19. Conclusion

THE BROAD conclusion of the analysis presented above is self-evident and hardly needs reiteration. The strike-threat system is an intolerable abuse of economic freedom. The strike is a type of warfare under which privileged groups can gain at the expense of the unprivileged. The system provides no acceptable shield against monopsonistic exploitation. In an era in which it has become an accepted institution, wage rates imposed through it cannot transfer income from investors in general to workers in general; nor can it redistribute income from the rich in general to the poor in general. On the other hand, it can and has greatly reduced the community’s aggregate income wherever it has been tolerated. Hence, because it has failed to raise labor’s proportion, it must have materially reduced the absolute aggregate wages flow. Moreover, it has rendered the distribution of the wages flow more unequal—a regressive consequence which is aggravated because labor costs enhanced through duress exploit all the people in their consumer capacity and harm the poor differentially.

Strike strategy demands the creation and fostering of a war psychology on the workers’ part. The system has tended therefore to frustrate attempts to achieve good relationships between employees and the managers who coordinate their activities and who act for the providers of the assets which multiply the yield to labor. It has militated against the fashioning of more effective procedures to protect the worker from the possibility of managerial tyranny—a possibility which must always be present whenever the right to command is required by orderliness in cooperative effort. Equally seriously, the strike-threat system has caused the worker often to feel that, through the wage contract, he is selling himself instead of selling his contribution to the common pool of output. For that reason it has been destroying the worker’s dignity, his joy in work, his sense of belonging to the great society and, above all, his faith in the justice of an order—the free market order—which can (if allowed) maximize his earning power and security as well as promote satisfaction or pride in simple or skilled achievement.

In tolerating the right to disrupt through the concerted withdrawal of labor, society has acquiesced in the private use of coercion. Society has unwittingly allowed government to abdicate regarding its traditional duty to protect the individual from spoliation by others. There is no more reason to suppose that use of the strike weapon will have a just outcome than to assume that the private use of firearms will have this result. But acceptance of the system by public opinion has appeared to validate resort to disruptive tactics by “activists” in other spheres as well; and the traditional supplementary devices of the system—physical intimidation and sabotage—have accompanied the extension of strike-threat practices.

The spirit of the “activists” is expressed in the phrase, “You do as we insist or else. . . .” Resignation to such demands seems to have allowed a deplorable emasculation of the intellectual and social life of famous universities in the United States. In some cases, esprit de corps and pride of membership in the most illustrious institutions of learning have been virtually trampled under. And, accompanying this phenomenon, a contempt for freedom of expression has emerged which is the direct antithesis of age-old university traditions. On controversial issues, dialogue is rejected for vituperation. It may seem rather far-fetched to blame all this on the influence of the strike-threat system. And yet it is the widespread conviction that the power to disrupt may be properly relied upon by those who are in a position to organize disruption (to secure whatever objectives they believe are good, or for their own advantage), which has precipitated the humiliating situation in which some of the leading American universities find themselves today.

I want the reader to consider whether the survival of the democratic system may not be dependent upon a general recognition of the illegitimacy of privately motivated coercion in all forms. But if the withdrawal of the right to coerce by the threat to strike is to become politically acceptable, a truly great leader—of exceptional eloquence, intellectual courage and pertinacity—will have to arise. I expect to be told, however, that I am hoping in vain for a Messiah, that only the intervention of heaven could break through the barrier of “political impossibility” which excludes any effective curbing of strike-threat power. My reply to critics who would advance such an objection is that, if they wish the joint institutions of representative government and freedom of enterprise to survive, they may soon be forced to perceive that the right to strike—under any circumstances—must be denied. I have discussed some of the issues at greater length in my recently published book, Politically Impossible . . .? But I can here refer to emerging circumstances which, it seems to me, will make an early attempt to grapple with the problem inevitable.

