11. Some Special Cases of Investors’ “Exploitability”

IN THIS chapter, a number of special cases of apparent investors’ exploitability must be considered. At first sight, the cases we are about to examine may all seem to constitute exceptions to the principle that forward-looking entrepreneurs who expect the strike threat to operate are unexploitable, except as third parties subject to the detriment of restrained productivity in general. In fact, I hope to show, the principle is universal.

One such case arises where fixed, durable, specific equipment has been provided in the expectation that it will have to be used for some time at below its full technical capacity. It may be planned to employ relatively few workers at the outset, but under the prediction that a gradual growth of demand (perhaps through subsequent prospecting for new markets) will eventuate, thus justifying ultimately the investment and bringing an increasing demand for labor. Such a situation will create one of the circumstances in which, if labor costs are levered up following the investment, it may prove unprofitable to economize labor. No lay-offs, or very few, may follow the rise in labor costs for some considerable period. Thus, while the abandonment of the venture may follow when renewal time arrives for the key equipment, the combined workers (it may be thought) will be able to command substantial gains in the interim. Such a situation creates no exception, for it is the very possibility of such circumstances occurring which, given the community’s acquiescence in the strike-threat regime, must be currently preventing much investment in the kinds of fixed equipment here envisaged; and these are forms of investment which could often magnify the yield to labor as a whole far more effectively than the forms of investment which are assumed by the capital diverted.

A rather similar case is that in which the enterprise confronted with a strike threat has entered into a contract to supply output at an agreed price, without including a strike clause. In such circumstances, the undertaking can be forced to pay almost any price for the labor required up to the point at which it has to dishonor the contract through its insolvency. But here again, contracts of that kind will no longer be made when the risks of strike action are generally predicted; and so one of the most fruitful forms of cooperation from the standpoint of society, that based on long-term agreements between independent undertakings, will be shackled if not completely eliminated from the pattern of fruitful cooperation. Exploitation of investors is avoided; but society’s gains from entrepreneurial planning (in which all parties share) are greatly depleted.

Another special case which we should notice is that of a wage-rate increase forced on an exceptionally efficient undertaking or industry. This will not, the argument goes, cause a decline in output, nor reduce the volume of employment offered at the higher labor cost; for the exceptional efficiency must be earning exceptionally high profits which can “absorb” the cost burden. An interesting tacit implication in this case is an abandonment of the usual labor union principle of the standard rate. The thesis assumes that firms or industries can be discriminated against for the advantage of labor. It is thought, for instance, that if the high profits of a relatively efficient firm are caused by an exceptionally low capital cost per unit of output, resulting from managerial ingenuities exercised subsequent to the original investment in the plant, then the undertaking can “afford” or can “bear” higher labor costs per unit of output without the original profitable output declining. The less efficient firms can be treated more gently. But ceteris paribus new efficiencies of the kind envisaged would, in the absence of exploitation of the efficient undertakings, raise the number of workers who could be profitably employed in plants with relatively low nonlabor costs. Hence, an enhancement of the wage flow through increased recruitment by such firms will be frustrated by strike-threat concessions. It is obviously impossible, I suggest, for labor as a whole to gain from any policy which means levying a sort of discriminatory private tax on capital-economizing developments, or on undertakings in which labor already receives a greater than average proportion of the value of the product.¹

In the parallel case in which the special efficiency is derived from some innovation (managerial or technological) of a labor-economizing type, it might seem at first as though we have circumstances in which theoretically a relatively efficient firm will be exploitable—up to the point at which the full yield to its differential efficiency can be seized—without any curtailment of employment, and even with no consumer detriment. As we have seen (pp. 133-134), the unions can demand featherbedding or work-sharing to the point which simply prevents labor costs from falling below what they would otherwise have been. The implication is, just as in the capital-economizing example, that investors are robbed of possible profits which they did not expect when they invested and hence could hardly have influenced their investment decision.

Now this is merely a particular case of the confiscation of property through the strike threat. It does not affect the principle that the volume of investment in assets which are perceived to be vulnerable to exploitation will be reduced in every case in proportion to estimates of the vulnerability. And, moreover, the prospect of future economies due to managerial perspicuity is equally one of the incentives to the retention, replacement and accumulation of resources in any undertaking.

