            C.9 Would laissez-faire capitalism reduce unemployment?

   In order to answer this question, we must first have to point out that
   "actually existing capitalism" tries to manage unemployment to ensure a
   compliant and servile working class. This is done under the name of
   fighting "inflation" but, in reality, it about controlling wages and
   maintaining high profit rates for the capitalist class. Market
   discipline for the working class, state protection for the ruling
   class, in other words. As Edward Herman points out:

     "Conservative economists have even developed a concept of a 'natural
     rate of unemployment,' a metaphysical notion and throwback to an
     eighteenth century vision of a 'natural order,' but with a modern
     apologetic twist. The natural rate is defined as the minimum
     unemployment level consistent with price level stability, but, as it
     is based on a highly abstract model that is not directly testable,
     the natural rate can only be inferred from the price level itself.
     That is, if prices are going up, unemployment is below the 'natural
     rate' and too low, whether the actual rate is 4, 8, or 10 percent.
     In this world of conservative economics, anybody is 'voluntarily'
     unemployed. Unemployment is a matter of rational choice: some people
     prefer 'leisure' over the real wage available at going (or still
     lower) wage rates . . .

     "Apart from the grossness of this kind of metaphysical legerdemain,
     the very concept of a natural rate of unemployment has a huge
     built-in bias. It takes as granted all the other institutional
     factors that influence the price level-unemployment trade-off
     (market structures and independent pricing power, business
     investment policies at home and abroad, the distribution of income,
     the fiscal and monetary mix, etc.) and focuses solely on the
     tightness of the labour market as the controllable variable.
     Inflation is the main threat, the labour market (i.e. wage rates and
     unemployment levels) is the locus of the solution to the problem."
     [Beyond Hypocrisy, p. 94]

   Unsurprisingly, Herman defines this "natural" rate as "the rate of
   unemployment preferred by the propertied classes." [Op. Cit., p. 156]
   The theory behind this is usually called the "Non-Accelerating
   Inflation Rate of Unemployment" (or NAIRU). Like many of the worse
   aspects of modern economics, the concept was raised Milton Friedman in
   the late 1960s. At around the same time, Edmund Phelps independently
   developed the theory (and gained the so-called "Nobel Prize" in
   economics for so doing in 2006). Both are similar and both simply
   repeat, in neo-classical jargon, the insight which critics of
   capitalism had argued for over a century: unemployment is a necessary
   aspect of capitalism for it is essential to maintaining the power of
   the boss over the worker. Ironically, therefore, modern neo-classical
   economics is based on a notion which it denied for over a century (this
   change may be, in part, because the ruling elite thinks it has won the
   class war and has, currently, no major political and social movements
   it has to refute by presenting a rosy picture of the system).

   Friedman raised his notion of a "Natural Rate of Unemployment" in 1968.
   He rooted it in the neo-classical perspective of individual
   expectations rather than, say, the more realistic notion of class
   conflict. His argument was simple. There exists in the economy some
   "natural" rate associated with the real wage an ideal economy would
   produce (this is "the level that would be ground out by the Walrasian
   system of general equilibrium equations," to quote him). Attempts by
   the government to reduce actual unemployment below this level would
   result in rising inflation. This is because there would be divergence
   between the actual rate of inflation and its expected rate. By lowering
   unemployment, bosses have to raise wages and this draws unemployed
   people into work (note the assumption that unemployment is voluntary).
   However, rising wages were passed on by bosses in rising prices and so
   the real wage remains the same. This eventually leads to people leaving
   the workforce as the real wage has fallen back to the previous,
   undesired, levels. However, while the unemployment level rises back to
   its "natural" level, inflation does not. This is because workers are
   interested in real wages and, so if inflation is at, say, 2% then they
   will demand wage increases that take this into account. If they expect
   inflation to increase again then workers will demand more wages to make
   up for it, which in turn will cause prices to rise (although Friedman
   downplayed that this was because bosses were increasing their prices to
   maintain profit levels). This will lead to rising inflation and rising
   unemployment. Thus the expectations of individuals are the key.

   For many economists, this process predicted the rise of stagflation in
   the 1970s and gave Friedman's Monetarist dogmas credence. However, this
   was because the "Bastard Keynesianism" of the post-war period was
   rooted in the same neo-classical assumptions used by Friedman.
   Moreover, they had forgotten the warnings of left-wing Keynesians in
   the 1940s that full unemployment would cause inflation as bosses would
   pass on wage rises onto consumers. This class based analysis,
   obviously, did not fit in well with the panglossian assumptions of
   neo-classical economics. Yet basing an analysis on individual
   expectations does not answer the question whether these expectations
   are meet. With strong organisation and a willingness to act, workers
   can increase their wages to counteract inflation. This means that there
   are two main options within capitalism. The first option is to use
   price controls to stop capitalists increasing their prices. However,
   this contradicts the scared laws of supply and demand and violates
   private property. Which brings us to the second option, namely to break
   unions and raise unemployment to such levels that workers think twice
   about standing up for themselves. In this case, workers cannot increase
   their money wages and so their real wages drop.

   Guess which option the capitalist state went for? As Friedman made
   clear when he introduced the concept there was really nothing "natural"
   about the natural rate theory as it was determined by state policy:

     "I do not mean to suggest that it is immutable and unchangeable. On
     the contrary, many of the market characteristics that determine its
     level are man-made and policy-made. In the United States, for
     example, legal minimum wage rates . . . and the strength of labour
     unions all make the natural rate of unemployment higher than it
     would otherwise be." ["The Role of Monetary Policy," pp. 1-17,
     American Economic Review, Vol. 68, No. 1, p. 9]

   Thus the "natural" rate is really a social and political phenomenon
   which, in effect, measures the bargaining strength of working people.
   This suggests that inflation will fall when working class people are in
   no position to recoup rising prices in the form of rising wages. The
   "Natural Rate" is, in other words, about class conflict.

   This can be seen when the other (independent) inventor of the "natural"
   rate theory won the so-called Nobel prize in 2006. Unsurprisingly, the
   Economist magazine was cock-a-hoop. ["A natural choice: Edmund Phelps
   earns the economics profession's highest accolade", Oct 12th 2006] The
   reasons why became clear. According to the magazine, "Phelps won his
   laurels in part for kicking the feet from under his intellectual
   forerunners" by presenting a (neo-classical) explanation for the
   breakdown of the so-called "Phillips curve." This presented a
   statistical trade-off between inflation and unemployment ("unemployment
   was low in Britain when wage inflation was high, and high when
   inflation was low"). The problem was that economists "were quick -- too
   quick -- to conclude that policymakers therefore faced a grand,
   macroeconomic trade-off" in which, due to "such a tight labour market,
   companies appease workers by offering higher wages. They then pass on
   the cost in the form of dearer prices, cheating workers of a higher
   real wage. Thus policy makers can engineer lower unemployment only
   through deception." Phelps innovation was to argue that "[e]ventually
   workers will cotton on, demanding still higher wages to offset the
   rising cost of living. They can be duped for as long as inflation stays
   one step ahead of their rising expectations of what it will be." The
   similarities with Friedman's idea are obvious. This meant that the
   "stable trade-off depicted by the Phillips curve is thus a dangerous
   mirage" which broke down in the 1970s with the rise of stagflation.

   Phelps argued that there was a "natural" rate of unemployment, where
   "workers' expectations are fulfilled, prices turn out as anticipated,
   and they no longer sell their labour under false pretences." This
   "equilibrium does not, sadly, imply full employment" and so capitalism
   required "leaving some workers mouldering on the shelf. Given
   economists' almost theological commitment to the notion that markets
   clear, the presence of unemployment in the world requires a theodicy to
   explain it." The religious metaphor does seem appropriate as most
   economists (and The Economist) do treat the market like a god (a
   theodicy is a specific branch of theology and philosophy that attempts
   to reconcile the existence of evil in the world with the assumption of
   a benevolent God). And, as with all gods, sacrifices are required and
   Phelps theory is the means by which this is achieved. As the magazine
   noted: "in much of his work he contends that unemployment is necessary
   to cow workers, ensuring their loyalty to the company and their
   diligence on the job, at a wage the company can afford to pay" (i.e.,
   one which would ensure a profit).

   It is this theory which has governed state policy since the 1980s. In
   other words, government's around the world have been trying to "cow
   workers" in order to ensure their obedience ("loyalty to the company").
   Unsurprisingly, attempts to lower the "natural rate" have all involved
   using the state to break the economic power of working class people
   (attacking unions, increasing interest rates to increase unemployment
   in order to temporarily "cow" workers and so on). All so that profits
   can be keep high in the face of the rising wages caused by the natural
   actions of the market!

   Yet it must be stressed that Friedman's and Phelps' conclusions are
   hardly new. Anarchists and other socialists had been arguing since the
   1840s that capitalism had no tendency to full employment either in
   theory or in practice. They have also noted how periods of full
   employment bolstered working class power and harmed profits. It is, as
   we stressed in [1]section C.1.5, the fundamental disciplinary mechanism
   of the system. Somewhat ironically, then, Phelps got bourgeois
   economics highest prize for restating, in neo-classical jargon, the
   model of the labour market expounded by, say, Marx:

     "If [capitals] accumulation on the one hand increases the demand for
     labour, it increases on the other the supply of workers by 'setting
     them free', while at the same time the pressure of the unemployed
     compels those that are employed to furnish more labour, and
     therefore makes the supply of labour to a certain extent independent
     of the supply of labourers. The movement of the law of supply and
     demand of labour on this basis completes the despotism of capital.
     Thus as soon as the workers learn the secret of why it happens that
     the more they work, the more alien wealth they produce . . . as soon
     as, by setting up trade unions, etc., they try to organise a planned
     co-operation between employed and unemployed in order to obviate or
     to weaken the ruinous effects of this natural law of capitalistic
     production on their class, so soon capital and its sycophant,
     political economy, cry out at the infringement of the 'eternal' and
     so to speak 'sacred' law of supply and demand. Every combination of
     employed and unemployed disturbs the 'pure' action of this law. But
     on the other hand, as soon as . . . adverse circumstances prevent
     the creation of an industrial reserve army and, with it, the
     absolute dependence of the working-class upon the capitalist class,
     capital, along with its platitudinous Sancho Panza, rebels against
     the 'sacred' law of supply and demand, and tries to check its
     inadequacies by forcible means." [Capital, Vol. 1, pp. 793-4]

   That the Economist and Phelps are simply echoing, and confirming, Marx
   is obvious. Modern economics, while disparaging Marx, has integrated
   this idea into its macro-economic policy recommendations by urging the
   state to manipulate the economy to ensure that "inflation" (i.e. wage
   rises) are under control. Economics has played its role of
   platitudinous sycophant well while Phelps' theory has informed state
   interference ("forcible means") in the economy since the 1980s, with
   the expected result that wages have failed to keep up with rising
   productivity and so capital as enriched itself at the expense of labour
   (see [2]section C.3 for details). The use of Phelps' theory by capital
   in the class war is equally obvious -- as was so blatantly stated by
   The Economist and the head of the American Federal Reserve during this
   period:

     "there's supporting testimony from Alan Greenspan. Several times
     during the late 1990s, Greenspan worried publicly that, as
     unemployment drifted steadily lower the 'pool of available workers'
     was running dry. The dryer it ran, the greater risk of 'wage
     inflation,' meaning anything more than minimal increases.
     Productivity gains took some of the edge of this potentially dire
     threat, said Greenspan, and so did 'residual fear of job skill
     obsolescence, which has induced a preference for job security over
     wage gains' . . . Workers were nervous and acting as if the
     unemployment rate were higher than the 4% it reached in the boom.
     Still, Greenspan was a bit worried, because . . . if the pool stayed
     dry, 'Significant increases in wages, in excess of productivity
     growth, [would] inevitably emerge, absent the unlikely repeal of the
     law of supply and demand.' Which is why Greenspan & Co. raised
     short-term interest rates by about two points during 1999 and the
     first half of 2000. There was no threat of inflation . . . nor were
     there any signs of rising worker militancy. But wages were creeping
     higher, and the threat of the sack was losing some of its bite."
     [Doug Henwood, After the New Economy, pp. 206-7]

