Saturday, February 5, 2011

April Fools

"...a prize competition to identify new and innovative thinking about policies to create jobs..."

The Hamilton Project of the Brookings Institution has announced a "Policy Innovation Prize" of "$25,000 Awarded For The Best Proposals to Create Jobs and Enhance Productivity." The deadline for submitting proposals is 5:00 p.m. EST on Friday, April 1, 2011.

Sandwichman wryly observes that the April Fools deadline may be appropriate.
On the one hand, "proposals will be judged based on their innovativeness, strength of analysis, rigor and soundness of cost-benefit analysis, and projected gains for employment and productivity." But on the other hand, the successful proposal must be "consistent with The Hamilton Project’s economic strategy, which emphasizes that long-term prosperity is best achieved by fostering economic growth and broad participation in that growth, by enhancing individual economic security, and by embracing a role for effective government in making needed public investments."

Isn't it a bit presumptuous to insist a priori that HP's preferred economic strategy is unquestionably consistent with "innovativeness" in job creation?

The $25,000 prize money is to be divided between $15,000 for the winner and $10,000 for runners up. Sounds like a lot of money? Compared to a Wall Street banker's bonus? Maybe not so much. But then creating jobs is not as important work as trading stocks and engineering credit crises that require massive government bailouts.

At least the prize amount is democratic. Heck, even the Sandwichman could afford to give away that much. And that's just what I'm going to do! I'll see your $15,000 first prize, Hamilton Project, and raise you two bits.

THE SANDWICHMAN LUMP-OF-LABOR PRIZE IN MEMORY OF HAROLD G. MOULTON.

There will only be a first prize OF $15,000.25. No runners up. Eligibility will limited to the staff, advisory council and associated experts of the Hamilton Project. Details of the Sandwichman prize can be found at the end of this post.

SANDWICHMAN'S PROPOSAL

New! Innovative! "He is the true reformer," wrote an editor of Harper's New Monthly Magazine in April 1855, "who stamps anew, bright and clear, the old coins whose image had become obscured through abuse or debased by a corrupt authority." Very briefly, my proposal would be to create millions of jobs by reducing the usual, full-time annual hours of work to a level consistent with the long-term trend in hours that prevailed in the U.S. during the century from 1850 to 1950. The number of jobs involved would be so vast and the institutional changes required for implementation so complex that it would not be fruitful to engage in projecting estimates before first dealing with anticipated objections to the very concept of creating jobs by reducing the hours of work. Nevertheless, for the impatient, some preliminary estimates are outlined in Chapter Four of Jobs, Liberty and the Bottom Line.

My proposal is as old as the Industrial Revolution. "It has been computed by some political arithmetician," wrote Benjamin Franklin in a 1784 letter to his friend, Benjamin Vaughan, "that if every man and woman would work for four hours each day on something useful, that labor would secure all the necessaries and comforts of life, want and misery would be banished out of the world, and the rest of the twenty-four hours might be leisure and pleasure."

A more modest verson was presented some 49 years later by the Working People of Manchester, and their Friends:
That society in this country exhibits the strange anomaly of one part of the people working beyond their strength, another part working at worn-out and other employments for very inadequate wages, and another part in a state of starvation for want of employment;

That eight hours' daily labour is enough for any human being, and under proper arrangements, sufficient to afford an amply supply of food, raiment, and shelter, or the necessaries and comforts of life, and that to the remainder of his time every person is entitled for education, recreation, and sleep;

That the productive power of this country, aided by machinery, is so great, and so rapidly increasing, as from its misdirection, to threaten danger to society by a still further fall in wages, unless some measure be adopted to reduce the hours of work, and to maintain at least the present amount of wages:—
Admittedly, The Society for Promoting National Regeneration was just another one of those "isolated groups of cranks" that John Maynard Keynes aligned his convictions with his 1934 radio address, "Poverty in Plenty: Is the Economic System Self-Adjusting?" In that talk, Keynes had advocated stimulating investment through lower interest rates. More comprehensively, Keynes explained eleven years later in a letter to T.S. Eliot,
The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In US it almost certainly will not do the trick. Less work is the ultimate solution (a 35-hour week in US would do the trick now [April 1945]). How you mix up the three ingredients of a cure is a matter of taste and experience, i.e. of morals and knowledge. (See also "The Long-Term Problem of Full Employment")

The most insistent objection one might hear from economists to such a proposition is that it assumes there is a "fixed amount of work to be done". Or does it? Keynes, after all, talked about mixing up his "three ingredients of a cure." Nevertheless, economists' skepticism toward that third ingredient, working less, endures. What might be learned about this adamant opposition from historical excavation?