A variant of the argument suggests that certain forms of managerial efficiency are contrary to the workers’ advantage unless part of, or the whole of, the fruits can be seized for their benefit. Thus, it is thought that labor-economizing developments which actually cause some workers to be laid-off must contribute to the disadvantage of labor as a whole unless the innovators can be forced fully to compensate the persons displaced. Now if the idea of labor’s disadvantage refers here to the workers’ relative share in aggregate income, it is true that ceteris paribus the tendency of labor-saving economies must be to reduce labor’s percentage in the activity immediately affected. But as we have seen, all human progress in the material sense has been a consequence of the economizing-displacement process, achieved through scientific, technological and managerial insights which, since the inventions of the wheel and the lever, have permitted the attainment of given objectives with fewer resources in men, man-made assets, or natural assets. The release of resources thereby for the pursuit of additional objectives (or more of the same objective) has been the ultimate source of every physical advancement in the well-being of mankind. It has been the consequence also of every acquisition of knowledge relevant to man’s material well-being. Machinery and equipment which economize labor are wage-multiplying, not in the occupations in which they are used, but in contributing to the source of demands for labor and for the services of assets in all noncompeting occupations; and there is no reason why the rise in such demands should favor rewards to capital more than rewards to labor.

The differential profits which it is thought may be taxed, so to speak, for labor’s benefit may be due to factors like a firm’s lucky choice of an advantageous location or its chance possession of specialized equipment which has unexpectedly become valuable through a transfer of demand—factors unrelated to managerial efficiency. But to permit that part of a firm’s earnings which is due to some special advantage, including a windfall advantage, to be seized by way of strike-threat pressures is still open to the same objections. The prospect of exploitation, even if these circumstances should arise, will discourage development.

Differential high profits are, moreover, in nearly all cases, an indication to managements that, if they do not attract additional resources (including usually additional labor) to supply additional output, competitors will do so. The normal reaction to the growing profitableness of an undertaking is expansion. And this reaction, which imposed costs can prevent or restrain, is always to the consumers’ advantage, and always in the interests of the additional workers attracted to the undertaking, who will typically be provided with an opportunity of increasing their incomes.

The trouble is that if costs are imposed on an exceptionally prosperous undertaking which had failed to predict the strike-threat demands (or on an industry or area in which entrepreneurs had similarly predicted wrongly) on the grounds that it can “afford” the imposition, it is not an unreasonable use of words to say that the additional costs have been “absorbed by profits;” for theoretically dividends can be reduced and wage receipts increased through the property transfer effected. But such phrases are disastrously misleading, partly because the enhanced wage receipts include elements of capital seized (see p. 136) and partly because the dynamics of the real world are ignored. The important consequence will, I repeat, be a reduction of the rate of increase in the contribution of the exploited undertaking (or the exploited industry or area) to the flow of income (and to wages as part of income), while some consumer detriment is likely to be immediate.

A wholly different argument about the possibility of efficiency being tapped via the strike threat concerns the raising of the standard rate throughout an industry by union pressures, i.e., without discrimination against firms, industries and areas which are exceptionally prosperous (or discrimination in favor of the less prosperous). It is suggested that exploitation in this form need cause no unemployment, nor bring any disadvantage to consumers, because the concentration of output into the more efficient undertakings will be brought about.² But such a process must still drive out competing enterprises which, in spite of some differential disadvantage (which need not be inferior managerial efficiency), can make their greatest contribution to aggregate income by relying upon the availability of labor which is cheap for them because their better-placed competitors are not offering to employ it. Undertakings in that position can at times survive in their present operations only because union-imposed or government-imposed obstructions are closing more profitable openings for the workers they employ. Hence the firms to be penalized are those which are rescuing excluded workers from relative poverty.³ If this low-paid labor is bid away by the more efficient firms, that is a quite different matter.

Under truly competitive conditions, some firms appear at times to be paying higher wage rates than others. Then, presumably, they are doing so because it has been their policy to attract the more efficient labor. It does not necessarily mean that they are purchasing labor’s output at a higher price than their competitors, or that they are more efficient. Firms which employ the less efficient workers may be using different methods for which different grades of skill are appropriate. Hence any extermination of the competition of undertakings which are organized for offering employment outlets to workers of below the average in productivity must have an inequalitarian effect. We shall discuss this issue again in Chapter 12, but it should be pointed out here that to force enterprises which offer employment to the less well-endowed workers to remunerate such workers as though they were highly endowed, is to impose higher labor costs upon those enterprises than upon their competitors. When the standard rate has the effect called “concentrating production in the more efficient plants,” it must be reducing demand for labor in the relevant industry.