   Which is quite ironic, given that Greenspan's role in the economy was,
   precisely, to "repeal" the "law of supply and demand." As one left-wing
   economist puts it (in a chapter correctly entitled "The Workers Are
   Getting Uppity: Call In the Fed!"), the Federal Reverse (like all
   Central Banks since the 1980s) "worries that if too many people have
   jobs, or if it is too easy for workers to find jobs, there will be
   upward pressure on wages. More rapid wage growth can get translated
   into more rapidly rising prices -- in other words, inflation. So the
   Fed often decides to raise interest rates to slow the economy and keep
   people out of work in order to keep inflation from increasing and
   eventually getting out of control." However, "[m]ost people probably do
   not realise that the Federal Reserve Board, an agency of the
   government, intervenes in the economy to prevent it from creating too
   many jobs. But there is even more to the story. When the Fed hits the
   brakes to slow job growth, it is not doctors, lawyers, and CEOs who end
   up without jobs. The people who lose are those in the middle and the
   bottom -- sales clerks, factory workers, custodians, and dishwashers.
   These are the workers who dont get hired or get laid off when the
   economy slows or goes into a recession." [The Conservative Nanny State,
   p. 31] Thus the state pushes up unemployment rates to slow wage growth,
   and thereby relieve inflationary pressure. The reason should be
   obvious:

     "In periods of low unemployment, workers don't only gain from higher
     wages. Employers must make efforts to accommodate workers' various
     needs, such as child care or flexible work schedules, because they
     know that workers have other employment options. The Fed is well
     aware of the difficulties that employers face in periods of low
     unemployment. It compiles a regular survey, called the 'Beige Book,'
     of attitudes from around the country about the state of the economy.
     Most of the people interviewed for the Beige Book are employers.

     "From 1997 to 2000, when the unemployment rate was at its lowest
     levels in 30 years, the Beige Book was filled with complaints that
     some companies were pulling workers from other companies with offers
     of higher wages and better benefits. Some Beige Books reported that
     firms had to offer such non-wage benefits as flexible work hours,
     child care, or training in order to retain workers. The Beige Books
     give accounts of firms having to send buses into inner cities to
     bring workers out to the suburbs to work in hotels and restaurants.
     It even reported that some employers were forced to hire workers
     with handicaps in order to meet their needs for labour.

     "From the standpoint of employers, life is much easier when the
     workers are lined up at the door clamouring for jobs than when
     workers have the option to shop around for better opportunities.
     Employers can count on a sympathetic ear from the Fed. When the Fed
     perceives too much upward wage pressure, it slams on the brakes and
     brings the party to an end. The Fed justifies limiting job growth
     and raising the unemployment rate because of its concern that
     inflation may get out of control, but this does not change the fact
     that it is preventing workers, and specifically less-skilled
     workers, from getting jobs, and clamping down on their wage growth."
     [Op. Cit., pp. 32-3]

   This has not happened by accident. Lobbying by business, as another
   left-wing economist stresses, "is directed toward increasing their
   economic power" and business "has been a supporter of macroeconomic
   policies that have operated the economy with higher rates of
   unemployment. The stated justification is that this lowers inflation,
   but it also weakens workers' bargaining power." Unsurprisingly, "the
   economic consequence of the shift in the balance of power in favour of
   business . . . has served to redistribute income towards profits at the
   expense of wages, thereby lowering demand and raising unemployment." In
   effect, the Federal Reserve "has been using monetary policy as a form
   of surrogate incomes policy, and this surrogate policy has been tilted
   against wages in favour of profits" and so is regulating the economy
   "in a manner favourable to business." [Thomas I. Palley, Plenty of
   Nothing, p. 77, p. 111 and pp. 112-3] That this is done under the name
   of fighting inflation should not fool us:

     "Mild inflation is often an indication that workers have some
     bargaining strength and may even have the upper hand. Yet, it is at
     exactly this stage that the Fed now intervenes owning to its
     anti-inflation commitment, and this intervention raises interest
     rates and unemployment. Thus, far from being neutral, the Fed's
     anti-inflation policy implies siding with business in the
     ever-present conflict between labour and capital over distribution
     of the fruits of economic activity . . . natural-rate theory serves
     as the perfect cloak for a pro-business policy stance." [Op. Cit.,
     p. 110]

   In a sense, it is understandable that the ruling class within
   capitalism desires to manipulate unemployment in this way and deflect
   questions about their profit, property and power onto the state of the
   labour market. High prices can, therefore, be blamed on high wages
   rather than high profits, rents and interest while, at the same time,
   workers will put up with lower hours and work harder and be too busy
   surviving to find the time or the energy to question the boss's
   authority either in theory or in practice. So managing the economy by
   manipulating interest rates to increase unemployment levels when
   required allows greater profits to be extracted from workers as
   management hierarchy is more secure. People will put up with a lot in
   the face of job insecurity. As left-wing economist Thomas Balogh put
   it, full employment "generally removes the need for servility, and thus
   alters the way of life, the relationship between classes . . .
   weakening the dominance of men over men, dissolving the master-servant
   relation. It is the greatest engine for the attainment by all of human
   dignity and greater equality." [The Irrelevance of Conventional
   Economics, p. 47]

   Which explains, in part, why the 1960s and 1970s were marked by mass
   social protest against authority rather than von Hayek's "Road to
   Serfdom." It also explains why the NAIRU was so enthusiastically
   embraced and applied by the ruling class. When times are hard, workers
   with jobs think twice before standing up to their bosses and so work
   harder, for longer and in worse conditions. This ensures that surplus
   value is increased relative to wages (indeed, in the USA, real wages
   have stagnated since 1973 while profits have grown massively). In
   addition, such a policy ensures that political discussion about
   investment, profits, power and so on ("the other institutional
   factors") are reduced and diverted because working class people are too
   busy trying to make ends meet. Thus the state intervenes in the economy
   to stop full employment developing to combat inflation and instability
   on behalf of the capitalist class.

   That this state manipulation is considered consistent with the "free
   market" says a lot about the bankruptcy of the capitalist system and
   its defenders. But, then, for most defenders of the system state
   intervention on behalf of capital is part of the natural order, unlike
   state intervention (at least in rhetoric) on behalf of the working
   class (and shows that Kropotkin was right to stress that the state
   never practices "laissez-faire" with regard to the working class -- see
   [3]section D.1). Thus neo-liberal capitalism is based on monetary
   policy that explicitly tries to weaken working class resistance by
   means of unemployment. If "inflation" (i.e. labour income) starts to
   increase, interest rates are raised so causing unemployment and, it is
   hoped, putting the plebes back in their place. In other words, the road
   to private serfdom has been cleared of any barriers imposed on it by
   the rise of the working class movement and the policies of social
   democracy implemented after the Second World War to stop social
   revolution. This is the agenda pursued so strongly in America and
   Britain, imposed on the developing nations and urged upon Continental
   Europe.

   Although the aims and results of the NAIRU should be enough to condemn
   it out of hand, it can be dismissed for other reasons. First and
   foremost, this "natural" rate is both invisible and can move. This
   means trying to find it is impossible (although it does not stop
   economists trying, and then trying again when rate inflation and
   unemployment rates refute the first attempt, and then trying again and
   again). In addition, it is a fundamentally a meaningless concept -- you
   can prove anything with an invisible, mobile value -- it is an
   non-refutable concept and so, fundamentally, non-scientific. Close
   inspection reveals natural rate theory to be akin to a religious
   doctrine. This is because it is not possible to conceive of a test that
   could possibly falsify the theory. When predictions of the natural rate
   turn out wrong (as they repeatedly have), proponents can simply assert
   that the natural rate has changed. That has led to the most recent
   incarnation of the theory in which the natural rate is basically the
   trend rate of unemployment. Whatever trend is observed is natural --
   case closed.

   Since natural rate theory cannot be tested, a sensible thing would be
   to examine its assumptions for plausibility and reasonableness.
   However, Milton Friedmans early work on economic methodology blocks
   this route as he asserted that realism and plausibility of assumptions
   have no place in economics. With most economists blindly accepting this
   position, the result is a church in which entry is conditional on
   accepting particular assumptions about the working of markets. The net
   effect is to produce an ideology, an ideology which survives due to its
   utility to certain sections of society.

   If this is the case, and it is, then any attempts to maintain the
   "natural" rate are also meaningless as the only way to discover it is
   to watch actual inflation levels and raising interest rates
   appropriately. Which means that people are being made unemployed on the
   off-chance that the unemployment level will drop below the (invisible
   and mobile) "natural" rate and harm the interests of the ruling class
   (high inflation rates harms interest incomes and full employment
   squeezes profits by increasing workers' power). This does not seem to
   bother most economists, for whom empirical evidence at the best of
   times is of little consequence. This is doubly true with the NAIRU, for
   with an invisible, mobile value, the theory is always true after the
   fact -- if inflation rises as unemployment rises, then the natural rate
   has increased; if inflation falls as unemployment rises, it has fallen!
   As post-Keynesian economist James K. Galbraith noted in his useful
   critique of the NAIRU, "as the real unemployment rate moves, the
   apparent NAIRU moves in its shadow" and its "estimates and re-estimates
   seem largely a response to predictive failure. We still have no theory,
   and no external evidence, governing the fall of the estimated NAIRU.
   The literature simply observes that inflation hasn't occurred and so
   the previous estimate must have been too high." He stresses, economists
   have held "to a concept in the face of twenty years of unexplained
   variation, predictive failure, and failure of the profession to
   coalesce on procedural issues." [Created Unequal, p. 180] Given that
   most mainstream economists subscribe to this fallacy, it just shows how
   the "science" accommodates itself to the needs of the powerful and how
   the powerful will turn to any old nonsense if it suits their purpose. A
   better example of supply and demand for ideology could not be found.

   So, supporters of "free market" capitalism do have a point, "actually
   existing capitalism" has created high levels of unemployment. What is
   significant is that most supporters of capitalism consider that this is
   a laissez-faire policy! Sadly, the ideological supporters of pure
   capitalism rarely mention this state intervention on behalf of the
   capitalist class, preferring to attack trade unions, minimum wages,
   welfare and numerous other "imperfections" of the labour market which,
   strangely, are designed (at least in rhetoric) to benefit working class
   people. Ignoring that issue, however, the question now arises, would a
   "purer" capitalism create full employment?

   First, we should point out that some supporters of "free market"
   capitalism (most notably, the "Austrian" school) claim that real
   markets are not in equilibrium at all, i.e. that the nature state of
   the economy is one of disequilibrium. As we noted in [4]section C.1.6,
   this means full employment is impossible as this is an equilibrium
   position but few explicitly state this obvious conclusion of their own
   theories and claim against logic that full employment can occur (full
   employment, it should be stressed, has never meant 100% employment as
   they will always be some people looking for a job and so by that term
   we mean close to 100% employment). Anarchists agree: full employment
   can occur in "free market" capitalism but not for ever nor even for
   long periods. As the Polish socialist economist Michal Kalecki pointed
   out in regards to pre-Keynesian capitalism, "[n]ot only is there mass
   unemployment in the slump, but average employment throughout the cycle
   is considerably below the peak reached in the boom. The reserve of
   capital equipment and the reserve army of unemployed are typical
   features of capitalist economy at least throughout a considerable part
   of the [business] cycle." [quoted by Malcolm C. Sawyer, The Economics
   of Michal Kalecki, pp. 115-6]

   It is doubtful that "pure" capitalism will be any different. This is
   due to the nature of the system. What is missing from the orthodox
   analysis is an explicit discussion of class and class struggle
   (implicitly, they are there and almost always favour the bosses). Once
   this is included, the functional reason for unemployment becomes clear.
   It serves to discipline the workforce, who will tolerate being bossed
   about much more with the fear that unemployment brings. This holds down
   wages as the threat of unemployment decreases the bargaining power of
   workers. This means that unemployment is not only a natural product of
   capitalism, it is an essential part of it.

