Gerard Jackson
BrookesNews.Com
Monday 5 January 2004

The hostility of most Australian intellectuals to the free market and the very idea of profits is not merely a reflection of a deep rooted ignorance of market processes but a manifestation, in my opinion, of atavistic tribal instincts.

The inability to conceive of spontaneous order that Smith's much maligned metaphor summed up so brilliantly*. Marry these atavistic instincts to envy and you spawn a particularly nasty breed of intellectual, of which Bob Ellis is an excellent example.

Like most of his ideological ilk, Ellis seems to believe that his socialist faith automatically qualifies him to write on economics, despite his appalling ignorance of the subject. The Age, another of our left-wing rags, gave him the opportunity to vent his socialist spleen in a grossly ill-informed anti-market article which was particularly bad, even for this mediocre intellect. Though his article was written sometime ago, it's theme is popular among leftists.

He started with the statement that shortages of all kinds in the gloriously defunct Soviet Empire were seen by its critics as "a sign of a political system that was evil." Complete drivel. It was the secret police, the gulag, torture chambers, mass graves and the calculated murder of millions of men women and children that condemned the regime as evil, not bread queues. But this is one aspect of that regime the Ellis neglected to mention. We soon see why.

Ellis complained about the amount of time he has to spend queuing, even for little things, which, you guessed it, he blames on the free market. Defining the Soviet union as evil because of queuing allowed him to define the Australian economic 'system' as evil for the same reason. Why? Because, according to this profound economic theorist, queues mean that profits are being inflated by not putting enough people to work.

Economics teaches that surpluses are created by raising prices above their market clearing levels. The same goes for labour, only labour surpluses are called unemployment. When firms cannot hire sufficient labour because the costs of doing so have been raised above their market clearing values they will need to adopt compensatory measures.

In the case of labour intensive services one such measure would be forcing customers to queue. Ellis related how in cheap Asian resorts "waiters and porters swarm all around you," unlike Australia. That this is so because Asian labour markets are allowed to clear and wages tend to be low because there is an abundance of labour relative to the capital structure is something that never occurred to Ellis.

As countries become more capital intensive real wages rise. At the same time many labour intensive occupations tend to disappear as the rising cost of labour forces firms to adopt alternatives while others are forced to pay much higher wage rates. This is why Swiss waiters get paid a lot more than Asian waiters and porters, Mr Ellis. The disappearance of lift attendants is a simple example of how capital accumulation effects the demand for labour in certain occupations. Here the rising cost of labour forced firms to employ labour economising techniques by automating the lifts.

It is not the fault of profits that many people cannot get work, it's because Bob Ellis' union mates and their political allies have made it unprofitable to hire these people that they remain unemployed. According to Ellis: "A society with queues [tolerates unemployment] is a bad society. A society in decay. An evil society, perhaps [even though it doesn't murder its citizens, Mr Ellis?]". But Society never puts people out of work, other people do that — and those other people are Ellis' unioncrats.

If, Mr Ellis, creating widespread permanent unemployment is evil, then we now know where to find the culprits, don't we?

*The phrase "invisible hand" was actually coined by the English writier Joseph Glanville in his book The Vanity of Dogmatising, 1661

Gerard Jackson is Brookes' economics editor