IS-LMist Fundamentalism and the Quest for Ignorance

"So I don't care whether Hicksian IS-LM is Keynesian in the sense that Keynes himself would have approved of it, and neither should you. What you should ask is whether that approach has proved useful -- and whether the critics have something better to offer." -- Paul Krugman, "Unreal Keynesians"

The issue, of course, is not whether 'the master' would have approved of the IS-LM gadget but whether it represents an analytical advance or a regression from the insights that Keynes achieved. In a 1980 "explanation," Hicks conceded that "as time has gone on, I have myself become increasingly dissatisfied with it." In a commentary on Hicks's explanation, though, G.L.S. Shackle was less ambivalent. I have selected and re-arranged passages from Shackle's commentary to highlight his central point -- that uncertainty and equilibrium are fundamentally incompatible concepts.

The one big thing in Keynes' ultimate conception is our unknowledge of what will create itself in time-to-come. "We simply do not know." The author of A Treatise on Probability expressly rejects the notion that probability can turn this unknowledge into its opposite. When we accept this view, the possibility of involuntary unemployment becomes self-evident. 

Sir John Hicks' paper was the first presentation of IS-LM and has been for forty and more years the most famous and the most influential interpretation of Keynes. Central and essential to its argument is a notion of equilibrium. 

Sir John still does not seem to me to acknowledge the essential point: the elemental core of Keynes' conception of economic society is uncertain expectation, and uncertain expectation is wholly incompatible and in conflict with the notion of equilibrium. 

In the literature of economics the word equilibrium covers a multitude of ideas and of vacuous substitutes for thought. Its pervasive presence and the ascendancy its serious meanings have exercised show plainly that it "does something" for the economic theoretician. What does it do? It enables him to exhibit the economic world as determinate, explicable, calculable, and even predictable. Equilibrium is orderliness, harmony, the advancement of one's own interest by serving that of others. Equilibrium is interactive rationality, the recognition that society is an organism. Above all, it is the necessary condition, the basis and sanction of proof. Pride in proof is legitimate. Proof is certainty, an end to debate, and it is more, in the scale of values and sensibilities of many of us. Proof is beauty. If economic theory is to validate its claim to be a deductive system, a science, then the equilibrium idea is indispensable. But proof can exist only in a closed world. It depends upon "givens." If we are not supplied with "givens," and if we are not defended from things not given, of which we were not told, things which can blow in on us in the cold draught from time-to-come, there is no proving things.

Shackle doesn't go far enough. Well, he probably goes far enough in outlining the incompatibility of the notion of equilibrium with the conception of uncertain expectations. But I think it is possible to go a further step in comprehending the incompatibility of the notion of equilibrium with itself. That is to say, the essential incongruity of the notion of equilibrium. 

In an appendix to Significance and Basic Postulates of Economic Theory, T.W. Hutchison admonished, "It is high time to put these theories [laissez faire and equilibrium doctrines] firmly back in their place as Utopian constructions." He cited S. Bauer's 1931 article, "Origine utopique et métaphorique de la théorie du “laissez faire” et de l’équilibre naturel."

Prominent in Bauer's discussion of the origins of the notions of laissez faire and equilibrium is the role of Baltasar Gracian's Oráculo Manual -- which was translated into French by Amelot de la Houssaie in 1684 -- in popularizing both the notion and the term, laissez faire. Pierre le Pesant Boisguilbert is credited with introducing the term into political economic thought in a book published in 1707. Below is the maxim extolling the art of leaving things alone:

Where this story of equilibrium starts to get convoluted is in the Spanish Baroque's philosophical tradition of radical skepticism that Gracian exemplified. In the introduction to his English translation of Gracian's Pocket Oracle, Jeremy Robbins describes the "world of deception and illusion" central to Baroque thought:

Gracián posits a world of deception and illusion, in which appearances predominate and malice and cunning are omnipresent. Hence the distrust, pessimism and misanthropy that characterize his world-view. The key concept here is deceit (engaño): this covers, for Gracián, not simply the deception of one individual by another, but our self-deception as to the true nature and value of the world, and hence our deception by the world. It is a term at once moral and epistemological: to fail to know the world for what it is condemns us to moral error and to failure. Because of our tendency to accept appearances and to follow our desires, passions and emotions, we are mired in a world of deceit. There is consequently an urgent need for disillusionment (desengaño), the other key concept of the Spanish Baroque, For Gracián and his contemporaries, disillusionment means the realization of the true worth of things, seeing them as they really are: in essence, that this world and all within it is worthless. For many writers, this means explicitly viewing things not from a human or worldly perspective, but from the perspective of eternity, on the grounds that the here and now, being transient, amounts to mere appearance, true reality being what awaits us after death.

Robbins is the author of an introduction to seventeenth century Spanish literature titled The Challenges of Uncertainty, in which he argues that Spanish literature, "creatively responded to the unprecedented sense of uncertainty fostered by developments across Europe... it was above all this scepticism which led Spaniards to employ literature and art to question the boundaries of reality and illusion." 

Something weird is going on here. An aesthetic response to uncertainty about the bounds of reality and illusion has been adapted and transformed into a fundamental assumption about the nature of the the world. Uncertainty has been overcome by... an imaginary Utopia,

In "The Quest for Ignorance or the Reasonable Limits of Skepticism" Stephen Pepper argued that "Utter skepticism -- a skepticism void of all knowledge -- could not know itself and stands refuted in its very utterance." There are limits to what we cannot know. The Utopia of equilibrium is not simply incompatible with uncertainty -- it is an inevitable symptom of unreasonable uncertainty. Pepper asked, "How little can we know? What is the maximum of a reasonable unbelief?" His answer relied on the acknowledgement, first, of what he called "middle-sized facts":

These middle-sized facts are the matrix of all knowing. We are so immersed in them all the day long that we ordinarily miss their significance. The common man does not think about them, because he is moving among them; and the specialist does not think about them, because he has made assumptions that raise him above them. They get left out in most discussions of knowledge and fact. But they constitute the lowest limit of skepticism.

Fortune and the Four-day Workweek

What economists of the 1950s and 60s disparaged with the "lump-of-labor" hand, they typically celebrated with the "inevitable", "productivity gains", "income-leisure choice" hand. Based on past trends, the four-day week could be expected to arrive by 1980 -- presumably without legislative or collective bargaining "coercion." By now, 2015, workers would be enjoying the three-day, 21-hour week or, alternatively, three-month annual vacations. Didn't happen. But what's odd is how little thought is given to why it didn't happen and to what happened instead. The dots do connect. Rising inequality, financialization, economic instability and precarious employment -- all these cannot be entirely unrelated to the euthanasia of union arguments for shorter hours.

The Four-day week: How soon?

Daniel Seligman
Fortune -- July 1954

How far off is the four-day week? The standard five-day week has been lodged in American life for only a decade or so. Yet for some reason it is widely regarded today as something natural and immutable. Recently, Fortune mailed a questionnaire about the feasibility of a four-day week to fifty large industrial firms (more than 30,000 employees) and fifty medium-sized companies (300 to 3,000 employees). If there is a single U. S. company whose spokesmen are willing to affirm that a four-day week is possible and desirable in the fairly near future, it has not been found.

The fact that most American businessmen regard any future four-day week with misgivings and even hostility does not, of course, mean it is never coming. A quarter of a century ago there was a great debate about the five-day week. Speaking for the affirmative, but almost alone among businessmen, was Henry Ford. He had introduced the five-day week, he said shortly after the event, “because without leisure the working men— who are the largest buyers in the country—cannot have the time to cultivate a higher standard of living and, therefore, to increase their purchasing power.” Virtually all the businessmen who addressed themselves to the subject found differently. In general, they had three major objections to the five-day week: the cost would be prohibitive; the workers would not know what to do with their leisure time; and there was Biblical sanction for the six-day week.

An important reason for the cautiously noncommittal attitude of business men today is that their employees have been unionized. To declare that a four-day week might soon be feasible would be to give, gratis, a large bargaining counter to the union. On the other hand, to suggest that employees cannot look for any more leisure time would be inept public relations.

