The first is the common-situs picketing bill. Read ily available facts demonstrate that the unions spent enormous sums in the form of political con tributions to get the bill passed.

Its obvious purpose was to pre serve as many jobs as possible for unionized construction workers jobs which the unions themselves had helped to destroy directly by the monopolistic wage structures in construction that they have created and indirectly by the many measures they have supported which have contributed to the gen eral debility of the economy. Persons unfamiliar with the field might find it hard to believe that unions should be interested in pushing a bill which, but for the President's veto, was bound in the long run to hurt rather than help the construction industry. The ex planation is simple. The unions are not interested in the health of the construction industry - or for that matter any other industry; despite their protestations, they are not interested in full employ ment. They are interested only in such employment as strengthens or preserves their power base. And that is why they pushed so hard for the common-situs picketing bill. It would have reduced private construction employment, but, and this is the only thing the union leadership cared about, it would have reinforced their monopolistic control of such employment as re mained. And they would resort to further political action to soak up the unemployment attendant upon the situs picketing bill.

The six-billion-dollar pu blic works bill, also passed overwhelm ingly by a union-dominated Con gress but vetoed, provides an ex400 THE FREEMAN July ample of the way in which unions thus act to soak up by political means the unemployment they play a critical role in creating by the exercise of legislatively granted monopoly powers. There can be no doubt about the fact that the unions were the most powerful and persistent lobbyists for this mea sure, for again available records attest to the influence they ex erted. And again there can be no question but that the unions pushed for this bill because it promised to relieve some of· the unemployment among union mem bers that the unions have them selves created. Promote Inflationt'Jry Measures The six-billion-dollar public works bill is extremely significant to our present inquiry. Besides showing how unions are compelled somehow to compensate for the un employment they create, if they are to preserve their power base, it shows also how the unions are compelled to compensate by infla tionary measures, not by measures which would at once combat infla tion and contribute to the health of the economy.

Observe the political trap. On the one hand, unions cannot pos sibly push for measures which would encourage the growth of private capital without exposing the myth by which they survivethe myth, that is, that workers and employers are natural an tagonists, that the "trickle-down" theory of universal prosperity is a cruel hoax. On the other hand, they cannot push for public-works and other governmental spending pro grams financed only by taxation, because in order to keep their bam boozled members, already over taxed as they are, they must resist higher taxation of the "middle class," and they know that the rich, no matter what union dema gogues say on the subject, are al ready taxed to the limit. Albert Shanker, president of the American Federation of Teachers, documented this point in a recent ne'ws release in which he expressed "strong support" for a bill in Con gress which would provide emer gency aid to local school districts facing severe budget crises l • Everybody knows that the teach ers' unions are mainly responsible for the budgetary crises of the schools. Everybody also knows that local taxation has ahout reached the limit and that everywhere lo cal communities are voting down bond referenda designed to pro duce public-school financing. In these conditions, Shanker had no alternative but to support legisla tion which would provide federal1 American Federation of Teachers, News Release, Feb. 3, 1976.

1976 UNEMPLOYMENT, UNIONS AND INFLATION 401 government financing of the local public-rschool deficits. And where is the federal govern ment to get the funds with which to finance all the unemployment which the unions are compelled to create if they wish to retain power? Let us review the ground we have covered, adopting the point of view of a union leader who is naturally concerned to pre serve the economic and political powers which have accrued to him: • a. He has a monopoly position from which he derives satisfying economic affluence and heady polit ical influence. • b. This monopoly position abso lutely depends upon a conviction among the workers he represents that they derive greater returns from collective bargaining than they would from individual bar gaining. • c. Such a conviction can be pre served only by persuading work ers (i) that employers and free labor markets are their natural antagonists and (ii) that militant unionism is the only possible means of achieving higher than market wages.

