XXI. Work and Wages (continued)

0:004. Catallactic Unemployment If a job seeker cannot obtain the position he prefers, he must look for another kind of job. If he cannot find an employer ready to pay him as much as he would like to earn, he must abate his pretensions. If he refuses, he will not get any job. He remains unemployed. What causes unemployment is the fact that, contrary to the above-mentioned doctrine of the worker's inability to wait, those eager to earn wages can and do wait. A job seeker who does not want to wait will always get a job in the unhampered market economy in which there is always unused capacity of natural resources and, very often, also Unused Capacity of Produced Factors of Production.

0:56It is only necessary for him either to reduce the amount of pay he is asking for or to alter his occupation or his place of work. There were and still are people who work only for some time and then live for another period from the savings they have accumulated by working. In countries in which the cultural state of the masses is low, it is often difficult to recruit workers who are ready to stay on the job. The average man there is so callous and inert that he knows of no other use for his earnings than to buy some leisure time. He works only in order to remain unemployed for some time. It is different in the civilized countries.

1:44Here the worker looks upon unemployment as an evil. He would like to avoid it, provided the sacrifice required is not too grievous. He chooses between employment and unemployment in the same way in which he proceeds in all other actions and choices. He weighs the pros and cons. If he chooses unemployment, this unemployment is a market phenomenon, whose nature is not are not different from other market phenomena as they appear in a changing market economy. We may call this kind of unemployment market-generated or catallactic unemployment. The various considerations which may induce a man to decide for unemployment can be classified in this way.

2:321. The individual believes that he will find at a later date a remunerative job in his in his dwelling place and in an occupation which he likes better and for which he has been trained. He seeks to avoid the expenditure and other disadvantages involved in shifting from one occupation to another and from one geographical point to another. There may be special conditions increasing these costs. A worker who owns a homestead is more firmly linked with the place of his residence than people living in rented apartments. A married woman is less mobile than an unmarried girl. Then there are occupations which impair the worker's ability to resume his previous job at a later date.

3:22A watchmaker who works for some time as a lumberman may lose the dexterity required for his previous job. In all these cases, the individual chooses temporary unemployment because he believes that this choice pays better in the long run. 2. There are occupations the demand for which is subject to considerable seasonal variations. In some months of the year, the demand is very intense. In other months, it dwindles or disappears altogether. The structure of wage rates discounts these seasonal fluctuations. The branches of industry subject to them can compete on the labor market only if the wages they pay in the good season are high enough to indemnify the wage earners for the disadvantages resulting from the seasonal irregularity in demand.

4:18Then, many of the workers, having saved a part of their ample earnings in the good season, 3. The individual chooses temporary unemployment for considerations which, in popular speech, are called non-economic or even irrational. He does not take jobs which are incompatible with his religious, moral and political convictions. He shuns occupations the exercise of which would impair his social prestige. Unemployment in the unhampered market is always voluntary.

5:11In the eyes of the unemployed man, unemployment is the minor of two evils between which he has to choose. The structure of the market may sometimes cause wage rates to drop. But on the unhampered market there is always for each type of labor a rate at which all those eager to work can get a job. The final wage rate is that rate at which all job seekers get jobs and all employers as many workers as they want to hire. Its height is determined by the marginal productivity of each type of work. Wage-rate fluctuations are the device by means of which the sovereignty of the consumers manifests itself on the labor market.

5:59They are the measure adopted for the allocation of labor to the various branches of production. They penalize disobedience by cutting wage rates in the comparatively overmanned branches and recompense obedience by raising wage rates in the comparatively undermanned branches. They thus submit the individual to a harsh social pressure. It is obvious that they indirectly limit the individual's freedom to choose his occupation. But this coercion is not rigid. It leaves to the individual a margin in the limits of which he can choose between what that suits him better and what less. Within this orbit he is free to act of his own accord.

6:47This amount of freedom is the maximum of freedom that an individual can enjoy in the framework of the social division of labor, and this amount of coercion is the minimum of coercion that is indispensable for the preservation of the system of social cooperation. There is only one alternative left to the catallactic pressure exercised by the wages system, the assignment of occupations and jobs to each individual by the peremptory decrees of an authority, a central board planning all production activities. This is tantamount to the suppression of all freedom. It is true that under the wages system, the individual is not free to choose permanent unemployment.