Labor leaders also appear to he preoccupied elsewhere. It is true that both the major labor federations have clearly defined ideas about affording more leisure for the American worker. But these do not include the four-day week—yet.

If both labor and management are uninterested in the four-day week, what good reasons are there for talking about it? Briefly, two kinds of reasons might be adduced: The four day week would be desirable, both for business and employees; and it would almost certainly be attainable.

The major reason for thinking a four-day week feasible is, of course, the continually increasing productivity of U. S. industry. Productivity—i.e., output per man-hour—has been rising by 2 or 3 per cent a year, taking the economy as a whole, for more than fifty years now. And, barring a war or a prolonged depression, Americans clearly have some further benefits in store. The question is whether they will take these benefits in the form of increased income, increased leisure time, or in a combination of both.

A calculation made by Fortune for the years since 1929 suggests that in the past quarter-century U. S. workers have been taking about 60 per cent of the productivity pie in the form of income, about 40 per cent as leisure. Assuming that the four-day week for non-agricultural employees will be attained when the total work week is in the vicinity of 32 hours, that productivity continues to increase at an average of 2 or 3 per cent a year, and that something on the order of the recent 60-40 ratio for income and leisure continues in effect, the 32-hour week should be spread throughout the whole non-farm economy in about 25 years.

If the four-day week seemed sufficiently appealing, of course, it could be achieved much sooner. A lot of Americans might, in other words, he willing to work nine hours a day. That, theoretically, would enable them to enjoy the four-day week when total hours of work were down to 36. If they made such a decision—if they traded the eight-hour day for the three-day weekend—then the great event would he scheduled to arrive, not around 1980, but in the 1960’s.

A large number of business men maintain that the four-day week has no applicability to their own operations. The following problems are suggestive of the wide variety of “insurmountable” obstacles that would he encountered:

• Manufacturing companies with three-shift operations would run into formidable scheduling difficulties if the nine-hour day were introduced.
• Companies whose total hours of operation could not be reduced would have to hire more employees.
• Retailing provides a peculiarly difficult situation. To remain open six days and give their employees a four-day week, department stores would have to hire 25 per cent more workers than they now employ. 

A final question must be considered. Do workers really want more leisure? Many employers are still convinced they do not. Now there is no doubt that, given more time off, some workers might drink too much, or beat their wives, or go insane watching daytime television. Others might work themselves to death on second jobs. But the $30-billion leisure market, the remarkable emergence, almost from nowhere, of a huge, new do-it-yourself market, and even the familiar Sunday-afternoon sight of cars crawling along bumper to bumper, suggest strongly that most American workers have a pretty good idea of what to do with their time off.

Meanwhile, in the income-leisure choice for the years ahead, there will be one strong pressure for leisure: The workers who have been energetically pushing their way into the middle-income class have, naturally, become increasingly preoccupied with federal tax demands. "If we get more dough," said one AFL man recently, "the government can take back part of it. But they haven’t yet figured out a way to tax your day off."

"Unemployment and Shorter Hours" -- Howard G. Foster

The following hypothetical example was developed by Howard G. Foster -- then a teaching assistant at the New York State School of Industrial and Labor Relations at Cornell -- and published in the April, 1966 Labor Law Journal. It can best be understood as a direct reply to arguments in the pamphlet, The Shorter Workweek by Marcia L. Greenbaum, published three years earlier by Cornell ILR. Both Foster and Greenbaum went on to distinguished careers as labor arbitrators.

A common reason given by economists who reject the proposal of a shorter workweek is based on what they call the "lump of labor" fallacy. Labor's analysis, they suggest, assumes that an employer has a fixed amount of work that must be done. If hours are reduced with no cut in weekly pay, the employer will react just as he would to any wage increase —that is, cut back output until marginal cost (which has risen) again equals marginal revenue. To suppose that the employer will maintain production in the face of a substantial cost hike is said to be clearly fallacious.