The strike-threat system must accept main responsibility for the political expediency of inflation in modem societies. In tending to repress yields to investment and hence yields to effort (the aggregate wages flow), duress-imposed labor costs are persistently tending to generate a cumulative contraction of the source of demands for the services of men and assets, causing thereby a slowing down of economic activity, with short-term unemployment. It is to reestablish or preserve price-cost relationships (and hence profit prospects) consistent with normal outputs and sales, and hence to restore or maintain the flow of wages (as wage-push influences are constantly tending to repress the flow) that governments have restored to the chronic, creeping, crawling inflation of the current era. But as we have seen, anticipated inflation tends to become purposeless inflation. Moreover, because it seems absurd to expect any agreement among the nations on the rate of inflation, uncoordinated national initiatives in currency depreciation sabotage international monetary order.

Thus, the position today is that legislators are already beginning to feel compelled to accord the restoration of profit prospects a higher political priority than the union hierarchies’ vested interest in the strike-threat system. They are moving toward the raising of prospective yields to investment via wage-rate “controls,” whether in the form of “incomes-policies” or extralegal coercions (“persuasions”), with of course the politically expedient bluff of price and profit “controls.” But as soon as governments take over the market function (except as a crude, once for all rectification of a disastrous situation), free enterprise is on the way out. Wage rates will before long become determined either by vote acquisition prospects or by corruption, or both. And because I do not judge that (even in the politician-dominated United States) public opinion could be persuaded to accept the abandonment of free enterprise, the reasonableness of achieving the maximization of the wages flow, equity in income distribution, and employment security via market-selected wage-rate (and price) adjustments may not be so unlikely to receive early recognition as might at first be thought.

It has been a growing awareness of the fact that the traditional economic freedom of the British people has been threatened by an “incomes policy” that, as this is written, a long experiment in that direction has been temporarily abandoned in Britain.¹ But incipient unemployment in that country has caused continued inflation still to be regarded as the lesser evil from the standpoint of vote acquisition; hence, as long as wage push is allowed to continue threatening the wages flow and full employment, I feel that the “inevitability” of a return to wage-rate “controls” will remain. Admittedly, through the Industrial Relations Act, 1971, what appears to be the first effective step toward curbing strike-threat power (in Britain or indeed anywhere²) since 1824 has been adopted. But whether this legislation will prove to be much more than a gesture is by no means certain. In my own present judgment it is unlikely to prove an adequate restraint on the right to disrupt for private gain. I fear therefore that a relapse into a more drastic incomes policy will soon again be regarded as politically expedient, even by the Conservatives, at least as a transitional measure. But the alternative—a coordinated labor market (that is, a freed market) with the greater security and distributive justice it guarantees, will again have to be considered. I cannot avoid the inference that, if economic freedom and democracy are to survive in Britain, sooner or later a policy of labor emancipation, that is, freedom achieved in the market for effort and skill—for labor’s benefit—must necessarily win through.

It seems distinctly paradoxical that the dilemma of recession or inflation and international monetary disorder presently confronting governments should be the source of a ray of hope. But threatened disaster has often inspired wise reforms; and if political wage-rate determination is to be avoided yet chronic inflation is to be eradicated, the strike-threat system cannot survive. In asserting this proposition, I am giving full weight to the fact that the intelligentsia—the opinion-makers—of this age have been so deeply indoctrinated that even those who are critical of the use made of the strike-threat power are mostly convinced of the legitimacy of that power; and that the majority of intellectuals have been conditioned to feel contempt for “free enterprise,” largely because they have been more aware of the excrescences of the system than of its inherent virtues. It may well be, indeed, that the revolutionaries will be allowed to impose totalitarian regimes. But the prospects are not, I think, as black as they sometimes appear superficially to be.