The relevant general principle is, I suggest, that there is never any justification for allowing those firms which find it, say, just profitable to replace their assets rather than disinvest them, to be driven into decline or out of operation by imposed labor costs so that more advantageously situated firms can take over their contribution. “Inefficient” firms may be legitimately driven out only by the process of bidding away the resources they are using, including the labor (through the offer of better remuneration or prospects). Moreover, the suggestion that, because of the concentration of production in relatively efficient undertakings, consumers will not be harmed is unacceptable. For to the extent to which there is really an economy to be gained by such a concentration, it will be profitable for the entrepreneurs to act just as was suggested above and attract, through their wage offers, all the resources required to achieve the economies.

When it happens that the reduced outputs caused by coercively imposed labor costs do come to be concentrated in fewer undertakings, these undertakings may be in a position to cease recruiting workers who are not worth the additional costs, and even to displace some of their less gifted workers. They can then replace those laid off by workers of relatively high efficiency, possibly taken from the very undertakings which have been compelled to close or curtail operations. It is then possible that the surviving undertakings will not be disadvantaged from the standpoint of profits. That does not mean, however, that managements have been encouraged to be more efficient in achieving labor- or capital-economizing improvements in manufacturing or marketing.⁴ There has simply been a rational adjustment to a changed situation which mitigates the detriment that the community is forced to accept. More than that cannot be claimed. And even so, the process must rob workers who are below the average in natural endowment or developed powers of relatively highly remunerated avenues of employment (possibly with training opportunities) for which they would otherwise have been regarded as competent. For instance, virtually no workers of the unskilled class are today employed in the United States steel and automobile industries, although large numbers of them were once so employed. The effects seem to have been strongly regressive.⁵

A quite different (although related) point is that there is likely to be greater anxiety among the retained workers to demonstrate their efficiency in these circumstances. When they perceive that there are excluded competitors who would jump at the opportunity of doing their job for less, they are likely to view the threat of displacement very seriously. For if they are laid off, they face a bigger prospective loss than confronts workers in a relatively competitive environment. The social discipline of the market is held off, but when it breaks through the dikes erected, it punishes with greater ferocity.⁶ Fear of market punishments may, therefore, to some extent mitigate the situation, through greater efficiency on the part of the workers retained. But again, all that can be claimed is that labor costs have been pushed up to a lesser extent than they would have been in the absence of this reaction. The other implications are undisturbed.

It is sometimes said that, when “industry-wide” or “national” bargaining occurs, wage rates tend to be demanded which are calculated to keep undertakings of “average profitability” in operation, although the phrase more commonly used to describe the position of such an enterprise is “what the average firm can afford.” The suggestion can be regarded as a special case of the contention that enforcement of the rate for the job concentrates output among the relatively efficient producers. It clearly means that some undertakings which might well be in a position to continue to provide, say, their current outputs for an indefinite period, and at least maintain their real capital intact, will be pushed out of operation, or forced to contract. Hence the relevant principle which we must apply is that stated above. If the contribution to outputs by firms of below-average profitability is rendered unprofitable by duress-backed wage demands (as distinct from the case in which their workers are attracted away from them through the offer of higher wage rates by their competitors), it means that the strike threat has been used to destroy not only a source of demand for the labor employed by the ousted enterprise but, and more important, to destroy a contribution to the source of demands in general.

What I take to be a quite different claim is that the tolerance of strike-threat pressures causes “competition in wage rates to be replaced by competition in efficiency,” or forces “employers” to “compete on a basis of efficiency instead by depressing the price of labor” (or some similar phrase). But what does this mean? The critical reader will notice that the words “compete” and “competition” are used in two opposite meanings in the sentences quoted. In the one case, actual competition is apparently implied while “monopsony” (“depressing the price of labor”) is implied in the other. But the seeking out of underutilized labor (buying it in the cheapest market) does not conflict with any inducement to efficiency. Indeed, the discernment of such underutilization elsewhere (the availability of cheap labor) is an important form of efficiency in itself.

