Stinting and saving... without stint or shirk!

'Tis work, work, work, without stint or shirk.
Till the world of his wares is full;
This worker, I trow, we all of us know,
And his name it is John Bull.

---- 

"Oh, then," cried the lad, "where's the good, I should like to know, of going through years of hard work, and stinting and saving, in order to get rich, if it's possible to make one's fortune in an instant, as you say."

The "Ngram" chart above shows the frequency of occurrence, in books published between 1890 and 2008, of the terms "efficiency engineer" and "efficiency wage." The blue hump represents the reception of Frederick Taylor's Scientific Management. The red hump marks the ascendency of New Keynesian microfoundations.

An early occurrence of "efficiency wage" appears in a 1912 American Economic Review report of a roundtable discussion of Scientific Management at the 24th annual meeting of the American Economic Association. That discussion also contains the following edifying remarks by one William Kent, esq.:

William Kent: Mr. Tobin has told us of the case related by Mr. Taylor where the work formerly done by 600 shovelers and other laborers with average wages of $1.15 per day was, after scientific management had been applied to it, accomplished by 140 men whose average earnings were $1.88 per day. Mr. Tobin says that what interests him the most is what became of the 460 men who were displaced. Mr. Taylor accounted for some of them by saying they got jobs for which they were better adapted than for shoveling, at higher wages, in the same works, but he had not kept track of the rest of them. 

It is creditable to Mr. Tobin's sympathetic heart that he thinks of the 460 men who were thrown out of a job, but if he thinks they long remained without jobs and that they were sufferers in the long run, he is infected by the fallacy commonly held by the unthinking that the amount of work to be done in the world is a definite and limited amount, and that if either by the use of machinery or by improvement in the method one man is enabled to do the work formerly done by two men, then one of the men is thrown out of work and he and his family are permanently injured. 

This fallacy is referred to by Mr. Taylor in his book on Scientific Management, page 13, in the following words. "The great majority of workmen still believe that if they were to work at their best speed they would be doing a great injustice to the whole trade by throwing a lot of men out of work; and yet the history of the development of each trade shows that each improvement, whether it be the invention of a new machine or the introduction of a better method, which results in increasing the productive capacity of the men in the trade and cheapening the costs, instead of throwing men out of work, makes in the end work for more men." 

The persistence of this fallacy of the workmen for the past 150 years, ever since the power-driven spinning and weaving machinery began to displace the old spinning wheel and hand loom, and the hand workmen destroyed the machinery and set fire to the mills, is based upon one of the best traits of human nature, sympathy for one's fellow man. Sympathy is one of the noblest emotions, but it is apt to exaggerate visible evils and be pessimistic. It says, "There is a poor workman thrown out of a job, the bread is taken out of his mouth, and he and his family are left to starve." It has no use for unemotional history, statistics, logic, and common sense, which all tend to the more optimistic view, that whenever a machine or a method of operation causes a piece of work to be done by fewer men, throwing some men out of employment, the money saved by reducing the cost of the work constitutes a fund which does not remain idle in the bank, but is used to give other employment to the same or to other men.

It is an axiom among men that have given thought to the subject that the work to be done in the world is not limited except by the facilities for doing it, and by the money available for paying for it. If the Bethlehem Steel Company saved $75,000 a year by throwing a large number of shovelers out of a job, it had that much more money to spend in other departments. Just as much ore was shoveled as before, and the $75,000 went into paying labor to add to the world's store of machinery or other desirable products.

In "The Causes and Cures of Unemployment in the Great Depression," Richard J. Jensen (1989) argued that hard core unemployment during the depression could be attributed to "efficiency wage" policies widely adopted by employers. Curiously, Jensen, an historian, made no reference to Taylor or Scientific Management in his article. In his analysis, Jensen relied heavily on the hypothesis that unemployment serves as a "worker discipline device" to discourage shirking:

A second dimension of efficiency wages involved shirking and stints. Some workers (some of the time) have an inner drive to work hard; most workers (most of the time) are willing to coast a little. Furthermore, shop-floor culture in the United States (as opposed to, say, Japan) encouraged peer group pressure against anyone who tried to work too hard. Close supervision to monitor output was expensive and was, in any case, keenly resented by good workers. It was better to select workers who were less inclined to shirk by offering high wages and to use a trial work period to screen out any shirkers who slipped through. Spot checks to identify and fire shirkers made loafing expensive for the workers; the higher the wage, the greater the possible loss. 

Closely related to shirking was the problem of the stint. A group of workers would develop a standard rate of performance -- a stint -- and would harass shop mates who surpassed it. When management tried to increase the stint, workers denounced it as a "speedup" and threatened to strike. But the stint, and the perception of speedup, were relative and psychological. By careful selection, it was possible to find those workers with higher stint levels and to create groups that naturally produced more -- working faster and with less waste -- than groups held back by workers with lower stint levels. Every employer wanted high-stint workers, and so had to pay more to hire and retain them. Efficiency wages and careful hiring policies allowed firms to select workers who demonstrated higher stint rates -- who worked harder. Firms which gained a reputation for high wages and hard work, soon attracted and kept workers who felt comfortable with such a regime. Workers without the characteristics desired by management were not hired (except by mistake -- and then quickly fired). The rising real wages are explained by efficiency wage models only if productivity increased; otherwise, management would be making a huge mistake in paying more wages but getting no more output.

Frederick Taylor called this alleged standard rate of performance "systematic soldiering," which he attributed, as Mr. Kent cited above, to the fallacious belief "that if they were to work at their best speed they would be doing a great injustice to the whole trade by throwing a lot of men out of work." Professor Jensen and Mr. Kent can't both be right. But they can both be wrong. Furthermore, the source of their error is endemic to the cult of economics. It arises from a facile, ambivalent usage of ambiguous terminology to mean one thing or its opposite depending on who is acting and who benefits.

The key term here is "stint." According to the dictionary, there doesn't appear to be an etymological connection between stint and abstinence. But -- just as Nassau Senior substituted "for the word 'capital,' considered as an instrument of production, the word 'abstinence'" -- there is no loss in meaning when we substitute the phrase, 'stinting and saving' for Nassau's word, 'abstinence.'