7:37But no other imaginable social system could grant him a right to unlimited leisure. That man cannot avoid submitting to the disutility of labor is not an outgrowth of any social institution. It is an inescapable natural condition of human life and conduct. It is not expedient to call catalactic unemployment in a metaphor borrowed from mechanics, frictional unemployment. In the imaginary construction of the evenly rotating economy, there is no unemployment, because we have based this construction on such an assumption. Unemployment is a phenomenon of a changing economy.

8:22The fact that a worker discharged on account of changes occurring in the arrangement of production processes does not instantly take advantage of every opportunity to get another job, but waits for a more propitious opportunity is not a consequence of the tardiness of the adjustment to the change in conditions, but is one of the factors slowing down the pace of this adjustment. It is not an automatic reaction to the changes which have occurred, independent of the will and the choices of the job seekers concerned, but the effect of their intentional actions. It is speculative, not frictional. Catalactic unemployment must not be confused with institutional unemployment.

9:13Institutional unemployment is not the outcome of the decisions of the individual jobseekers. It is the effect of interference with the market phenomena intent upon enforcing by coercion and compulsion wage rates higher than those the unhampered market would have determined. The treatment of institutional unemployment belongs to the analysis of the problems of interventionism. 5. Gross Wage Rates and Net Wage Rates What the employer buys on the labor market and what he gets in exchange for the wages paid is always a definite performance which he appraises according to its market price.

10:00The customs and usages prevailing on the various sectors of the labor market do not influence Allows the prices paid for definite quantities of specific performances. Gross wage rates always tend toward the point at which they are equal to the price for which the increment resulting from the employment of the marginal worker can be sold on the market, due allowance being made for the price of the required materials and to originary interest on the capital needed. In weighing the pros and cons of the hiring of workers, the employer does not ask himself what the worker gets as take-home wages. The only relevant question for him is, what is the total price I have to expend for securing the services of this worker?

10:53In speaking of the determination of wage rates, catallactics always refers to the total price which the employer must spend for a definite quantity of work of a definite type, that is, to gross wage rates. If laws or business customs force the employer to make other expenditures besides the wages he pays to the employee, the take-home wages are reduced accordingly. Such accessory expenditures do not affect the gross rate of wages. Their incidence falls entirely upon the wage earner. Their total amount reduces the height of take-home wages, that is, of net wage rates.

11:38It is necessary to realize the following consequences of this state of affairs. 1. It does not matter whether wages are time wages or piecework wages. Also, where there are time wages, the employer takes only one thing into account, namely, the average performance he expects to obtain from each worker employed. His calculation discounts all the opportunities time work offers to shirkers and cheaters. He discharges workers who do not perform the minimum expected. On the other hand, a worker eager to earn more must either shift to piecework or seek a job in which pay is higher because the minimum of achievement expected is greater.

12:31Neither does it matter on an unhampered labor market whether time wages are paid daily, weekly, monthly or as annual wages. It does not matter whether the time allowed for notice of discharge is longer or shorter, Whether agreements are made for definite periods or for the worker's lifetime, whether the employee is entitled to retirement and a pension for himself, his widow and his orphans, to paid or unpaid vacations, to certain assistance in case of illness or invalidism, or to any other benefits and privileges, the question the employer faces is always the same. Does it or does it not pay for me to enter into such a contract?

13:19Don't I pay too much for what I am getting in return? 2. Consequently the incidence of all so-called social burdens and gains ultimately falls upon the worker's net wage rates. It is irrelevant whether or not the employer is entitled to deduct the contributions to 3. The same holds true with regard to taxes on wages. Here, too, it does not matter whether the employer has or has not the right to deduct them from take-home wages.

14:084. Neither is a shortening of the hours of work a free gift to the worker. If he does not compensate for the shorter hours of work by increasing his output accordingly, time wages will drop correspondingly. If the law decreeing a shortening of the hours of work prohibits such a reduction in wage rates, all the consequences of a government-decreed and rise in wage rates appear. The same is valid with regard to all other so-called social gains, such as paid vacations and so on. 5. If the government grants to the employer a subsidy for the employment of certain classes of workers, their take-home wages are increased by the total amount of such a subsidy.

15:006. If the authority's grant to every employed worker whose own earnings lag behind a certain minimum standard, an allowance raising his income to this minimum, the height of wage rates is not directly affected. Indirectly, a drop in wage rates could possibly result as far as this system could induce people who did not work before to seek jobs, and thus bring about an increase in the supply In the last years of the 18th century, amidst the distress produced by the protracted war with France and the inflationary methods of financing it, England resorted to this makeshift, the Spienhemmland system.