A complete listing of the numerous arguments set forth by economists disapproving of shorter hours is beyond the scope of this paper. Some of them have been cited in preceding pages, and others will be treated in the final section of the paper when possible technical and social problems will be explored. The point to be emphasized here is that shorter hours is one issue on which labor has received virtually no support outside of its own circles. This conclusion is verified by a comprehensive study made by Marcia Greenbaum, a research associate at Cornell University, in which she states:

"If this chapter has painted a gloomy picture of the economic implications of the shorter workweek, it is simply reflecting the nearly unanimous opinion of economists outside of the labor movement. Every other labor proposal for coping with unemployment . . . receives support from at least some economists and public officials. In their plea for shorter hours, however, union leaders stand alone, attacked even by the leading officials of a friendly Administration."

With this in mind, let us now turn to an analysis of the immediate effects of a reduction in hours. 

...does it follow that a rise in cost is a necessary concomitant of a cut in the workweek? A moment's reflection leads one to answer "no." The key to such a conclusion is the assumption that productivity is continually moving upward. This means either that a firm can produce more goods and/or services with the same amount of input than it could before the productivity increase, or that it can produce the same amount with less input. ...consider the following hypothetical situation.

Suppose a company employs 100 men who work 40 hours a week. Suppose further that average hourly pay is $1.00. Thus the average worker grosses $40 a week and the employer's total weekly payroll is equal to $4,000 (ignoring, for the moment, other employment costs such as social security payments, fringe benefits, etc.). Now let us assume that the union contract is about to expire, and during the course of the contract— two years—the company's productivity has risen by 5 per cent. This is not an unreasonable assumption, as the average annual productivity increase in American industry is estimated to be about 3.2 per cent. Now what might happen at the negotiations for a new contract?

Since productivity has risen by 5 per cent, the union will demand a share of the gains. If returns to all factors of production are to remain constant, labor would call for a 5 per cent increase in hourly wages. This is the same as saying that labor will receive the same amount relative to sales as before. Let us assume, however, that product demand has not changed. Total payroll, therefore, will have to remain at $4,000. Since hourly wages should be boosted by 5 per cent, then weekly pay can be maintained with a 5 per cent drop in weekly hours. This works out nicely, since the workers can still produce as much as before because of the productivity increase. To illustrate:

One might wish to interject at this point, "So what? You haven't improved the employment situation at all. The work force still numbers 100." This is all very true indeed, but it might be useful to reflect on just what would have happened had this particular sequence of events not occurred. Whether or not the union demands an hourly wage increase, the employer finds himself in a position where he can meet his production needs with 5 per cent fewer man-hours. So what are his alternatives? He can either cut back hours by 5 per cent or cut back men by 5 per cent—in other words, lay off five men. In the first instance he did the former. He can just as easily do the latter, as illustrated in row (b) of the table below:

In this situation, there are fewer men working at a higher weekly wage. Since we have proceeded from the premise that a certain number of men working at, for example, 38 hours is better than fewer men working at 40 hours, we must conclude that situation (a) above is preferable to (b). 

What is the significance of this? It is true that employment has not been increased in situation (a), but obviously the hours reduction has forestalled a decrease in employment. If hours were not cut, then five more men might be out of work. In policy terms there is little difference between steps to decrease unemployment and steps to prevent it from increasing. Furthermore, it should be noted that it appears to make little difference to the employer whether he cuts man-hours through cutting men or hours. It might be argued that in situation (a) the company is obliged to incur some extra cost over situation (b) in the form of fringe benefits, social security and unemployment compensation payments, and other costs which are dependent on the number of workers employed rather than the number of hours worked. It should be added, however, that the employer has the advantage in situation (a) of retaining men who are experienced and whom he could use in case of a spurt in demand without going to the trouble of hiring and training additional workers. At any rate, both of these factors would seem to be relatively minor cost considerations, since only 5 per cent of the work force is involved. Now let us expand the argument a bit. In the foregoing, it was assumed that demand for our employer's product had remained constant. It is not unreasonable to assume that in some cases demand will have risen. For the sake of simplicity, let us assume that sales have increased by 5 per cent, the same amount as the productivity increment. In such a situation, the employer will want to retain the same number of man-hours as before, since by definition the same input can turn out 5 per cent more output. Thus the company might simply raise hourly wages by 5 per cent, and everything would be fine. The situation would look like this (assuming that in 1963 8,000 units had been sold at $1.00 apiece, and that in 1965 the market will take 8.400 units at the same price):