In its least objectionable form (which has become known as the “jolt theory” or the “shock effect”) the argument is that, through imposing burdens on business undertakings, the managers can be jolted or shocked into acting with more enterprise and imagination in their profit-seeking. Thus, Sumner Slichter claimed that “the strong pressure of unions for higher wages . . . has undoubtedly helped to raise the standards of living because this pressure has forced management to work harder to keep down labor cost and has thereby accelerated technical progress.”⁷ “Wage increases,” write Reynolds and Taft (less dogmatically, “may force management to take remedial action”⁸ and, as labor costs are raised, to reduce nonlabor costs. This sophism was expressed quite often by labor union apologists during the nineteenth century; it was ultimately given respectability by Walker, Marshall, and Pigou; and it has been repeated again and again during the present century.⁹ Despite the intellectual caliber of the three famous economists just mentioned, I maintain that the argument is wholly indefensible. Pigou’s treatment was rather subtle. He relied upon the “jolt theory” to explain how it was possible for labor to rectify a monopsonistic situation (in other words, one in which, in his terminology, labor was paid less than the value of its marginal net product).¹⁰ But there is no clear reason why the ability to exploit labor monopsonistically should be accompanied by some rectifiable inefficiency. Hence the notion is just as indefensible in this form as it is in its most usual form, that is, as an explanation of the ability of duress-imposed labor costs to create their own justification in the form of countervailing output increases. It is true, as we have seen, that the forms of technological progress and managerial ingenuity will be affected by the need to adjust when increased labor costs are imposed through the strike threat. For instance, there will be an enhanced incentive (which we have noticed) to displace labor by the substitution of machinery.¹¹ But it is just not true that prospects of adversity stimulate managerial and technological imagination, enterprise, and effort more than the prospects of prosperity. If it were true, it would be wise for governments to impose burdens on any sector of the economy they wished to foster—taxing an industry to give it a jolt and thereby to cause it to flourish!

In the case of a sole proprietor, a reduced demand for leisure might well result from a diminution of his income, however caused. A shopkeeper faced, say, with an increase in the minimum wage, may substitute his own labor for that of an employee. But that is hardly a case of increased efficiency and hardly to the advantage of the laid-off worker.

All market changes, general (growing or declining total profitability of a firm) or particular (growing or declining profitability of any set of activities in the firm), are a spur to managerial action. It is very doubtful whether any one type of change acts as a special spur to greater efficiency, acumen or effort. Most students of business administration would hold, I think, that the enthusiasms aroused under growing profits, and not the anxieties aroused under adversity, are most likely to stimulate imagination and the will to experiment. But the exercise of managerial ingenuity in the search for least-cost methods is continuous. When managers introduce labor-saving machinery, or product designs of a kind which require less labor, because profits have dwindled through strike-threat influences, their responses represent normal managerial reactions, not exceptional originality, efficiency or initiative. “Economic pressure” is the persistent call to action; and the reactions which the “jolt” theorists have been observing are simply the process of economizing innovation¹² as it has been affected, not stimulated, by imposed labor costs. In the absence of the strike threat, technological progress would admittedly have been different in form. And in Chapter 15 I shall give reasons for believing that it would have been incomparably more fruitful.

The most plausible argument for the “jolt” theory is found in the circumstances of regulated monopolies, or of unregulated monopolies wishing to avoid regulation, or of large, supposedly monopolistic corporations wishing to avoid antitrust proceedings against them. Mainly, I think, because of the pressure of politics on what, properly conceived, are quasi-judicial functions—namely, the regulation of natural monopoly charges and restraint of or dissolution of monopoly by way of antitrust—the payment of high dividends instead of the contrivance of scarcity has come to be the private sin which government agencies condemn. It seems that, for this reason, a tendency has developed for investors to acquiesce in managements making extravagant concessions to strike-threat pressures. Stockholders cannot be paid more, so why should not managements be liberal in wages and salaries? For the same reasons, managerial and executive compensation is likely to be generous when the yield to entrepreneurial wisdom or luck is high, especially in the form of large pensions, extravagant expense accounts and so forth. It will then be true, in a sense, that the prospect of imposed burdens has made wage-rate and salary increases acceptable. Moreover, in the conditions we are considering, as Alchian and Kessel have pointed out,¹³ managers and executives are likely to gain in the form of nonpecuniary benefits: lavish offices, imposing buildings and factory gardens, sumptuous board rooms with paintings by famous artists, other amenities calculated to enhance prestige, long vacations, leave for “civic duties,” large contributions to “charity,” pretty secretaries, discrimination in hiring, buying from congenial salesmen and “conspicuous expenditure” generally. When these conditions exist, duress-imposed labor costs in the narrow sense are not only more likely to be conceded, but they are likely to be achieved for wages (in the narrow sense of remuneration for artisans and laborers) at the direct expense of the share of profits which would otherwise have gone in high salaries, liberal expense accounts, and the nonpecuniary amenities enjoyed by executives and managements referred to earlier. But what happens here is not an increase in efficiency which gives rise to a new source of income out of which labor can be paid more. It is (in the words of Alchian and Kessel) simply a revised “pattern of distribution of benefits.” Hence the grounds for my rejection of the “jolt” theory of redistribution via the strike threat do not have to be qualified. All that happens is an arbitrary redistribution of income in favor of a particular lucky group of workers; and the redistribution is ultimately made possible by the use or threatened use of governmental power against those investors whose managers have been more successful than the average in satisfying (or exploiting) consumers. But the flow of resources into fields in which profitableness (as distinct from the proved contrivance of scarcity) is penalized must act precisely as tolerance of the strike threat does in diverting investment into relatively less productive and less wage-multiplying activities.