What is it about the action of stinting/abstinence that makes it praiseworthy when conducted by capitalists and contemptible when performed by workers? For the answer, it might be useful to consider the role of stinting in sustaining the traditional commons. In Common as Air: Revolution, art and ownership, Lewis Hyde explained that:

A true commons is a stinted thing; what Hardin described [in "The Tragedy of the Commons"] is not a commons at all but what is nowadays called an unmanaged common-pool resource. 

It should be noted, too, that as the commons were stinted, so was the market in goods (especially in grain). Markets could not operate without regard for the provisioning of commoners and the poor. Farmers, for example, were obliged to bring grain to market rather than sell it in the field to wholesalers, and markets themselves were fenced, as it were, so that speculators couldn't outbid the poor. A description of "the orderly regulation of Preston market" dated 1795 reads: 

The weekly markets... are extremely well-regulated.... None but the town's-people are permitted to buy during the first hour, which is from eight to nine in the morning: at nine others may purchase, but nothing unsold must be withdrawn from the market till one o'clock, fish excepted....

In another town, "hucksters, higlers, and retailers" were excluded from eight in the morning until noon....  

As with the constraints on the commons, markets were stinted for social and moral ends. No one was left to follow his or her own ends without regard for the group. 

Stepping back from the temptation to romanticize the commons, it may be observed that the regulations Hyde cites -- however social and moral their ends may be -- favored "insiders" over "outsiders." The double standard exercised by economists doesn't represent anything new. It merely replaces one set of insiders and outsiders with another, thereby transforming "hucksters and higlers" into entrepreneurs and investors.

In The Anti-Capitalist Mentality, Ludwig von Mises carried the apotheosis of hucksterism and higgling to an outlandish extreme, crediting what he termed "the three progressive classes" of savers, inventors and entrepreneurs with sole responsibility for driving social evolution from savage cave dwellers to modern industry. In von Mises's account, as in the Polish joke, it is not the capitalists who exploit the workers but the other way around. It is "the common man", "the rest of mankind" who enjoy most of the fruits of the savers', technologists' and entrepreneurs' endeavors even though "they did not contribute anything" to the achievement of economic progress.

The Moon Belongs to Everyone

Dorning Rasbotham, Esq., was a friend of the poor. Nay, from the bottom of his heart, he was a friend of the poor! He felt tenderly for the poor man and his family. After all, what would become of the rich if there were no poor people to till their fields, pay their rents and manufacture their goods?

Squire Rasbotham laid down the following principle in a pamphlet he published in 1780: "A cheap market will always be full of customers." Let's not waver from that principle as we consider the facts in the following table:

"Hours" in the above table refers to billions of hours of paid employment in the U.S. in each of the specified years. "GHGs" refers to billions of tons of greenhouse gas emissions. Both totals increased from 1990 to 2011 and those increases were 88% synchronized between the two variables. If one went up, the other went up. If one went down, the other went down -- 88% of the time!

Correlation does not imply causation. In this case, though, the correlation is exactly what theory would predict. The correlation here is not "implying" anything. It is evidence in support of a theory that existed long before people even thought of measuring greenhouse gas emissions.

That theory is an extended version of Squire Rasbotham's principle that a cheap market is always full of customers. In 1865, William Stanley Jevons applied that same principle to the economy of fuel:

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, for the moment, throws labourers out of employment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened.... 

Now the same principles apply, with even greater force and distinctness, to the use of such a general agent as coal. It is the very economy of its use which leads to its extensive consumption....

And if such is not always the result within a single branch, it must be remembered that the progress of any branch of manufacture excites a new activity in most other branches, and leads indirectly, if not directly, to increased inroads upon our seams of coal.

This theory is known as the Jevons Paradox or the rebound effect. Substitute "fossil fuel" for coal and the theory predicts pretty accurately the results presented in the above table.

Fast forward to today. We want more jobs -- that is to say more hours of work --but we want less greenhouse gas emissions. We face not only a paradox but a dilemma. The horns of this dilemma are yoked together, not just "in principle" but in the physical, mechanical agent of both the economy of fuel and the economy of labor: the machine. "When we try to pick out anything by itself, we find it hitched to everything else in the Universe," is how John Muir put it.

It gets rather tedious watching one group of experts "solve" one side of the dilemma while completely ignoring the other side while yet another group of experts "solves" the other side while ignoring the first. "Crackpot realism" was C. Wright Mills's name for it but there's nothing realistic about it. It's just plain old crackpot.

So what's the solution, then? I'll tell you after the break. Listen to this song first.

The moon belongs to everyone,
The best things in life are free;
The stars all shine for everyone,
They're shining for you and me.

The flowers in Spring,
The birdies that sing,
The sunbeams that shine,
They're yours--they're mine.

The sky belongs to everyone...
And that's not just the lyrics to an old song any more. That's the ruling of Judge Gisela Triana, of the Travis County, Texas, District Court in July 2012. From the Boston Globe, July 12, 2012:

The lawsuit was brought by the Texas Environmental Law Center, and is part of a court campaign in a dozen states by an Oregon-based nonprofit, Our Children’s Trust. The group is using children and young adults as plaintiffs in the lawsuits — some state and some federal — filed in Alaska, Arizona, California, Colorado, Iowa, Minnesota, Montana, New Jersey, New Mexico, Oregon, Texas, and Washington.

By relying on ‘‘common law’’ theories, the group hopes to have the atmosphere declared a public trust for the first time, granting it special protection. The doctrine has been used to clean up rivers and coastlines, but many legal experts have been unsure if it could be used successfully to combat climate change.

As David Morris reported in On the Commons, Peter Barnes proposed treating the sky as a public trust in his 2001 book, Who Owns the Sky. Barnes's idea was the basis for a "cap-and-dividend" bill proposed in the U.S. House of Representatives in 2009.

Cap-and-dividend is a variation on the cap-and-trade concept of a market-based emissions regulatory mechanism. Some of the main criticisms of such market-based schemes have to do with enforcement mechanisms, non-compliance, transparency and regulatory capture.

