Ideological Roots of Unionism
FEBRUARY 01, 1984 by HANS SENNHOLZ
Dr. Hans Sennholz heads the Department of Economics at Grove City College in Pennsylvania. He is a noted writer and lecturer on economic, political and monetary affairs.
In economics, as in ordinary discourse, the word labor connotes the physical or mental exertion of a practical nature, as distinguished from. exertion for the sake of play and enjoyment. Labor is performed in the production of economic goods or services that are useful and valuable. It may be rendered independently by an individual aiming at economic betterments and well- being, or it may be performed in the labor market for the sake of compensation that enhances economic well-being. It may be a contribution to the productive process in the form of work by body or mind. In short, labor is expenditure of vital effort, an indispensable characteristic of human action.
Economists treat labor as a separate factor of production, distinguishable from natural resources and capital. From the beginning of economic thought by the ancient philosophers to modern economic theory, labor has been a distinct factor because it involves the efforts of human beings. Many writers are reluctant to apply economic knowledge and analysis to this distinct factor. There is nobleness and even sacredness in work, they proclaim,, which do not allow for economic deliberation and price calculation. They devise economic doctrines and theories of their own and call for social reforms through legislation and regulation.
In a more special sense, the word labor connotes all workers collectively. It is the supply of labor in a country at a given time, the total manpower of a nation. The term is borrowed from the armory of military strategy and the political command system. It is used in the popular expression “national labor force,” which includes all those persons, whether self- employed or wage-earning, who do any work for pay or profit, all those who have jobs as well as those who are unemployed but are seeking employment. In this sense it is the favorite term of all mainstream economists and government regulators.
In a yet narrower sense, the term labor is often applied to industrial and agricultural wage earners only. They are said to form the “working class,” propertyless and helpless, engaged in an economic, social and political struggle with the ruling classes. It is in this sense that one speaks of “organized labor” seeking strength through political organization and collective bargaining.
The “labor movement” comprises all the organized activities of the working class. In the free countries of the West, it is engaged in three major types of activities—economic, political, and cooperative. The economic activities are carried on by labor unions eager to achieve job and income control through joint action. The political activities of labor usually aim at replacing the competitive private-property order with a political command system. In the United States they have mostly been directed toward government intervention designed to restrict free competition and open markets. The cooperative activities are visible in the formation of credit unions, pen sion funds, and other nonprofit organizations in the midst of private enterprises.
The economic literature of our age is but a mirror of the prevailing economic thought and doctrine. There is a vast literature on the labor movement, usually in full agreement with its many manifestations. Countless books intone the praises of its organization and history, and repeat a few vague old notions on labor’s disadvantage and exploitation. But these old notions continue to provide the very ideological foundation of labor unionism and the labor policies of all contemporary governments in the Western world. Refuted and exploded innumerable times in the past, their power and vigor make it necessary to answer them again and again.
It is rather difficult to trace a thought back to its original thinker. Old thoughts may never die. Once formed and uttered, embodied and expressed in fit words, they may walk the earth forever. The notion of labor’s disadvantage is usually ascribed to Adam Smith, and has been held ever since by hosts of writers. A number of classical economists, above all, Jean Baptiste Say (1767-1832), J. R. McCulloch (1789-1864) and John Stuart Mill (1806-1873) repeated the idea, in time embellished it. The Cambridge School of Alfred Marshall (1842-1924) and A. C. Pigou (1877- 1959) expanded and popularized it to justify workers’ combinations and collective bargaining. The first president of the American Economic Association, Francis A. Walker (1840-1897), added his conception. Countless contemporaries continue to echo the old exercise.
The wage of labor, according to Adam Smith, depends on the contract made between workers and masters. But their interests are not the same. The workmen desire to earn as much, the masters to grant as little as possible.
The labor movement of the early 19th century may have sprung from the following passage in the Wealth o£Nations, or at least may have received the master’s approval and benediction: “It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long-run the workman may be as necessary to his master as his master is to him, but the necessity is not so immediate.”
Say, McCulloch, Mill
The French writer Jean Baptiste Say did more to spread Smith’s teaching in general and Smith’s doctrine of labor’s disadvantage in particular than any other writer. In his Traité d’économie politique, published in 1803, he repeated Smith’s remarks and eloquently elaborated the implications. The wants of the masters, according to Say, are less urgent and immediate than those of the workers who without gainful employment would soon be reduced “to the extremity of distress.” This circumstance, Say concluded, must have its effect on the rate of wages both parties tend to accept.