Lloyd Ulman says that the academic economists “rejected the notion that, by leaning on costs, unions could force even monopolistic employers to be more efficient” because “they assumed a priori that all businessmen maximize profits and therefore minimize costs in any event.”¹⁴ No such assumption is needed to show the weakness of the claim that imposed burdens act as a stimulus. What disinterested economists have shown is that all rational entrepreneurial action is loss-avoiding and profit-seeking through the continuous comparison of objective and prospective input values with prospective output values.¹⁵ Entrepreneurs simply have every incentive to predict wisely. That is all that any economist, thinking rigorously, has ever assumed about the nature of business action under market discipline. Lloyd Ulman has destroyed a straw man.

Parallel to the view that burdening the investor by duress-imposed labor costs forces managements to be more efficient is the view that paying workers more increases the workers’ efficiency and therefore justifies the forcing up of costs. That theory appears to me to be equally unacceptable. If it were really true that the entrepreneur who paid more than the market wage rate would enjoy reduced labor costs, that would surely have been discovered by at least some entrepreneurs originally and thereby have forced competitors to follow suit.¹⁶ Even slaveholders knew that it was to their benefit to maintain their human property in good condition for the type of work required from it; and for all beasts of burden there is a certain expenditure on food and shelter which maximizes their efficiency. But while incentive wage-payment systems may raise the workers’ inputs and increase their remuneration, there are no grounds for believing that the simple payment of higher wage rates will act as an incentive for larger inputs.

It has been suggested that imposed labor costs can be “absorbed out of profits” because in practice managements do not really know the prices they can most profitably demand for output. It might well be, the implication is, that higher end-product prices could have been set for the investors’ advantage, even in competitive markets. When costs are forced up, managements are surprised to discover that raising prices enables them to make up the enhanced wages bill. Such a notion is, I feel, an outcome of experience, not of pricing under conditions of competition, but under inflation.

It is true, however, that there will often be a range of possible product prices which can be asked without demand for the output being felt likely to fall away immediately, or entirely, or disastrously. But the interpretative discretion so created does not alter the fact that there can be only one product price for management to fix which will ultimately turn out to be to the investors’ maximum advantage. As we have seen (pp. 128-129), it is expected that judgment about what this price is (and the appropriate inputs for that price) will change over any “budgetary” period, as buying and selling markets are observed; and adjustments from time to time in prices and inputs, in the light of the observations, will tend to reduce but not eliminate the inevitable risks. Hence while “entrepreneurs’ discretion in pricing” remains, that word “discretion” simply covers all the imponderables which have to be taken into account. The truth remains that, when costs rise, it will not be profitable to retain, replace or add to the resources used in any type of production to the former extent.

The special arguments noticed in this chapter disclose, then, no reasons for modifying the thesis developed in Chapter 10, namely, that labor costs imposed by duress are not an effective device for exploiting investors. The loaded costs cannot be said to be absorbable out of profits except in the sense that entrepreneurs who fail to forecast exploitation may be its victims.