Now suppose the union forces the company to cut the standard workweek to 38 hours. In such a case total payroll will have remained the same. Since the employer was willing to pay out an additional $200 in wages in the first place, he should have no objection to using that money in order to hire the extra workers he needs to meet the demand for his product. Thus we have the following situation:

At this point a critic might protest that the marginal cost of hiring five additional workers is greater than simply the total of their wages. There are administrative costs, benefit and tax costs, and training costs. This, of course, is a valid objection, but the problem is not insuperable. One way the difficulty could be circumvented might be to allow the employer sufficient leeway in the hours reduction to meet the extra costs. In other words, the union might agree to cut weekly hours by only 4 per cent, with no increase in weekly wages, allowing the employer 1 per cent of total payroll with which to pay the expenses of hiring new workers. Thus, again, it should make little difference to the employer how the complement of man-hours is composed— of 100 men and 40 hours, or 105 men and 38.4 hours (that is, a 4 per cent reduction of hours). Two possible situations have been examined, and with each two alternative ways of facing them have been suggested. First it was hypothesized that weekly sales had remained the same, and second, that sales had increased. It should be obvious that any other possibility can be reasoned out in the same manner. If, for example, sales should increase by, say, only 2.5 per cent, then the alternatives would look like this:

Tables representing situations in which sales are held to be any other amount may be similarly devised. Two points might be noted and emphasized here. First, it is evident that any increase in sales concurrent with a productivity increase opens the possibility of creating jobs. The more that sales rise, the more jobs can be found. Secondly, in all the above examples, the standard workweek was reduced without a rise in unit labor costs. This should at least suggest that in principle hours reduction might indeed be an instrument by which to alleviate the unemployment problem and is worth further study.

Finally, the hypothetical situations described above assumed that the employer's annual rate of productivity increase was 2.5 per cent. To be sure, all companies do not enjoy such good fortune. Since the average rate has been estimated at 3.2 per cent, however, some industries must have a rate of increase that is even higher; and in these areas of the economy, hours reduction should have its greatest effect. In industries with low rates of productivity gains, the proposal will be less effective. It seems reasonable to suggest, however, that any company willing to grant a wage increase in the first place, for any reason, can do it just as easily by cutting hours as by raising weekly wages. As stated above, productivity is the key to the shorter-hours proposal in that productivity is the principal factor which enables wage increases in any form to be granted. So long as productivity in American industry continues to rise, hours of work can be cut without inflating unit costs and in this way labor may indeed be able to "create jobs" at the bargaining-table.

*************************************

Five years later, H. D. and N. J. Marshall wrote in their textbook, Collective Bargaining:

The arithmetic of the theory is simple. lf there are 50 million people presently working forty hours per week, let them now work for only thirty-five hours. The resulting reduction of 250 million hours of labor will create openings for more than 7 million (250 divided by 35) additional workers.  

Few businessmen or economists have been convinced of the validity of this reasoning...

The arithmetic IS indeed simple, just not so stupid. The Marshalls' argument is even simpler: ignore the argument that is made; substitute a flimsy straw man; knock down the straw man. Few businessmen or economists are not convinced of the validity of their reasoning. Witness the Hamilton Project's February 2015 framing paper, The Future of Work in the Age of the Machine.

Break Their Haughty Frames

They have taken untold millions that they never toiled to earn,
But without our brain and muscle not a single wheel can turn.
We can break their haughty power, gain our freedom when we learn
That the union makes us strong.

The Hamilton Project bills its "The Future of Work in the Age of the Machine" as a "framing paper." The "frame" (or frame-up) appears on page two of the paper:

The Luddites, as they were called, were revolting against a phenomenon that would fundamentally alter the economies of the world. Technological change would dramatically increase the productivity of labor, creating new possibilities in manufacturing, agriculture, mining, and transportation. While these changes ultimately raised the standard of living in industrialized countries, the Luddites, and many others, saw their jobs disappear (Easterly 2001).

