And Pharaoh commanded the same day the taskmasters of the people, and their officers, saying, Ye shall no more give the people straw to make brick, as heretofore: let them go and gather straw for themselves. And the tale of the bricks, which they did make heretofore, ye shall lay upon them; ye shall not diminish ought thereof: for they be idle; therefore they cry, saying, Let us go and sacrifice to our God. Let there more work be laid upon the men, that they may labour therein; and let them not regard vain words (Exodus 5:6-9).
This passage should be familiar. I used it to begin Chapter 7: "The Curse of Machinery." I am using it again for a simple reason: Chapter 10 is a recapitulation of Chapter 7. In Chapter 10, Hazlitt presented a variation of the argument in Chapter 7. In Chapter 7, he answered those critics of the free market who rejected mechanization of the labor markets because this supposedly would displace workers. Here, he used the same line of reasoning to refute critics of the free market who insisted that the federal government must intervene into the labor markets to guarantee full employment, which critics insisted the free market could not do.
Pharaoh had three economic goals. First, he wanted full employment for Israelites -- life without leisure. Second, he wanted the same output of bricks. Third, he wanted reduced costs: the costs associated with producing straw, which Egyptian taskmasters had previously borne. Straw was used in making bricks. He turned the task of gathering straw over to the Israelites. In short, he wanted something for nothing: the same quantity of bricks, but cheaper for Egypt. But Pharaoh was a better economist than any Keynesian today. He knew there would not be something for nothing by means of a state decree. The Israelites would be forced to work harder.
There would be fuller employment: more work for the Israelites. Whatever free time they had possessed before Moses and Aaron challenged the authority of Pharaoh was now removed. Pharaoh punished them for the "vain words" that their covenantal representatives had spoken in his presence. He would show them who was in charge. The Israelites would bear the negative sanction of additional employment. The implication was clear: any further demands for a week's vacation to go and sacrifice to God would be followed by additional negative sanctions.
Pharaoh saw full employment as a negative sanction. So did the Israelites. In contrast, modern advocates of state intervention into the labor markets see full employment as a positive sanction. It is so positive, they argue, that voluntary contracts between employer and employees must be prohibited by law. The state must toss a stone.
A great benefit of the free market is this: it allows full employment for those who wish to work for a wage, and it allows leisure for those who do not. The only way that any society can gain both results is through an absence of state regulations over the labor markets. This is the "miracle of the market" -- in the labor markets, as in all other markets. "But wait! There's more!" The free market also fosters full employment of all known resources, not just labor: land, raw materials, tools, and accurate information about economic conditions -- past, present, and future.
There are multiple owners. The first owner is a person who owns capital. This capital includes a forecast regarding what customers will be willing and able to pay for a particular good or service in the future. He is an entrepreneur, for he possesses money, a forecast, and a plan to meet his forecast. The second owner is a worker who possesses the skills associated with producing this good or service. The third owner possesses scarce resources other than labor -- resources that are crucial to the entrepreneur's plan of production. The fourth owner is the potential future customer who will own money at the time the good or service is brought to market.
Each possesses resources. Each has goals that may be attainable through a judicious application of their individual rights of ownership. In short, they possess opportunities for cooperation in the division of labor.
These resource owners come together in a complex series of joint ventures. There is no central plan. The employer seeks employees at some wage, who in turn seek employment at some wage. If the wage is adjusted through competitive bidding, there will be no potential employees willing to work at that wage. There will also be no opportunities for the employer to increase his expected rate of profit by hiring an additional laborer. These are market-clearing wages, task by task. Then the employer will put them to work. He will also provide them with complementary factors of production: commercial land, tools, and raw materials. He puts up his own money, or money he has raised from investors and lenders, to make all this possible.
All of this is the product of a series of entirely voluntary contracts. These arrangements are not aspects of a central economic plan that was drawn up by any state official or agency. The owners of assets come together in the social division of labor. Each brings a unique resource to the production mix. Each seeks his own benefit.
There is full employment on this project. But this employment is not just the employment of labor. It is the employment of vision, money, capital, labor, tools, raw materials, and land.
All of this is a matter of competitive bidding. Employers compete against employers. Workers compete against workers. Resource owners compete against resource owners. Meanwhile, customers bide their time to see who will offer them the best deals when they finally decide to go shopping.
There is full employment . . . at specific prices. Why? Because something is better than nothing. Everyone wants a better deal, but there comes a time when any deal is better than no deal. The entire free market system is governed by, and motivated by, the most economically productive phrase in the history of man: "Let's make a deal." (This has been America's unofficial national slogan since about 1625.)
The window of the free market lets us see as through a glass, darkly. We all are looking for a better deal . . . at some price.
Incumbent politicians also want a deal. They want voters to re-elect them. So, they look for promises that will persuade voters to vote for them at the next election.
