And Pharaoh commanded the same day the taskmasters of the people, and their officers, saying, Ye shall no more give the people straw to make brick, as heretofore: let them go and gather straw for themselves. And the tale of the bricks, which they did make heretofore, ye shall lay upon them; ye shall not diminish ought thereof: for they be idle; therefore they cry, saying, Let us go and sacrifice to our God. Let there more work be laid upon the men, that they may labour therein; and let them not regard vain words (Exodus 5:6-9).
This passage should be familiar. I used it to begin Chapter 7: “The Curse of Machinery.” I am using it again for a simple reason: Chapter 10 is a recapitulation of Chapter 7. In Chapter 10, Hazlitt presented a variation of the argument in Chapter 7. In Chapter 7, he answered those critics of the free market who rejected mechanization of the labor markets because this supposedly would displace workers. Here, he used the same line of reasoning to refute critics of the free market who insisted that the federal government must intervene into the labor markets to guarantee full employment, which critics insisted the free market could not do.
Pharaoh had three economic goals. First, he wanted full employment for Israelites — life without leisure. Second, he wanted the same output of bricks. Third, he wanted reduced costs: the costs associated with producing straw, which Egyptian taskmasters had previously borne. Straw was used in making bricks. He turned the task of gathering straw over to the Israelites. In short, he wanted something for nothing: the same quantity of bricks, but cheaper for Egypt. But Pharaoh was a better economist than any Keynesian today. He knew there would not be something for nothing by means of a state decree. The Israelites would be forced to work harder.
There would be fuller employment: more work for the Israelites. Whatever free time they had possessed before Moses and Aaron challenged the authority of Pharaoh was now removed. Pharaoh punished them for the “vain words” that their covenantal representatives had spoken in his presence. He would show them who was in charge. The Israelites would bear the negative sanction of additional employment. The implication was clear: any further demands for a week’s vacation to go and sacrifice to God would be followed by additional negative sanctions.
Pharaoh saw full employment as a negative sanction. So did the Israelites. In contrast, modern advocates of state intervention into the labor markets see full employment as a positive sanction. It is so positive, they argue, that voluntary contracts between employer and employees must be prohibited by law. The state must toss a stone.
A great benefit of the free market is this: it allows full employment for those who wish to work for a wage, and it allows leisure for those who do not. The only way that any society can gain both results is through an absence of state regulations over the labor markets. This is the “miracle of the market” — in the labor markets, as in all other markets. “But wait! There’s more!” The free market also fosters full employment of all known resources, not just labor: land, raw materials, tools, and accurate information about economic conditions: past, present, and future.
1. Owner
There are multiple owners. The first owner is a person who owns capital. This capital includes a forecast regarding what customers will be willing and able to pay for a particular good or service in the future. He is an entrepreneur, for he possesses money, a forecast, and a plan to meet his forecast. The second owner is a worker who possesses the skills associated with producing this good or service. The third owner possesses scarce resources other than labor — resources that are crucial to the entrepreneur’s plan of production. The fourth owner is the potential future customer who will own money at the time the good or service is brought to market.
Each possesses resources. Each has goals that may be attainable through a judicious application of their individual rights of ownership. In short, they possess opportunities for cooperation in the division of labor.
2. Window
These resource owners come together in a complex series of joint ventures. There is no central plan. The employer seeks employees at some wage, who in turn seek employment at some wage. If the wage is adjusted through competitive bidding, there will be no potential employees willing to work at that wage. There will also be no opportunities for the employer to increase his expected rate of profit by hiring an additional laborer. These are market-clearing wages, task by task. Then the employer will put them to work. He will also provide them with complementary factors of production: commercial land, tools, and raw materials. He puts up his own money, or money he has raised from investors and lenders, to make all this possible.
All of this is the product of a series of entirely voluntary contracts. These arrangements are not aspects of a central economic plan that was drawn up by any state official or agency. The owners of assets come together in the social division of labor. Each brings a unique resource to the production mix. Each seeks his own benefit.
There is full employment on this project. But this employment is not just the employment of labor. It is the employment of vision, money, capital, labor, tools, raw materials, and land.