   So cycles of short periods approaching full employment and followed by
   longer periods of high unemployment are actually a more likely outcome
   of pure capitalism than continued full employment. As we argued in
   sections [5]C.1.5 and [6]C.7.1 capitalism needs unemployment to
   function successfully and so "free market" capitalism will experience
   periods of boom and slump, with unemployment increasing and decreasing
   over time (as can be seen from 19th century capitalism). So as Juliet
   Schor, a labour economist, put it, usually "employers have a structural
   advantage in the labour market, because there are typically more
   candidates ready and willing to endure this work marathon [of long
   hours] than jobs for them to fill." Under conditions of full-employment
   "employers are in danger of losing the upper hand" and hiring new
   workers "suddenly becomes much more difficult. They are harder to find,
   cost more, and are less experienced." These considerations "help
   explain why full employment has been rare." Thus competition in the
   labour market is "typically skewed in favour of employers: it is a
   buyers market. And in a buyer's market, it is the sellers who
   compromise." In the end, workers adapt to this inequality of power and
   instead of getting what they want, they want what they get (to use
   Schor's expression). Under full employment this changes. In such a
   situation it is the bosses who have to start compromising. And they do
   not like it. As Schor notes, America "has never experienced a sustained
   period of full employment. The closest we have gotten is the late
   1960s, when the overall unemployment rate was under 4 percent for four
   years. But that experience does more to prove the point than any other
   example. The trauma caused to business by those years of a tight labour
   market was considerable. Since then, there has been a powerful
   consensus that the nation cannot withstand such a low rate of
   unemployment." Hence the support for the NAIRU to ensure that "forced
   idleness of some helps perpetuate the forced overwork of others." [The
   Overworked American, p. 71, p. 75, p. 129, pp. 75-76 and p. 76]

   So, full employment under capitalism is unlikely to last long (nor
   would full employment booms fill a major part of the business cycle).
   In addition, it should be stressed that the notion that capitalism
   naturally stays at equilibrium or that unemployment is temporary
   adjustments is false, even given the logic of capitalist economics. As
   Proudhon argued:

     "The economists admit it [that machinery causes unemployment]: but
     here they repeat their eternal refrain that, after a lapse of time,
     the demand for the product having increased in proportion to the
     reduction in price [caused by the investment], labour in turn will
     come finally to be in greater demand than ever. Undoubtedly, with
     time, the equilibrium will be restored; but I must add again, the
     equilibrium will be no sooner restored at this point than it will be
     disturbed at another, because the spirit of invention never stops."
     [System of Economical Contradictions, pp. 200-1]

   That capitalism creates permanent unemployment and, indeed, needs it to
   function is a conclusion that few, if any, pro-"free market"
   capitalists subscribe to. Faced with the empirical evidence that full
   employment is rare in capitalism, they argue that reality is not close
   enough to their theories and must be changed (usually by weakening the
   power of labour by welfare "reform" and reducing "union power"). Thus
   reality is at fault, not the theory (to re-quote Proudhon, "Political
   economy -- that is, proprietary despotism -- can never be in the wrong:
   it must be the proletariat." [Op. Cit. p. 187]) So if unemployment
   exists, then its because real wages are too high, not because
   capitalists need unemployment to discipline labour (see [7]section
   C.9.2 for evidence that this argument is false). Or if real wages are
   falling as unemployment is rising, it can only mean that the real wage
   is not falling fast enough -- empirical evidence is never enough to
   falsify logical deductions from assumptions!

   (As an aside, it is one of amazing aspects of the "science" of
   economics that empirical evidence is never enough to refute its claims.
   As the Post-Keynesian economist Nicholas Kaldor once pointed out,
   "[b]ut unlike any scientific theory, where the basic assumptions are
   chosen on the basis of direct observation of the phenomena the
   behaviour of which forms the subject-matter of the theory, the basic
   assumptions of economic theory are either of a kind that are
   unverifiable. . . or of a kind which are directly contradicted by
   observation." [Further Essays on Applied Economics, pp. 177-8])

   Of course, reality often has the last laugh on any ideology. For
   example, since the late 1970s and early 1980s right-wing capitalist
   parties have taken power in many countries across the world. These
   regimes made many pro-free market reforms, arguing that a dose of
   market forces would lower unemployment, increase growth and so on. The
   reality proved somewhat different. For example, in the UK, by the time
   the Labour Party under Tony Blair come back to office in 1997,
   unemployment (while falling) was still higher than it had been when the
   last Labour government left office in 1979 (this in spite of repeated
   redefinitions of unemployment by the Tories in the 1980s to artifically
   reduce the figures). 18 years of labour market reform had not reduced
   unemployment even under the new definitions. This outcome was identical
   to New Zealand's neo-liberal experiment, were its overall effect was
   unimpressive, to say the least: lower growth, lower productivity and
   feeble real wage increases combined with rising inequality and
   unemployment. Like the UK, unemployment was still higher in 1997 than
   it had been in 1979. Over a decade of "flexible" labour markets had
   increased unemployment (more than doubling it, in fact, at one point as
   in the UK under Thatcher). It is no understatement to argue, in the
   words of two critics of neo-liberalism, that the "performance of the
   world economy since capital was liberalised has been worse than when it
   was tightly controlled" and that "[t]hus far, [the] actual performance
   [of liberalised capitalism] has not lived up to the propaganda." [Larry
   Elliot and Dan Atkinson, The Age of Insecurity, p. 274 and p. 223] In
   fact, as Palley notes, "wage and income growth that would have been
   deemed totally unsatisfactory a decade ago are now embraced as
   outstanding economic performance." [Op. Cit., p. 202]

   Lastly, it is apparent merely from a glance at the history of
   capitalism during its laissez-faire heyday in the 19th century that
   "free" competition among workers for jobs does not lead to full
   employment. Between 1870 and 1913, unemployment was at an average of
   5.7% in the 16 more advanced capitalist countries. This compares to an
   average of 7.3% in 1913-50 and 3.1% in 1950-70. [Takis Fotopoulos, "The
   Nation-State and the Market", pp. 37-80, Society and Nature, Vol. 2,
   No. 2, p. 61] If laissez-faire did lead to full employment, these
   figures would, surely, be reversed.

   As discussed above, full employment cannot be a fixed feature of
   capitalism due to its authoritarian nature and the requirements of
   production for profit. To summarise, unemployment has more to do with
   private property than the wages of our fellow workers or any social
   safety nets working class movements have managed to pressure the ruling
   class to accept. However, it is worthwhile to discuss why the "free
   market" capitalist is wrong to claim that unemployment within their
   system will not exist for long periods of time. In addition, to do so
   will also indicate the poverty of their theory of, and "solution" to,
   unemployment and the human misery they would cause. We do this in the
   [8]next section.

C.9.1 Would cutting wages reduce unemployment?

   The "free market" capitalist (i.e., neo-classical, neo-liberal or
   "Austrian") argument is that unemployment is caused by the real wage of
   labour being higher than the market clearing level. The basic argument
   is that the market for labour is like any other market and as the price
   of a commodity increases, the demand for it falls. In terms of labour,
   high prices (wages) causes lower demand (unemployment). Workers, it is
   claimed, are more interested in money wages than real wages (which is
   the amount of goods they can buy with their money wages). This leads
   them to resist wage cuts even when prices are falling, leading to a
   rise in their real wages and so they price themselves out of work
   without realising it. From this analysis comes the argument that if
   workers were allowed to compete 'freely' among themselves for jobs,
   real wages would decrease and so unemployment would fall. State
   intervention (e.g. unemployment benefit, social welfare programmes,
   legal rights to organise, minimum wage laws, etc.) and labour union
   activity are, according to this theory, the cause of unemployment, as
   such intervention and activity forces wages above their market level
   and so force employers to "let people go." The key to ending
   unemployment is simple: cut wages.

   This position was brazenly put by "Austrian" economist Murray Rothbard.
   He opposed any suggestion that wages should not be cut as the notion
   that "the first shock of the depression must fall on profits and not on
   wages." This was "precisely the reverse of sound policy since profits
   provide the motive power for business activity." [America's Great
   Depression, p. 188] Rothbard's analysis of the Great Depression is so
   extreme it almost reads like a satirical attack on the laissez-faire
   position as his hysterical anti-unionism makes him blame unions for the
   depression for, apparently, merely existing (even in an extremely
   weakened state) for their influence was such as to lead economists and
   the President to recommend to numerous leading corporate business men
   not to cut wages to end the depression (wages were cut, but not
   sufficiently as prices also dropped as we will discuss in the [9]next
   section). It should be noted that Rothbard takes his position on wage
   cutting despite of an account of the business cycle rooted in bankers
   lowering interest rates and bosses over-investing as a result (see
   [10]section C.8). So despite not setting interest rates nor making
   investment decisions, he expected working class people to pay for the
   actions of bankers and capitalists by accepting lower wages! Thus
   working class people must pay the price of the profit seeking
   activities of their economic masters who not only profited in good
   times, but can expect others to pay the price in bad ones. Clearly,
   Rothbard took the first rule of economics to heart: the boss is always
   right.

   The chain of logic in this explanation for unemployment is rooted in
   many of the key assumptions of neo-classical and other marginalist
   economics. A firm's demand for labour (in this schema) is the marginal
   physical product of labour multiplied by the price of the output and so
   it is dependent on marginal productivity theory. It is assumed that
   there are diminishing returns and marginal productivity as only this
   produces a downward-sloping labour demand curve. For labour, it is
   assumed that its supply curve is upwards slopping. So it must be
   stressed that marginal productivity theory lies at the core of "free
   market" capitalist theories of output and distribution and so
   unemployment as the marginal product of labour is interpreted as the
   labour demand curve. This enforces the viewpoint that unemployment is
   caused by wages being too high as firms adjust production to bring the
   marginal cost of their products (the cost of producing one more item)
   into equality with the product's market-determined price. So a drop in
   labour costs theoretically leads to an expansion in production,
   producing jobs for the "temporarily" unemployed and moving the economy
   toward full-employment. So, in this theory, unemployment can only be
   reduced by lowering the real wages of workers currently employed. Thus
   the unfettered free market would ensure that all those who want to work
   at the equilibrium real wage will do so. By definition, any people who
   were idle in such a pure capitalism would be voluntarily enjoying
   leisure and not unemployed. At worse, mass unemployment would be a
   transitory disturbance which will quickly disappear if the market is
   flexible enough and there are no imperfections in it (such as trade
   unions, workers' rights, minimum wages, and so on).

   Sadly for these arguments, the assumptions required to reach it are
   absurd as the conclusions (namely, that there is no involuntary
   unemployment as markets are fully efficient). More perniciously, when
   confronted with the reality of unemployment, most supporters of this
   view argue that it arises only because of government-imposed rigidities
   and trade unions. In their "ideal" world without either, there would,
   they claim, be no unemployment. Of course, it is much easier to demand
   that nothing should be done to alleviate unemployment and that workers'
   real wages be reduced when you are sitting in a tenured post in
   academia save from the labour market forces you wish others to be
   subjected to (in their own interests).

   This perspective suffered during the Great Depression and the threat of
   revolution produced by persistent mass unemployment meant that
   dissident economists had space to question the orthodoxy. At the head
   of this re-evaluation was Keynes who presented an alternative analysis
   and solution to the problem of unemployment in his 1936 book The
   General Theory of Employment, Interest and Money (it should be noted
   that the Polish socialist economist Michal Kalecki independently
   developed a similar theory a few years before Keynes but without the
   neo-classical baggage Keynes brought into his work).