I have tried to justify a guarded optimism in my Politically Impossible . . .?, to which I have just referred. In that book I lay the blame very largely on my own profession. I charge economists with having been thrown off their intellectual balance by their virtues—warmth of heart, humanity, sheer kindness. Like their fellow intellectuals whom they have influenced, their sympathies have all too often ruled their minds.³ Stigler has charged that Marshall’s great work was vitiated for this reason. I have charged that Adam Smith (whom I venerate) initiated a tradition of woolly thinking on the subject of the present book because he allowed his deep sympathy for the workers inappropriately to color his judgment. But in my Politically Impossible . . .? I have accused economists also with having tried to be influential in the easiest way, obscuring their political assumptions, and thereby destroying scientific unanimity, especially on the subject of labor’s share in income. And I have gone even further and charged that many “economists,” seeking fame and power, have observably swum with the tide, carefully pandering to current popular stereotypes. The most influential textbooks of “labor economics” seem to me to be reprehensible in this respect.

I recently asked a very influential American economist, who described himself as a “left-of-center” liberal, why the government’s advisers failed to recommend a drastic cut in the federal minimum wage rate—a step which, he agreed, would rapidly reduce the unemployment figure and especially multiply employment openings and “training on the job” opportunities for non-white juveniles and women. He replied that we had “as much chance as seeing a snowball in hell” as seeing any step which might seem to threaten the interests of the AFL-CIO hierarchy. But if he and other “liberal” economists would only speak out unequivocally and with pertinacity against measures and institutions which they perceive are responsible for easily avoidable poverty and insecurity, quite different policies would become politically expedient.

Exactly how the first effective moves toward fundamental reform are likely to occur, I make no attempt to forecast. Nevertheless, the aim of the required legislation is as simple as it could be, and capable of clear, truthful description. Lying preambles are all too common in acts of Congress and acts of Parliament. But we can at least imagine a bill with a truthful preamble, designed to rescue the labor market from duress-imposed restraints, and introduced under the title, say, The Emancipation of Labor Bill. Its preamble could honestly read, “to promote the maximization and most equitable distribution of the wages flow and, in particular, to protect the right of every person to accept any lawful employment.” The basic aim should be to entrench the individual’s right to agree to any wage terms offered which he believes will enable him to better his condition or prospects, whether in respect of pecuniary remuneration or other benefits.

Subject to three important conditions, provision could be made in the bill itself for its automatic repeal, after a stipulated period of years, if a marked increase in the aggregate real wages flow and greater equality in its distribution had not in fact resulted. The three conditions necessary are first, the suspension during the testing period of all minimum wage provisions; secondly, reasonably effective enforcement of the bill’s provisions—in other words the absence of unofficial strikes or other forms of duress in the labor market; and thirdly, the stern application of the principle of less eligibility in any government-provided unemployment compensation or relief. For the purpose of the statutory comparison, the aggregate wages flow could be defined as all real income other than interest, rent, royalties, dividends and profits. Analysis of tax collection figures could provide adequate comparative data.

The provision for automatic repeal and restoration of the status quo in the event of the failure of the “experiment” might, I think, overcome much of what would otherwise be sincere although mistaken opposition. But a quite separate step to improve justice in income distribution could usefully accompany labor market reform and help remove resistance to it. What are widely felt to be inequities resulting from inherited wealth could, in my judgment, be materially mitigated without harmful repercussions. The case against progressive taxation is partly that it is seriously detrimental to incentives while the additional revenues governments obtain through it are almost negligible;⁴ and more important still, it is held that, through progressive taxation, part of the people’s stock of wage-multiplying assets is being continuously squandered in the vote-buying process. But even steeply progressive inheritance taxes (the height of the tax in each case depending upon the sum inherited by the individual, not the sum bequeathed) accompanied by an enactment (preferably constitutional) to the effect that the proceeds must be maintained intact in the form of collectively owned capital, would exclude the capital squandering possibility. The yields could then be employed to reduce the level of taxes.⁵ Under such circumstances, one objection to the progressive principle would fall away. I have discussed this possibility elsewhere and need not elaborate the possibilities here.⁶

