Wages Must Be Free

May 28, 1962

Successive statements have only increased the ambiguity of the President’s attitude on price and wage control. “This Administration,” he told the convention of the United Auto Workers, “has not undertaken and will not undertake to fix prices and wages in the economy.” That sounds clear enough, but he continued: “We can suggest guidelines for the economy, but we cannot fix a single pattern for every plant and every industry. We can and must under the responsibilities given to us by the Constitution and by statute and by necessity point out the national interest.”

Mr. Kennedy denies that he either has or seeks power to fix prices or wages. But he did in fact force the steel industry to rescind its price increase in April. By his action the price of steel is now frozen for an unpredictable period. He denies that he either has or wants any legal powers over prices and wages—but he insists that he has “responsibilities” concerning them. How can one have “responsibilities” where one has no power? He declares that his responsibility is to point out “the national interest.” Is he alone competent to say what the national interest is? Are price-fixing by anger and threat, and profit margins too thin to permit or encourage industrial growth, in the national interest?

PHANTOM ‘GUIDELINES’

There is a great deal of confusion on this central point. Even “conservatives” ask whether the President will be just as “tough” in holding down wages as in holding down prices. They forget that it would be enormously dangerous and disruptive for him to dictate either. Only free markets can coordinate the millions of prices and wages, and decide the ever-changing price-wage-cost-profit-loss pattern of relationships that will maximize production and employment and provide goods and services in the proportions that best meet the demands of consumers. This incalculably complicated problem cannot be solved either by pat formulas or by vague generalities about “productivity” and “guidelines.”

Last week I discussed here some of the fallacies in the Administration’s notion that wage rises of 3 percent a year are “non-inflationary” because of a supposed annual rise of that amount in “man-hour productivity.” The phrase itself is dangerously misleading. It is an ellipsis for man-machine-hour productivity. A power mower may enable your gardener to cut your lawn in half the time a hand mower would take. But if he demanded an increase in wages from $2.50 to $5 an hour, on the ground that his “man-hour productivity” had increased 100 percent, there would be no point or incentive in your buying the power mower.

DISRUPTIVE CONTROLS

This problem is commonly discussed as if it could be solved by some moral calculus. If new machines increase productivity, how “ought” the gains to be shared as among labor, capital, management, consumers, etc? The problem cannot be solved in such pseudomoral terms. Only free markets can solve it. Free competition tends to give to workers, managers, and investors what each contributes to production. Productivity and competition decide not what everybody “should” get but what he can get. A movie star’s salary is not fixed by what is “fair” but by what she brings in at the box office.

Why is Mr. Kennedy talking about price and wage control at all? First, because his Administration is following dangerously inflationary spending and monetary policies. But to inflate, and then to try to prevent the consequences of inflation by freezing prices and wages, is the most disruptive of all policies. Secondly, the pressure for both price and wage control exists because some unions are making and winning unreasonable demands which threaten both industry and employment. They are making and winning these demands, however, because under existing laws an employer is legally forced to bargain with a specified union, while unions are allowed to use violence, intimidation, and mass picketing to prevent struck employers from trying to carry on their business.

The cure for all this is not still more government intervention. It is to restore the conditions everywhere for competition and free markets.