15:47The real aim was to prevent agricultural workers from leaving their jobs and going into the factories where they could earn more. The Spenumland system was thus a disguised subsidy for the landed gentry, saving them the expense of higher wages. 6. Wages and Subsistence The life of primitive man was an unceasing struggle against the scantiness of the nature-given means for his sustenance. In this desperate effort to secure bare survival, many individuals and whole families, tribes and Races succumbed. Primitive man was always haunted by the specter of death from starvation.

16:35Civilization has freed us from these perils. Human life is menaced day and night by innumerable dangers. It can be destroyed at any instant by natural forces which are beyond control, or at least cannot be controlled at the present stage of our knowledge and our potentialities. But the horror of starvation no longer terrifies people living in a capitalist society. He who is able to work earns much more than is needed for bare sustenance. There are also, of course, disabled people who are incapable of work. Then there are invalids who can perform a small quantity of work, but their disability prevents them from earning as much as normal workers do.

17:24Because the wage rates they could earn are so low that they could not maintain themselves. These people can keep body and soul together only if other people help them. The next of kin, friends, the charity of benefactors and endowments, and communal poor relief take care of the destitute. Almsfolk do not cooperate in the social process of production. As far as the provision of the means for the satisfaction of wants is concerned, they do not act. They live because other people look after them. The problems of poor relief are problems of the arrangement of consumption, not of the arrangement of production activities.

18:10They are, as such, beyond the frame of a theory of human action which refers only to the provision of the Means Required for Consumption, not to the way in which these means are consumed. Catalactic theory deals with the methods adopted for the charitable support of the destitute only as far as they can possibly affect the supply of labor. It has sometimes happened that the policies applied in poor relief have encouraged unwillingness to work and the idleness of able-bodied adults. In the capitalist society there prevails a tendency toward a steady increase in the per-capita quota of capital invested.

18:55The accumulation of capital soars above the increase in population figures. Consequently, the marginal productivity of labor, wage rates and the wage earner's standard of living tend to rise continually. But this improvement in well-being is not the manifestation of the operation of an inevitable law of human evolution. It is a tendency resulting from the interplay of forces which can freely produce their effects only under capitalism. It is possible, and if we take into account the direction of present-day policies, even It is then not unlikely that capital consumption, on the one hand, and an increase or an insufficient drop in population figures, on the other hand, will reverse things.

19:48Then it could happen that men will again learn literally what starvation means, and that the relation of the quantity of capital goods available and population figures will become seem so unfavorable as to make part of the workers earn less than a bare subsistence. The mere approach to such conditions would certainly cause irreconcilable dissensions within society, conflicts the violence of which must result in a complete disintegration of all societal bonds. The social division of labor cannot be preserved if part of the cooperating members of society are doomed to earn less than a bare subsistence.

20:33The notion of a physiological minimum of subsistence to which the iron law of wages refers and which demagogues put forward again and again is of no use for a catalactic theory of the determination of wage rates. One of the foundations upon which social cooperation rests is the fact that labor performed according According to the principle of the division of labor is so much more productive than the efforts of isolated individuals, that able-bodied people are not troubled by the fear of starvation which daily threaten their forebears. Within a capitalist commonwealth, the minimum of subsistence plays no catallactic role.

21:19Furthermore, the notion of a physiological minimum of subsistence lacks that precision Human and scientific rigor which people have ascribed to it. Primitive man, adjusted to a more animal-like than human existence, could keep himself alive under conditions which are literally unbearable to his dainty scions pampered by capitalism. There is no such thing as a physiologically and biologically determined minimum of subsistence, valid for every specimen of the zoological species homo sapiens. No more tenable is the idea that a definite quantity of calories is needed to keep a man healthy and progenitive, and a further definite quantity to replace the energy expended in working.

22:11The appeal to such notions of cattle breeding and the vivisection of guinea pigs does not aid the economist in his endeavors to comprehend the problems of purposive human action. The iron law of wages and the essentially identical Marxian doctrine of the determination of the value of labor power by the working time necessary for its production, consequently also for its reproduction, are the least tenable of all that has ever been taught in the field of catallactics. But it was possible to attach some meaning to the ideas implied in the iron law of wages. If one sees in the wage earner merely a chattel and believes that he plays no other role in society, if one assumes that he aims at no other satisfaction than feeding and proliferation and does not know of any employment for his earnings other than the procurement of those as Animal Satisfactions, one may consider the iron law as a theory of the determination of wage rates.

