One of the key indicators of the economic “performance” of any given country is its rate of unemployment. Low rates of unemployment are understood as a sign of prosperity while high rates are taken as a sign of recession and stagnation. Indeed, during the Great Depression, unemployment reached as high as 25% in the United States. Politicians are particularly keen to monitor the rate of unemployment as low unemployment lends credence to the economic policies of those in power while high unemployment stocks the arsenal of those in the opposition. Given also that entire economic dogmas such as the so-called trade-off between full employment and inflation, not to mention the generation-long post-war Keynesian consensus are, at least, part rooted in the concept of unemployment, one would expect unemployment to be a unique and important category in economic theory.
This short essay will not explore in detail the government induced causes or aggravations of unemployment such as the minimum wage and excessive regulations heaped upon the shoulders of employers. Such topics have been examined countless times over by many economists, “Austrian” or otherwise. Rather, what we wish to concentrate on here is the validity of the very term “unemployment” itself and to determine whether it is really a useful concept in shaping so-called “economic policy” or whether it is really redundant and meaningless.
In the first place, as “Austrians” we must be highly suspicious of any concept that is an aggregation and is not explicitly linked to any notion of individual human action. All voluntary actions are, as we know, the result of the best choice of ends available with scarce means. A man who has several million pounds stashed in his bank account may be content to spend all of his time in leisure and would be “unemployed”. Yet aside from any moral wrangling over the worth of such a lifestyle we would hardly view this as a problem. But what about those lesser privileged folk – the ones who are not working but nevertheless have the outward appearance of needing an income from some kind of employment? Shouldn’t we classify these people as “unemployed” and doesn’t this state of unemployment indicate an egregious case of market failure?
The question turns on whether employment at the terms of the available opportunities is worthwhile for the individual person. If there are jobs available yet he refuses to accept them then it indicates that he is not satisfied with the terms of those opportunities. Perhaps it is the wrong industry, it is in wrong the place, or – most likely – the wage offered isn’t high enough for him. He therefore chooses to abstain and holds out for a better opportunity to appear in the future. From the point of view of individual satisfaction with the scarce means available, the outcome of seeming “unemployment” is therefore optimal. Indeed, labour, like anything else, is a resource that is available for an individual to use. Not all resources are deployed 100% of the time as it would be wasteful to do so. Everyone, for example, owns possessions that are not being used at the current moment – food in the fridge, clothes in the wardrobe, books and DVDs on the shelf, etc. Clearly it would be wasteful – nay, ridiculous – to try and use all of these “unemployed” resources at once. They are more valuable being kept in abeyance ready for utilisation when an opportune moment appears, i.e. when the person believes that use of them would yield more benefit than leaving them idle. More widely, there are always buildings to let, oil in the ground, trees that are left standing, water in lakes and reservoirs, and so on. All of these resources remain idle because an opportunity valuable enough for deploying them has not yet arisen. Indeed, consistent requirement for all resources to be utilised would mean that shops should be empty of all goods as they have already been purchased and consumed, and ultimately everything in the world should be consumed right now. To put it at its most basic, a person actively searching for the right job is not, in his mind, unemployed in the sense of carrying out a wasteful activity.
The inability to see labour as a resource that is deployed at the choosing of the individual labourer leads to many related fallacies and reveals the dangers of looking only at surface phenomena and appearance. An individual does not view employment as an end itself – work for work’s sake. Rather, all employment is action aimed at diverting scarce means available to their most highly valued ends. Employment per se is not a goal or achievement. No one would dig a hole in the ground and fill it up again unless the act of doing so led to a valuable end. Governments and people succumb to the illusion of economic activity brought about by “employment” and the apparent lack of it by “unemployment”, with any focus on providing “full employment” never stopping to ask whether the activity in which employment will be created is worthwhile or is wasteful. The most grievous example of this this is, of course, the forced lowering of interest rates to provoke an artificial investment boom. There will be lots of employment, everyone will be engaged in lots of activity and wages will be rising rapidly. But it is clear that everyone’s endeavours are ultimately wasteful and lie on a doomed path. So-called full employment policies are therefore nothing more than a surface coating to prevent social unrest, to make people feel as though they are doing something worthwhile and to put money into their hands that they can spend. To the extent that these actions create no new wealth, however, they should properly be regarded as welfare and not as employment. The wheels may be turning but the carriage goes nowhere and it is simply expending fuel on motionless activity. Far more difficult would be for governments to concentrate on policies that promote full production instead of full employment as this would, of course, require a dramatic reduction in the size and scope of government power and interference.
