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Chapter I

Introduction

Modern society, as it exists in North America, in Europe, and in a few other scattered locations around the world, faces many serious problems – plenty to keep us occupied for a long time to come. The causes of these problems are numerous and varied, and they are still subject to much controversy and dif ference of opinion, but when we get down to the basic elements of each problem we almost invariably find that the issue of employment is one of the controlling factors; often it is the crucial factor around which all else revolves.

The upsurge of crime, particularly in our larger cities, which constitutes one of the major threats against our present–day civilization, might seem offhand to be a matter of personal behavior, not an economic problem, but all serious students of the situation agree that idleness and lack of regular income are the fundamental factors that are responsible for the expansion of big city crime to its present alarming proportions. The mounting cost of public welfare payments can likewise be traced back to the unemployment situation more than to any other cause. Of course, many of the welfare recipients are classified as unemployable, but a substantial proportion of these persons are not unemployable in fact, but merely unemployable by law: an absurd outcome of an inadequate understanding of economic fundamentals on the part of the lawmakers and those to whom they look for economic advice. Additionally, many of those that are now genuinely unemployable have dropped into this category only because of the deteriorating effect of enforced idleness earlier in their lives. Furthermore, much of the welfare assistance goes to the support of fragments of broken homes, and there is no question but that a large number of these homes would still be intact if employment were more readily obtainable, particularly by the sub–standard worker. Unfortunately, the type of individual who habitually finds it difiicult to hold a job is also likely to find it hard to carry the responsibility of supporting a family, even under the best of conditions, and where one problem is super–imposed on the other, the common denouement so familiar to the welfare worker is not surprising.

The racial issue that now looms so ominously on our horizon similarly reduces in large measure to a question of employment. As matters now stand, the unemployment rate is substantially higher for the minority groups than for the population as a whole, but as long as the economic organization permits an appreciable amount of general unemployment to exist, the minorities cannot improve their relative position except at the expense of the maj ority. Obviously such a result will not be easily attained, but unless employment opportunities are broadened for the minorities, so that they can rise to an economic status that will give them the means to make themselves more employable,. they will continue to be less acceptable to employers, and hence more subject to unemployment even if there is no unjustified discrimination. This is a good example of the traditional “vicious circle” that so often makes its appearance in economic affairs. Unless the general employment situation is improved, more and better jobs will not be forthcoming for the minority groups until they are better educated, better disciplined, and better trained, but they cannot achieve this improvement in education, discipline, and training unless they have the benefit of the income from more employment.

Industrial strife is generally correlated with wages and working conditions, but those who have participated in labor negotiations know that the spectre of unemployment looms larger to the average workman than any other labor iss.e and, so far as the rank and iile are concerned, job security is the paramount goal. This accounts for the tenacity with which the unions defend their “jurisdiction” and for the prevalence of so–called “rules” that prescribe how many men the employer must assign to certain tasks, and, in many instances,. limit his use of labor–saving devices. The bitterness of the union resistance to the elimination of “feather–bedding” practices is somewhat bewildering to the ordinary citizen, who imds it difficult to see any justification for requiring an employer to carry unnecessary men on the payroll to perform useless work, or to stand by without doing any work at all, but the worker who sees what is, or may be, a threat to his livelihood cannot be expected to view the situation objectively.

On the international scene we find a similar preoccupation with employment. The struggle for a “favorable balance of trade” – an excess of exports over imports – makes no sense at all if it is viewed in its true status as a trade issue. Unless the excess of exports is ultimately counterbalanced by an equivalent excess of imports, it is simply donated to the foreigners in the long run. The respective efforts to achieve a “favorable” balance of trade therefore amount to nothing more than a competition to see which nation can give away the greatest amount. But the whole picture is confused by the injection of the employment issue into a situation that ought to be wholly independent of employment. Under existing conditions an excess of imports, even though it is, in itself, definitely beneficial to the nation as a whole, has a deflationary effect on the economy and leads to business recession and unemployment. Thus what ought to be a harmonious and mutually pro˛table exchange of products between nations becomes a dangerous bone of contention, generating suspicion and .ill–will, and not infrequently leading to armed conflict.