STRANGE HISTORY OF A FALLACY CLAIM

The alleged belief in a fixed amount of work is commonly referred to as a "lump-of-labor fallacy." The curious thing about the fallacy claim is that claimants rarely if ever attempt to document the presence -- implied or otherwise -- of such a belief in the published statements of advocates of shorter hours. Instead, they are content to insist that the alleged belief itself is erroneous. This is elevating the heinousness of a crime above any question of its actual commission.

There are other very curious things about the fallacy claim, not least of which is the ad hoc and various nature of explanations of the "reality" counterpoised to the fallacious belief. Some of those explanations appeal to historical experience, others to orthodox economic theory and yet others appeal to alternative (and presumably preferable) policy options. But the various historical, theoretical and policy explanations do not jibe one with another.

This explanatory discordance becomes even more striking when tracing the fallacy claim to its obscure origins. The "Theory of the Lump of Labour" is a phrase coined by David F. Schloss in the 1890s, but the notion of an inherent fallacy associated with campaigns for shorter working time goes back to the 1830s. Other names for the alleged belief include the "Luddite fallacy" and, in France especially, "Malthusianisme." The latter name is especially ironic, we shall discover, given direct appeals to the ironclad principles of the Master of Population, himself, in the evolution of the fallacy claim!

The embryonic fallacy claim was not articulated in the works of the classical political economists themselves but in tracts and articles of popularizers, propagandists and polemicists who invoked the authority of political economy (selectively, of course) in support of their own political, pedagogical or literary agendas. Three historical events in the U.K. presage the appearance of the fallacy motif in the 1839s: the Luddite riots beginning in 1811, the repeal of the Combination Act in 1824 and the subsequent emergence of militant trade union activism in the 1820s and 30s culminating in the Ten Hour Movement.

In the early 1830s, in response to the "Swing Riots" of machine breaking, Charles Knight and the Society for the Diffusion of Useful Knowledge produced both a pamphlet, The Working-Man's Companion. The Results of Machinery, Namely Cheap Production and Increased Employment, Exhibited: Being an Address to the Working-Men of the United Kingdom, intended to instruct workers about the benefits of machinery. The tone of the pamphlets was amiably patronizing, as Knight sought to dispel ignorance and misconceptions about the eventual providential consequences of machinery and what could be done about any short-term dislocation they might cause. Knight's remedy for the short-term dislocations was eccentric from the point of view of the twentieth-century fallacy canon: "When there is too much labor in the market, and wages are too low, do not combine to raise the wages; do not combine with the vain hope of compelling the employer to pay more for labor than there are funds for the maintenance of labor: but go out of the market."

Harriet Martineau also advised against combinations for artificially propping up wages in her 1832 tale, "A Manchester Strike." Instead, her prescription invoked a kind of Necessarian stoicism in the face of immediate hardships because, "Combinations of labourers against capitalists (whatever other effects they may have) cannot secure a permanent rise of wages unless the supply of labour falls short of the demand;—in which case, strikes are usually unnecessary." Over the longer term, Martineau invoked the Reverend Malthus:
The condition of labourers may be best improved,—
1st. By inventions and discoveries which create capital.
2d. By husbanding instead of wasting capital: —for instance by making savings instead of supporting strikes.
3d. By adjusting the proportion of population to capital.
It was in an 1834 pamphlet, Character, Object and Effects of Trades' Unions by Edward Carleton Tufnell, Esq., an assistant Poor Law commissioner, that the fallacy claim really came into its own. Tufnell made no secret of his abhorrence of trade unions, "Were we asked to give a definition of a Trades' Union, we should say that it was a Society whose constitution is the worst of democracies — whose power is based on outrage — whose practice is tyranny — and whose end is self destruction."

The pamphlet was "published anonymously -- there is reason to believe at the instance and at the cost of the Whig Government [Sidney and Beatrice Webb, History of Trade Unionism]." Tufnell, who had been appointed to a Royal Commission charged with investigating the condition of children employed in factories (and derailing Parliamentary progress on the Ten-hour Bill), took aim at the alleged "secret motives" underlying support for the factory legislation from the Manchester Cotton Spinners Union:
The Union calculated, that had the Ten-hour Bill passed, and all the present factories worked one-sixth less time, one-sixth more mills would have been built to supply the deficient production. The effect of this, as they fancied, would have been to cause a fresh demand for workmen ; and hence, those out of employ would have been prevented from draining the pockets of those now in work, which would render their wages really as well as nominally high. Here we have the secret source of nine-tenths of the clamour for the Ten-hour Factory Bill, and we assert, with the most unlimited confidence in the accuracy of our statement, that the advocacy of that Bill amongst the workmen, was neither more nor less than a trick to raise wages—a trick, too, of the clumsiest description ; since it is quite plain, that no legislative enactment, whether of ten or any other number of hours could possibly save it from signal failure.