The idea of trading pollution allowances originated in Ronald Coase's "The Problem of Social Cost" and was further developed by J. H. Dales in Pollution, Property and Prices. Coase's article centered on a critique of the "Pigouvian tradition" that advocated a prominent role for the state in taxation to offset the effects of environmental externalities.

In his critique, Coase didn't consider that there was both an environmental and a labor component to Pigou's analysis. Pigou's analysis of the labor question was not reducible to the environmental one and relied at a key point on Sydney J. Chapman's theory of the hours of labor. I have discussed this in detail in "The Hours of Labour and the Problem of Social Cost."

I mention this to emphasize that the hours of work is not just some random, unconnected variable that I've pulled out of a hat. It is fundamental to the analysis of social cost. It stands to reason that it should also be fundamental to the resolution of problems arising from social cost shifting.

I have therefore proposed a friendly amendment to the cap and dividend proposition that I will provisionally call The Lump-of-Labor Rebound GHG Cap and Trade Remedy.

I will just sketch a rough outline of how such a policy might operate followed by some remarks on how it can be integrated with a community-based valuation of the "temporal commons":

According to our table above, there were 6.7 billion tons of GHGs emitted in the U.S. in 2011 and 225.6 hours worked. That same year the adult population in the U.S. was about 240 million. Suppose that the government adopted a target of cutting emissions by two-thirds by the year 2040. To do so would require a 3.7% annual reduction in greenhouse gas emissions.

The best greenhouse gas reduction on record (apart from economic fluctuations) in the period 1990 to 2011 was a little less than 2.5%. The average annual reduction was about 0.5%. Taking an average of the two gives a 1.5% reduction as something that is feasible but ambitious. To get from a 1.5% reduction to a 3.7% reduction would then require a reduction in aggregate hours of work of 2.2%.

Dividing the reduced hours number by the adult population produces an annual transferable hours credit of 936. If we assume that the labor force participation remained constant, the hours transferred from those outside of the labor force would raise the average annual hours of those in the labor force to 1460 hours, although it is conceivable that some recipients might chose to neither use nor transfer their credits. In that case, the hours reduction and the associated greenhouse gas reduction would be steeper than planned.

This is not to assume that the benchmark GHG reduction of 1.5% will occur automatically or that the further reduction in GHGs as a result the reduction of work hours will be proportional to the reduction of hours. These are targets only and there need to be programs put in place to try to meet them and monitoring to evaluate how successful those efforts were.

So far the discussion has focused on a policy that could only be implemented by a government with radically different priorities than those that any actually existing government of a wealthy industrial country has. It is a political Utopia. But the gist of this policy proposal is not restricted to a global emissions reduction strategy. My own research project began some 15 years ago by looking at collective bargaining practices and how they might be modified to promote job creation through the redistribution of working time.

One of the fruits of that project, "Time on the Ledger" examined how employment can be considered as a common-pool resource. A different valuation of benefits of leisure time and of unpaid work and of the costs of unemployment and of environmental damage could lead to a very different set of priorities in collective bargaining and those different goals could reignite a labor movement in place of a marginalized, ineffectual and increasingly irrelevant organized labor.

The New Charter of Industrial Freedom

The Image below is NOT the old "Charter of Industrial Freedom." It is instead an editorial by Samuel Gompers that appeared in the A.F. of L. Federationist lauding the labor provisions of the Clayton Antitrust Act as the Charter of Industrial Freedom -- an "industrial Magna Carta," no less! As Charters go, the memorable part was the proclamation in Section 6, "That the labor of a human being is not  a commodity or article of commerce." It was a noble sentiment but, as discussed previously, had negligible traction as legal doctrine.

For the New Charter of Industrial Freedom, I'm going to suggest something entirely different from lofty phrases and woolly intentions. In fact, I'm going to take liberties with the notion of a "Charter" and suggest something more akin to a chart of accounts than to a manifesto.

The trouble with manifestos or any other sort of persuasive journalism is that they are indelibly marked with the sign of the commodity. The popular press was no less a product of the new industrial conditions that emerged during the 19th century than were the boot polish, stomach pills or packaged cereals whose advertisements filled the columns of the newspapers.

Persuasion in the resulting "free market of idea" presupposes that there is indeed a market of idea, that it is free and that that is a good thing. The treatise, pamphlet, article, book or blog post thus takes its place proudly as a commodity on this market, confident that it will find just as many buyers as it is intrinsically worth. Or it takes its place grudgingly in some forlorn niche, resentful of the puffery and commercial pandering that  propels unworthy screeds to the top of the ideological heap.

Hold that thought while I check my stats to see if this has gone viral yet.

The point is that criticism cannot win the free-market-of-ideas lottery because even if it does momentarily that only goes to show that the lottery wasn't rigged after all. Catch 22. The manifesto affirms at the level of metalanguage what it denies manifestly.

Framing The New Charter of Industrial Freedom as a chart of accounts (with liturgical undertones) aims beyond superficial persuasion to deeper layers of inculcation, confession, calculation and reflection. I won't go into a detailed rationale here for the framing but instead will briefly reference a couple of sources that underlie that rationale: James Aho's The Religious, Moral and Rhetorical Roots of Modern Accounting and Rob Bryer's "Accounting and Control of the Labour Process."

Bryer wrote of a capitalist mentality, inculcated by the accounting process, which uses the accounting information to control the labor process and minimize costs “by holding the collective worker accountable for the rate of return on capital.” In its broader historical context, as recounted by Aho, that bookkeeping originated with a moral and confessional purpose quite distinct from the purposes and mentality that evolved from it. One might even say that the evolved capitalist mentality glorifies and defends precisely those motives and actions that bookkeeping was invented to expunge as sinful (see also Weber's pessimistic conclusion: "fate decreed the cloak should become an iron cage.").

Almighty and most merciful Auditor, We have followed most faithfully the devices and desires of our own pocketbooks. We have not strayed from thy bottom line. We have left unpaid those social costs which we could shift to others and we have amassed revenues from doing those things which we ought not to have done... And thereby we have successfully maximized return on investment and shareholder value. Amen!