J. R. McCulloch, in his 1851 Treatise On the Circumstances which Determine The Rate of Wages and the Condition of the Labouring Classes eloquently repeated the Smith doctrine in defense of union organization and activity. Trade union leaders quoted McCulloch and thousands of pamphlets spread his views on the benefits of labor combination. Actually he was merely popularizing Smith’s doctrine of labor’s disadvantage.
John Stuart Mill, who dominated the intellectual scene in Britain and the United States for nearly half a century, professed two different theories of labor combination. In his younger years he was rather skeptical about labor’s ability to improve working conditions through combination. In his Principles of Political Economy he spoke of “narrow limits of power” beyond which union activity would keep “a part of their number permanently out of employment.” Combinations may be successful only where the work-people are few in number and are concentrated in local centers. They may impose higher costs on employers who will pass them on to consumers in the form of higher prices.
Some twenty years later Mill presented a different theory of the prospects and consequences of combination. Under the influence of his friend, W. T. Thornton, he not only reproduced the doctrine of labor’s disadvantage but also invoked his “standard of morals” on behalf of labor unions. He mixed his economic beliefs with his moral convictions and arrived at an ardent labor union doctrine. The laborers’ wages, according to Mill, tend to fall within a certain range the higher limit of which is “consistent with keeping up the capital of the country,” and the lower limit of which “will enable the labourers to keep up their numbers.” Unable to resist even a single employer, and surely the tacit combination of employers, the laborers must yield. Their wages, as a rule, are “kept down at the lower limit.” When laborers combine in a union that includes “all classes of labourers, manufacturing and agricultural, unskilled as well as skilled” they may achieve the higher limits. Whoever adheres to “a standard of morals” must wish “that the labourers may prevail.”
Walker, Marshall, Pigou
Francis A. Walker (1840-1897), the outstanding American economist of his time, justified combinations on grounds of “impaired” or imperfect competition which may work against the workers. Adam Smith provided his guideposts: “Masters are always and everywhere in a sort of tacit, but constant and uniform, combination not to raise the wages of labor above their actual rate.” (The Wealth of Nations, pp. 66-67, quoted by Walker, The Wages Question, p. 392). In the name of justice and “for the peace of industrial society,” labor must be permitted to play the same game. Professor Walker, therefore, concurred with Messrs. Mill and Thornton and all other defenders of trade unions. But he added a reservation that continues to be heard even today, a century later: Labor unions served a useful purpose in the past, but have lost their justification in the present. In his own words, “My difference with such defenders of trades- unions as Mr. Thornton is merely as to the time when these should be put away as an outgrown thing. I find no ground for expecting any benefit to the wages class as a whole, from restricting the access to professions and trades in any country where education is general, where trade is free, where there is popular tenure of the soil, and where full civil rights, with some measure of political franchise, are accorded to working-men.”
Alfred Marshall (1842-1924), one of the great names in the development of contemporary thought, had such great influence on his fellow economists that the first quarter of the 20th century can probably be called the “Age of Marshall.” Much of the Marshallian framework re mains intact today, in the last quarter of the century.
Marshall elaborated Smith’s doctrine of labor’s disadvantage and embellished one of Thornton’s original thoughts that “labour will not keep.” Labor may be at a special disadvantage because it is “perishable” and the sellers are too poor to withhold it from the market. The want of reserve funds is common especially to all grades of unskilled labor, the wages of which leave little margin for saving. Moreover, unskilled workers are most numerous and always eager and capable of taking each others’ places, which makes a laborer’s disadvantage cumulative in two ways: “It lowers his wages; and as we have seen, this lowers his efficiency as a worker, and thereby lowers the normal value of his labour. And in addition it diminishes his efficiency as a bargainer, and thus increases the chance that he will sell his labour for less than its normal value.”
The Economics of Welfare
Arthur Cecil Pigou (1877-1959) was the successor of Marshall as professor of political economy at Cambridge University. He was, it may probably be said, the last member of the Cambridge School, which John Maynard Keynes made his chief target of attack. Pigou’s Theory of Unemployment (1933), especially, embodied the “classical economics” that was loudly rejected by Mr. Keynes. But Keynes never objected to Professor Pigou’s doctrine of labor combination and union activity, or his notion that the pricing process allowed for a margin of “indeterminateness” that was available for collective bargaining.