   Somewhat ironically, given the abuse he has suffered at the hands of
   the right (and some of his self-proclaimed followers), Keynes took the
   assumptions of neo-classical economics on the labour market as the
   starting point of his analysis. As such, critics of Keynes's analysis
   generally misrepresent it. For example, right-liberal von Hayek
   asserted that Keynes "started from the correct insight that the regular
   cause of extensive unemployment is real wages that are too high. The
   next step consisted in the proposition that a direct lowering of money
   wages could be brought about only by a struggle so painful and
   prolonged that it could not be contemplated. Hence he concluded that
   real wages must be lowered by the process of lowering the value of
   money," i.e. by inflation. Thus "the supply of money must be so
   increased as to raise prices to a level where the real value of the
   prevailing money wage is no longer greater than the productivity of the
   workers seeking employment." [The Constitution of Liberty, p. 280] This
   is echoed by libertarian Marxist Paul Mattick who presented an
   identical argument, stressing that for Keynes "wages were less flexible
   than had been generally assumed" and lowering real wages by inflation
   "allowed for more subtle ways of wage-cutting than those traditionally
   employed." [Marx and Keynes, p. 7]

   Both are wrong. These arguments are a serious distortion of Keynes's
   argument. While he did start by assuming the neo-classical position
   that unemployment was caused by wages being too high, he was at pains
   to stress that even with ideally flexible labour markets cutting real
   wages would not reduce unemployment. As such, Keynes argued that
   unemployment was not caused by labour resisting wage cuts or by
   "sticky" wages. Indeed, any "Keynesian" economist who does argue that
   "sticky" wages are responsible for unemployment shows that he or she
   has not read Keynes -- Chapter two of the General Theory critiques
   precisely this argument. Taking neo-classical economists at its word,
   Keynes analyses what would happen if the labour market were perfect and
   so he assumes the same model as his neo-classical opponents, namely
   that unemployment is caused by wages being too high and there is
   flexibility in both commodity and labour markets. As he stressed, his
   "criticism of the accepted [neo-]classical theory of economics has
   consisted not so much in finding logical flaws in its analysis as in
   pointing out that its tacit assumptions are seldom or never satisfied,
   with the result that it cannot solve the economic problems of the
   actual world." [The General Theory, p. 378]

   What Keynes did was to consider the overall effect of cutting wages on
   the economy as a whole. Given that wages make up a significant part of
   the costs of a commodity, "if money-wages change, one would have
   expected the [neo-]classical school to argue that prices would change
   in almost the same proportion, leaving the real wage and the level of
   unemployment practically the same as before." However, this was not the
   case, causing Keynes to point out that they "do not seem to have
   realised that . . . their supply curve for labour will shift bodily
   with every movement of prices." This was because labour cannot
   determine its own real wage as prices are controlled by bosses. Once
   this is recognised, it becomes obvious that workers do not control the
   cost of living (i.e., the real wage). Therefore trade unions "do not
   raise the obstacle to any increase in aggregate employment which is
   attributed to them by the [neo-]classical school." So while workers
   could, in theory, control their wages by asking for less pay (or, more
   realistically, accepting any wage cuts imposed by their bosses as the
   alternative is unemployment) they do not have any control over the
   prices of the goods they produce. This means that they have no control
   over their real wages and so cannot reduce unemployment by pricing
   themselves into work by accepting lower wages. Given these obvious
   facts, Keynes concluded that there was "no ground for the belief that a
   flexible wage policy is capable of continuous full employment . . . The
   economic system cannot be made self-adjusting along these lines." [Op.
   Cit., p. 12, pp. 8-9, p. 15 and p. 267] As he summarised:

     "the contention that the unemployment which characterises a
     depression is due to a refusal by labour to accept a reduction of
     money-wages is not clearly supported by the facts. It is not very
     plausible to assert that unemployment in the United States in 1932
     was due either to labour obstinately refusing to accept a reduction
     of money-wages or to its demanding a real wage beyond what the
     productivity of the economic machine was capable of furnishing . . .
     Labour is not more truculent in the depression than in the boom --
     far from it. Nor is its physical productivity less. These facts from
     experience are a prima facie ground for questioning the adequacy of
     the [neo-]classical analysis." [Op. Cit., p. 9]

   This means that the standard neo-classical argument was flawed. While
   cutting wages may make sense for one firm, it would not have this
   effect throughout the economy as is required to reduce unemployment as
   a whole. This is another example of the fallacy of composition. What
   may work with an individual worker or firm will not have the same
   effect on the economy as a whole for cutting wages for all workers
   would have a massive effect on the aggregate demand for their firms
   products.

   For Keynes and Kalecki, there were two possibilities if wages were cut.
   One possibility, which Keynes considered the most likely, would be that
   a cut in money wages across the whole economy would see a similar cut
   in prices. The net effect of this would be to leave real wages
   unchanged. The other assumes that as wages are cut, prices remain
   prices remained unchanged or only fell by a small amount (i.e. if
   wealth was redistributed from workers to their employers). This is the
   underlying assumption of "free market" argument that cutting wages
   would end the slump. In this theory, cutting real wages would increase
   profits and investment and this would make up for any decline in
   working class consumption and so its supporters reject the claim that
   cutting real wages would merely decrease the demand for consumer goods
   without automatically increasing investment sufficiently to compensate
   for this.

   However, in order make this claim, the theory depends on three critical
   assumptions, namely that firms can expand production, that they will
   expand production, and that, if they do, they can sell their expanded
   production. This theory and its assumptions can be questioned. To do so
   we will draw upon David Schweickart's excellent summary. [Against
   Capitalism, pp. 105-7]

   The first assumption states that it is always possible for a company to
   take on new workers. Yet increasing production requires more than just
   labour. Tools, raw materials and work space are all required in
   addition to new workers. If production goods and facilities are not
   available, employment will not be increased. Therefore the assumption
   that labour can always be added to the existing stock to increase
   output is plainly unrealistic, particularly if we assume with
   neo-classical economics that all resources are fully utilised (for an
   economy operating at less than full capacity, the assumption is
   somewhat less inappropriate).

   Next, will firms expand production when labour costs decline? Hardly.
   Increasing production will increase supply and eat into the excess
   profits resulting from the fall in wages (assuming, of course, that
   demand holds up in the face of falling wages). If unemployment did
   result in a lowering of the general market wage, companies might use
   the opportunity to replace their current workers or force them to take
   a pay cut. If this happened, neither production nor employment would
   increase. However, it could be argued that the excess profits would
   increase capital investment in the economy (a key assumption of
   neo-liberalism). The reply is obvious: perhaps, perhaps not. A slumping
   economy might well induce financial caution and so capitalists could
   stall investment until they are convinced of the sustained higher
   profitability will last.

   This feeds directly into the last assumption, namely that the produced
   goods will be sold. Assuming that money wages are cut, but prices
   remain the same then this would be a cut in real wages. But when wages
   decline, so does worker purchasing power, and if this is not offset by
   an increase in spending elsewhere, then total demand will decline.
   However, it can be argued that not everyone's real income would fall:
   incomes from profits would increase. But redistributing income from
   workers to capitalists, a group who tend to spend a smaller portion of
   their income on consumption than do workers, could reduce effective
   demand and increase unemployment. Moreover, business does not (cannot)
   instantaneously make use of the enlarged funds resulting from the shift
   of wages to profit for investment (either because of financial caution
   or lack of existing facilities). In addition, which sane company would
   increase investment in the face of falling demand for its products? So
   when wages decline, so does workers' purchasing power and this is
   unlikely to be offset by an increase in spending elsewhere. This will
   lead to a reduction in aggregate demand as profits are accumulated but
   unused, so leading to stocks of unsold goods and renewed price
   reductions. This means that the cut in real wages will be cancelled out
   by price cuts to sell unsold stock and unemployment remains. In other
   words, contrary to neo-classical economics, a fall in wages may result
   in the same or even more unemployment as aggregate demand drops and
   companies cannot find a market for their goods. And so, "[i]f prices do
   not fall, it is still worse, for then real wages are reduced and
   unemployment is increased directly by the fall in the purchase of
   consumption goods." [Joan Robinson, Further Contributions to Economics,
   p. 34]

   The "Pigou" (or "real balance") effect is another neo-classical
   argument that aims to prove that (in the end) capitalism will pass from
   slump to boom quickly. This theory argues that when unemployment is
   sufficiently high, it will lead to the price level falling which would
   lead to a rise in the real value of the money supply and so increase
   the real value of savings. People with such assets will have become
   richer and this increase in wealth will enable people to buy more goods
   and so investment will begin again. In this way, slump passes to boom
   naturally.

   However, this argument is flawed in many ways. In reply, Michal Kalecki
   argued that, firstly, Pigou had "assumed that the banking system would
   maintain the stock of money constant in the face of declining incomes,
   although there was no particular reason why they should." If the money
   stock changes, the value of money will also change. Secondly, that "the
   gain in money holders when prices fall is exactly offset by the loss to
   money providers. Thus, whilst the real value of a deposit in bank
   account rises for the depositor when prices fell, the liability
   represented by that deposit for the bank also rises in size." And,
   thirdly, "that falling prices and wages would mean that the real value
   of outstanding debts would be increased, which borrowers would find it
   increasingly difficult to repay as their real income fails to keep pace
   with the rising real value of debt. Indeed, when the falling prices and
   wages are generated by low levels of demand, the aggregate real income
   will be low. Bankruptcies follow, debts cannot be repaid, and a
   confidence crisis was likely to follow." In other words, debtors may
   cut back on spending more than creditors would increase it and so the
   depression would continue as demand did not rise. [Malcolm C. Sawyer,
   The Economics of Michal Kalecki, p. 90]

   So, the traditional neo-classical reply that investment spending will
   increase because lower costs will mean greater profits, leading to
   greater savings, and ultimately, to greater investment is weak. Lower
   costs will mean greater profits only if the products are sold, which
   they might not be if demand is adversely affected. In other words, a
   higher profit margins do not result in higher profits due to fall in
   consumption caused by the reduction of workers purchasing power. And,
   as Michal Kalecki argued, wage cuts in combating a slump may be
   ineffective because gains in profits are not applied immediately to
   increase investment and the reduced purchasing power caused by the wage
   cuts causes a fall in sales, meaning that higher profit margins do not
   result in higher profits. Moreover, as Keynes pointed out long ago, the
   forces and motivations governing saving are quite distinct from those
   governing investment. Hence there is no necessity for the two
   quantities always to coincide. So firms that have reduced wages may not
   be able to sell as much as before, let alone more. In that case they
   will cut production, add to unemployment and further reduce demand.
   This can set off a vicious downward spiral of falling demand and
   plummeting production leading to depression, a process described by
   Kropotkin (nearly 40 years before Keynes made the same point in The
   General Theory):

     "Profits being the basis of capitalist industry, low profits explain
     all ulterior consequences.