This is not to chastise the capitalist mentality for moral hypocrisy, though, but only to stress the efficacy of the bookkeeping technology at focusing and refining the "devices and desires" of those who employ it. But it is only efficacious insofar as its objects are conceived as commodities. A counter-mentality -- whether it calls itself socialist, trade unionist, ecological or anti-capitalist -- cannot be founded on the commodity-principle derived from the capitalist bookkeeping. But neither can it be founded on pure negation.

In "Time on the Ledger," I have sketched a prototype of what such a social accounting process might look like. It is only an outline -- a stick-figure that can only be fleshed out through a broad collaborative effort. It is due to be published in May as Chapter 11 in Toward a Good Society in the Twenty-First Century: Principles and Policies. Also in May, I have been invited to participate in the Economics and the Commons Conference in Berlin.

What I proposed in "Time on the Ledger" is a social accounting framework for evaluating the net social productivity of different hours of work arrangements. The basic idea is that first, there are fixed social cost to labor that are not reflected in capitalist accounting and the way that employers can shed their labor costs by laying off workers and second, there is a technologically-determined optimal length of working time per worker exceeding which subtracts from net social product over the longer period. The information from this process can guide collective bargaining and public policy advocacy while at the same time inculcating a commons mentality in practitioners. It is not enough to translate back and forth between capitalist accounting perspective and a commons ideal. One must become fluent in a new social accounting language.

I would like to conclude these introductory remarks on the New Charter with a digression on prayer and confession. Karl Marx concluded his letter to Arnold Ruge of September 1843 with the following, "What is needed above all is a confession, and nothing more than that. To obtain forgiveness for its sins, mankind needs only to declare them for what they are." A confession! My little parody above was paraphrased from the general confession in the morning and evening prayer of The Book of Common Prayer. An entire book of commons prayer may be too ambitious an undertaking. But perhaps a reworking of that morning and evening prayer...

What appeals to me particularly about that liturgy is that it is performed as a dialogue between the minister and the congregation. It is, to be sure, a scripted and rehearsed dialogue -- a set piece, so to speak. Aside from any specific religious content, the ritual of this dialogue performs a vital centering purpose, opening up the mind and heart to a deeper level of receptiveness. It seems to me that such a centering ritual would be entirely appropriate for a group assembled to carry out a social accounting analysis.

Labor is (not) a Commodity

"Labour is a commodity like every other, and rises or falls according to the demand." – Edmund Burke
"Labour is not a commodity." – International Labour Organization, Declaration of Philadelphia
"We must now examine more closely this peculiar commodity, labour-power." – Karl Marx

Organized labor’s millennium lasted exactly six years, two months, two weeks and five days. On October 15, 1914, U.S. President Woodrow Wilson signed the Clayton Antitrust Act. Samuel Gompers, founding president of the American Federation of Labor, hailed the labor provisions of that law as "the most comprehensive and most fundamental legislation in behalf of human liberty that has been enacted anywhere in the world", "the foundation upon which the workers can establish greater liberty and greater opportunity for all those who do the beneficent work of the world" and the "industrial Magna Carta upon which the working people will rear their structure of industrial freedom." Gompers gushed that the words contained in Section 6 of the Act, "That the labor of a human being is not a commodity or article of commerce," were "sledge-hammer blows to the wrongs and injustices so long inflicted on the workers."

On January 3, 1921, in the case of Duplex Printing Press Co. v. Deering, the U.S. Supreme Court ruled that "there is nothing in the section to exempt such an organization [i.e., union] or its members from accountability where it or they depart from its normal and legitimate objects and engage in an actual combination or conspiracy in restraint of trade," thereby confirming an opinion long held by objective observers that the labor provisions of the Clayton Act didn't actually exempt unions from court injunctions. In the meanwhile, Gompers journeyed to Paris to lobby for virtually identical language in the Treaty of Versailles, affirming the official non-commodity status of workers everywhere: "Labour should not be regarded merely as a commodity or article of commerce." In 1944, the International Labour Organization reiterated as the first principle of its Declaration of Philadelphia that "Labor is not a commodity."

The everyday experience of working people, economic policies of governments, bargaining priorities of trade unions and theoretical models of economists refute the idealistic maxim that labor is not a commodity. An early rationale for the proposition was given in 1834 by William Longson of Stockport in his evidence to the House of Commons Select Committee on Hand-Loom Weavers:

…every other commodity when brought to market, if you cannot get the price intended, it may be taken out of the market, and taken home, and brought and sold another day; but if a day's labour is offered on any day, and is not sold on that day, that day's labour is lost to the labourer and to the whole community…

Longson concluded from these observations of labor's peculiarities that, "I can only say I should be as ready to call a verb a substantive as any longer to call labour a commodity."

Karl Marx was emphatic about the peculiar historical nature of labor – or, more precisely, labor-power – as a commodity. Rather than reject the label outright, though, he chose to examine it more closely. Marx observed that for labor-power to appear on the market as a commodity, the sellers must first be free to dispose of it (but only for a definite period) and also must be obliged to offer labor-power for sale because they are not in a position to sell commodities in which their labor is embodied.

Connecting Longson's observation to Marx's, it would seem as though, aside from moral strictures, one of the qualities that most distinguishes labor-power from other commodities – its absolute and immediate perishability – is what compels its seller to submit unconditionally to the vagaries of demand. To paraphrase Joan Robinson, the misery of being regarded as a commodity is nothing compared to the misery of not being regarded at all.

So if labor-power is not a commodity, or is only one due to peculiar and rather disagreeable circumstances, what is it, then? Consider the idea of labor-power as a common-pool resource. Labor-power can be distinguished from labor as the mental and physical capacity to work and produce use-values, notwithstanding whether that labor-power is employed. Labor, then, is what is actually performed as a consequence of the employment of a quantity of labor-power.

Human mental and physical capacities to work have elastic but definite natural limits. Those capacities must be continuously restored and enhanced through nourishment, rest and social interaction. "When we speak of capacity for labour," as Marx put it, "we do not abstract from the necessary means of subsistence." It is the combination of definite limits and of the need for continuous recuperation and replacement that gives labor-power the characteristics of a common-pool resource. As Paul Burkett explains, Marx regarded labor power not merely as a marketable asset of private individuals but as the "reserve fund for the regeneration of the vital force of nations". "From the standpoint of the reproduction and development of society," Burkett elaborates, "labor power is a common pool resource – one with definite (albeit elastic) natural limits."