In his celebrated opus The Economics of Welfare, Professor Pigou depended on collective bargaining to prevent the “cutting or nibbling” of wage rates. In fact, he sounded like a socialist who is firmly convinced of the power of employers to “exploit” their weak and defenseless workers, especially through piece-wages. In his own words, “When a bad employer succeeds in ‘nibbling’ the rates, his success makes it difficult for his competitors to refrain from following his example, and is apt, therefore, to start a cumulative movement. But it is not necessary that piece-rates should be fixed by individual bargaining. In this fact the solution to the problem may be found. For collective bargaining furnishes a guarantee against the kind of nibbling which is really exploitation, and also makes it easy to provide machinery—whether joint-committees or jointly appointed rate-fixers to adjust particular rates.”
Them Is No Margin of Indeterminateness
If eminent economists from Adam Smith down to our age professed such forceful doctrines it cannot be surprising that multitudes of lesser writers joined in the chorus, that nearly every man of public affairs continues to identify himself with the eminent economists, and every union spokesman proudly echoes the doctrines. But no matter who may sponsor the precept, how often it may be repeated, and how popular it may be, it cannot possibly stand a critical analysis. It contradicts basic economic knowledge and clashes with economic reality.
The doctrines of labor’s disadvantage and deliverance by collective bargaining are “short-cut doctrines” that promise instant relief and improvement through collective force. They probably spring from sympathy for the hardships of the poor which is a noble passion of the human heart, and from the most beneficial of all the affections—hope—which is the only universal cure. They promise an exciting shortcut to income and wealth without the pain of extra effort and labor and without the arduous task of capital formation that makes human labor more productive. And lest we forget, they bring popular applause for “goodness” and “benevolence” although they pave the way for so much folly and suffering.
There are no shortcuts to economic production and income. Wage rates for any kind of labor, from complex mental labor to simple physical exertions, are determined by the anticipation of the service they render to human well-being. In particular, they are determined by anticipation of the price that can be obtained for the increment of goods and services expected from the employment of the worker. Economists call this increment the “marginal” product that determines the compensation for every kind of labor. It can be made to rise through greater labor exertion and improvements in the quality of labor. It may be raised with the help of more capital and application of more productive methods of production. But it cannot be made to rise through collective bargaining. There is no “margin of indeterminateness” that can be appropriated by militant labor unions. There is no “no-man’s land” in which the biggest battalions determine the outcome of the battle.
In a private-property order labor is treated like any other factor of production bought and sold on the market. Employers need to buy materials and supplies, tools and equipment, and all kinds of specific labor. To stay competitive and serve his customers best, an employer must buy the needed factors at the lowest possible prices. But the prices he offers must be high enough to secure the necessary supplies from the sellers, outbidding all other competing buyers. He may make mistakes in his bidding for the factors of production. He may bid to pay more than the going rate, which raises his costs of production and invites offers in excess of his needs. If his bids are lower than the market price, he may not be able to secure the needed supplies. A businessman who continues to make such mistakes, i.e., incurs higher costs than his competitors or fails to obtain the needed supplies, will, in time, cease to be a businessman. Someone else more capable of judging prices will take his place.
Employer Combinations Are Ineffective
Even if employers were to combine openly or tacitly to keep wages below the marginal rate, to which Adam Smith alluded, their sinister efforts would be destined to fail. If they would pay less than the full rate, they would render the employment of labor more profitable. New entrepreneurs seeing new opportunities for profits would appear on the market and bid for more labor, which would bring wage rates right back to the marginal productivity of labor. Even if employers would manage to prevent the arrival of newcomers through institutional barriers, such as government licenses and permits, their open and tacit combinations would soon fail because they themselves would be tempted to buy more labor at such bargain rates. They would be tempted to expand their activities, bidding for more labor in any way conceivable. After all, there may be small employers who would like to grow, some who are young and eager, some who are poor and desperate, perhaps on the brink of bankruptcy. They all may want to hire profitable labor in order to reap the benefits. If they cannot raise wage rates, they may want to adjust working conditions, improve fringe benefits, or compete effectively in countless other ways, which once again would raise labor compensation to the marginal rate.
Employer combinations designed to restrain wage rates ignore many other factors of labor compensation that remain the objects of competition. In this respect a combination agreement is like a wage “freeze” or “stop” imposed by a fuddled government; it may arrest a single factor of competition, the rate of wages, but tends to stimulate the competition for labor in countless other ways, from generous expense accounts to country club dues. If government cannot effectively enforce a wage stop, using threats, fines and brute force, it is unlikely that an association of employers, or even a national association of associations, lacking that force, can lower wage rates.