Tufnell's tale can be traced back one final step, to the testimony to the Royal Commission on the Employment of Children in Factories given by Peter Ewart, master cotton spinner and weaver of Manchester, examined by... Mr. Tufnell.
What do you suppose to be the chief motive for the operatives here advocating the Ten-Hour Bill?

Many of them expect to receive the same wages for ten hours as they now receive for twelve. The mule-spinners earning high- wages appear to be almost the only class of workpeople in this quarter who are in favour of a ten-hour bill. Many of that class have been thrown out of employment in consequence of their combinations to keep up nominal high wages. Their earnings are greatly encroached upon by the contributions they are compelled to make for the support of those who are unemployed, and they imagine that if the hours of work are to be limited to ten, new mills must be built to supply the diminished quantity of yarn, and that the unemployed hands which they now have to support will then be employed in these new-erected mills. This expectation is obviously fallacious, as the cost of yarn and cloth produced would be so much increased by the same expence of fixed capital falling on a smaller quantity that the demand cannot be expected to continue, especially as we have to meet the competition of foreigners who are working longer hours, and at much lower charges. This circumstance of unemployed hands being supported by those who are employed occurs in all cases where wages are kept up by combinations, and is especially exemplified in the case of the combination of London journeymen tailors, who have been more persevering and successful, I believe, than any other. Their nominal high wages bring numerous applicants for work, and those who have work have such heavy contributions to pay to support those who are out of work, (lest they should offer to work under the combination prices,) and the costs of their houses of call and other establishments, and of paid officers for enforcing their combinations, are so large, that they carry little of their earnings home, and it is understood that but few families in London are more miserable at their homes than those of the journeymen tailors.
Tufnell's themes of secret motives, outrage, tyranny and folly became the touchstones for denouncing -- at times demonizing -- trade unions and the template for the emerging lump-of-labor fallacy claim. In the wake of a particularly bitter strike of cotton spinners in Glasgow in 1837, during which a strikebreaker was murdered, Archibald Alison, the Sheriff of Lanarkshire, wrote articles for The Edinburgh Review and Blackwood's Edinburgh Magazine in which he echoed Tufnell's themes regarding the myriad restrictions imposed by "this despotic body" "upon the freedom both of capital and labour." These included regulations regarding wages and hours of work:
The ruling Committees also take upon themselves to fix the number of hours which the men are to labour, and the wages they are to receive. It would be incredible, a priori, to what a length in some trades their laws carry this restriction; and how effectually, by a compact, well organized combination, they can succeed in raising, for a long period, the price even of the most necessary articles of life.
Although The Edinburgh Review was regarded as one of the premier beacons of liberal political economy in Britain, Archibald Alison was an arch-Tory, a staunch defender of the Corn Laws and, curiously, a proponent of the heretical economics of Simonde de Sismondi. The Irish nationalist and Member of Parliament, Daniel O'Connell, also delivered a similar indictment of trade unionism in the House in February 1838. It is safe to conjecture that Tufnell's tract was very influential on these subsequent pronouncements but it is unquestionable that Character, Object and Effects of Trades' Unions stands as the most comprehensive and articulate expression of the case.

In 1859, Harriet Martineau again took up the question of the inherent fallacy in the aims and methods of trade unionism. In "The Secret Organisation of Trades," she wrote:
Their aim and object is, in every case which we have been enabled to investigate, to stint the action of superior physical strength, moral industry, or intelligent skill; to depress the best workman in order to protect the inferior workman from competition; to create barriers which no Society-man can surmount, and which few non-Society-men dare to assail; and, in short, to apply all the fallacies of the Protective system to labour [emphasis added].
Martineau cited Sheriff Alison's "Trades Unions and Strikes" as authoritative regarding the true motives and practice of trade unionism. Apparently she was unaware that Alison was a adamant defender of the "Protective system" with regard to the Corn Laws.