Moreover, the argument of this and the previous chapter is relevant to the belief that strike-threat pressures can at least insure a prompt or just sharing with the workers of the results of increased productivity. Such a belief is wholly wrong. Every increase in aggregate income (that is, every growth in productivity generally) tends, through market reactions, to raise all real incomes subject to recontract in roughly the same proportion, just as inflation tends to raise all money incomes subject to recontract in roughly the same proportion. But this occurs, not because capital- or labor-economizing developments in any firm or in any industry justify or bring about increased real yields to labor and capital respectively in that firm or industry, but because the benefits are reaped in noncompeting activities.

Labor-economizing developments in any activity tend to raise the wages flow in all other operations. Moreover, to the extent to which improvements in productive methods in one sphere are offset entirely or partially by imposed labor costs, the tendency for the wages flow as a whole to rise is slowed or stopped, not accelerated. Contemporary policy in this respect is self-defeating. When it is said that rising productivity can validate real wage-rate increases, and that labor costs may be legitimately imposed by force when productivity is judged to be rising, it is important to insist that this is true only when, in every case, the increases are such as the free market itself is tending to enforce. Moreover, while market forces raise real wage rates as a whole as productivity in general rises, this does not mean that increased productivity in any industry or firm necessarily justifies higher wage rates in that industry or firm. As I have explained, it tends to bring about (and hence may be said to “justify”) increased remuneration for labor and for other factors in non-competing activities.

NOTES

¹ It is “obviously impossible” in this case. But although less self-evident, all action which discourages the supply or raises the costs of providing the tools which multiply the yield to human effort is to the absolute disadvantage of labor in general (see pp. 146-147, 222-224).

² In this paragraph, I ignore the possibility of the “more efficient” firms taking over the more efficient workers and dismissing the less efficient. This possibility is discussed on p. 156.

³ As will be explained in a different context, a policy of sterilizing land which, although productive, is of low productivity (e.g., having a rent of less than so much per acre), is exactly similar to a policy which forbids or otherwise prevents the employment of labor for any purpose when its marginal productivity is low (see pp. 172-173).

⁴ The general argument that labor costs enhanced by the strike-threat stimulate greater efficiency is about to be examined.

⁵ My conclusion expressed in this paragraph is identical to that reached by Henry Simons in 1944 (Economic Policy for a Free Society, [Chicago: University of Chicago Press, 1948], pp. 139-40), although mainly reached from consideration of events since that time.

⁶ Competition is like gravity. If you don’t resist it, you cannot fall and hurt yourselves.

⁷Quoted by J. T. Dunlop, Theory of Wage Determination (London: Macmillan, Ltd., 1957), p. 13.

⁸ L. G. Reynolds and C. H. Taft, “The Evolution of Wage Structure,” E. Wight Bakke, Clark Kerr, and Charles W. Anrod, Unions, Management and the Public, 3rd ed. (New York: Harcourt, Brace and World, 1967), p. 597.

⁹ One interesting variant of the notion—equally fallacious—is that managements become more efficient in depression because they have “received a nasty jolt.” Roy F. Harrod, The Trade Cycle (London: Oxford University Press, 1936),

¹⁰ Pigou, Economies of Welfare, 3rd Edition (New York: Macmillan Company, 1929), p. 592.

¹¹ It must be remembered that such a substitution may be expected to accompany an independent displacement of labor due to a prior cause—the general rise in costs to which the labor-economizing machinery or managerial arrangements may be a subsequent response.

¹² I use the word “innovation” here, although at times economizing techniques and machinery substituted are already recognized and well known. It had previously not been profitable to utilize them.

¹³ Alchian and Kessel, Aspects of Labor Economics (N.B.E.R., 1960), pp. 161 et seq.

¹⁴ Lloyd Ulman, “Introduction: The Problems in Historic Context,” Lloyd Ulman, ed., Challenges to Collective Bargaining, The American Assembly (Englewood Cliffs, N. J.: Prentice-Hall, Spectrum Books, 1967), p. 2.

¹⁵ In popular language, this means that entrepreneurs “seek profits.” It does not mean that they do in fact maximize profits! Their forecasts of yields to different “input-mixes,” although usually shrewd extrapolations, are fallible; and while their forecasts are in process of continuous modification—as achievements are compared with expectations (for example, through budgetary controls), budgeted sales and outputs are normally far from being realized in detail.

¹⁶ This argument does not hold under the assumption of monopsony of course. But see Chapter 8.