One appealing promise is this: the federal government can guarantee lots of jobs. The free market, they argue, has failed to provide full employment. But there is an asterisk: "at a living wage." This wage is a higher wage than employers are willing to pay. So, there are unemployed workers sitting around. There are also unemployed raw materials, tools, and commercial land. But few politicians look this closely at these other markets. They are interested in promoting full employment for workers, who vastly outnumber the owners of raw materials, tools, and commercial land.
The Great Depression in the 1930's was the result of prior central bank inflations in the 1920's, most notably in the United States, Great Britain, and Western Europe. When this boom turned into a bust after 1930, governments adopted Keynesian policies -- half a decade before Keynes justified them in convoluted prose in The General Theory (1936). Herbert Hoover and the Republican Congress were pre-New Dealers in this regard. Governments in the West interfered with labor pricing, capital markets, and international trade. They all did this in the name of full employment. Nevertheless, unemployment remained high wherever forced labor was not imposed by socialist tyrants, who adopted either slave labor (USSR) or regimented labor (Nazi Germany).
Then, after nearly a decade of high unemployment, beginning on September 1, 1939, politicians in Europe found a politically effective way to overcome the unemployment of the Great Depression: World War II. This war led to regimented labor on a scale never before seen in the history of mankind. Governments drafted tens of millions of men into the armed forces. They encouraged tens of millions of women to replace these men in munitions factories. Then they taxed all adults who were not in the armed forces. The voters were willing to bear such taxes and regimentation in the name of military victory. It was "jobs for all." Everyone was paid a living wage until the bombs fell. Wages ceased for those directly under the bombs.
Central bankers inflated the various money supplies. This would have raised prices and wages, but all of the governments imposed price and wage controls -- people controls -- and political rationing. This reduced real wages, thereby increasing the demand for labor. (Remember economics' fundamental law: "At a lower price, more is demanded.") Presto: no more unemployment.
Then battlefield deaths reduced the work force. There were more jobs for the survivors. "Jobs for all!"
Then came the saturation bombings. This leveled cities. There was more work for rebuilding. "Jobs for all!"
World War II was the greatest government-imposed full employment program of the twentieth century. Wartime full employment is available to governments at any time. All that the voters need to do is recognize the reality of three unspoken words: "At some price." The price of World War II was 65 million deaths -- a significant reduction of the work force, leading to higher employment rates.
When Hazlitt was writing his manuscript, it was widely feared that the pre-War rates of unemployment would reappear. The Full Employment Act of 1946 became law while he was writing his book.
He called full employment a fetish. It was a fetish for two reasons, First, there was the widespread fear of another depression: "no war, no full employment." Second, there was the fear of Keynesian economists and their disciples that without the central planning associated with war, which the public tolerated only for the sake of military victory, the labor markets would not clear through voluntary exchange. This is the universal fear of Keynesian economists. It defines them. Clausewitz wrote: "War is merely the continuation of policy by other means." Keynesianism is merely the continuation of wartime central planning by other means. Keynesians know that the public will not accept price controls and rationing in peacetime. But they promote the other wartime policies: government deficits and central bank monetization of debt.
Politicians, then as now, care about votes. Unemployed voters might vote incumbent politicians out of office. Politicians care deeply about productivity, but only of a special kind: generating votes. Full employment generates votes better than any other condition, economic or otherwise. Full employment is indeed a fetish -- for voters and for politicians.
Political intervention into the economy results in a loss of liberty. This is always the highest cost. It is rarely mentioned. It is the most invisible of the things not seen.
People want to get richer from their labor. This requires tools -- capital. It requires better information. It requires, in short, more investment per capita, which requires greater investment per capita. People want to work more for part of their lives. But later they want to work less when their income per hour increases. They purchase leisure by forfeiting income from another hour of work. Leisure is a valuable consumer good, as the Israelites in Egypt understood. Pharaoh knew the secret of full employment: tyranny. Hazlitt understood this, too.
Nothing is easier to achieve than full employment, once it is divorced from the goal of full production and taken as an end in itself. Hitler provided full employment with a huge armament program. The war provided full employment for every nation involved. The slave labor in Germany had full employment. Prisons and chain gangs have full employment. Coercion can always provide full employment.
This was the thing not seen in 1946. Yet it was right under the voters' noses. George Orwell was right: "To see what is in front of one's nose needs a constant struggle."
We do not want full employment. We want more productive employment: greater output per hour. We want easier employment. Again, quoting Hazlitt:
The whole economic progress of mankind has consisted in getting more production with the same labor. It is for this reason that men began putting burdens on the backs of mules instead of on their own; that they went on to invent the wheel and the wagon, the railroad and the motor truck. It is for this reason that men used their ingenuity to develop 100,000 labor-saving inventions.