Except in references to occupational licensing, I have not referred to parallel abuses for which the organized professions—particularly of medicine and law—are responsible. The sole reason is that the professions hardly ever resort to any practice resembling the strike threat or the strike. This does not necessarily cause collusively arranged scales of charges or restraints on entry to be any the less exploitative. But as I have insisted that justice requires antitrust initiatives to protect the workers as consumers—especially when the workers’ own power to contrive scarcity is being dissolved—so must I insist on the importance of reassuring the workers that the highly paid professions are not to be exempted when their (the workers’) right to exploit is withdrawn. Each individual practitioner needs to be accorded the fullest freedom in pricing his services and in communicating his charges to the public. He must be protected from any disciplinary control exercised by practitioners acting in concert. But nonpracticing members of his profession, appointed by government, could be entrusted with the enforcement of appropriate codes of professional conduct (with appeal to the courts).

The chief transitional difficulty which can be predicted during the assimilation of the economy to a strike-free era concerns the severity of a disturbance to “established expectations” which may be experienced in those occupations which have been enjoying the greatest private benefits from “exploitation”. A wide gap may well be disclosed initially in some cases between previous, union-enforced wage rates and the alternatives in such other employments as will be immediately available for the workers affected. Within the range of this gap, formerly privileged workers may truly be “at the mercy of” managements. But the paucity of well-paid alternative employments available at the outset will itself have been a consequence of the strike-threat system. The more appropriate alternatives will have been shut off through union-imposed restraints on entry. The whole purpose of the “Emancipation of Labor” enactments would be that of permitting the emergence on all sides of better-renumerated employment outlets, which relief for investors from strike-threat exploitation risks would call into being. As soon as the providers of wage-multiplying assets can be guaranteed that prospective yields will not be robbed by duress-imposed costs, a phenomenal stimulus to the provision of such assets will follow.

Unfortunately, the response to that stimulus could hardly be instantaneous. It might take some time before entrepreneurs generally grasped the full significance of the new régime. Hence provisions for protection of a minority of workers against catastrophic change would have to be considered. For instance, a provisional rule could be that, during the first few years of operation of a strike-free regime, managements could not réduce their wage offers by more than (say) 10 percent per annum. Such a rule would enable employees adversely affected (with the assistance of their unions) to search for alternative employments without a disastrous shrinkage of their source of income. But at the end of any such period, every person should have the unrestrained right to improve his earnings or acquire access to training by accepting any employment on any terms whatsoever, except for unauthorized “lock-in” terms (see pp. 101–102).

There is another possibility that might have to be guarded against. Attempts could be made to engross the fruits of the better use of men and assets for the benefit of favorably placed investors (with special facilities for the collusive fixing of prices or outputs). Such an outcome could be avoided through the inauguration of exceptional antitrust vigilance and (if necessary) speedy action. The objective would have to be recognized as that of facilitating the cheapening of all productive processes, including the marketing process. But provided this objective is sought with a clear understanding that the evil to be eradicated is the “contrived scarcity” (or “the contrived plenitude”) and not that of high profits, it is an attainable objective.

In thus stressing this objective, it should be explained that a general cheapening of outputs does not imply deflation. Certainly the advent of a strike-free era could mean the advent of an inflation-free era. But a vital concomitant reform to the Emancipation of Labor Act would be the explicit acceptance of monetary flexibility. Thus, in the United States, the Federal Reserve Board could be placed under the obligation to maintain a dollar of constant purchasing power. That would mean that the further any current scale of prices diverged at any time from the norm set, the smaller would be the probability that it would diverge further in that direction and the greater the probability that it would soon move toward the norm. The rapidly rising wages flow due to the abandonment of strike-threat influences would then permit the parallel abandonment of attempts to use monetary policy to maintain full employment (or other “national objectives”).