If it is true that employers compete with other employers in countless subtle ways, it is rather futile and unwise to enter into restraint agreements and wage combinations. This fact alone, which undoubtedly is well-known to experienced businessmen, points at the obvious conclusion that the colorful reports on employer combinations, today or from the distant past, are probably overstated and exaggerated.
Comparing employer combinations with worker combinations, that is, labor unions, the basic differences become apparent immediately. While employers tend to compete openly and tacitly to engage the needed labor, labor unions actually prevent the competition of their members. Employers may evade a wage agreement in countless different ways; workers may not be able to escape the union command. They face an agonizing decision: to cross or not to cross the picket line. Employers are virtually free to compete in the labor market; workers are not. They may live under the threat of brutal retaliation not only at the picket line but also at work and at home.
Surely, to be more competitive in the labor market, an employer may openly improve the fringe benefits of his workers without inviting any physical danger to himself or his family. A worker who ignores his union command and actually crosses a picket line may jeopardize all his property and risk bodily harm not only to himself but also to his faro-fly. It must be concluded, therefore, that combinations and organizations of restraint are rather ineffective among employers. But they may be highly effective in their design to restrict competition when they consolidate and syndicate the workers.
Workers Can Wait
It is said that workers cannot wait for remuneration and, therefore, suffer a disadvantage in their bargaining position toward employers. “The masters have the advantage,” according to Adam Smith. The workers without gainful employment would soon be reduced “to the extremity of distress,” according to Jean Baptiste Say. Thus stated by the mentors their disciples have been repeating it ever since.
This ability-to-wait theory of income obviously is moving in a vicious circle. It ascribes disadvantages to poor laborers who cannot wait, and explains their inability to wait with their lamentable poverty. The masters can wait because they are affluent, and they are affluent because they can wait. Actually, the ability to wait has no bearing on wage determination unless it is the ability to withdraw permanently from the market. Withdrawal of labor raises the marginal productivity of labor just as the withdrawal of capital raises that of capital. But such a withdrawal, if it is conceivable at all, would reduce total output and thus total income. It would aggravate everyone’s economic conditions but especially those of workers who chose or were forced to withdraw.
The inability-to-wait doctrine, which lives on in contemporary economic literature, received considerable intellectual support from Thomas Robert Malthus and his theory of population. Nearly all classical economists were convinced that the power of population is indefinitely greater than man’s power to produce subsistence. Population, when unchecked, increases in a geometrical ratio. Subsistence only increases in an arithmetical ratio. The disproportion unfortunately condemns the least productive class of population to hopeless misery and poverty.
Malthus and Population
The Malthusian law of population indisputably explains economic conditions in many parts of Africa and Asia where additional quantities of means of sustenance are immediately absorbed by additional numbers of people. But in capitalistic societies with economic freedom and private property in the means of production, with private initiative and entrepreneurship, economic production tends to outpace by far the proliferation of population. Freedom thought and policy always bring unprecedented economic development together with declines in birth rates and mortality rates, which significantly raise the levels of ]iv-ing and prolong the average human life. If working people no longer hover at the subsistence minimum the Malthusian law of population cannot be made to support the inability-to-wait doctrine.
The doctrine nevertheless lives on, nourishing labor combinations and commending collective bargaining. It never explains why workers acting in concert have greater holding power than workers acting individually and alone. After all, human wants and basic needs for sustaining human life are always individual. It is true, an association of workers may pool member resources and thereby consolidate and equalize the hold-out period. It may save membership dues and accumulate a strike fund for distribution during “waiting periods.” And above all, it may concentrate its holding power on a single employer, inflict or threaten to inflict painful losses on him in order to make him submit to union demands. Such tactics of worker combinations leave employers no choice but to form their own defense organizations that can meet the workers’ collective power with holding power of their own. Most employer associations sprang from this necessity of self- defense.
Employers organize in self-defense from labor organizations defending themselves from alleged “cutting,” “nibbling,” or outright exploitation. Both sides are often locked in a bitter struggle of self-defense, which is testing their ability to wait, impoverishing both and hurting the public. Both sides act like pawns in the game of economists who call it “cutting” or “nibbling” with its predictable consequences.