"Common pool resource" is not the terminology Marx used; Burkett has adopted it from Elinor Ostrom's research. For Ostrom, common pool resources are goods that don't fit tidily into the categories of either private or public property. Some obvious examples are forests, fisheries, aquifers and the atmosphere. Relating the concept to labor is especially apt in that it illuminates, as Burkett points out, "the parallel between capital's extension of work time beyond the limits of human recuperative abilities [including social vitality], and capital's overstretching of the regenerative powers of the land." That parallel debunks the hoary jobs vs. the environment myth.

The basic idea behind common-pool resources has a venerable place in the history of neoclassical economic thought. It can't be dismissed as some socialistic or radical environmentalist heresy. In the second edition of his Principles of Political Economy, Henry Sidgwick observed that "private enterprise may sometimes be socially uneconomical because the undertaker is able to appropriate not less but more than the whole net gain of his enterprise to the community." In fact, from the perspective of the profit-seeking firm, there is no difference between introducing a new, more efficient production process and simply shifting a portion of their costs or risks onto someone else, society or the environment. The opportunities for the latter may be more readily available.

One example Sidgwick used to illustrate this was "the case of certain fisheries, where it is clearly for the general interest that the fish should not be caught at certain times, or in certain places, or with certain instruments; because the increase of actual supply obtained by such captures is much overbalanced by the detriment it causes to prospective supply." Sidgwick admitted that many fishermen may voluntarily agree to limit their catch but even in this circumstance, "the larger the number that thus voluntarily abstain, the stronger inducement is offered to the remaining few to pursue their fishing in the objectionable times, places, and ways, so long as they are under no legal coercion to abstain."

In the case of labor-power, "fishing in the objectionable times, places and ways" manifests itself in the standard practice of employers considering labor as a "variable cost." From the perspective of society as a whole, maintaining labor-power in good stead is an overhead cost. The point is not to preach that firms ought to treat the subsistence of their workforce as an overhead cost. That would no doubt be as effectual as proclaiming that labor is not a commodity. As with Sidgwick's fishery, a greater advantage would accrue to firms that didn't conform to the socially-responsible policy.

Ostrom explained the differences between various kinds of goods by calling attention to two features: whether enjoyment of the good subtracts from the total supply still available for consumption and the difficulty of restricting access to the good. Private goods are typically easy to restrict access to and their use subtracts from total available supply. Public goods are more difficult to restrict access to and their use doesn't subtract from what is available for others. Common-pool goods are similar to private goods in that there use subtracts from the total supply but they are like public goods in that it is more difficult to restrict access to them.

If it were merely a matter of selling to employers, then labor-power would have the uncomplicated characteristics of a private good. Working for one employer at a given time precludes working for another. Hypothetically, the worker can refuse to work for any particular employer thereby restricting access. But here we need also to contend with that peculiarity of labor-power noted by the silk weaver, William Longson that a day's labor not sold on the day it is offered is "lost to the labourer and to the whole community."

"If his capacity for labour remains unsold," Marx concurred, "the labourer derives no benefit from it, but rather he will feel it to be a cruel nature-imposed necessity that this capacity has cost for its production a definite amount of the means of subsistence and that it will continue to do so for its reproduction." This contingency and urgency of employment effectively undermines the worker's option of refusing work, so that in practice labor-power has the features of a common-pool good rather than of a private one. Collectively, the choice of refusing work is further weakened by competition from incrementally more desperate job seekers – a population Marx called "the industrial reserve army."

So is labor a commodity or is it not? The arch, paradoxical answer would be "both." Examined more closely, the capacity for labor – labor-power – reveals itself as a peculiar commodity that exhibits the characteristics of a common-pool resource rather than a private good. An actual Charter of Industrial Freedom must address these peculiar characteristics rather than bask contentedly in the utopian platitude that labor is not a commodity.

NEXT: The New Charter of Industrial Freedom

A Cheap Market Will Always Be Full of Customers

Arthur David [Schloss] Waley

The Way that can be told of is not an Unvarying Way;

The names that can be named are not unvarying names.

It was from the Nameless that Heaven and Earth sprang;

The named is but the mother that rears the ten thousand creatures, each after its kind.

Truly, “Only he that rids himself forever of desire can see the Secret Essences”;

He that has never rid himself of desire can see only the Outcomes.

These two things issued from the same mould, but nevertheless are different in name.

This “same mould” we can but call the Mystery,

Or rather the “Darker than any Mystery,”

The Doorway whence issued all Secret Essences. -- Tao Te Ching, Chapter One, translated by Arthur Waley

Arthur Waley -- who was Arthur Schloss until the outbreak of World War I led him to adopt his maternal grandfather's "non-alien" surname -- was the son of David F. Schloss, author of Methods of Industrial Remuneration, who, in 1891 coined the whimsical expression, the "Theory of the Lump of Labour."

Waley was a prolific translator of classical and historical Chinese and Japanese texts, including the Tao Te Ching and The Analects of Confucius. He translated the third saying of Book II of the Analects as:

Govern the people by regulations, keep order among them by chastisements, and they will flee from you, and lose all self-respect. Govern them by moral force, keep order by ritual and they will keep their self-respect and come to you of their own accord.

As Peter K. Yu explained, "Under the Confucian tradition, the Chinese lived by the concept of li (rites), rather than the concept of fa (law). While li covered a whole range of political, social, and familial relationships that encompassed a harmonious Confucian society, fa represented penal laws that were associated with punishment and the maintenance of public order." Waley discussed the meaning and role of ritual at length in his introduction to the Analects, observing:

Anthropologists are or were in the habit of trying to discover the 'real reasons' why particular injunctions or prohibitions were imposed among primitives. If the reason given by the people themselves seemed to them trivial or unintelligible they set it down as a rationalization or, alternatively, attributed it to secretiveness regarding the "real reason."