23:20In fact, the classical economists, frustrated by their abortive value theory, could not think of any other solution of the problem involved. For Torrance and Ricardo, the theorem that the natural price of labor is the price which which enables the wage earners to subsist and to perpetuate their race, without any increase or diminution, was the logically inescapable inference from their untenable value theory. But when their epigones saw that they could no longer satisfy themselves with this manifestly preposterous law, they resorted to a modification of it, which was tantamount to a complete abandonment of any attempt to provide an economic explanation of the determination of wage rates.

24:10They tried to preserve the cherished notion of the minimum of subsistence by substituting the concept of a social minimum for the concept of a physiological minimum. They no longer spoke of the minimum required for the necessary subsistence of the laborer and for the preservation of an undiminished supply of labor. They spoke instead of the minimum required for the preservation of a standard of living sanctified by historical tradition and inherited customs and habits. While daily experience taught impressively that under capitalism real wage rates and the wage earner's standard of living were steadily rising, while it became from day Today more obvious that the traditional walls separating the various strata of the population could no longer be preserved because the social improvement in the conditions of the industrial workers demolished the vested ideas of social rank and dignity.

25:14These doctrinaires announce that old customs and social convention determine the height of wage rates. Only people blinded by preconceived prejudices and party bias could resort to such an explanation in an age in which industry supplies the consumption of the masses again and again with new commodities hitherto unknown and makes accessible to the average worker satisfactions of which no king could dream in the past. It is not especially remarkable that the Prussian historical school of the wirtschaftliche Staatswissenschaften viewed wage rates no less than commodity prices and interest rates as historical categories, and that in dealing with wage rates it had recourse to the concept of income adequate to the individual's hierarchical station in the social scale of ranks.

26:14It was the essence of the teachings of this school to deny the existence of economics and to substitute history for it. But it is amazing that Marx and the Marxians did not recognize that their endorsement of this spurious doctrine entirely disintegrated the body of the so-called Marxian system of economics. When the articles and dissertations published in England in the early sixties convinced Marx that it was no longer permissible to cling unswervingly to the wage theory of the classical economists, he modified his theory of the value of labor power. He declared that the extent of the so-called natural wants and the manner in which they are satisfied are in themselves a product of historical evolution, and depend to a large are of large extent on the degree of civilization attained by any given country, and among other factors, especially on the conditions and customs and pretensions concerning the standard of life under which the class of free laborers has been formed.

27:23Thus, a historical and moral element enter into the determination of the value of labor power. But when Marx adds that nonetheless, for a given country at any given time, the average quantity of indispensable necessaries of life is a given fact, he contradicts himself and misleads the reader. What he has in mind is no longer the indispensable necessaries, but the things considered indispensable from a traditional point of view, the means necessary for the preservation of a standard of living adequate to the workers' station in the traditional social hierarchy. The recourse to such an explanation means virtually the renunciation of any economic In the beginning of the 20th century, there was a dramatic or catallactic elucidation of the determination of wage rates.

28:20Wage rates are explained as a datum of history. They are no longer seen as a market phenomenon, but as a factor originating outside of the interplay of the forces operating on the market. However, even those who believe that the height of wage rates as they are actually paid and received in reality are forced upon the market from without, as a datum, cannot avoid developing a theory which explains the determination of wage rates as the outcome of the valuations and decisions of the consumers. Without such a catalactic theory of wages, no economic analysis of the market can be complete and logically satisfactory. It is simply nonsensical to restrict the catalactic disquisitions to the problems of the determination of commodity prices and interest rates, and to accept wage rates as a historical datum.

29:19An economic theory worthy of the name must be in a position to assert with regard to to Wage Rates more than that they are determined by a historical and moral element. The characteristic mark of economics is that it explains the exchange ratios manifested in market transactions as market phenomena, the determination of which is subject to irregularity in the concatenation and sequence of events. It is precisely this that distinguishes economic conception from the historical understanding, theory from history. We can well imagine a historical situation in which the height of wage rates is forced upon the market by the interference of external compulsion and coercion.

30:10Such institutional fixing of wage rates is one of the most important features of our age of interventionist policies. But with regard to such a state of affairs, it is the task of economics to investigate what effects are brought about by the disparity between the two wage rates, the potential rate which the unhampered market would have produced by the interplay of the supply of and the demand for labor on the one hand, and on the other the rate which external compulsion and Coercion impose upon the parties to the market transactions. It is true wage earners are imbued with the idea that wages must be at least high enough to enable them to maintain a standard of living adequate to their station in the hierarchical gradation of society.