     "Low profits induce the employers to reduce the wages, or the number
     of workers, or the number of days of employment during the week. . .
     As Adam Smith said, low profits ultimately mean a reduction of
     wages, and low wages mean a reduced consumption by the worker. Low
     profits mean also a somewhat reduced consumption by the employer;
     and both together mean lower profits and reduced consumption with
     that immense class of middlemen which has grown up in manufacturing
     countries, and that, again, means a further reduction of profits for
     the employers."
     [Fields, Factories and Workshops Tomorrow, p. 33]

   So, as is often the case, Keynes was simply including into mainstream
   economics perspectives which had long been held by critics of
   capitalism and dismissed by the orthodoxy. Keynes' critique of Say's
   Law essentially repeated Marx's while Proudhon pointed out in 1846 that
   "if the producer earns less, he will buy less" and this will "engender
   . . . over-production and destitution." This was because "though the
   workmen cost [the capitalist] something, they are [his] customers: what
   will you do with your products, when driven away by [him], they shall
   consume no longer?" This means that cutting wages and employment would
   not work for they are "not slow in dealing employers a counter-blow;
   for if production excludes consumption, it is soon obliged to stop
   itself." [System of Economical Contradictions, p. 204 and p. 190]
   Significantly, Keynes praised Proudhon's follower Silvio Gesell for
   getting part of the answer and for producing "an anti-Marxian
   socialism" which the "future will learn more from" than Marx. [Op.
   Cit., p. 355]

   So far our critique of the "free market" position has, like Keynes's,
   been within the assumptions of that theory itself. More has to be said,
   though, as its assumptions are deeply flawed and unrealistic. It should
   be stressed that while Keynes's acceptance of much of the orthodoxy
   ensured that at least some of his ideas become part of the mainstream,
   Post-Keynesians like Joan Robinson would latter bemoan the fact that he
   sought a compromise rather than clean break with the orthodoxy. This
   lead to the rise of the post-war neo-classical synthesis, the so-called
   "Keynesian" argument that unemployment was caused by wages being
   "sticky" and the means by which the right could undermine social
   Keynesianism and ensure a return to neo-classical orthodoxy.

   Given the absurd assumptions underlying the "free market" argument, a
   wider critique is possible as it reflects reality no more than any
   other part of the pro-capitalist ideology which passes for mainstream
   economics.

   As noted above, the argument that unemployment is caused by wages being
   too high is part of the wider marginalist perspective. Flaws in that
   will mean that its explanation of unemployment is equally flawed. So it
   must be stressed that the marginalist theory of distribution lies at
   the core of its theories of both output and unemployment. In that
   theory, the marginal product of labour is interpreted as the labour
   demand curve as the firm's demand for labour is the marginal physical
   product of labour multiplied by the price of the output and this
   produces the viewpoint that unemployment is caused by wages being too
   high. So given the central role which marginal productivity theory
   plays in the mainstream argument, it is useful to start our deeper
   critique by re-iterating that, as indicated in [11]section C.2, Joan
   Robinson and Piero Sraffa had successfully debunked this theory in the
   1950s. "Yet for psychological and political reasons," notes James K.
   Galbraith, "rather than for logical and mathematical ones, the capital
   critique has not penetrated mainstream economics. It likely never will.
   Today only a handful of economists seem aware of it." ["The
   distribution of income", pp. 32-41, Richard P. F. Holt and Steven
   Pressman (eds.), A New Guide to Post Keynesian Economics, p. 34] Given
   that this underlies the argument that high wages cause high
   unemployment, it means that the mainstream argument for cutting wages
   has no firm theoretical basis.

   It should also be noted that the assumption that adding more labour to
   capital is always possible flows from the assumption of marginal
   productivity theory which treats "capital" like an ectoplasm and can be
   moulded into whatever form is required by the labour available (see
   [12]section C.2.5 for more discussion). Hence Joan Robinson's dismissal
   of this assumption, for "the difference between the future and the past
   is eliminated by making capital 'malleable' so that mistakes can always
   be undone and equilibrium is always guaranteed. . . with 'malleable'
   capital the demand for labour depends on the level of wages."
   [Contributions to Modern Economics, p. 6] Moreover, "labour and capital
   are not often as smoothly substitutable for each other as the
   [neo-classical] model requires . . . You can't use one without the
   other. You can't measure the marginal productivity of one without the
   other." Demand for capital and labour is, sometimes, a joint demand and
   so it is often to adjust wages to a worker's marginal productivity
   independent of the cost of capital. [Hugh Stretton, Economics: A New
   Introduction, p. 401]

   Then there is the role of diminishing returns. The assumption that the
   demand curve for labour is always downward sloping with respect to
   aggregate employment is rooted in the notion that industry operates, at
   least in the short run, under conditions of diminishing returns.
   However, diminishing returns are not a feature of industries in the
   real world. Thus the assumption that the downward slopping marginal
   product of labour curve is identical to the aggregate demand curve for
   labour is not true as it is inconsistent with empirical evidence. "In a
   system at increasing returns," noted one economist, "the direct
   relation between real wages and employment tends to render the ordinary
   mechanism of wage adjustment ineffective and unstable." [Ferdinando
   Targetti, Nicholas Kaldor, p. 344] In fact, as discussed in [13]section
   C.1.2, without this assumption mainstream economics cannot show that
   unemployment is, in fact, caused by real wages being too high (along
   with many other things).

   Thus, if we accept reality, we must end up "denying the inevitability
   of a negative relationship between real wages and employment."
   Post-Keynesian economists have not found any empirical links between
   the growth of unemployment since the early in 1970s and changes in the
   relationship between productivity and wages and so there is "no
   theoretical reason to expect a negative relationship between employment
   and the real wage, even at the level of the individual firm." Even the
   beloved marginal analysis cannot be used in the labour market, as
   "[m]ost jobs are offered on a take-it-or-leave-it basis. Workers have
   little or no scope to vary hours of work, thereby making marginal
   trade-offs between income and leisure. There is thus no worker
   sovereignty corresponding to the (very controversial) notion of
   consumer sovereignty." Over all, "if a relationship exists between
   aggregate employment and the real wage, it is employment that
   determines wages. Employment and unemployment are product market
   variables, not labour market variables. Thus attempts to restore full
   employment by cutting wages are fundamentally misguided." [John E.
   King, "Labor and Unemployment," pp. 65-78, Holt and Pressman (eds.),
   Op. Cit., p. 68, pp. 67-8, p. 72, p. 68 and p. 72] In addition:

     "Neo-classical theorists themselves have conceded that a negative
     relationship between the real wage and the level of employment can
     be established only in a one-commodity model; in a multi-commodity
     framework no such generalisation is possible. This confines
     neo-classical theory to an economy without money and makes it
     inapplicable to a capitalist or entrepreneurial economy." [Op. Cit.,
     p. 71]

   And, of course, the whole analysis is rooted in the notion of perfect
   competition. As Nicholas Kaldor mildly put it:

     "If economics had been a 'science' in the strict sense of the word,
     the empirical observation that most firms operate in imperfect
     markets would have forced economists to scrap their existing
     theories and to start thinking on entirely new lines . . .
     unfortunately economists do not feel under the same compulsion to
     maintain a close correspondence between theoretical hypotheses and
     the facts of experience." [Further Essays on Economic Theory ad
     Policy, p. 19]

   Any real economy is significantly different from the impossible notion
   of perfect competition and "if there exists even one monopoly anywhere
   in the system . . . it follows that others must be averaging less than
   the marginal value of their output. So to concede the existence of
   monopoly requires that one either drop the competitive model entirely
   or construct an elaborate new theory . . . that divides the world into
   monopolistic, competitive, and subcompetitive ('exploited') sectors."
   [James K. Galbraith, Created Unequal, p. 52] As noted in [14]section
   C.4.3, mainstream economists have admitted that monopolistic
   competition (i.e., oligopoly) is the dominant market form but they
   cannot model it due to the limitations of the individualistic
   assumptions of bourgeois economics. Meanwhile, while thundering against
   unions the mainstream economics profession remains strangely silent on
   the impact of big business and pro-capitalist monopolies like patents
   and copyrights on distribution and so the impact of real wages on
   unemployment.

   All this means that "neither the demand for labour nor the supply of
   labour depends on the real wage. It follows from this that the labour
   market is not a true market, for the price associated with it, the wage
   rate, is incapable of performing any market-clearing function, and thus
   variations in the wage rate cannot eliminate unemployment." [King, Op.
   Cit., p. 65] As such, the "conventional economic analysis of markets .
   . . is unlikely to apply" to the labour market and as a result "wages
   are highly unlikely to reflect workers' contributions to production."
   This is because economists treat labour as no different from other
   commodities yet "economic theory supports no such conclusion." At its
   most basic, labour is not produced for profit and the "supply curve for
   labour can 'slope backward' -- so that a fall in wages can cause an
   increase in the supply of workers." In fact, the idea of a backward
   sloping supply curve for labour is just as easy to derive from the
   assumptions used by economists to derive their standard one. This is
   because workers may prefer to work less as the wage rate rises as they
   will be better off even if they do not work more. Conversely, very low
   wage rates are likely to produce a very high supply of labour as
   workers need to work more to meet their basic needs. In addition, as
   noted at the end of [15]section C.1.4, economic theory itself shows
   that workers will not get a fair wage when they face very powerful
   employers unless they organise unions. [Steve Keen, Debunking
   Economics, pp. 111-2 and pp. 119-23]

   Strong evidence that this model of the labour market can be found from
   the history of capitalism. Continually we see capitalists turn to the
   state to ensure low wages in order to ensure a steady supply of labour
   (this was a key aim of state intervention during the rise of
   capitalism, incidentally). For example, in central and southern Africa
   mining companies tried to get locals to labour. They had little need
   for money, so they worked a day or two then disappeared for the rest of
   the week. To avoid simply introducing slavery, some colonial
   administrators introduced and enforced a poll-tax. To earn enough to
   pay it, workers had to work a full week. [Hugh Stretton, Op. Cit., p.
   403] Much the same was imposed on British workers at the dawn of
   capitalism. As Stephen Marglin points out, the "indiscipline of the
   labouring classes, or more bluntly, their laziness, was widely noted by
   eighteenth century observers." By laziness or indiscipline, these
   members of the ruling class meant the situation where "as wages rose,
   workers chose to work less." In economic terms, "a backward bending
   labour supply curve is a most natural phenomenon as long as the
   individual worker controls the supply of labour." However, "the fact
   that higher wages led workers to choose more leisure . . . was
   disastrous" for the capitalists. Unsurprisingly, the bosses did not
   meekly accept the workings of the invisible hand. Their "first recourse
   was to the law" and they "utilised the legislative, police and judicial
   powers of the state" to ensure that working class people had to supply
   as many hours as the bosses demanded. ["What do Bosses do?", pp.
   60-112, Review of Radical Political Economy, Vol. 6, No. 2, pp. 91-4]

   This means that the market supply curve "could have any shape at all"
   and so economic theory "fails to prove that employment is determined by
   supply and demand, and reinforces the real world observation that
   involuntary unemployment can exist" as reducing the wage need not bring
   the demand and supply of labour into alignment. While the possibility
   of backward-bending labour supply curves is sometimes pointed out in
   textbooks, the assumption of an upward sloping supply curve is taken as
   the normal situation but "there is no theoretical -- or empirical --
   justification for this." Sadly for the world, this assumption is used
   to draw very strong conclusions by economists. The standard arguments
   against minimum wage legislation, trade unions and demand management by
   government are all based on it. Yet, as Keen notes, such important
   policy positions "should be based upon robust intellectual or empirical
   foundations, rather than the flimsy substrate of mere fancy. Economists
   are quite prone to dismiss alternative perspectives on labour market
   policy on this very basis -- that they lack any theoretical or
   empirical foundations. Yet their own policy positions are based as much
   on wishful thinking as on wisdom." [Op. Cit., pp. 121-2 and p. 123]

   Within a capitalist economy the opposite assumption to that taken by
   economics is far more likely, namely that there is a backward sloping
   labour supply curve. This is because the decision to work is not one
   based on the choice between wages and leisure made by the individual
   worker. Most workers do not choose whether they work or not, and the
   hours spent working, by comparing their (given) preferences and the
   level of real wages. They do not practice voluntary leisure waiting for
   the real wage to exceed their so-called "reservation" wage (i.e. the
   wage which will tempt them to forsake a life of leisure for the
   disutility of work). Rather, most workers have to take a job because
   they do not have a choice as the alternative is poverty (at best) or
   starvation and homelessness (at worse). The real wage influences the
   decision on how much labour to supply rather than the decision to work
   or not. This is because as workers and their families have a certain
   basic living standard to maintain and essential bills which need to be
   paid. As earnings increase, basic costs are covered and so people are
   more able to work less and so the supply of labour tends to fall.
   Conversely, if real earnings fall because the real wage is less then
   the supply of labour may increase as people work more hours and/or more
   family members start working to make enough to cover the bills (this is
   because, once in work, most people are obliged to accept the hours set
   by their bosses). This is the opposite of what happens in "normal"
   markets, where lower prices are meant to produce a decrease in the
   amount of the commodity supplied. In other words, the labour market is
   not a market, i.e. it reacts in different ways than other markets
   (Stretton provides a good summary of this argument [Op. Cit., pp. 403-4
   and p. 491]).