Those "Luddites" (as they were called) were notorious for breaking frames. They were also framed.

From the report of the proceedings of the trial of George Melior (or Mellor), William Thorpe and Thomas Smith for the murder of William Horsfall of Huddersfield, Yorkshire, it would appear (to this reader at least) as though the defendants were indeed guilty as charged. So in what sense am I claiming they were "framed"? The prosecutor, Mr. Richardson saw fit to present his "general observations on the case" -- unsupported by the testimony of witness -- regarding a certain "delusion that has prevailed... amongst the lower orders."

Mr. Horsfall is represented to me to have been a man, who had upwards of four hundred persons at work under him, extremely beloved by his men, and they greatly attached to him. He had very large manufactories, of course, from the employment of so many men; and he employed the machinery which was the object of the abuse of these misguided people. I have not the means of making such observations as I have frequently and lately heard made, upon the delusion which has prevailed upon that subject, amongst the lower orders. It has been supposed that the increase of the machinery by which manufactures are rendered more easy, abridges the quantity of labour wanted in the country. It is a fallacious argument: it is an argument, that no man, who understands the subject at all, will seriously maintain. I mention this, not so much for the sake of you, or of these unfortunate prisoners, as for the sake of the vast number of persons who are assembled in this place. 

I hope that my learned Friend on the other side, will give me credit, that I mean to state no facts as bearing upon the prisoners at the bar, that I shall not, as I conceive, bring home to them. But I cannot help making general observations upon the subject, to draw their Lordships' attention, and yours, to the case itself. I would rather, for perspicuity's sake, go to the facts which constitute the crime, and then apply it to the prisoners. Mr. Horsfall was a man, I understand, of warm feelings, of great and good understanding, and who saw the fallacy of these arguments; and he, perhaps imprudently (though I do not think so, for I do not think any man acts imprudently in stating his sentiments on a subject which has been under his full consideration) he, I say, stated he would support this species of machinery, because he was sure it was advantageous to the country. He was perfectly well known, in consequence of the part he has taken in reference to these disturbances; and it was proposed by some persons, that he should be taken off.

Catch that? "I have not the means of making such observations..." "I mean to state no facts as bearing upon the prisoners at the bar, that I shall not, as I conceive, bring home to them." In short, this peroration was a digression. It was admittedly incidental to the matter at trial. But it was politically crucial. Not only was Mr. Richardson concerned with securing a conviction for murder but, perhaps even more urgently, with establishing, for the record, the collective guilt of those "lower orders" for "outrages" arising from their delusion and their fallacious argument. Those lower orders had no grounds for complaint.

The authors of the Hamilton Project framing paper cited William Easterly as the source for their digression on the Luddites (as they were called). Easterly called his passage on the Luddites "an aside about the Luddite fallacy." Apparently not having consulted Mr. Richardson's Indictment, Easterly claimed that "the intellectual silliness came later":

Some people believe labor-saving technological change is bad for the  workers because it throws them out of work. This is the Luddite fallacy, one of the silliest ideas to ever come along in the long tradition  of silly ideas in economics. …  

The original Luddites were hosiery and lace workers in Notting  ham, England, in 181 1. They smashed knitting machines that embodied new labor-saving technology as a protest against unemployment (theirs), publicizing their actions in circulars mysteriously  signed “King Ludd.” … The intellectual silliness came later, when some thinkers generalized the Luddites’ plight into the Luddite fallacy: that an economy-wide technical breakthrough enabling production of the same amount  of goods with fewer workers will result in an economy with—fewer  workers. Somehow it never occurs to believers in Luddism that there’s another alternative: produce more goods with the same number of workers.