The general situation with respect to unemployment is summed up in this manner by Professor George L. Bach:

Involuntary unemployment means waste of productive capacity. It means less clothing, fewer refrigerators, highways, and factories than we could otherwise have. It means human misery, resentment, shame, decay of skills, degrading deprivation for the unemployed and their families. It means a lower average standard of living for the nation, and slower economic growth for our children and grandchildren.l
One of the most distressing features of the situation is that, by and large, the attempts that are made to solve social and economic problems of the kind that have been mentioned, without first taking care of the underlying deficiencies in employment have a distinct tendency to aggravate the troubles rather than correct them. The damaging effects of the minimum wage laws in creating a new class of “unemployables” by legal action are widely recognized, even though this recognition has had little effect when matched against political expediency. Additionally, these minimum wage laws join with legal restraints on employment of minors, and with extra–legal restrictions imposed by the labor unions, to force thousands of young people into that idleness which is responsible for much, if not most, of the juvenile crime and delinquency that is of such immediate concern at the moment.

The enormous expansion of public welfare and unemployment payments in recent years represents an almost heroic effort to reach objectives that are just as commendable as those visualized by the supporters of the minimum wage legislation, but here again the inability of the community to provide employment for those who should be working comnletely alters the actual result of these programs and produces something quite different from the original objectives. The welfare assistance is supposed to go to those who cannot work, while unemployment insurance is intended to take care of those who are temporarily unable to find work which they are seeking, but under present conditions it is practically impossible to distinguish individuals in these categories from those who do not want to work, and the result is that both the roster of unemployment insurance beneficiaries and the welfare rolls fill up with individuals of the latter class. A particularly unfortunate fact is that idleness easily becomes habitual, and we are rapidly developing a class of society to whom welfare is a way of life.

The strenuous efforts that are now being made to equalize employment between the white and the non–white workers are likely to produce some equally undesirable results unless some signif icant advance is made toward a solution of the general employment problem. As a matter of abstract justice, it is clear that the burden of unemployment should rest no heavier on one group than on another, but under the conditions that now exist an mcrease in employment of non–whites can be attained only at the expense of the white workers, and those individuals who are displaced f°om their jobs, o° who are denied jobs that they would otherwise have obtained, are altogether unlikely to be sympathetic with abstract justice. The resistance to such action will be all the more emphatic in view of the awkward fact that the accomplishment of the objective of an equitable distribution of the available jobs between the different groups will require replacing workers who, on the average, are better qualified,by workers who, on the average, are less qualified.

From the standpoint of the public at large, the detrimental effects of “featherbedding”, opposition to the use of labor–saving machinery, and other similar measures that the production workers employ in an effort to avoid loss of jobs are quite easily visualized, but some of these measures have an equally harmful effect on the economic status of the workers themselves, due to characteristics of the job–creating process that are not generally recognized. These factors that defeat the workers’ efforts to preserve employment, and aggravate the problems they are intended to alleviate, will be discussed in the pages that follow, together with similar items in the area of international trade, where, again, the problem of unemployment stands squarely in the way of many worth–while objectives.

The logical procedure in all of these fĚnelds is to take care of the employment situation first, and then to attack the specific issue without the complications introduced by employment considerations. When we have work readily available for everyone, both the conditions that foster crime and the incentive toward crime will be minimized. When we are able to say to those who can work that they must work instead of living on welfare money or drawing unemployment compensation, we will be well on our way to curing what is now a serious disease of the social order. When we can provide work for all of our citizens there will no longer be any question of employment discrimination between one group and another. When there are plenty of new jobs available there will no longer be any sound reason for resisting the abolition of unnecessary jobs. When we no longer have to fear that we are “importing unemployment” when we import goods, our international trade relations will become much more harmonious.

Today no one denies that unemployment presents us with a serious challenge; nor is there any disposition to gainsay the conclusion that we are justified in making strenuous efforts to solve this most pressing problem, but it is questionable whether there is a general recognition of how serious the problem actually is; how widely the deadening influence of unemployment permeates into nearly all phases of our social and economic life. Such a recognition could hardly fail to carry with it a conviction that the nation is not taking the problem seriously enough; that we need to give it a priority greatly exceeding anything that it now enjoys.

Of course, much of what appears to be indifference to the situation on the part of the general public is actually the result of a rather general realization that the correct answer to the problem has not yet appeared. There are those who are ready to rush into any kind of ill–advised measures just to be doing something, but the average citizen takes a dim view of this sort of thing. The record of the depression years, when aIl of the shopworn remedies thus far available were applied to the ailing economy in massive doses, with no visible result other than a big addition to the taxpayers’ burden, is enough to disillusion anyone but the visionary.

However, the fact that we do not now have an answer to the problem is no justification for inaction; it merely means that the priority which this issue clearly deserves, for the reasons that have been discussed in the preceding paragraphs, should be applied to the task of finding the answer. As society is now organized, this is a task that would normally be assumed by the economists, in whose iield the subject lies, but the inability ofthe economic profession to arrive at satisfactory answers to this and a host of other important economic problems, or even to agree on any answers, satisfactory or not, has raised a serious question as to whether the methods currently in use by this profession are adequate. This question is all the more pertinent in view of the fact that another group of investigators, the physical scientists, operating concurrently, but utilizing much different methods, have achieved some very spectacular successes in their field during the same period of time. A great many observers have thus been led to ask whether the remedy for the inadequacies of present–day economics might not lie in utilizing the highly successful methods of the physical sciences in the economic field.