Are employers capable of cutting and nibbling in the absence of powerful labor unions? They are as capable or incapable of nibbling at the price of labor as they are with other prices for materials and supplies, water and electricity, or travel facilities. In the case of labor, as with many other factors, employers may have a choice between many grades and qualities. What may appear like “nibbling” and “cutting” may actually be the purchase of mediocre labor. Workers differ greatly not only in learning, training, and skills but also in dependability, conscientiousness, honesty, cooperation, and goodwill. Some employers may choose to attract only the most productive workers by offering the highest wages; others may try to get along with mediocre labor, paying average wages; others yet who may have special skills in handling difficult labor may try to make do with less expensive labor. They all mean to achieve the lowest costs per unit of output in order to serve their customers best.
“Labor Is Perishable” and It “Will Not Keep”
In its crudest form expressed by Professor Marshall, the inability-to-wait theory calls for collective defense on grounds that labor is “perishable” and that it “will not keep.” This startling observation obviously implies that, in contrast to labor, capital is more durable and therefore stronger than labor. Unfortunately, this whole line of reasoning is flawed rather seriously because it compares two incomparable qualities: labor services with the productive life of tools and equipment. It is specious reasoning which would become apparent immediately if employers were to use it: “We are unable to wait, when compared with labor, because corporate profits and interest income are ‘perishable,’ but laborers are not.” If Marshall had compared labor service with capital service, or labor income with capital income, he would have noticed that all types of income are “perishable.” During periods of labor strife and idleness, the services of both capital and labor do not “keep”; both lose time, income, and wealth through inactivity.
Contrary to the pronouncements by the eminent economists, many workers can wait longer than their employers. Small employers are no match for laborers organized in industry-wide unions. Many large employers are “marginal,” that is, are operating at the margin of profitability covering expenses and earning a going rate of return. Some employers may be “submarginal” earning less than the going rate. Some may even suffer losses. When labor unions choose to test the ability to wait the weakest employers suffer the greatest pain in the form of calamitous losses, which may spell ruin and bankruptcy. All other producers may be forced to curtail operations and reduce output.
Many classical economists were unduly impressed by the economic strength of the masters. According to Jean Baptiste Say, “There are few masters but what could exist several months or even years, without employing a single labourer, and few labourers that can remain out of work for many weeks, without being reduced to the extremity of distress.” Surely, few American corporations could suffer a strike of several months or even years without jeopardizing their economic survival. And few French companies could have suffered through lengthy shutdowns in 1803 when J. B. Say wrote these lines. They, too, had to pay taxes, interest on loans, and high overhead costs regardless of operation and output. They, too, suffered grievously through time wasted, income lost and opportunities forgone.
The classical economists never were “masters” meeting payrolls and interest payments, facing deadlines for tax payments to various government authorities, or suffering frightening losses from sudden changes in market conditions. They probably never confronted labor unions that meant to inflict maximum harm on the owners. The great writers were academicians motivated by genuine sympathy and empathy and guided by deep feelings of good will for the poor.
Inapt Reverence for the Past
In all matters of labor relations public feeling is apt to side with the laborers. Their poverty, presumed or real, is like a badge of courtesy to which the public readily pays horn-age or at ]east demonstrates respect. Most economists who are mindful of public opinion are quick to render honor to labor combinations. In want of a labor union rationale, but guided by considerations of courtesy and public opinion, they may dwell on the history of labor and make much of the distant past.
Francis A. Walker was one of the first to question the present and salute the past. He added a thought to the intellectual armory of unionism that continues to haunt us even today, more than one hundred years later. No longer finding any ground “for expecting any benefit to the wages class” from labor combinations, he raised the questions of “when these should be put away as an outgrown thing.” In short, he suggested that labor unions may have lost their justification in the present (1876), but that they were most useful in the past. He bestowed honor and prestige on labor unions by imputing a virtuous and glorious past.
Economics as a theoretical science elaborates eternal, inexorable principles of human action. It deals with the means man must apply in order to achieve attainable ends. History is but a register of human efforts and blunders which cannot confirm, refute, add to or subtract from economic knowledge. It cannot uncover benefits of labor combination in the present or the past if economics finds “no benefits to the wages class.” History cannot reveal benefits to all workers if economics demonstrates convincingly that union tactics cause unemployment. Historians should not proclaim the benefits of labor combination and collective force if economists can show that such force not only reduces economic output and thereby hurts consumers, but also inflicts serious harm on unemployed workers.