The truth, however, is that there is no 'real reason' for ritual acts. In any community where the performance of such acts is linked to a general system of thought, they will be explained in terms of that system. If the system changes, as frequently happen, without disturbing the ritual acts, they will be reinterpreted in terms of the new system.

I like that. No 'real reason' for ritual acts. They are just something that people keep doing. There is no doubt some intrinsic pleasure, satisfaction or relief that comes from the ritual acts' tautological appropriateness. One feels one has done the "right" thing when one has done the rite thing!

Waley's paraphrase of the first chapter of the Tao indicates a similar concern to Confucius with the inability of codified law -- accompanied by appropriate rewards and punishments assigned to deeds beneficial or harmful to the State -- to fully grasp the essences of things. "The Realist," he explained, "...sees only the 'ultimate results'... never the essences themselves."

In his 1891 article, "Why Working Men Dislike Piece Work," Arthur Waley's father, David F. Schloss, reported a conversation with a laborer making washers on piece work. "I know I am doing wrong," Schloss quotes him. "I am taking away the work of another man. But I have permission from the Society." It was to those italicized passages that Schloss assigned the name, "the Theory of the Lump of Labour."

But recall the Tao Te Ching admonition about "names that can be named are not unvarying names." The remarkable thing about the laborer referred to by Schloss is that he was working in violation of, not in conformity to, the dictates of his supposed theory and, furthermore, he had permission from his union to do so. This unnamed washer-boring workman has the distinction of being one of the very few individuals whose spoken words (whether authentic or apocryphal) have been cited in evidence of a belief in the alleged lump-of-labour theory. By contrast, Tom Mann, a prominent agitator for the eight-hour day, "looked for the absorption of the unemployed by the distribution of work; while disclaiming the fallacy that there is only a fixed amount of work to be done."

In fact, disclaiming the alleged fallacy had been honed to a fine edge decades before Schloss coined the quaint 'lump-of-labour' sobriquet. The transactions of a miners' conference held at Leeds in 1863 contained an introductory report that astutely mocked the hypocrisy of political economists and employers who, on the one hand, decried the "ignorance and folly" of those who would attempt to regulate grievously long hours, which were supposedly the "infallible and inevitable result of demand and supply" while "constantly telling the men that wages must be reduced in consequence of over-supply [of labor]." Meanwhile, the coal-owners themselves maintained restrictions on the production of coal -- known as "the limitation of the vend" -- from 1771 to 1845.

"Unvarying" is the supposed quantity of labor to be performed, allegedly assumed by the typically anonymous offender against the fallacy taboo.

At the bottom of these contrivances for artificially increasing the amount of employment, there seems to lurk the fallacy of supposing that the labour required to be done in any department of trade, or in the country generally, is a fixed quantity; therefore, in order to secure an aliquot portion of it to the greatest number, the labour must be spread out thin. The teaching of sound Political Economy is directly the reverse of this.

wrote the author of an article on Trades Unions in the Edinburgh Review of 1867.

The League is only an offshoot of the Unions... Their theory is 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.

wrote the London correspondent to the New York Times in 1871.

The root of the mania which has had such a disastrous effect on the material prosperity of the country, and, above all, of the working classes, is the idea that the amount of work to be done is a fixed quantity, quite independent of any efforts which may be made to encourage and stimulate demand, and that, therefore, the best course is to spread it thin in order to make it go as far as possible.

is how the author of an article in The Saturday Review of Politics, Literature, Science and Art put it in 1876.

"These people think that the amount of work to be done is a fixed quantity." "If we are to proceed on the assumption that the amount of work to be done is a fixed quantity..." "The theory of the Lump of Labour will be seen to rest upon the utterly untenable supposition that a fixed amount of work exists." "But there is not, as this argument assumes, a fixed Work-Fund, a certain amount of work which has to be done, whatever the price of labour." "The Leaders of the Federation said that there was a certain amount of work to be done in Atlantis..." "The notion is that there is exactly so much labor predetermined to be done; therefore, if machines are introduced, there is that much less for men to do..." "This means, roughly speaking, that there is a certain total number of hours of work to be done each week." "This view -- that the amount of work to be done is fixed -- is called the lump-of-labor fallacy." "Very similar to the general overproduction fallacy is the erroneous belief that there is only a certain amount of work in the community to be done..."

"At the bottom of these contrivances..."

"We have touched the fallacy which lies at the bottom of this whole system..."

"The real question which lies at the bottom of the dispute..."

"The root of the mania..."

Getting to the bottom of the fallacy claim took 15 years of patient, persistent inquiry. The economists who pedantically recite the fallacy claim and insist upon its authority know nothing of its origins (or, for that matter, its subsequent career)! The lump-of-labour label was a late Victorian addendum that alluded impishly to the colloquial term for a kind of labor sub-contracting, "lump work," which explicitly specified the amount of work to be done as a fixed quantity. Henry Mayhew chronicled the practice in his mid-century reportage on "London Labour and the London Poor":

It is this contract or lump work which constitutes the great evil of the carpenter's, as well as of many other trades; and as in those crafts, so in this, we find that the lower the wages are reduced the greater becomes the number of trading operatives or middlemen...

"Lump" work, "piece" work, work by "the job," are all portions of the contract system. The principle is the same. "Here is this work to be done, what will you undertake to do it for?"

So, if lump work was by definition "a fixed amount of work to be done" from whence does the "fallacy" arise? The lump-of-labour and its antecedent, lump work, turn out to be blind alleys. The origin of the fallacy claim had to do with the introduction of machinery rather than with piece-work or working time (not to mention immigration or early retirement). Dorning Rasbotham, a magistrate in the county of Lancashire, England, published a pamphlet, "Thoughts on the Use of Machines in the Cotton Manufacture," in 1780 in response to rioting that had occurred the previous year near Blackburn. In it, on page 18, occurs what appears to be the seminal instance of the fallacy claim, expressed in words unmistakably paraphrased by the now standard "fixed amount of work to be done":

Dorning Rasbotham, Esq.