An unsigned 1867 article in The Quarterly Review, "Trades' Unions" presents the fixed-amount-of-work fallacy claim in great detail. It should be noted that the purpose of the argument is to demonstrate the utter futility of trade unions for the purpose of raising wages. As this is an unusually comprehensive statement of the argument, it is worthwhile citing it at some length:
It is one of the advantages of narrow and short-sighted views that they simplify matters extremely. The workman never troubles himself to think whence this fund comes, or what are the conditions necessary to its continuance. He regards it, as mathematicians say, as a given quantity, and concerns himself solely with its division between him and his master. He looks at himself and the other members of his Union in the same way. They also are a given and constant quantity. He never considers whether they may not be diminished in number by a fall, or increased in number by a rise in wages... In like manner the workman never troubles himself to think about the capital of employers, or reflects for a moment as to the causes which may increase or diminish it, or may reduce the numbers who wish to employ him. He regards their number as fixed, and their capital as infinite.

...The real cause of the objection to piece-work and overtime is the one we have mentioned, the view that wages being determined in their amount by importunity and combination, they form a fund for the general benefit of all, and that the fund gained by the contributions and exertions of all ought not to be encroached upon by the superior strength and dexterity of a few. 
To any one accustomed to even the most elementary principles of political economy, to state these views is to refute them. We have touched the fallacy which lies at the bottom of this whole system...

...The first step towards knowledge is to understand the action and reaction that is perpetually going on between employer and employed. The question for those who wish to raise the wages of labour is, not how to divide the existing wages-fund in a manner more favourable to the working man, but how to increase competition for his labour among employers. In this single proposition is contained the emphatic condemnation of the policy of Trades' Unions, and the justification of the policy of laissez faire.

...The manner in which the Trades' Unions obtain a rise in wages puts into operation a set of causes which have a direct tendency to lower them. The price of labour must depend, like the price of everything else, on the demand for it. The demand for labour depends on the rate of profit. If profits are high, fresh capital flows into the trade, either by the establishment of new firms, or by the increase, by loan or otherwise, of the capital of old ones. The real cause, therefore, of a high rate of wages is a high rate of profit.
Here, at last, we have some empirically-verifiable propositions!

Previously, I attributed portions of the above argument to James Ward's 1868 book, Workmen and Wages at Home and Abroad. It has now become clear that the latter book is an egregious work of plagiarism, which stole shamelessly and extensively from Tufnell's 1834 book as well as from the 1867 Quarterly Review article. I briefly entertained the possibility that Ward himself may have been the author of the Quarterly Review article but that seems unlikely in light of the fact that he also cites passages from the article, which he commends as "an able exposition of trades-unions," without giving any indication that he wrote it.

Ward's plagiarism is both symptomatic and symbolic of much of the subsequent treatment of the lump-of-labor, fixed-amount-of-work refrain. Author after author reiterates the fallacy claim -- usually in a formulaic phrase -- without the slightest regard to the claim's authenticity, origins or evidence.

A turning point of sorts was reached in 1871 when the London correspondent for the New York Times, "F.H.J.," reporting on the engineers' strike in Newcastle for the nine-hour day, characterized the "real question at issue" as an "ulterior design" of the union "to surround production with all manner of restraints and restrictions, so that it shall not be accomplished too fast of by a small number of workmen." The unions' rationale for such restriction, according to the Times correspondent, was based on the theory "that the amount of work to be done is a fixed quantity, and that in the interest of the operatives, it is necessary to spread it thin in order to make it go far."

The rest of the story amounts to minor variation on a repetitive theme. "The amount of work to be done is a fixed quantity" has been abbreviated to "a fixed amount of work to be done" or "only so much work to go round." I have discussed these minor variations elsewhere, in "Why Economists Dislike a Lump of Labor," "The 'Lump-of-Labor' Case Against Work-Sharing," and in Chapter Eight of Jobs, Liberty and the Bottom Line.

THE SANDWICHMAN LUMP-OF-LABOR PRIZE IN MEMORY OF ALEXANDER HAMILTON

Entries will be judged on the basis of their documentary evidence and logical coherence. The winning entry will be required to demonstrate that the account of the motley history of the lump-of-labor fallacy claim presented above is unfounded, that the fallacy claim is NOT derived from a sweeping denunciation of the principles and aims of trade unionism, as suggested by the material presented here, but instead proceeds from a verified, authoritative source whose demonstration of and evidence for the fallacy claim is unimpeachable, not refuted and specific to the unsuitability of work-time reduction as a method of job creation.

The Sandwichman will recruit a judge or panel of judges whose public reputations will ensure that evaluation of the entries will be fair and objective. The deadline for submitting entries is 5:00 p.m. EST on Friday, April 1, 2011.

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