Actually the allegation of intellectual silliness came three decades earlier -- in the form of a pamphlet by the Lancashire magistrate, Dorning Rasbotham, Thoughts on the Use of Machines in the Cotton Manufacture. Accusing frame breakers of irrational techno-phobia became a commonplace in industrializing Britain. That way you don't have to acknowledge or deal with their grievances.The Luddite fable serves the same purpose today  Opponents of austerity, pension cutbacks, neo-liberal trade policies and labor-market deregulation, along with proponents of work-time reduction can be glibly dismissed without having to acknowledge their arguments. Those lower orders are all deluded. They assume that their is only a fixed amount of work to be done. \There's no point listening to their silly ideas or reasoning with them. 

Is there aught we hold in common with the greedy parasite,
Who would lash us into serfdom and would crush us with his might?
Is there anything left to us but to organize and fight?

For the union makes us strong.

Bad Faith Economics: A Cheap Market Will (almost) Always (tend to) Be Full of Customers (except when it isn't)

As a rule, new modes of economy will lead to an increase of consumption according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before. -- William Stanley Jevons, The Coal Question, 1865.

In other words, technology creates more jobs than it destroys. Or, to be precise: as a rule, technology often, eventually creates more jobs than it destroys. What's the difference between those two statements?

This old saw appears to form the theoretical core of neo-liberal industrial policy. Witness the Hamilton Project's February 2015 "framing paper" The Future of Work in the Age of the Machine. After the obligatory swipe at Luddites -- "The Luddites, as they were called, were revolting against a phenomenon that would fundamentally alter the economies of the world" -- the Wall Street Democrats' think-tank presents a qualified version of the platitude:

There is a consensus that, historically, technological progress has created winners and losers, but over the long run, new technology has tended to create more jobs than it has destroyed, while increasing society’s productivity and wealth.

What is the counter-statement to the principle that technology creates more jobs than it destroys? Is it "technology destroys more jobs than it creates"? "Technology doesn't necessarily create more jobs than it destroys"? "There is a fixed amount of work to be done"?

Surely it can't be the third statement because there could be a situation where the amount of work to be done increased but the number of jobs still decreased. A fixed amount of work is overkill. The first counter-statement is the mirror image of the dogmatic assertion of the principle. The second is actually consistent with the more contingent, provisional version of the principle.

There is no way to predict whether people disputing the dogmatic claim that technology creates more jobs than it destroys do so on the basis of belief in counter-statement one, two or three. As a rule, however, it is discourteous to attribute to an opponent the least plausible motivation for their beliefs. It would be more respectful -- and more prudent -- to attribute the most plausible and defensible motivation.

There is no evidence for the claim that union arguments for shorter hours assume a fixed amount of work and thus commit a lump-of-labor fallacy. There is, however, proof that those who make the accusation actually do commit the fallacy.

The first proof was by Charles Beardsley in 1895. I discussed it in my "Why economists dislike a lump of labor." Pigou in 1913 and Dobb in 1928 demonstrated other fallacies committed by the "fixed Work-Fund" plaintiffs. In Some Leading Principles of Political Economy, published in the 1870s, John Elliott Cairnes bitterly denounced on page 251 the "profound, pernicious fallacy," which is a restatement of the wages-fund doctrine he had obstinately defended back on page 174.

Below is a typical example of the case against the "more refined" 1960s union arguments for shorter hours, which suggested that labor cost increases could be mitigated by the productivity gains resulting from the reduction in fatigue, etc. It is from Collective Bargaining by H. D. Marshall and N. J. Marshall (1971):

Two points need to be made with respect to future gains in productivity resulting from a shortening of hours. First the truer the statement is, the less valid is the union argument that a reduction in hours serves as a solution to the problem of unemployment. The original "lump of work" argument was that if each worker did less work, there would be more work available for others. However, if the reduction in hours induces the worker to produce nearly as much (or even possibly more) than he did on a longer time schedule, the increased availability of work for others will be at least partially lost. Union leaders have often presented these arguments side by side without realizing that they are inherently contradictory.

Subtle. The truer the statement about productivity is, the less valid is the supposed lump of work argument as a solution to unemployment. What the authors overlook, though, is that "future gains in productivity" are -- no less than the introduction of new machinery -- "new modes of economy" and thus may be expected as a rule to eventually widen the sphere of employment. (Unless, of course, the amount of work to be done is fixed.)