   So, as radical economists have correctly observe, such considerations
   undercut the "free market" capitalist contention that labour unions and
   state intervention are responsible for unemployment (or that
   depressions will easily or naturally end by the workings of the
   market). To the contrary, insofar as labour unions and various welfare
   provisions prevent demand from falling as low as it might otherwise go
   during a slump, they apply a brake to the downward spiral. Far from
   being responsible for unemployment, they actually mitigate it. For
   example, unions, by putting purchasing power in the hands of workers,
   stimulates demand and keeps employment higher than the level it would
   have been. Moreover, wages are generally spent immediately and
   completely whilst profits are not. A shift from profits to wages may
   stimulate the economy since more money is spent but there will be a
   delayed cut in consumption out of profits. [Malcolm Sawyer, The
   Economics of Michal Kalecki, p. 118] All this should be obvious, as
   wages (and benefits) may be costs for some firms but they are revenue
   for even more and labour is not like other commodities and reacts in
   changes in price in different ways.

   Given the dynamics of the labour "market" (if such a term makes much
   sense given its atypical nature), any policies based on applying
   "economics 101" to it will be doomed to failure. As such, any book
   entitled Economics in One Lesson must be viewed with suspicion unless
   it admits that what it expounds has little or no bearing to reality and
   urges the reader to take at least the second lesson. Of course, a few
   people actually do accept the simplistic arguments that reside in such
   basic economics texts and think that they explain the world (these
   people usually become right-"libertarians" and spend the rest of their
   lives ignoring their own experience and reality in favour of a few
   simple axioms). The wage-cutting argument (like most of economics)
   asserts that any problems are due to people not listening to economists
   and that there is no economic power, there are no "special interests"
   -- it is just that people are stupid. Of course, it is irrelevant that
   it is much easier to demand that workers' real wages be reduced when
   you are sitting in a tenured post in academia. True to their ideals and
   "science", it is refreshing to see how many of these "free market"
   economists renounce tenure so that their wages can adjust automatically
   as the market demand for their ideologically charged comments changes.

   So when economic theories extol suffering for future benefits, it is
   always worth asking who suffers, and who benefits. Needless to say, the
   labour market flexibility agenda is anti-union, anti-minimum wage, and
   anti-worker protection. This agenda emerges from theoretical claims
   that price flexibility can restore full employment, and it rests
   dubious logic, absurd assumptions and on a false analogy comparing the
   labour market with the market for peanuts. Which, ironically, is
   appropriate as the logic of the model is that workers will end up
   working for peanuts! As such, the "labour market" model has a certain
   utility as it removes the problem of institutions and, above all, power
   from the perspective of the economist. In fact, institutions such as
   unions can only be considered as a problem in this model rather than a
   natural response to the unique nature of the labour "market" which,
   despite the obvious differences, most economists treat like any other.

   To conclude, a cut in wages may deepen any slump, making it deeper and
   longer than it otherwise would be. Rather than being the solution to
   unemployment, cutting wages will make it worse (we will address the
   question of whether wages being too high actually causes unemployment
   in the first place, in the [16]next section). Given that, as we argued
   in [17]section C.8.2, inflation is caused by insufficient profits for
   capitalists (they try to maintain their profit margins by price
   increases) this spiralling effect of cutting wages helps to explain
   what economists term "stagflation" -- rising unemployment combined with
   rising inflation (as seen in the 1970s). As workers are made
   unemployed, aggregate demand falls, cutting profit margins even more
   and in response capitalists raise prices in an attempt to recoup their
   losses. Only a very deep recession can break this cycle (along with
   labour militancy and more than a few workers and their families).

   Thus the capitalist solution to crisis is based on working class people
   paying for capitalism's contradictions. For, according to the
   mainstream theory, when the production capacity of a good exceeds any
   reasonable demand for it, the workers must be laid off and/or have
   their wages cut to make the company profitable again. Meanwhile the
   company executives -- the people responsible for the bad decisions to
   build lots of factories -- continue to collect their fat salaries,
   bonuses and pensions, and get to stay on to help manage the company
   through its problems. For, after all, who better, to return a company
   to profitability than those who in their wisdom ran it into bankruptcy?
   Strange, though, no matter how high their salaries and bonuses get,
   managers and executives never price themselves out of work.

   All this means that working class people have two options in a slump --
   accept a deeper depression in order to start the boom-bust cycle again
   or get rid of capitalism and with it the contradictory nature of
   capitalist production which produces the business cycle in the first
   place (not to mention other blights such as hierarchy and inequality).
   In the end, the only solution to unemployment is to get rid of the
   system which created it by workers seizing their means of production
   and abolishing the state. When this happens, then production for the
   profit of the few will be ended and so, too, the contradictions this
   generates.

C.9.2 Is unemployment caused by wages being too high?

   As we noted in the [18]last section, most capitalist economic theories
   argue that unemployment is caused by wages being too high. Any
   economics student will tell you that labour is like any other commodity
   and so if its price is too high then there will be less demand for it,
   so producing an excess supply of it on the market. Thus high wages will
   reduce the quantity of labour demanded and so create unemployment -- a
   simple case of "supply and demand."

   From this theory we would expect that areas and periods with high wages
   will also have high levels of unemployment. Unfortunately for the
   theory, this does not seem to be the case. Even worse for it, high
   wages are generally associated with booms rather than slumps and this
   has been known to mainstream economics since at least 1939 when in
   March of that year The Economic Journal printed an article by Keynes
   about the movement of real wages during a boom in which he evaluated
   the empirical analysis of two labour economists (entitled "Relative
   Movements of Real Wages and Output" this is contained as an Appendix of
   most modern editions of The General Theory).

   These studies showed that "when money wages are rising, real wages have
   usually risen too; whilst, when money wages are falling, real wages are
   no more likely to rise than to fall." Keynes admitted that in The
   General Theory he was "accepting, without taking care to check the
   facts", a "widely held" belief. He discussed where this belief came
   from, namely leading 19th century British economist Alfred Marshall who
   had produced a "generalisation" from a six year period between 1880-86
   which was not true for the subsequent business cycles of 1886 to 1914.
   He also quotes another leading economist, Arthur Pigou, from 1927 on
   how "the upper halves of trade cycles have, on the whole, been
   associated with higher rates of real wages than the lower halves" and
   indicates that he provided evidence on this from 1850 to 1910 (although
   this did not stop Pigou reverting to the "Marshallian tradition" during
   the Great Depression and blaming high unemployment on high wages). [The
   General Theory, p. 394, p. 398 and p. 399] Keynes conceded the point,
   arguing that he had tried to minimise differences between his analysis
   and the standard perspective. He stressed that while he assumed
   countercyclical real wages his argument did not depend on it and given
   the empirical evidence provided by labour economists he accepted that
   real wages were pro-cyclical in nature.

   The reason why this is the case is obvious given the analysis in the
   [19]last section. Labour does not control prices and so cannot control
   its own real wage. Looking at the Great Depression, it seems difficult
   to blame it on workers refusing to take pay cuts when by 1933 "wages
   and salaries in U.S. manufacturing were less than half their 1929
   levels and, in automobiles and steel, were under 40 percent of the 1929
   levels." In Detroit, there had been 475,000 auto-workers. By 1931
   "almost half has been laid off." [William Lazonick, Competitive
   Advantage on the Shop Floor, p. 271] The notion of all powerful unions
   or workers' resistance to wage cuts causing high unemployment hardly
   fits these facts. Peter Temin provides information on real wages in
   manufacturing during the depression years. Using 1929 as the base year,
   weekly average real wages (i.e., earnings divided by the consumer price
   index) fell each year to reach a low of 85.5% by 1932. Hourly real
   wages remained approximately constant (rising to 100.1% in 1930 and
   then 102.6% in 1931 before falling to 99% in 1932). The larger fall in
   weekly wages was due to workers having a shorter working week. The
   "effect of shorter hours and lower wages was to decrease the income of
   employed workers." Thus the notion that lowering wages will increase
   employment seems as hard to support as the notion that wages being too
   high caused the depression in the first place. Temin argues, "no part
   of the [neo-]classical story is accurate." [Did Monetary Forces Cause
   the Great Depression?, pp. 139-40] It should be noted that the
   consensus of economists is that during this period the evidence seems
   to suggest that real wages did rise overall. This was because the
   prices of commodities fell faster than did the wages paid to workers.
   Which confirms Keynes, as he had argued that workers cannot price
   themselves into work as they have no control over prices. However,
   there is no reason to think that high real wages caused the high
   unemployment as the slump itself forced producers to cut prices (not to
   mention wages). Rather, the slump caused the increase in real wages.

   Since then, economists have generally confirmed that real wage are
   procyclical. In fact, "a great deal of empirical research has been
   conducted in this area -- research which mostly contradicts the
   neo-classical assumption of an inverse relation between real wages and
   employment." [Ferdinando Targetti, Nicholas Kaldor, p. 50] Nicholas
   Kaldor, one of the first Keynesians, also stressed that the notion that
   there is an inverse relationship between real wages and employment is
   "contradicted by numerous empirical studies which show that, in the
   short period, changes in real wages are positively correlated with
   changes in employment and not negatively." [Further Essays on Economic
   Theory and Policy, p. 114fn] As Hugh Stretton summarises in his
   excellent introductory text on economics:

     "In defiance of market theory, the demand for labour tends strongly
     to vary with its price, not inversely to it. Wages are high when
     there is full employment. Wages -- especially for the least-skilled
     and lowest paid -- are lowest when there is least employment. The
     causes chiefly run from the employment to the wages, rather than the
     other way. Unemployment weakens the bargaining power, worsens the
     job security and working conditions, and lowers the pay of those
     still in jobs.

     "The lower wages do not induce employers to create more jobs . . .
     most business firms have no reason to take on more hands if wages
     decline. Only empty warehouses, or the prospect of more sales can
     get them to do that, and these conditions rarely coincide with
     falling employment and wages. The causes tend to work the other way:
     unemployment lowers wages, and the lower wages do not restore the
     lost employment."
     [Economics: A New Introduction, pp. 401-2]

   Will Hutton, the British neo-Keynesian economist, summarises research
   by two other economists that suggests high wages do not cause
   unemployment:

     "the British economists David Blanchflower and Andrew Oswald
     [examined] . . . the data in twelve countries about the actual
     relation between wages and unemployment -- and what they have
     discovered is another major challenge to the free market account of
     the labour market. Free market theory would predict that low wages
     would be correlated with low local unemployment; and high wages with
     high local unemployment.

     "Blanchflower and Oswald have found precisely the opposite
     relationship. The higher the wages, the lower the local unemployment
     -- and the lower the wages, the higher the local unemployment. As
     they say, this is not a conclusion that can be squared with free
     market text-book theories of how a competitive labour market should
     work."
     [The State We're In, p. 102]

   Unemployment was highest where real wages were lowest and nowhere had
   falling wages being followed by rising employment or falling
   unemployment. Blanchflower and Oswald stated that their conclusion is
   that employees "who work in areas of high unemployment earn less, other
   things constant, than those who are surrounded by low unemployment."
   [The Wage Curve, p. 360] This relationship, the exact opposite of that
   predicted by "free market" capitalist economics, was found in many
   different countries and time periods, with the curve being similar for
   different countries. Thus, the evidence suggests that high unemployment
   is associated with low earnings, not high, and vice versa.