• d. Higher-than-market wages cannot possibly be gained without creating significant unemployment. • e. The workers unemployed by monopolistic wage structures can not be left· free to overhang the market, for if they are it will be impossible for unions to produce monopolistic wage settlements. In short, the union leaders must strive endlessly to immobilize the competitive or potentially competi tive workers, and they must do this by governmental subsidies and proscriptions, not by measures which encourage the growth of private capital. • f. Thus unions must push end lessly for minimum wage laws, tariffs, ever-increasing unemploy ment compensation, high and early pensions, profligate welfare pro grams, and all other conceivable devices for keeping potentially competi tive workers out of labor markets. • g. At the same time, they must find' some way to maximize the em ployment of the number of mem bers they need in order to preserve a credible economic and political power base.

• h. Since state, local, and federal tax sources are now for an prac tical purposes exhausted, only one source of funding remains: fed eral ' deficit-spending financed by inflationary increases in the money supply.

402 THE FREEMAN July IV. A Case in Point: The Humphrey Hawkins Bill I believe I have made my point: unions not only do but must cause inflation; indeed, in the current structure of labor law and policy they are absolutely constrained to do so if they wish to survi ve. It will be useful, I believe, to conclude with a discussion of a union-backed measure which ties the unions even more closely to the inflationary process. I refer to the Humphrey-Hawkins Full Employ ment Bill. A recent story in The New. York Times about this bill shows how it provides us with a perfect paradigm. The Times 2 said that: Representatives of three centers of influence in the Democratic Party the A.F.L.-C.I.O., the Congressional Black Caucus, and Senator Hubert H. Humphrey of Minnesota - have been quietly negotiating for weeks in an effort to draft legislation that would commit the Government to create a. job for everyone who wants to work.

The obvious purpose of the bill, as it seems to me, is to rid the unions forever of any fear that they will be held responsible for the unemployment they create. An equally obvious purpose, though not yet completely worked out, is to eliminate any possibility that 2 New York Times, p. 1, Feb. 16, 1976. the Federal Reserve Board will ever pursue deflationary policies, or even merely anti-inflationary policies. As The Times story has it, the bill: would augment the Employment Act of 1946 ... by requiring the President to propose and Congress to pass, each year, specific numerical goals for em ployment, economic growth, and changes in the price level ... The subjects to be covered by the annual economic policy resolution would include the monetary policy to be followed by the Federal Reserve System. There you have it. The Federal Reserve Board has been called an engine of inflation. Because of union sponsorship of the Hum phrey-Hawkins Bill, The Times story suggests that there is no hope of getting the A.F.L.-C.I.O.

"to agree to any provisions . . . that appear to be imposing re strictions on the ability of unions to seek higher wages for their members." So if the Federal Re serve Board is an engine of infla tion, we know who the engineer will be. And this should put an end to debate over the causation issue. One of the more repugnant fea tures of these unlovely· times is that the union leaders who have succeeded in selling so many intel lectuals a bill of goods are in their petty pursuit of affluence and influ1976 UNEMPLOYMENT, UNIONS AND INFLATION 403 ence getting away with measures which not only abuse simple work ingmen but also are likely to de stroy the economy. A particularly ugly touch is added to this repul sive picture by the cooperation of the Black Congressional Caucus. There can be no doubt that the big monopolistic unions have been the worst enemy that American blacks as a whole have had since 1865. If the Humphrey-Hawkins Bill is passed and enforced, the condition of American blacks is likely to be even worse than it was before 1865. 'They are likely to become permanent wards of the State, and it won't make things any better that we'll all be in the same posi tion. ~ Reprints available: 3 for $1.00; 10 copies or more, 20 cents each.

No Eggs~ No Omelet IDEAS ON LIBERTY IN ORDER for me to eat an omelet, some chickens have to lay some eggs. If there are no eggs, there can be no omelet ... and I might have to be satisfied with cereal. That might hurt my feelings, but that can't be helped. Sooner or later, reality has a way of assert ing itself. In our complex economic system, it frequently happens later ... but it happens, nonetheless. Those who claim that they have a right to be nonproductive because others are nonproduc tive, too, are ignoring the basic fact that everything that is con sumed must be produced by somebody. And anything that ex pands the number of nonproducers, or the amount they consume, puts an extra burden on the producers. It can't be any other way. From an editorial of April 5, 1976, by TOM ELKINS, Manager, KNUI Radio, Kahului, Hawaii ROBERT G. ANDERSON "Consumption is the sole end and purpose of all production."