"There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them. But if now machines perform a larger share than before, suppose one fourth part, so many hands as are necessary to work that fourth part, will be thrown out of work, or suffer in their wages. The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers. Men will cross land and sea to go thither."

Although virtually forgotten today, Rasbotham's pamphlet was well-enough known in the early 19th century for his views to have been cited with admiration by John R. M'Culloch in an 1827 Edinburgh Review article on the cotton industry:

Dorning Rasbotham, Esq., a magistrate near Bolton, printed some time about the period referred to, a sensible address to the weavers and spinners, in which he endeavoured to convince them that it was for their interest to encourage inventions for abridging labour. The result has shown the soundness of Mr Rasbotham's opinion.... There is, in fact, no idea so groundless and absurd, as that which supposes that an increased facility of production can under any circumstances be injurious to the labourers.

Unlike David Schloss's account, more than a century later, of a conversation with a workman who subscribed to the Theory of the Lump of Labour, Rasbotham's pamphlet presented no indication of who "they" were who allegedly said there was "a certain quantity of labour to be performed." But it would be rash to judge his argument solely on this singular lack of evidence. Indeed, a careful reading of the pamphlet reveals this supposedly "sensible address to the weavers and spinners" to be a smug, patronizing exercise in diminishing the actual grievances of the working population while extolling the abstract virtues of trade and technology detached from the circumstances of their employment by the rich. The author who on the first page styles himself "from the bottom of my heart, a Friend to the Poor," concludes his peroration berating his erstwhile "friends" for their improvidence and their propensity to "carry their money to the Alehouse" rather than seize the burgeoning opportunities for self improvement. The real core of Squire Rasbotham's argument, though, occurs in the fourth of seven enumerated principles:

It is the use of Machines, which chiefly distinguishes men in society from men in a savage state. Some have thought it no bad description of a human being, that he is a tool-making, or a machine-making animal. What are the most common instruments or furniture of our houses, but machines to shorten labour? What is an ax, a hammer, a saw, a pair of bellows, but machines for this end? [...] If we must go upon the principle of having no machines, we must pull them all down, and bruise our corn in Mortars. -- What do I say? The Mortar and Pestle are machines for shortening labour. We mull crush our corn between two stones, or beat out the flour with sticks.

It is just such a disquisition as this Marx had in mind in the section in volume one of Capital titled, "The Theory of Compensation as Regards the Workpeople Displaced by Machinery," where he presented his parody of Bill Sikes, the villain from Oliver Twist, addressing the jury:

Gentlemen of the jury, no doubt the throat of this commercial traveler has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the knife? Only consider! Where would agriculture and trade be without the knife? Is it not as beneficial in surgery as it is in anatomy? And in addition a willing help at the festive table? If you abolish the knife — you hurl us back into the depths of barbarism.

Marx's point, of course, was that it was not the machines that threw people out of work, any more than it was the knife that cut the throat of the traveling salesman. It was how the machines were used by those who owned them that threw people out of work. Similarly, the argument advanced by M'Culloch, James Mill, Robert Torrens, Nassau Senior and John Stuart Mill -- that "all machinery that displaces workmen, simultaneously and necessarily sets free an amount of capital adequate to employ the same identical workmen" -- was groundless. Instead,

The labourers that are thrown out of work in any branch of industry, can no doubt seek for employment in some other branch. If they find it, and thus renew the bond between them and the means of subsistence, this takes place only by the intermediary of a new and additional capital that is seeking investment; not at all by the intermediary of the capital that formerly employed them and was afterwards converted into machinery.

Note that Marx's specification of the necessity of "new and additional capital" is not at all the same thing as assuming that there is a fixed amount of work to be done. There is more work to be done; but whether or not it is done depends on additional investment. As Keynes phrased it some 60 years later, the economic system is not "self-adjusting" as assumed by "almost the whole body of organized economic thinking and doctrine of the last hundred years."

This self-adjusting, automatically-compensating for displacement doctrine made a notable appearance in William Stanley Jevons's speculations regarding The Coal Question and thus has implications for contemporary debates about energy consumption, conservation and climate change. Jevons maintained that, "It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth [emphasis in original]." He went on to explain:

William Stanley Jevons

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.

If we are to subscribe to Marx's and Keynes's refutation of the self-adjusting, compensation principle, the 'good news' is that increasing energy efficiency doesn't necessarily lead to increased consumption, as the Jevons Paradox or 'rebound effect' implies. The bad news, though, is that it also doesn't apply to employment and whatever we might do to expand overall employment may increase the consumption of energy. This new dilemma may seem thornier than the Jevons Paradox itself unless we realize that it only applies to a conventionally codified conception of employment.

'Kick-starting the Recovery': An Open Letter to Jonathan Portes, Part II

Below is my response to Jonathan Portes's reply to my open letter of June 23. Jonathan Portes's reply to my first letter is reproduced with permission.

"Kick-starting the Recovery": An Open Letter to Jonathan Portes

Dear Jonathan Portes,

As someone who has researched the lump-of-labour fallacy extensively -- and published academic articles on it -- I am constantly on the look out for proponents of the fallacy claim who might be persuaded to reconsider their views in light of the overwhelming historical evidence to the contrary. I have no illusions. I expect to be disappointed in my quest. Surprise me!

“The full-employment policy by means of investment”, Maynard Keynes explained to T.S. Eliot in a letter written towards the end of World War II, “is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less." Keynes's biographer and your fellow panelist this coming Tuesday at the After Austerity event, Lord Robert Skidelsky, is familiar with this statement by Keynes and has cited it several times.

In a post at your Not the Treasury View blog this past January, you remarked that you thought explaining the lump-of-labour fallacy to Secretaries of State for Work and Pensions was "probably the most useful thing I did, from a public policy perspective, in my six years as Chief Economist at Department for Work and Pensions." Are you aware that the "intellectual theorem" Keynes advanced directly repudiated the argument underlying the lump-of-labour fallacy claim?

In reply to a comment on that blog post, you further observed that it was a "great puzzle" why productivity-enhancing technologies in the U.S. haven't led people to work less and take more leisure. It seems to me that the puzzle dissolves as soon as one realizes the radical antithesis between Keynes's intellectual theorem and the fallacy claim.

