■New Haven, Connecticut: Yale University Press, 1949.
men; which requires, for its exercise, a politico-economic system that protects the individual’s rights and freedom.
The productive value of physical labor as such is low. If the worker of today produces more than the worker of fifty years ago, it is not because the former exerts more physical effort; quite the contrary: the physical effort required of him is far less. The productive value of his effort has been multiplied many times by the tools and machines with which he works; they are crucial in determining the economic worth of his services. To illustrate this principle: consider what would be a man’s economic reward, on a desert island, for pushing his finger the distance of half an inch; then consider the wages paid, for pushing a button, to an elevator operator in New York City. It is not muscles that make the difference.
As Ludwig von Mises observes:
American wages are higher than wages in other countries because the capital invested per head of the worker is greater and the plants are thereby in the position to use the most efficient tools and machines. What is called the American way of life is the result of the fact that the United States has put fewer obstacles in the way of saving and capital accumulation than other nations. The economic backwardness of such countries as India consists precisely in the fact that their policies hinder both the accumulation of capital and the investment of foreign capital. Aa the capital required is lacking, the Indian enterprises are prevented from employing sufficient quantities of modern equipment, are therefore producing much less per man hour and can only afford to pay wage rates which, compared with American wage rates, appear as shockingly low.6
In a free-market economy, employers must bid competitively for the services of workers, just as they must bid competitively for all the other factors of production. If an employer attempts to pay wages which are lower than his workers can obtain elsewhere, he will lose his workers and thus will be compelled to change his policy or go out of business. If, other things being equal, an employer pays wages which are above the market level, his higher costs will put him at a competitive disadvantage in the sale of his products, and again he will be compelled to change his policy or go out of business. Employers do not lower wages because
* Ludwig von Mises, Planning for Freedom, 2nd edition, South Holland, Illinois: Libertarian Press, 1962, pp. 151-152.
they are cruel, nor raise wages because they are kind. Wages are not determined by the employer’s whim. Wages are the prices paid for human labor and, like all other prices in a free economy, are determined by the law of supply and demand.
Since the start of the Industrial Revolution and capitalism, wage rates have risen steadily—as an inevitable economic consequence of rising capital accumulation, technological progress, and industrial expansion. As capitalism created countless new markets, so it created an ever-widening market for labor: it multiplied the number and kinds of jobs available, increased the demand and competition for the worker’s services, and thus drove wage rates upward.
It was the economic self-interest of employers that led them to raise wages and shorten working hours—not the pressure of labor unions. The eight-hour day was established in most American industries long before unions acquired any significant size or economic power. At a time when his competitors were paying their workers between two and three dollars a day, Henry Ford offered five dollars a day, thereby attracting the most efficient labor force in the country, and thus raising his own production and profits. In the 1920’s, when the labor movement in France and Germany was far more dominant than in the United States, the standard of living of the American worker was greatly superior. It was the consequence of economic freedom.
Needless to say, men have a right to organize into unions, provided they do so voluntarily, that is, provided no one is forced to join. Unions can have value as fraternal organizations, or as a means of keeping members informed of current market conditions, or as a means of bargaining more effectively with employers—particularly in small, isolated communities. It may happen that an individual employer is paying wages that, in the overall market context, are too low; in such a case, a strike, or the threat of a strike, can compel him to change his policy, since he will discover that he cannot obtain an adequate labor force at the wages he offers. However, the belief that unions can cause a general rise in the standard of living, is a myth.
Today, the labor market is no longer free. Unions enjoy a unique, near-monopolistic power over many aspects of the economy. This has been achieved through legislation which has forced men to join unions, whether they wished to or not, and forced employers to deal with these unions, whether they wished to or not. As a consequence, wage rates in many mdustries are no longer determined by a free market; unions
have been able to force wages substantially above their normal market level. These are the “social gains” for which unions are usually given credit In fact, however, the result of their policy has been (a) a curtailment of production, (b) widespread unemployment, and (c) the penalizing of workers in other industries, as well as the rest of the population.
(a) With the rise of wage rates to inordinately high
levels, production costs are such that cutbacks in production
are often necessary, new undertakings become too expensive,
and growth is hindered. At the increased costs, marginal
producers—those who have been barely able to compete in
the market—find themselves unable to remain in business.
The overall result: goods and services that would have been
produced are not brought into existence.
(b) As a result of the high wage rates, employers can
afford to hire fewer workers; as a result of curtailed produc
tion, employers need fewer workers. Thus, one group of
workers obtains unjustifiably high wages at the expense of
other workers who are unable to find jobs at all. This—in
conjunction with minimum wage laws—is the cause of wide
spread unemployment Unemployment is the inevitable result
of forcing wage rates above their free-market level. In a free
economy, in which neither employers nor workers are subject
to coercion, wage rates always tend toward the level at which
all those who seek employment will be able to obtain it. In a
frozen, controlled economy, this process is blocked. As a
result of allegedly “pro-labor” legislation and of the monopo
listic power that labor unions enjoy, unemployed workers are
not free to compete in the labor market by offering their
services for less than the prevailing wage rates; employers are
not free to hire them. In the case of strikes, if unemployed
workers attempted to obtain the jobs vacated by union
strikers, by offering to work for a lower wage, they often
would be subjected to threats and physical violence at the
hands of union members. These facts are as notorious as they
are evaded in most current discussions of the unemployment
problem—particularly by government officials.
(c) When market conditions are such that producers
whose labor costs have risen, cannot raise the prices of the
goods they sell, a curtailment of production results, as indi
cated above; and the general population accordingly suffers a
loss of potential goods and services. (The notion that pro
ducers can “absorb” such wage increases, by “taking them
out of profits,” without a detriment to future production, is
worse than economically naive; it is profits that make future
production possible; the amount of profits that go, not into
investment, but into the producer’s personal consumption, negligible in the overall economic context.) To the exte that market conditions do allow, producers whose labor co: have risen are obliged to raise the prices of their gooc Then, workers in other industries find that their living cos have gone up, that they must now pay higher prices for £ goods they purchase. Then, they in turn demand a raise their industries, which leads to new price rises, which leads new wage increases, etc. (Union leaders typically expre indignation whenever prices are raised; the only prices thi consider it moral to raise are the prices paid for labor, i.i wages.) Non-unionized workers, and the rest of the popul tion generally, face this same steady rise in their living cosl they are made to subsidize the unjustifiably high wages i union workers—and are the unacknowledged victims of tl unions’ “social gains.” And one observes the spectacle bricklayers receiving two or even three times the salary i office workers and professors.
It cannot be sufficiently emphasized that it is not unionis as such but government controls and regulations which mal this state of affairs possible. In a free, unregulated econom in a market from which coercion is barred, no econom group can acquire the power so to victimize the rest of tl population. The solution does not lie in new legislation direc ed against unions, but in the repeal of the legislation th made the present evil possible.