31:04Every single worker has his particular opinion about the claims he is entitled to raise on in account of status, rank, tradition and custom in the same way as he has his particular opinion about his own efficiency and his own achievements. But such pretensions and self-complacent assumptions are without any relevance for the determination of wage rates. They limit neither the upward nor the downward movement of wage rates. The wage earner must sometimes satisfy himself with much less than what, according to his opinion, is adequate to his rank and efficiency. If he is offered more than he expected, he pockets the surplus without a qualm.

31:51The age of laissez-faire, for which the iron law and Marx's doctrine of the historically determined formation of wage rates claim validity, witnessed a progressive, although sometimes The labor unions temporarily interrupted tendency for real wage rates to rise. The wage earner's standard of living rose to a height unprecedented in history and never thought of in earlier periods. The labor unions pretend that nominal wage rates at least must always be raised in accordance with the changes occurring in the monetary unit's purchasing power, in such a way as is to secure to the wage earner the unabated enjoyment of the previous standard of living.

32:38They raise these claims also with regard to wartime conditions and the measures adopted for the financing of war expenditure. In their opinion, even in wartime, neither inflation nor the withholding of income taxes must affect the workers' take-home real wage rates. This doctrine tacitly implies the thesis of the Communist Manifesto that the working men have no country and have nothing to lose but their chains. Consequently, they are neutral in the wars waged by the bourgeois exploiters and do not care whether their nation conquers or is conquered. It is not the task of economics to scrutinize these statements.

33:23It only has to establish the fact that it does not matter what kind of justification is advanced in favor of the enforcement of wage rates higher than those the unhampered labor market would have determined. If as a result of such claims, real wage rates are really raised above the height consonant with the marginal productivity of the various types of labor concerned, the unavoidable The same is valid with regard to the confused doctrine that wage earners are entitled to claim for themselves all the benefits derived from improvements in what union officers call the productivity of labor.

34:11On the unhampered labor market, wage rates always tend toward the point at which they coincide with the marginal productivity of labor. The concept of the productivity of labor in general is no less empty than all other universal concepts of this kind, for example, the concept of the value of iron or gold in general. To speak of the productivity of labor in a sense other than that of the marginal productivity is meaningless. What these union officers have in mind is an ethical justification of their policies. However, the economic consequences of these policies are not affected by the pretexts advanced in their favor.

34:59Wage rates are ultimately determined by the value which the wage earner's fellow citizens is attached to his services and achievements. Labor is appraised like a commodity, not because the entrepreneurs and capitalists are hard-hearted and callous, but because they are unconditionally subject to the supremacy of the pitiless consumers. The consumers are not prepared to satisfy anybody's pretensions, presumptions, and self-conceit. They want to be Served in the Cheapest Way A Comparison between the Historical Explanation of Wage Rates and the Regression Theorem It may be useful to compare the doctrine of Marxism and the Prussian historical school, according to which wage rates are a historical datum and not a catalactic phenomenon, with the regression theorem of money's purchasing Purchasing Power.

35:59The regression theorem establishes the fact that no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments. This fact does not substantially affect the daily determination of money's purchasing Banking Power as it is produced by the interplay of the supply of and the demand for money on the part of people intent upon keeping cash. The regression theorem does not assert that any actual exchange ratio between money on the one hand and commodities and services on the other hand is a historical datum not dependent on today's market situation.

36:48It merely explains how a new kind of media of exchange can come into use and remain in use. In this sense, it says that there is a historical component in money's purchasing power. It is quite different with the Marxian and Prussian theorem. As this doctrine sees it, the actual height of wage rates as it appears on the market is a historical datum. The valuations of the consumers who immediately are the buyers of labor and those of the wage earners, the sellers of labor, are of no avail. Wage rates are fixed by historical events of the past. They can neither rise above nor drop below this height.

37:36The fact that wage rates are today higher in Switzerland than in China can be explained only by history, just as only history can explain why Napoleon I became a Frenchman and not an Italian, an emperor and not a Corsican lawyer. It is impossible in the explanation of the discrepancy between the wage rates of shepherds or of bricklayers in these two countries to resort to factors unconditionally in operation on every market. An explanation Man can only be provided by the history of these two nations.