What was Keynes's 'intellectual theorem'? In the simplest possible terms, it is the answer "No" to the question "Is the Economic System Self-Adjusting?" Keynes elaborated on that theme in a 1934 BBC radio address whose title asked that question:

Put very briefly, the point is something like this. Any individual, if be finds himself with a certain income, will, according to his habits, his tastes and his motives towards prudence, spend a portion of it on consumption and the rest he will save. If his income increases, he will almost certainly consume more than before, but it is highly probable that he will also save more. That is to say, he will not increase his consumption by the full amount of the increase in his income. Thus if a given national income is less equally divided, or if the national income increases so that individual incomes are greater than before, the gap between total incomes and the total expenditure on consumption is likely to widen.

Up to a point, the gap between total incomes and total expenditures on consumption can be made up by investment in capital goods -- but only insofar as business calculates that it would be profitable to do so. Eventually,

When the rate of interest has fallen to a very low figure and has remained there sufficiently long to show that there is no further capital construction worth doing even at that low rate, then I should agree that the facts point to the necessity of drastic social changes directed towards increasing consumption. For it would be clear that we already had as great a stock of capital as we could usefully employ.

Here, then, were two of the three applications of the intellectual theorem: promoting increased investment through fiscal and monetary policy and promoting increased consumption by "increasing the share of income failing to those whose economic welfare will gain most by their having the chance to consume more." The third application, working less, Keynes alluded to in his 1930 essay on "Economic Possibilities for our Grandchildren" and again in a 1943 Treasury Department memorandum on "The Long-Term Problem of Full Employment" as an effective alternative to increased consumption, "As the third phase comes into sight; the problem stressed by Sir H. Henderson begins to be pressing. It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."

What is the 'lump-of-labour fallacy' claim? This is a more difficult question to answer because the real argument hides behind a false accusation that the advocates of some policy or other "assume that there is a fixed amount of work." There is no evidence or logical necessity for such a static assumption. All that needs to be assumed is a gap between total incomes and total expenditures on consumption and investment in capital goods -- something that Keynes stated explicitly. The real argument of fallacy claimants is thus that there is no gap between income and expenditure, that the economic system adjusts automatically.

Perhaps it would be useful to go back to the earliest-known instance of the fallacy claim for a more complete statement of the argument. It was presented in a 1780 pamphlet, "Thoughts on the Use of Machines in the Cotton Manufacture," written by a Lancashire magistrate, Dorning Rasbotham:

There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them. But if now machines perform a larger share than before, suppose one fourth part, so many hands as are necessary to work that fourth part, will be thrown out of work, or suffer in their wages. The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers.

The first thing to note about Rasbotham's fallacy claim is that he didn't name those who allegedly say there is a "precise limited quantity of labour" to be performed. The anonymity of those who allegedly commit the fallacy became a standard feature of subsequent versions of the fallacy claim -- presumably because it is extremely difficult to find anyone who actually says there is a fixed amount of work to be done. The amount of work doesn't have to be "fixed" for there to be a gap between the supply of labour and the demand for it (or, what amounts to the same thing, between total incomes and total expenditures). One can readily concede that "a cheap market will always be full of customers" without concluding from it that the cheap market will automatically absorb all the income available.

The great productivity/leisure 'puzzle.' In his 1934 radio address, Keynes advocated a long-run policy that he thought would tend "to make capital goods so abundant that the reward that can be gained from owning them falls to so modest a figure as to be no longer a serious burden on anyone." Today we have an abundance of capital goods, yet the reward gained from owning them falls to a tiny minority of the population. What might explain that discrepancy between prediction and actuality? Policy makers seem to have accepted Keynes's argument that the economic system is not self-adjusting but they have rejected two of the three applications of his intellectual theorem. As he told Eliot, Keynes regarded the investment policy as "first aid" and working less as the "ultimate solution." "How you mix up the three ingredients of a cure is a matter of taste and experience, i.e. of morals and knowledge."

But what if the "taste and experience" of policy makers (or of those they answer to) was to not permit the reward from owning capital goods to fall to a modest figure?

Are the policy prescriptions for economic stimulus put forward in the name of Keynes consistent with Keynes's own thought? Are they even coherent? Might the decades-long hiatus in North America in the historical decline of the hours of work have been policy-induced? If so, what have been the social and environmental consequences? Is the one-dimensional version of Keynesianism sustainable even in terms of the narrow goal of economic growth?

I think the answer to the last question is clear: "No."

Returning to your January blog post and comments, you concluded your reply to Luke Lea's comment with the point that "that working shorter hours doesn't in itself create (or destroy) jobs for anyone else." Taken literally, that may be correct. Simply reducing or increasing hours doesn't necessarily do anything -- in itself. Similarly, reducing or increasing prices or the supply of any particular good doesn't in itself result in a change in employment or anything else for that matter. It's not the hours alone we should be concerned with, though. There are also the connections between hours of work and income distribution, productivity, worker well being, education and motivation, and a multitude of other factors.

In a 1932 article in The Journal of Political Economy, Dorothy W. Douglas extolled Ira Steward's eight-hour theory as a "philosophy of American wages and unemployment that sounds strangely apposite today." What impressed Douglas most about Steward’s theory was his argument that unemployment and low wages lay at the root of economic depressions. According to Steward (in Douglas’s words), capitalists "assume that just a little surplus labor is good for business." Too much unemployment would be an inconvenience and even a scandal. But employers welcome just enough unemployment to discourage demands for higher wages. The problem is "just a little surplus labor" tends to get out of hand. Once the genie of unemployment is out of the bottle, it is hard to get it back in again. Steward's theory was, of course, denounced by critics as a lump of labour fallacy.

It seems to me that we have come to the end of an era where advocates of Keynesian fiscal and monetary stimulus could, with impunity, disparage alternative applications of his intellectual theorem. There is a fundamental inconsistency in being opposed to austerity but at the same time maintaining, incongruously, that the economic system is somehow self-adjusting with regard to the hours of work and income distribution. The wheels are coming off that particular bandwagon.

Sincerely,

Tom Walker