Thus far the results that have been obtained from efforts along this line have not been encouraging. With few exceptions, however, these attempts at application of scientific procedures to economic problems have been made by members of the economic profession, rather than by scientists, and there is good reason to suspect that the failure to achieve satisfactory results has not been due to whatever limitations there may be on the applicability of the scientific approach, but is chargeable to a lack of sufficient understanding of the essentials of scientific procedure on the part of those who have undertaken the work, coupled with an inability to break loose from the rigid pattern of thought established in the economic field by long years of non–scientific treatment of the subject matter. The existing situation would therefore seem to call for a direct attack on the economic problems by scientists, .working with the tools to which they are accustomed, rather than leaving the job to be done by members of another profession attempting to use tools borrowed from science. This is the fundamental concept on which the present work is based.

Of course, the economists contend that their subject is also a science – one of the so–called “social sciences”– and that their methods are consequently entitled to be called “scientific”. But this assertion is irrelevant. Whatever they may be called, these are not the methods of the physical sciences, the methods that the scientists use and that they call scientific. The difference between the two methods of approach is described by Ernest Nagel, in his book The Structure of Science, in this manner:

It is also generally acknowledged that in the social sciences there is nothing quite like the almost complete unanimity commonly found among competent workers in the natural sciences as to what are matters of established fact, what are the reasonably satisfactory explanations (if any) for the assumed facts, and what are some of the valid procedures in sound inquiry… In contrast, the social sciences often produce the impression that they are a battleground for interminably warring schools of thought, and that even subject matter which has been under intensive and prolonged study remains at the unsettled periphery of research.2
The general opinion among the economists is that such a difference is inevitable because in their field there are no “matters of established fact” in the sense in which this term is used in the physical sciences. Their subject matter, explains John M. Clark, “consists of desires and values”.3
Frank H. Knight expresses this position explicitly. “The data with which social sciences are concerned”, he says, “consist of meanings, opinions, attitudes and values, not of physical facts”,4 and on this basis he dismisses “the notion that social problems can be solved by applying the methods by which man has achieved increasing mastery over nature” as “false and illusory”.5

However, those who share this view – a category that probably includes most professional economists – are looking at only one portion of the total economic picture. Economics, as now constituted, is a mixture of factual and non–factual elements. Opinions, attitudes, etc. do play a major role in determining what economic actions are initiated, to be sure. But once those actions have been taken, the consequences thereof are determined by fixed and immutable natural laws that are no more responsive to human opinions and desires than the laws of the physical sciences. If we want to know what will happen when a particular economic action is taken, or alternatively, what actions are required in order to attain certain specified results, then we need to determine, just as we would in the case of a physical question, what natural laws and principles are involved, and how each of them enters into the situation that we are investigating.

This is what has been lacking, so far as the employment problem is concerned. No one has ascertained, definitely and conclusively, what causes unemployment. The economists have not even looked for a specific answer to this question because they are convinced that, as Gunnar Myrdal puts it, “What all social sciences are dealing with is, in the last instance, human behavior”, and human behavior cannot be reduced to specific facts and figures. “The regularities we find”, Myrdal insists, “do not have the firm general validity of ‘laws of nature.”6

The finding of this present work is that this prevailing opinion is totally wrong. There are natural economic laws that have the same force as the natural physical laws. There is a specific factor that determines whether or not unemployment will exist, and the amount thereof. Part One of this volume will be devoted to deriving and explaining this factor: the “law of nature” applicable to employment: In the discussion we will first consider what the employment goals should be; that is, what we mean by the term “full employment” that appears in the title of the book. Then, as a background for the examination of employment fundamentals, we will demonstrate the erroneous nature of almost all of the ideas and opinions with respect to employment that are currently in vogue. Finally, we will carry out a scientific analysis of the employment situation and identify the controlling factor.

In Part Two, the information developed in Part One will be applied first to an examination of the measures currently utilized or advocated for reducing the amount of unemployment, and then to an identiiication of measures that will reach the same objective without the excessive cost and undesirable side effects of the measures heretofore regarded as the only ones that are available. To conclude the presentation, an effective employment program will be itemized, to show how an appropriate selection from among the available measures will enable meeting the employment goals previously de˛ned without cost to the taxpayers.


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