I remarked above that “we can at least imagine” legislation such as I have sketched. But I have never ceased to be aware of the historical reality that most great peaceful changes in human institutions seem to have occurred through the emergence of a new reality while old forms have remained. Maybe much less drastic reforms might be expedient during a transition to a more just and humane economic order. But my object in referring to this imaginary Emancipation of Labor Bill has been primarily to set minds working on the topic. At the same time I am confident that, if attempted, a wholehearted experiment with a strike-free régime would win almost unimaginable benefits.

I diagnose the repeal in 1824 of the ancient common law proscription of “conspiracy” or “combination” as having created the most burdensome institutional defect from which the British “free enterprise system” has subsequently suffered. Whether that repeal was due to misconceived sympathy for poor workers apparently struggling against rich, avaricious “employers,” or through cynical politicians who had perceived the command over electoral decisions possessed by union leaders, its consequences have been gravely detrimental to the vast majority of those who are believed to have been the gainers. And a similar weakness plagues the whole western world. The elimination of this weakness must, as I have already suggested (pages 282-285), come to be recognized as the major economic problem of the present generation.

I know that it will be very easy for economists with an axe to grind or other vested interests to misrepresent both my arguments and my motives for writing this book. I even expect the allegation that I am a paid lackey of the capitalists. But I was born in the last century and I am much too old to have any personal ambitions, within or without the academic field. And I shall never have to ask anyone to vote for me. To critics who think they have heard the goose-step in my contribution, my reply is to ask them to consider the unchallengeable truth that, with a few honorable exceptions, the capitalists of this century conspicuously refrain from giving financial support to the classical liberal school, to which I obviously belong. Moreover, there is no discernible academic group concerned with achieving justice for the classes whose thrift (or that of their forebears) has provided the assets which multiply the real wages flow, and whose entrepreneurial acumen has determined the form those assets have taken. There have been several able defenses of the corporate system against misconceived—sometimes demagogic—attacks. But I know of no attempt whatsoever to show that the investors’ share has been unfairly mulcted. I certainly do not suggest that there ought to have been.⁷ But the phenomenon is significant.

The loss-avoidance, profit-seeking system receives scant effective defense in academic circles today. In some degree this is due to “the workers” being presumed to be poor while “the investors” are presumed to be rich. But the bias is less toward the workers than toward the labor union hierarchy. In reality, “the workers” are the victims of the strike-threat system; for unparalleled prosperity and improvement in material well-being awaits them in any country which, through suppression of private duress, once again permits the social discipline of the free market to be the ultimate determinant of the wage rates it will be profitable for managements to offer. That is what I believe this book to have shown.

NOTES

¹ This page was written in 1971. My forecast of a return to wage rate controls has since been borne out (November, 1972).

² The U. S. Taft-Hartley Act, at any rate as administered and adjudicated, has had little effect.

³ The best treatment of this important sociological and political phenomenon is John Van Sickle’s Freedom in Jeopardy—The Tyranny of Idealism(New York; World Publishing Co., 1969).

⁴ See F. A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1945), Chapter 20; W. J. Blum and H. Kalven, The Uneasy Case for Progressive Taxation (Chicago: University of Chicago Press, 1953); David McCord Wright, Democracy and Progress (Kelley, 1951), pp. 94, et seq.; L. von Mises, Human Action, pp. 803, et seq.; F. C. Benham, in Agenda for a Free Society, ed., A. Seldon (London: Institute of Economic Affairs, 1961), Part VI.

⁵ In the beginning, the proceeds would be appropriately applied in liquidating the community’s “collectively owned negative capital,” which is my realistic description of the national debt, instead of accumulating a fund of “collectively owned positive capital.” This would of course reduce the level of taxes needed in the same kind of way.

⁶ Hutt, Politically Impossible . .?, Part IV.

⁷ For one thing, I have shown that, as soon as the strike-threat system has become accepted as an institution, investors as a class have become unexploitable by it.

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