We submit, therefore, that unemployment is a meaningless concept at least when applied to the unfettered free market. It may have some relevance in economies where governments impede the ability of the supply of labour to meet demand through minimum wages and the like. Apart from shutting out a good number of low-productive persons from the labour market entirely, such interferences ultimately distort people’s views as to which terms of employment are achievable – they hold out for high wages because there is the illusion that that is what their labour is worth. They do not realise, however, that supply is unwilling to meet demand at that inflated level and hence their search for employment is in vain. All of this, however, is simply a particular application of price theory. If the price of any good is fixed too high it will remain unemployed. There is, therefore, no special concept of unemployment applying only to labour that attracts a different body of theory. Furthermore, the whole question of “nominal rigidity” or so-called “sticky wages” is beside the point when it comes to economic theory. If the demand for a particular good – in this case, labour – should drop it is entirely open for the particular labourers to express incredulity at this fact and to stubbornly hold out for wages that will never meet a willing demand. This is not, however, evidence of the market’s “failure to clear”. It is simply that the supply curve remains stuck to the left. There is an misconception that the market is “efficient” because it “values” everything correctly – a doctrine that underpins so-called “efficient market hypothesis”. But the “efficiency” of the market – the nexus of voluntary exchanges between individual people – comes from its superior ability to channel goods to where they are most highly valued; it has nothing to do with whether a good should be valued or whether any particular valuation is correct. A good could be utterly useless but if a significant enough people chase a small supply it will command a relatively high price. The market will place this ware in the hands of those who value it the most, but the source of that value is the human mind and this valuation can be and often is erroneous. If people remain unemployed, holding out for unrealistically high wages, the fault lies in their incorrect assessment of the value of their labour, not in any market’s failure. Needless to say, however, the causes of these erroneous valuations are government interferences. It is because government creates such macroeconomic calamity that price bubbles and collapses occur and so-called “sticky prices” are a phenomenon associated with post-boom deflations. Having become accustomed to high wages, it is natural for workers to become frustrated and resistant when supply for these wages suddenly dries up and they not only have to face the prospect of lower wages but also a mass shift out of the capital goods industries – where they may have developed significant, specialist skills in the meantime – to consumer goods industries. In a genuine free market it is highly unlikely that workers would be faced with these problems. However, none of this really has much to do with economic theory, the purpose of which is to expound the formal characteristics of human action rather than the substance of those actions. Rather, sticky wages is more a topic for psychology, the field of human action that studies why people make the valuations that they do.
We conclude, therefore, by emphasising that there is no special category of “unemployment” as it applies solely to labour. Any “unemployment” of labour is explained either as the willing choice of the individual worker to withhold his labour from the market (and thus, to him, the best possible outcome), or as the result of government price fixing which is merely a particular instance of the economic effects of that wider category of interference.
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Libertarians Beware?
March 7, 2015
Duncan Whitmore Commentary/Review, Essays, Method and Strategy 3D Printing, Agorism, Bitcoin, Black Market, Education, Entrepreneurship, Government, Internet, Lew Rockwell, Libertarian Movement, Libertarianism, Murray Rothbard, Power, Revolution, Robert Wenzel, Silk Road, War on Drugs Leave a comment
An article concerning the libertarian attitude towards the black market by Robert Wenzel entitled “A Warning to Libertarians: Please Do Not End Up Like Ross Ulbricht” recently appeared on the libertarian site Lewrockwell.com. Wenzel’s basic premise is that libertarians in their capacity as libertarians should not celebrate the black market, let alone get involved in it as budding entrepreneurs:
He then quotes Murray Rothbard’s discussion of Samuel Konkin’s agorism:
Returning to his own commentary, Wenzel continues:
One can agree that this appeal to libertarians to heed a bewaring of the black market makes several important points. First, a libertarian is certainly not necessarily a good entrepreneur and regardless of whether he is he would still need to devote a lot of time to reading, studying, absorbing, understanding and debating libertarianism. One cannot pursue a cause unless one has a thorough understanding of that cause. Second, simply because libertarian theory permits certain activities that are currently illegal (the vending and use of drugs being a pertinent example) does not mean that libertarians promote such activities as a good thing to be encouraged. Such a question concern’s one’s personal morality and not libertarianism as such. The libertarian movement itself seeks to neither promote nor disparage any substantive choice of action whatsoever and there is a genuine risk that libertarians will either be labelled as the “anything goes” crowd or, worse, may be identified with the active encouragement of acts which, while they do not breach the non-aggression principle, are otherwise odious, unpleasant and/or lacking in social acceptance.
However, where the present author parts company with Wenzel is the suggestion that a) operations such as the black market and entrepreneurship in general fundamentally do not matter very much in the fight for liberty and b) that painstaking education of the populace is likely to be far more productive in this regard. There is also the suggestion, exemplified by the Rothbard quotation, that traditional political parties that are organised to promote liberty are the way forward and have worked in the past. However, it is our contention here that these propositions are likely to be untrue and that, in fact, entrepreneurship will have a far more effective role to play in the practical matter of bringing about a world of liberty while education and political parties may, in fact, have a minimal effect.