   Looking at less extensive evidence, if minimum wages and unions cause
   unemployment, why did the South-eastern states of the USA (with a lower
   minimum wage and weaker unions) have a higher unemployment rate than
   North-western states during the 1960s and 1970s? Or why, when the
   (relative) minimum wage declined under Reagan and Bush in the 1980s,
   did chronic unemployment accompany it? [Allan Engler, The Apostles of
   Greed, p. 107] Or the Low Pay Network report "Priced Into Poverty"
   which discovered that in the 18 months before they were abolished, the
   British Wages Councils (which set minimum wages for various industries)
   saw a rise of 18,200 in full-time equivalent jobs compared to a net
   loss of 39,300 full-time equivalent jobs in the 18 months afterwards.
   Given that nearly half the vacancies in former Wages Council sectors
   paid less than the rate which it is estimated Wages Councils would now
   pay, and nearly 15% paid less than the rate at abolition, there should
   (by the "free market" argument) have been rises in employment in these
   sectors as pay fell. The opposite happened. This research shows that
   the falls in pay associated with Wages Council abolition had not
   created more employment. Indeed, employment growth was more buoyant
   prior to abolition than subsequently. So whilst Wages Council abolition
   did not result in more employment, the erosion of pay rates caused by
   their abolition resulted in more families having to endure poverty pay.
   Significantly, the introduction of a national minimum wage by the first
   New Labour government did not have the dire impact "free market"
   capitalist economists and politicians predicted.

   It should also be noted that an extensive analysis of the impact of
   minimum wage increases at the state level in America by economists
   David Card and Alan Kreuger found the facts contradicted the standard
   theory, with rises in the minimum wage having a small positive impact
   on both employment and wages for all workers. [Myth and Measurement:
   The New Economics of the Minimum Wage] While their work was attacked by
   business leaders and economists from think-tanks funded by them, Card
   and Kreuger's findings that raising the lowest wages had no effect on
   unemployment or decreased it proved to be robust. In particular, when
   replying to criticism of their work by other economists who based their
   work, in part, on data supplied by a business funded think-tank Card
   and Krueger discovered that not only was that work consistent with
   their original findings but that the "only data set that indicates a
   significant decline in employment" was by some amazing coincidence "the
   small set of restaurants collected by" the think tank. ["Minimum Wages
   and Employment: A Case Study of the Fast-Food Industry in New Jersey
   and Pennsylvania: Reply", pp. 1397-1420, The American Economic Review,
   Vol. 90, No. 5, p. 1419] For a good overview of "how the fast food
   industry and its conservative allies sought to discredit two
   distinguished economists, and how the attack backfired" when "the two
   experts used by the fast food industry to impeach Card and Krueger,
   effectively ratified them" see John Schmitt's "Behind the Numbers:
   Cooked to Order." [The American Prospect, May-June 1996, pp. 82-85]

   (This does not mean that anarchists support the imposition of a legal
   minimum wage. Most anarchists do not because it takes the
   responsibility for wages from unions and other working class
   organisations, where it belongs, and places it in the hands of the
   state. We mention these examples in order to highlight that the "free
   market" capitalist argument has serious flaws with it.)

   Empirical evidence does not support the argument the "free market"
   capitalist argument that unemployment is caused by real wages being too
   high. The phenomenon that real wages tend to increase during the upward
   swing of the business cycle (as unemployment falls) and fall during
   recessions (when unemployment increases) renders the standard
   interpretation that real wages govern employment difficult to maintain
   (real wages are "pro-cyclical," to use economic terminology). This
   evidence makes it harder for economists to justify policies based on a
   direct attack on real wages as the means to cure unemployment.

   While this evidence may come as a shock to those who subscribe to the
   arguments put forward by those who think capitalist economics reflect
   the reality of that system, it fits well with the anarchist and other
   socialist analysis. For anarchists, unemployment is a means of
   disciplining labour and maintaining a suitable rate of profit (i.e.
   unemployment is a key means of ensuring that workers are exploited). As
   full employment is approached, labour's power increases, so reducing
   the rate of exploitation and so increasing labour's share of the value
   it produces (and so higher wages). Thus, from an anarchist point of
   view, the fact that wages are higher in areas of low unemployment is
   not a surprise, nor is the phenomenon of pro-cyclical real wages. After
   all, as we noted in [20]section C.3, the ratio between wages and
   profits are, to a large degree, a product of bargaining power and so we
   would expect real wages to grow in the upswing of the business cycle,
   fall in the slump and be high in areas of low unemployment.

   The evidence therefore suggests that the "free market" capitalist claim
   that unemployment is caused by unions, "too high" wages, and so on, is
   false. Indeed, by stopping capitalists appropriating more of the income
   created by workers, high wages maintain aggregate demand and contribute
   to higher employment (although, of course, high employment cannot be
   maintained indefinitely under wage slavery due to the rise in workers'
   power this implies). Rather, unemployment is a key aspect of the
   capitalist system and cannot be got rid off within it. The "free
   market" capitalist "blame the workers" approach fails to understand the
   nature and dynamic of the system (given its ideological role, this is
   unsurprising). So high real wages for workers increases aggregate
   demand and reduces unemployment from the level it would be if the wage
   rate was cut. This is supported by most of the research into wage
   dynamics during the business cycle and by the "wage curve" of numerous
   countries. This suggests that the demand for labour is independent of
   the real wages and so the price of labour (wages) is incapable of
   performing any market clearing function. The supply and demand for
   labour are determined by two different sets of factors. The
   relationship between wages and unemployment flows from the latter to
   the former rather than the reverse: the wage is influenced by the level
   of unemployment. Thus wages are not the product of a labour market
   which does not really exist but rather is the product of "institutions,
   customs, privilege, social relations, history, law, and above all
   power, with an admixture of ingenuity and luck. But of course power,
   and particularly market or monopoly power, changes with the general of
   demand, the rate of growth, and the rate of unemployment. In periods of
   high employment, the weak gain on the strong; in periods of high
   unemployment, the strong gain on the weak." [Galbraith, Created
   Unequal, p. 266]

   This should be obvious enough. It is difficult for workers to resist
   wage cuts and speeds-up when faced with the fear of mass unemployment.
   As such, higher rates of unemployment "reduce labour's bargaining power
   vis-a-vis business, and this helps explain why wages have declined and
   workers have not received their share of productivity growth" (between
   1970 and 1993, only the top 20% of the US population increased its
   share of national income). [Thomas I. Palley, Plenty of Nothing, p. 55
   and p. 58] Strangely, though, this obvious fact seems lost on most
   economists. In fact, if you took their arguments seriously then you
   would have to conclude that depressions and recessions are the periods
   during which working class people do the best! This is on two levels.
   First, in neo-classical economics work is considered a disutility and
   workers decide not to work at the market-clearing real wage because
   they prefer leisure to working. Leisure is assumed to be intrinsically
   good and the wage the means by which workers are encouraged to
   sacrifice it. Thus high unemployment must be a good thing as it gives
   many more people leisure time. Second, for those in work their real
   wages are higher than before, so their income has risen. Alfred
   Marshall, for example, argued that in depressions money wages fell but
   not as fast as prices. A "powerful friction" stopped this, which
   "establish[ed] a higher standard of living among the working classes"
   and a "diminish[ing of] the inequalities of wealth." When asked whether
   during a period of depression the employed working classes got more
   than they did before, he replied "[m]ore than they did before, on the
   average." [quoted by Keynes, Op. Cit., p. 396]

   Thus, apparently, working class people do worse in booms than in slumps
   and, moreover, they can resist wage cuts more in the face of mass
   unemployment than in periods approaching full employment. That the
   theory which produced these conclusions could be taken remotely
   seriously shows the dangers of deducing an economic ideology from a few
   simple axioms rather than trusting in empirical evidence and common
   sense derived from experience. Nor should it come as too great a
   surprise, as "free market" capitalist economics tends to ignore (or
   dismiss) the importance of economic power and the social context within
   which individuals make their choices. As Bob Black acidly put it with
   regards to the 1980s, it "wasn't the workers who took these gains [of
   increased productivity], not in higher wages, not in safer working
   conditions, and not in shorter hours -- hours of work have increased .
   . . It must be, then, that in the 80s and after workers have 'chosen'
   lower wages, longer hours and greater danger on the job. Yeah, sure."
   ["Smokestack Lightning," pp. 43-62, Friendly Fire, p. 61]

   In the real world, workers have little choice but to accept a job as
   they have no independent means to exist in a pure capitalist system and
   so no wages means no money for buying such trivialities as food and
   shelter. The decision to take a job is, for most workers, a
   non-decision -- paid work is undertaken out of economic necessity and
   so we are not in a position to refuse work because real wages are too
   low to be worth the effort (the welfare state reduces this pressure,
   which is why the right and bosses are trying to destroy it). With high
   unemployment, pay and conditions will worsen while hours and intensity
   of labour will increase as the fear of the sack will result in
   increased job insecurity and so workers will be more willing to placate
   their bosses by obeying and not complaining. Needless to say, empirical
   evidence shows that "when unemployment is high, inequality rises. And
   when unemployment is low, inequality tends to fall." [James K.
   Galbraith, Op. Cit., p. 148] This is unsurprising as the "wage curve"
   suggests that it is unemployment which drives wage levels, not the
   other way round. This is important as higher unemployment would
   therefore create higher inequality as workers are in no position to
   claim back productivity increases and so wealth would flood upwards.

   Then there is the issue of the backward-bending supply curve of labour
   we discussed at the end of the [21]last section. As the "labour market"
   is not really a market, cutting real wages will have the opposite
   effect on the supply of labour than its supporters claim. It is
   commonly found that as real wages fall, hours at work become longer and
   the number of workers in a family increases. This is because the labour
   supply curve is negatively slopped as families need to work more (i.e.,
   provide more labour) to make ends meet. This means that a fall in real
   wages may increase the supply of labour as workers are forced to work
   longer hours or take second jobs simply to survive. The net effect of
   increasing supply would be to decrease real wages even more and so,
   potentially, start a vicious circle and make the recession deeper.
   Looking at the US, we find evidence that supports this analysis. As the
   wages for the bottom 80% of the population fell in real terms under
   Reagan and Bush in the 1980s, the number of people with multiple jobs
   increased as did the number of mothers who entered the labour market.
   In fact, "the only reason that family income was maintained is the
   massive increase in labour force participation of married women . . .
   Put simply, jobs paying family wages have been disappearing, and
   sustaining a family now requires that both adults work . . . The result
   has been a squeeze on the amount of time that people have for
   themselves . . . there is a loss of life quality associated with the
   decline in time for family . . . they have also been forced to work
   longer . . . Americans are working longer just to maintain their
   current position, and the quality of family life is likely declining. A
   time squeeze has therefore accompanied the wage squeeze." [Palley, Op.
   Cit., pp. 63-4] That is, the supply of labour increased as its price
   fell (Reagan's turn to military Keynesianism and incomplete nature of
   the "reforms" ensured that a deep spiral was avoided).