The unhampered market order allocates to every member the undiminished fruits of his labor. It does so in all ages and societies where individual freedom and private property are safeguarded. It did so 2,000 years ago in Rome, in eighteenth-century England, and in nineteenth- century America. The reason our forefathers earned $5 a week for 60 hours of labor must be sought in their low productivity, not in the absence of labor unions. The $5 they earned constituted full and fair payment for their productive efforts. The economic principles of the free market, the competition among employers, man’s mobility and freedom of choice, assured full wages under the given production conditions.
Wages were low and working conditions primitive because labor productivity was low, machines and tools were primitive, technology and production methods were crude when compared with today’s. If, for any reason, our productivity were to sink back to that of our forebears, our wages, too, would decline to their levels and our work week would lengthen again no matter what the activities of labor unions or the decrees of government.
Most historians are not economists who elaborate the inexorable principles of human action. They like to portray the Industrial Revolution as a disaster that brought untold misery to the working classes. They hail progressive governments and courageous labor unions for having offered relief to the suffering masses. To them the coercive power of both government and labor union is a necessary instrument for balancing the economic powers of the masters. To economists such an interpretation of history is deficient in basic economic knowledge. They view the Industrial Revolution and the phenomenal improvements of labor conditions and income as a great achievement of economic freedom. It set people free to apply science to industry, and to form and use capital in economic production. The rise of unionism during the past two cen turies is seen as the result of fallacious economic doctrines about laborers’ disadvantage. Labor unions are the bitter fruit of erroneous theory, with a record of abuse far more grievous than the alleged evils the unions were supposed to rectify. 
2. Jean Baptiste Say, A Treatise on Political Economy (1803), Third American Edition, 1827, “The wages of the labourer are a matter of adjustment and compact between the conflicting interests of master and workman; the latter endeavoring to get as much, the former to give as little, as he possibly can; but, in a contest of this kind, there is on the side of the master an advantage over and above what is given him by the nature of his occupation. The master and the workman are no doubt equally necessary to each other; for one gains nothing but with the other’s assistance; the wants of the master are, however, of the two, less urgent and less immediate. There are few masters but what could exist several months or even years, without era-ploying a single labourer; and few labourers that can remain out of work for many weeks, without being reduced to the extremity of distress. And this circumstance must have its weight in striking the bargain for wages between them.” (p. 294)
3. "Few masters willingly consent to raise wages; and the claim of one or of a few individuals for an advance of wages is likely to be disregarded so long as their fellows continue to work at the old rates. It is only when the whole, or the greater part, of the workmen belonging to a particular master or department of industry combine together, or when they act in that simultaneous manner which is equivalent to a combination, and refuse to continue to work without receiving an increase of wages, that it becomes the immediate interest of the masters to comply with their demand. And hence it is obvious, that without the existence either of an open and avowed, or of a tacit and real combination, workmen would not be able to obtain a rise of wages by their own exertions, but would be left to depend on the competition of their masters.” (New York: Augustus M. Kelley, 1963), pp. 79-80.
8. Principles and Methods of Industrial Peace (New York: Macmillan, 1905), p. 36. Also The Economics of Welfare (1920), Fourth Edition (London: Macmillan, 1932), pp. 557, 558: “Insofar, however, as movements of workpeople are hampered by ignorance and costs, a monopolistic element is introduced into the wage bargain. Consequently, there is created a range of indeterminateness, within which the wages actually paid to any workman can be affected by individual ‘higgling and bargaining.’ The upper limit of this range is a wage equal to the value of the marginal net product of the workman to the employer engaging him . . . . The lower limit is a wage equal to what the workman believes he could obtain by moving elsewhere, minus an allowance to balance the costs of the movement. The width of the gap between the workers’ minimum and the employers’ maximum varies in different circumstances. It is made larger when the employers in a district tacitly or openly enter into an agreement not to bid against one another for labor, since, in that event, the alternative to accepting terms from them is to seek work, not near by, but perhaps in an unknown district.”
Bargaining is not facilitated by a powerful membership organization of competitors, whether they be competing for wages or for profits or for anything else which is scarce enough to have market value. It is a highly risky thing to delegate one’s own right to bargain to any representative who pretends that such organizational control of competition is either necessary or desirable. A bargainer is one who cooperates with those who are willing; for that purpose, he needs no power of compulsion. He doesn’t need coercive control of competitors. Such controls are the tools of persons who will use force if bargaining doesn’t go to suit them. Those who are still free to bargain, and who like it that way, will think carefully before placing in the hands of others those personal rights and responsibilities which might be perverted into weapons of coercion.
Paul L. Poirot