Economics in One Lesson

do not, in the long run and for the whole body of workers,
increase real wages at all
.
4
The belief that they do so rests on a series of delusions. One of
these is the fallacy of
post hoc ergo propter hoc,
which sees the enormous
rise in wages in the last half century, due principally to the growth of
capital investment and to scientific and technological advance, and
ascribes it to the unions because the unions were also growing during
this period. But the error most responsible for the delusion is that of
considering merely what a rise of wages brought about by union
demands means in the short run for the particular workers who retain
their jobs, while failing to trace the effects of this advance on employ-
ment, production and the living costs of all workers, including those
who forced the increase.
One may go further than this conclusion, and raise the question
whether unions have not, in the long run and for the whole body of
workers, actually prevented real wages from rising to the extent to
which they otherwise might have risen. They have certainly been a
force working to hold down or to reduce wages if their effect, on net
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Economics in One Lesson
balance, has been to reduce labor productivity; and we may ask
whether it has not been so.
With regard to productivity there is something to be said for
union policies, it is true, on the credit side. In some trades they have
insisted on standards to increase the level of skill and competence.
And in their early history they did much to protect the health of their
members. Where labor was plentiful, individual employers often
stood to gain by speeding up workers and working them long hours
in spite of ultimate ill effects upon their health, because they could
easily be replaced with others. And sometimes ignorant or short-
sighted employers would even reduce their own profits by overwork-
ing their employees. In all these cases the unions, by demanding
decent standards, often increased the health and broader welfare of
their members at the same time as they increased their real wages.
But in recent years, as their power has grown, and as much misdi-
rected public sympathy has led to a tolerance or endorsement of anti-
social practices, unions have gone beyond their legitimate goals. It was
a gain, not only to health and welfare, but even in the long run to pro-
duction, to reduce a seventy-hour week to a sixty-hour week. It was a
gain to health and leisure to reduce a sixty-hour week to a forty-eight-
hour week. It was a gain to leisure, but not necessarily to production
and income, to reduce a forty-eight-hour week to a forty-four-hour
week. The value to health and leisure of reducing the working week
to forty hours is much less, the reduction in output and income more
clear. But the unions now talk, and often enforce, thirty-five- and
thirty-hour weeks, and deny that these can or should reduce output or
income.
But it is not only in reducing scheduled working hours that union
policy has worked against productivity. That, in fact, is one of the least
harmful ways in which it has done so; for the compensating gain, at
least, has been clear. But many unions have insisted on rigid subdivi-
sions of labor which have raised production costs and led to expensive
and ridiculous “jurisdictional” disputes. They have opposed payment
on the basis of output or efficiency, and insisted on the same hourly
rates for all their members regardless of differences in productivity.
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They have insisted on promotion for seniority rather than for merit.
They have initiated deliberate slowdowns under the pretense of fight-
ing “speedups.” They have denounced, insisted upon the dismissal of,
and sometimes cruelly beaten, men who turned out more work than
their fellows. They have opposed the introduction or improvement of
machinery. They have insisted on make-work rules to require more
people or more time to perform a given task. They have even insisted,
with the threat of ruining employers, on the hiring of people who are
not needed at all.
Most of these policies have been followed under the assumption
that there is just a fixed amount of work to be done, a definite “job
fund” which has to be spread over as many people and hours as pos-
sible so as not to use it up too soon. This assumption is utterly false.
There is actually no limit to the amount of work to be done. Work cre-
ates work. What A produces constitutes the demand for what B pro-
duces.
But because this false assumption exists, and because the policies
of unions are based on it, their net effect has been to reduce produc-
tivity below what it would otherwise have been. Their net effect,
therefore, in the long run and for all groups of workers, has been to
reduce
real wages—that is, wages in terms of the goods they will buy—
below the level to which they would otherwise have risen. The real
cause for the tremendous increase in real wages in the last half cen-
tury (especially in America) has been, to repeat, the accumulation of
capital and the enormous technological advance made possible by it.
Reduction of the rate of increase in real wages is not, of course, a
consequence inherent in the nature of unions. It has been the result
of shortsighted policies. There is still time to change them.
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1
A
mateur writers on economics are always asking for “just” prices
and “just” wages. These nebulous conceptions of economic jus-
tice come down to us from medieval times. The classical economists
worked out, instead, a different concept—the concept of
functional
prices and 
functional
wages. Functional prices are those that encourage
the largest volume of production and the largest volume of sales.
Functional wages are those that tend to bring about the highest vol-
ume of employment and the largest payrolls.
The concept of functional wages has been taken over, in a per-
verted form, by the Marxists and their unconscious disciples, the pur-
chasing-power school. Both of these groups leave to cruder minds the
question whether existing wages are “fair.” The real question, they
insist, is whether or not they will 
work
. And the only wages that will
work, they tell us, the only wages that will prevent an imminent eco-
nomic crash, are wages that will enable labor “to buy back the prod-
uct it creates.” The Marxist and purchasing-power schools attribute
every depression of the past to a preceding failure to pay such wages.
And at no matter what moment they speak, they are sure that wages
are still not high enough to buy back the product.
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