When we have no income, we want greater employment. But we do not want full employment: 16 hours a day. At some point, we want leisure. Some people want to be in the job market until they die. Others prefer retirement. In a free market, people can buy leisure by not having a job. They can also buy income by not having leisure.
Here is the rule: You can't get something for nothing. There are no free lunches. There are no free days off.
The central idea of a free society is liberty. Let people decide whether they want full employment, part-time employment, or no employment. Free markets make these choices available . . . at some price.
In the labor markets, state intervention reduces the number of offers of employment. Why? Because each intervention raises the costs of exchange. The fundamental economic law then goes into effect: "At a higher price, less is demanded."
Owners of resources find it more expensive to seek out owners of different assets who might be willing to make a deal. Even when they find such owners, the legislation has made it risky to arrange such an exchange. Therefore, black market exchanges become more frequent. Resources are shifted out of the legal, state-controlled markets into the illegal but uncontrolled markets. The risk of detection rises. Costs rise in all markets. Fewer deals are demanded.
For employers who wish to stay out of black markets, there is a remedy: mechanization. Workers whose free market wages would have been sufficiently low to make uneconomic the introduction of labor-saving equipment are not allowed to offer their services at lower wages. So, employers buy machines. The job offers steadily disappear.
Government spending on mass employment projects must be paid for. Taxes rise. Government borrowing rises. Central bank monetary inflation rises. All of this reduces capital that would otherwise have gone into the private sector. Labor productivity is therefore reduced through a lack of capital. Workers must put up with poorer tools. It is the familiar story: shovels, not bulldozers. Shovel-ready government projects are not productive, except in terms of votes. But votes, not economic productivity, are the goal of politicians who vote for shovel-ready government projects.
The inevitable result of such political policies is reduced production. Why? Higher costs, which reduce economic growth. The society is made poorer than it otherwise would have been.
Meanwhile, the federal bureaucracy increases in size and authority. Civil Service laws make it difficult to fire these employees.
Foreign workers whose nations do not imitate the Keynesian West are able to make arrangements with employers that are mutually beneficial. The productivity of these nations increases. Exports from these nations increase. Customers in the nations that are burdened by full employment laws find that they can find better deals in those sectors of the economy that are marked by imports. The impact of foreigners' productivity is felt in the nations that have adopted full-employment legislation. It is felt in the market for imported goods.
Exporters find that they benefit from indirect subsidies. The nation marked by full-employment laws suffers from reduced labor productivity and higher labor costs. This presents an opportunity to foreign exporters who do not suffer from such legislation. The result is full employment in the nations with no full employment laws on the books.
As Ludwig von Mises argued, the economic results of government intervention into the free markets are the opposite of the original justification of the intervention. But the results in the labor markets are consistent with the politicians' real goal, as distinguished from their official justification of the legislation. The real goal is more votes.
If more voters understood economics, the politicians would lose votes for passing such laws. But the voters do not understand economics. This is true of Christian voters. They do not understand economics, Christian or otherwise.
The Full Employment Act of 1946 was signed into law by President Truman on February 20, 1946. Hazlitt had just finished his manuscript. The low American unemployment rates of 1946-50 could be attributed to that law. But also in 1946, the elimination of wartime economic controls continued. Keynesians claim victory for low unemployment. So do free market economists.
There was a far better test case in West Germany. The Allied governments' wartime system of price controls, fiat money inflation (the Allies had special printing presses for occupation currency, which the Soviets demanded and were given), and rationing. Employment in legal markets was low. Black markets were everywhere.
Befginning in 1947, Ludwig Erhard became the director of the bi-zonal Office of Economic Opportunity. Dr. Erhard was a disciple of Wilhelm Röpke, who in turn was a disciple of Mises. On Sunday, June 20, 1948, Erhard went on the radio and announced a currency contraction of over 90%. Price controls were removed in the Western zone. The next day, the unemployment rate dropped sharply in the Western zone. People went back to work in the legal markets. That was the beginning of the so-called German economic miracle. It did not take place in the Soviet zone. It led to the most rapid economic development in history until 1978, when Deng Xiaoping announced a similar system of deregulation of China's agricultural sector.
The goal of full employment is legitimate. So is the goal of more leisure. So is the goal of service outside the wage system: non-profit volunteering. To achieve all three goals, men need liberty. They need to be able to make deals that they see as advantageous to them. They need the opportunity to make deals -- lots and lots of deals. They can attain full employment, less employment, or no employment -- as they see fit . . . at some price. They negotiate the price.
For documentation, go here: http://bit.ly/CEIOL-Doc-10All chapters are here: http://bit.ly/CEIOL
© 2022 GaryNorth.com, Inc., 2005-2021 All Rights Reserved. Reproduction without permission prohibited.