All of this is a matter of competitive bidding. Employers compete against employers. Workers compete against workers. Resource owners compete against resource owners. Meanwhile, customers bide their time to see who will offer them the best deals when they finally decide to go shopping.
There is full employment . . . at specific prices. Why? Because something is better than nothing. Everyone wants a better deal, but there comes a time when any deal is better than no deal. The entire free market system is governed by, and motivated by, the most economically productive phrase in the history of man: “Let’s make a deal.” (This has been America’s unofficial national slogan since about 1625.)
The window of the free market lets us see as through a glass, darkly. We all are looking for a better deal . . . at some price.
3. Stone
Incumbent politicians also want a deal. They want voters to re-elect them. So, they look for promises that will persuade voters to vote for them at the next election.
One appealing promise is this: the federal government can guarantee lots of jobs. The free market, they argue, has failed to provide full employment. But there is an asterisk: “at a living wage.” This wage is a higher wage than employers are willing to pay. So, there are unemployed workers sitting around. There are also unemployed raw materials, tools, and commercial land. But few politicians look this closely at these other markets. They are interested in promoting full employment for workers, who vastly outnumber the owners of raw materials, tools, and commercial land.
The Great Depression in the 1930’s was the result of prior central bank inflations in the 1920’s, most notably in the United States, Great Britain, and Western Europe. When this boom turned into a bust after 1930, governments adopted Keynesian policies — half a decade before Keynes justified them in convoluted prose inThe General Theory (1936). Herbert Hoover and the Republican Congress were pre-New Dealers in this regard. Governments in the West interfered with labor pricing, capital markets, and international trade. They all did this in the name of full employment. Nevertheless, unemployment remained high wherever forced labor was not imposed by socialist tyrants, who adopted either slave labor (USSR) or regimented labor (Nazi Germany).
Then, after nearly a decade of high unemployment, beginning on September 1, 1939, politicians in Europe found a politically effective way to overcome the unemployment of the Great Depression: World War II. This war led to regimented labor on a scale never before seen in the history of mankind. Governments drafted tens of millions of men into the armed forces. They encouraged tens of millions of women to replace these men in munitions factories. Then they taxed all adults who were not in the armed forces. The voters were willing to bear such taxes and regimentation in the name of military victory. It was “jobs for all.” Everyone was paid a living wage . . . until the bombs fell. Wages ceased for those directly under the bombs.
Central bankers inflated the various money supplies. This would have raised prices and wages, but all of the governments imposed price and wage controls — people controls — and political rationing. This reduced real wages, thereby increasing the demand for labor. (Remember economics’ fundamental law: “At a lower price, more is demanded.”) Presto: no more unemployment.
Then battlefield deaths reduced the work force. There were more jobs for the survivors. “Jobs for all!”
Then came the saturation bombings. This leveled cities. There was more work for rebuilding. “Jobs for all!”
World War II was the greatest government-imposed full employment program of the twentieth century. Wartime full employment is available to governments at any time. All that the voters need to do is recognize the reality of three unspoken words: “At some price.” The price of World War II was 65 million deaths — a significant reduction of the work force, leading to higher employment rates.
When Hazlitt was writing his manuscript, it was widely feared that the pre-War rates of unemployment would reappear. The Full Employment Act of 1946 became law while he was writing his book.
He called full employment a fetish. It was a fetish for two reasons, First, there was the widespread fear of another depression: “no war, no full employment.” Second, there was the fear of Keynesian economists and their disciples that without the central planning associated with war, which the public tolerated only for the sake of military victory, the labor markets would not clear through voluntary exchange. This is the universal fear of Keynesian economists. It defines them. Clausewitz wrote: “War is merely the continuation of policy by other means.” Keynesianism is merely the continuation of wartime central planning by other means. Keynesians know that the public will not accept price controls and rationing in peacetime. But they promote the other wartime policies: government deficits and central bank monetization of debt.
Politicians, then as now, care about votes. Unemployed voters might vote incumbent politicians out of office. Politicians care deeply about productivity, but only of a special kind: generating votes. Full employment generates votes better than any other condition, economic or otherwise. Full employment is indeed a fetish — for voters and for politicians.
