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Labour market reform and the dismal failure of the HR Nicholls Society
Gerard Jackson
Mr Ray Evans, President of the HR Nicholls Society, contends “that Henry Bourne Higgins has reached out from his grave and has turned J W Howard on his head”. Moreover, he charges the Howard Government of accepting “the Marxist dogmas which inspired the trade union movement of the 1880s and 1890s”. He concluded with the allegation that the imbalance-of-power argument used to justify ‘collective bargaining’ is the last remnant of a “Marxist class-war mindset”.
Unionism in the English speaking world in the 1880s and 1890s was no more inspired by Marxism than was Chartism in the 1840s. This is not the first time that Mr Evans has asserted “that the entire regulatory edifice of unions, tribunals, employer bodies, is based on the Marxian fallacy of class struggle, which legitimised trade union violence not only against employers and capitalists”.
Unfortunately for his argument wage tribunals, strikes and union violence long preceded the birth of Marx. The 1563 Elizabethan Artificers Act which set wages under a range of conditions springs to mind when I think of wage-fixing tribunals.
Under the Stuarts wage-fixing boards were seen as a means of protecting the poor against exploitation by providing them with a living wage. Breaches of the regulations were sometimes dealt with by the Privy Council. In one instance a clothier was imprisoned for paying his workers less than the legal rate. He was not released until he had fully reimbursed them. It wasn’t until about the 1770s that wage-rate setting finally fell into disuse.
Strikes were a common feature of the eighteenth century and were not only well-known in Tudor and Stuart times as well but were reported as also happening in medieval times. As for the eighteenth century, there was the 1720 wool-combers’ strike in Tiverton which turned very nasty, with an equally nasty recurrence in 1749.
Lancashire witnessed some very violent industrial outbreaks in 1758. Between 1760 and 1770 a great many strikes took place, of which quite a few were particularly violent. But as the Historian T. S. Ashton noted: “There seems to have been little or no social theory in the minds of the rioters and very little class consciousness in the Marxist sense of the term”. (Italics added).
Of course some would argue that the nineteenth century brought about a sense of class consciousness that was absent in earlier centuries. But I doubt if anyone would argue that the strikes of 1824 and 1825 were inspired by the revolutionary writings of a precocious 6-year-old Karl Marx.
This brief diversion into economic history was necessary to expose the fallacy of blaming industrial disputation and wage-setting on Marxist thinking. These things were with us centuries before Marx and they will probably still be with us in one form or another many centuries after he is thankfully forgotten.
At the root of the problem is the view that wage rates and profits are indeterminate, meaning that there is no fixed point at which wage rates cause unemployment. We even find Adam Smith sounding like an eighteenth century Justice Henry Bourne Higgins with his opinion that labourers
should receive a wage sufficient at least to support a standard of living that allows them to participate actively and fully in the community. (Wealth of Nations, LibertyClassics edition 1981)
Irrespective of what Mr Evans thinks it was clearly Adam Smith who fathered the “imbalance of power” idea and not Marx. According to Smith:
It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into compliance with their terms. (Ibid.)
So we have it from the alleged ‘Father of Economics’: labour is always at a disadvantage that can be corrected only by collective action. Furthermore, Smith argued that the capitalists’ advantage was due to them being “fewer in number”?
However, on reading Smith carefully we find that he contradicted himself on this subject. Although he argued on page 85 of the same edition that in any dispute the “master must generally have the advantage”, he declared in the next sentence that there is
a certain wage rate below which it seems impossible to reduce, for any considerable time, the ordinary wages even of the lowest species of labour.
This, in my opinion, is an admission that wage rates cannot be permanently forced below their market clearing levels. This is something the thoroughly perplexed Crown discovered in England after the Black Death struck as evidence by the Statute of Labourers Acts of 1349 and 1351.
Unfortunately Smith’s confusion on wage rate determination helped to contribute to the notion of indeterminacy, an idea that even some classical economists had adopted to some degree by the 1860s. Mill’s apparent rejection in 1869 of the wage-fund theory of wages combined with William Thomas Thornton’s attack on competition led him to accept the idea of indeterminacy.
However, the sudden emergence of marginalism in the 1870s eventually turned the tide. Nevertheless, it’s the vague idea of indeterminacy that leads many people to still think that unions can raise real wages for everyone.
Now we have the Cambridge school which has been arguing for decades that wages and the “rate of profit” are indeterminate, which leads to the conclusion that profits can be squeezed with impunity. According to this perspective economics has nothing to say about wage rate determination. And this is basically what Dr Steve Keen (a post-Keynesian) meant when he wrote that
...neoclassical economics simply cannot explain anything: neither the level of employment, nor output, nor, ultimately, what determines the real wage” (Debunking Economics: The Naked Emperor of the Social Sciences>, Pluto Press 2001).
It is glaringly obvious that the unions’ argument is based on indeterminacy and not Marxism. According to Marx labour is the sole source of value and therefore profit is the rotten fruit of exploitation. In other words profit is theft. On the other hand, the indeterminacy argument merely assumes that labour’s services are not being fully rewarded, and that by forcing wage rates up unions and other wage-fixing agencies are righting an economic injustice.
Unfortunately the nature of the unions’ argument continues to elude Australia’s self-appointed guardians of the market. I have lost count of the number of times I have tried to draw attention to what the unions are really arguing –– all to no avail. It seems that the self-appointed spokesmen of the right are deaf to everything except the sound of their own voices.
No wonder Ray Evans and the rest of the crew at the HR Nicholls Society can’t hit the target. They don’t even know what it looks like — let alone where it is.
Labour Market Wars contains 33 articles dealing with wages, unions and indeterminacy.
Gerard Jackson is Brookes’ economics editor
BrookesNews.Com
Monday 2 January 2006