Many libertarians probably have it in their head that a free world will one day be achieved through a giant revolution where the inspired masses rise up and force the transition from an imperialist-statist regime to one of liberty. But one has to wonder precisely how this is going to happen. Even if a majority of the world’s population became educated enough about the benefits of liberty, a transition to a world of liberty is one from a state of power to one of an absence of power. Revolutions, however, are fundamentally the replacement of the holders of power. In other words, the power vacuum left by the vanquished rulers is filled quickly by the revolutionary leaders – and we all know how potently power corrupts. It did not take altogether too long, for example, for the post-revolutionary United States to begin centralising power and even so ardent an advocate of liberty as Thomas Jefferson left a questionable record once he became President. A libertarian revolution, the end product of which is a fragmentation and scattering of power from central concentration in governments and states down to the individual, is therefore likely to be largely leaderless and lacking any concentration in terms of personalities, places and also times. Rather, different people, in different places at different times will carry out independent acts to move the world one step closer towards freedom. Libertarianism is, therefore, fundamentally about rejecting the world of political parties, political leaders and electioneering – not seeking to emulate them or join in their game.
Underestimated, therefore, is the possibility that rather than government being overthrown the likeliest route for the achievement of liberty is for government to simply dissolve through circumvention. Given this, the importance of black and regular markets starts to become apparent. For even if the population becomes educated enough to be inspired towards liberty, in order to truly achieve such a world through a de-homogenised process lacking in central control and leadership, small, local and independent circumventions of government authority – as exemplified by the black market where scattered, independent entrepreneurs attempt to meet the people’s needs that happen to be contrary to the proscriptions of the government – are likely to be a key route to in bringing this about. In other words, government simply drowns in a sea of non-compliance with its diktats. Indeed one of the reasons why, for example, the underground drugs industry is so difficult for government to even scratch the surface of, let alone conquer, is because there is not one giant overarching drugs lord sitting on his throne dispensing all of the world’s drugs, ready for the government to take out and thus win the war. Rather, it is because there are a multitude of relatively small, independent suppliers, with their own locations, their own partners and stakeholders, their own methods and techniques, and so on. Taking out any one of them does not necessarily stop the rest, and even if it did what is there to stop someone new from springing up and setting up shop? The seizure of a large drugs shipment, usually celebrated as a grand achievement, barely makes a dent in the ability of the black market entrepreneurs to continue to produce and supply these substances.
However, even this path – that of the black, underground and regular markets providing an outlet for an educated public – is probably not going to be the way in which a world of liberty will be achieved and we can suggest a far more likely, praxeologically supported scenario of what will happen. All governments require at least the tacit support of a majority of the population in order to retain their power. But it does not follow that the breaking of this tacit support necessarily requires the people to become educated about the ethics of private property and the moral odiousness of the state (although one can hardly deny that such an education would be a good thing). Whatever regime exists humans will always think and feel as individuals – they have ends as individuals, they act as individuals and they feel gain or loss as individuals. Their support, or tacit acceptance of government, relies not only on the fact that government is seen to be legitimate but also on the fact that it is perceived to accomplish certain ends for the individual. In particular, protection from crime, and the sustenance and stability of a peaceful order are seen by almost everybody to be the primary function of and justification for government. Like any other means to an end, government will cease to be supported when its costs, real or perceived, outweigh its benefits.
In the first place, as bankrupt governments unload increasing privations and annoyances upon the daily lives of their citizens, it is precisely the shrewd entrepreneurs who will find a market of people who seek to overcome these irritations. We can see this already with innovations such as Bitcoin and 3D printing seeking to overcome the government monopoly over the financial services and firearm restrictions respectively. But the march of technological progress does not even require entrepreneurs to be consciously aware that it is curbing government power. The internet, for example, has practically obliterated the government monopoly over information. The very pinnacle of market circumvention of government would be to shatter its very raison d’être – the monopoly of force and the dispensation of justice – without which it would simply not be able to impose its oppressive and parasitic existence upon the citizenry. What if there was some way of not overcoming or overthrowing government’s force but of simply circumventing it and making it a practical non-entity in people’s lives? As the present author stated in a previous piece, “Making Government Irrelevant”,
Therefore, people do not necessarily need to overthrow government or come to understand how evil and immoral it is – it simply needs to made irrelevant in their lives. And it is entrepreneurs, either existing in the black or mainstream markets who are the most likely to be the path through which a world of liberty is achieved. It is submitted that, given the innovations in this regard that have been accomplished so far and the difficult government is having in coping with them, this route will be the most successful in building the road to liberty than any attempts to educate the populace towards revolution. Education will, of course, always be important and every libertarian has a duty to read, learn and debate libertarian theory. And certainly no libertarian has any business engaging in entrepreneurial ventures if he is completely lacking in the required talent. But so too should we be prepared to recognise the fact that entrepreneurial invention and ultimately the market, the very thing itself that we as libertarians champion – individual people seeking to peacefully and voluntarily meet their ends through means – is the most likely thing that will bring about the world that we believe is right.
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