   To understand why this is the case, it is necessary to think about how
   the impact of eliminating the minimum wage and trade unions would
   actually have. First, of course, there would be a drop in the wages of
   the poorest workers as the assertion is that the minimum wage increases
   unemployment by forcing wages up. The assertion is that the bosses
   would then employ more workers as a result. However, this assumes that
   extra workers could easily be added to the existing capital stock which
   may not be the case. Assuming this is the case (and it is a big
   assumption), what happens to the workers who have had their pay cut?
   Obviously, they still need to pay their bills which means they either
   cut back on consumption and/or seek more work (assuming that prices
   have not fallen, as this would leave the real wage unchanged). If the
   former happens, then firms may find that they face reduced demand for
   their products and, consequently, have no need for the extra employees
   predicted by the theory. If the latter happens, then the ranks of those
   seeking work will increase as people look for extra jobs or people
   outside the labour market (like mothers and children) are forced into
   the job market. As the supply of workers increase, wages must drop
   according to the logic of the "free market" position. This does not
   mean that a recovery is impossible, just that in the short and medium
   terms cutting wages will make a recession worse and be unlikely to
   reduce unemployment for some time.

   This suggests that a "free market" capitalism, marked by a fully
   competitive labour market, no welfare programmes nor unemployment
   benefits, and extensive business power to break unions and strikes
   would see aggregate demand constantly rise and fall, in line with the
   business cycle, and unemployment and inequality would follow suit.
   Moreover, unemployment would be higher over most of the business cycle
   (and particularly at the bottom of the slump) than under a capitalism
   with social programmes, militant unions and legal rights to organise
   because the real wage would not be able to stay at levels that could
   support aggregate demand nor could the unemployed use their benefits to
   stimulate the production of consumer goods. This suggests that a fully
   competitive labour market, as in the 19th century, would increase the
   instability of the system -- an analysis which was confirmed in during
   the 1980s ("the relationship between measured inequality and economic
   stability . . . was weak but if anything it suggests that the more
   egalitarian countries showed a more stable pattern of growth after
   1979." [Dan Corry and Andrew Glyn, "The Macroeconomics of equality,
   stability and growth", Paying for Inequality, Andrew Glyn and David
   Miliband (eds.) pp. 212-213]).

   So, in summary, the available evidence suggests that high wages are
   associated with low levels of unemployment. While this should be the
   expected result from any realistic analysis of the economic power which
   marks capitalist economies, it does not provide much support for claims
   that only by cutting real wages can unemployment be reduced. The "free
   market" capitalist position and one based on reality have radically
   different conclusions as well as political implications. Ultimately,
   most laissez-faire economic analysis is unpersuasive both in terms of
   the facts and their logic. While economics may be marked by axiomatic
   reasoning which renders everything the markets does as optimal, the
   problem is precisely that it is pure axiomatic reasoning with little or
   no regard for the real world. Moreover, by some strange coincidence,
   they usually involve policy implications which generally make the rich
   richer by weakening the working class. Unsurprisingly, decades of
   empirical evidence have not shifted the faith of those who think that
   the simple axioms of economics take precedence over the real world nor
   has this faith lost its utility to the economically powerful.

C.9.3 Are "flexible" labour markets the answer to unemployment?

   The usual "free market" capitalist (or neo-liberal) argument is that
   labour markets must become more "flexible" to solve the problem of
   unemployment. This is done by weakening unions, reducing (or
   abolishing) the welfare state, and so on. In defence of these policies,
   their proponents point to the low unemployment rates of the USA and UK
   and contrast them to the claimed economic woes of Europe (particularly
   France and Germany). As we will indicate in this section, this stance
   has more to do a touching faith that deregulating the labour market
   brings the economy as a whole closer to the ideal of "perfect
   competition" than a balanced analysis and assessment of the available
   evidence. Moreover, it is always important to remember, as tenured
   economists (talking of protective labour market institutions!) seem to
   forget, that deregulation can and does have high economic (and not to
   mention individual and social) costs too.

   The underlying argument for flexible labour markets is the notion that
   unemployment is cased by wages being too high and due to market
   imperfections wages are sticky downwards. While both claims, as we have
   seen above, are dubious both factually and logically this has not
   stopped this position becoming the reigning orthodoxy in elite circles.
   By market imperfections it is meant trade unions, laws which protect
   labour, unemployment benefit and other forms of social welfare
   provision (and definitely not big business, patent and copyright laws,
   or any other pro-business state interventions). All these ensure that
   wages for those employed are inflexible downwards and the living
   standards of those unemployed are too high to induce them to seek work.
   This means that orthodox economics is based on (to use John Kenneth
   Galbraith's justly famous quip) the assumption that the rich do not
   work because they are paid too little, while the poor do not work
   because they are paid too much.

   We should first point out that attacks on social welfare have a long
   pedigree and have been conducted with much the same rationale -- it
   made people lazy and gave them flexibility when seeking work. For
   example, the British Poor Law Report of the 1830s "built its case
   against relief on the damage done by poor relief to personal morality
   and labour discipline (much the same thing in the eyes of the
   commissioners)." [David McNally, Against the Market, p. 101] The report
   itself stated that "the greatest evil" of the system was "the spirit of
   laziness and insubordination that it creates." [quoted by McNally, Op.
   Cit., p. 101]

   While the rhetoric used to justify attacks on welfare has changed
   somewhat since then, the logic and rationale have not. They have as
   their root the need to eliminate anything which provided working class
   people any means for independence from the labour market. It has always
   aimed to ensure that the fear of the sack remains a powerful tool in
   the bosses arsenal and to ensure that their authority is not
   undermined. Ironically, therefore, its underlying aims are to decrease
   the options available to working class people, i.e. to reduce our
   flexibility within the labour market by limiting our options to finding
   a job fast or face dire poverty (or worse).

   Secondly, there is a unspoken paradox to this whole process. If we look
   at the stated, public, rationale behind "flexibility" we find a strange
   fact. While the labour market is to be made more "flexible" and in line
   with ideal of "perfect competition", on the capitalist side no attempt
   is being made to bring it into line with that model. Let us not forget
   that perfect competition (the theoretical condition in which all
   resources, including labour, will be efficiently utilised) states that
   there must be a large number of buyers and sellers. This is the case on
   the sellers side of the "flexible" labour market, but this is not the
   case on the buyers (where, as indicated in [22]section C.4, oligopoly
   reigns). Most who favour labour market "flexibility" are also those
   most against the breaking up of big business and oligopolistic markets
   or are against attempts to stop mergers between dominant companies in
   and across markets. Yet the model requires both sides to be made up of
   numerous small firms without market influence or power. So why expect
   making one side more "flexible" will have a positive effect on the
   whole?

   There is no logical reason for this to be the case and as we noted in
   [23]section C.1.4, neo-classical economics agrees -- in an economy with
   both unions and big business, removing the former while retaining the
   latter will not bring it closer to the ideal of perfect competition.
   With the resulting shift in power on the labour market things will get
   worse as income is distributed from labour to capital. Which is, we
   must stress, precisely what has happened since the 1980s and the much
   lauded "reforms" of the labour market. It is a bit like expecting peace
   to occur between two warring factions by disarming one side and arguing
   that because the number of guns have been halved peacefulness has
   doubled! Of course, the only "peace" that would result would be the
   peace of the graveyard or a conquered people -- subservience can pass
   for peace, if you do not look too close. In the end, calls for the
   "flexibility" of labour indicate the truism that, under capitalism,
   labour exists to meet the requirements of capital (or living labour
   exists to meet the needs of dead labour, a truly insane way to organise
   a society).

   Then there is the key question of comparing reality with the rhetoric.
   As economist Andrew Glyn points out, the neo-liberal orthodoxy on this
   issue "has been strenuously promoted despite weak evidence for the
   magnitude of its benefits and in almost total neglect of its costs." In
   fact, "there is no evidence that the countries which carried out more
   reforms secured significant falls in unemployment." This is perhaps
   unsurprising as "there is plenty of support for such deregulation from
   business even without strong evidence that unemployment would be
   reduced." As far as welfare goes, the relationship between unemployment
   and benefits is, if anything, in the 'wrong' direction (higher benefits
   do along with lower unemployment). Of course there are a host of other
   influences on unemployment but "if benefits were very important we
   might expect some degree of correlation in the 'right' (positive)
   direction . . . such a lack of simple relation with unemployment
   applies to other likely suspects such as employment protection and
   union membership." [Capitalism Unleashed, p. 48, p. 121, p. 48 and p.
   47]

   Nor is it mentioned that the history of labour market flexibility is
   somewhat at odds with the theory. It is useful to remember that
   American unemployment was far worse than Europe's during the 1950s, 60s
   and 70s. In fact, it did not get better than the European average until
   the second half of the 1980s. [David R. Howell, "Introduction", pp.
   3-34, Fighting Unemployment, David R. Howell (ed.), pp. 10-11] To
   summarise:

     "it appears to be only relatively recently that the maintained
     greater flexibility of US labour markets has apparently led to a
     superior performance in terms of lower unemployment, despite the
     fact this flexibility is no new phenomenon. Comparing, for example,
     the United States with the United Kingdom, in the 1960s the United
     States averaged 4.8 per cent, with the United Kingdom at 1.9 per
     cent; in the 1970s the United States rate rose to 6.1 per cent, with
     the United Kingdom rising to 4.3 per cent, and it was only in the
     1980s that the ranking was reversed with the United States at 7.2
     per cent and the United Kingdom at 10 per cent. . . Notice that this
     reversal of rankings in the 1980s took place despite all the best
     efforts of Mrs Thatcher to create labour market flexibility. . .
     [I]f labour market flexibility is important in explaining the level
     of unemployment. . . why does the level of unemployment remain so
     persistently high in a country, Britain, where active measures have
     been taken to create flexibility?" [Keith Cowling and Roger Sugden,
     Beyond Capitalism, p. 9]

   If we look at the fraction of the labour force without a job in
   America, we find that in 1969 it was 3.4% (7.3% including the
   underemployed) and rose to 6.1% in 1987 (16.8% including the
   underemployed). Using more recent data, we find that, on average, the
   unemployment rate was 6.2% in 1990-97 compared to 5.0% in the period
   1950-65. In other words, labour market "flexibility" has not reduced
   unemployment levels, in fact "flexible" labour markets have been
   associated with higher levels of unemployment. Of course, we are
   comparing different time periods. A lot changed between the 1960s and
   the 1990s and so comparing these periods cannot be the whole answer.
   However, it does seem strange that the period with stronger unions,
   higher minimum wages and more generous welfare state should be
   associated with lower unemployment than the subsequent "flexible"
   period. It is possible that the rise in flexibility and the increase in
   unemployment may be unrelated. If we look at different countries over
   the same time period we can see if "flexibility" actually reduces
   unemployment. As one British economist notes, this may not be the case:

     "Open unemployment is, of course, lower in the US. But once we allow
     for all forms of non-employment [such as underemployment, jobless
     workers who are not officially registered as such and so on], there
     is little difference between Europe and the US: between 1988 and
     1994, 11 per cent of men aged 25-55 were not in work in France,
     compared with 13 per cent in the UK, 14 per cent in the US and 15
     per cent in Germany." [Richard Layard, quoted by John Gray, False
     Dawn, p. 113]

   Also when evaluating the unemployment records of a country, other
   factors than the "official" rate given by the government must taken
   into account. Firstly, different governments have different definitions
   of what counts as unemployment. As an example, the USA has a more
   restrictive definition of who is unemployed than Germany. For example,
   in 2005 Germany's unemployment rate was officially 11.2%. However,
   using the US definition it was only around 9% (7% in what was formerly
   West Germany). The offical figure was higher as it included people,
   such as those involuntarily working part-time, as being unemployed who
   are counted as being employed in the USA. America, in the same year,
   had an unemployment rate of around 5%. So comparing unadjusted
   unemployment figures will give a radically different picture of the
   problem than using standardised ones. Sadly far too often business
   reporting in newspapers fail to do this.

   In addition, all estimates of America's unemployment record must take
   into account its incarceration rates. The prison population is not
   counted as part of the labour force and so is excluded when calculating
   unemployment figures. This is particularly significant as those in
   prison are disproportionately from demographic groups with very high
   unemployment rates and so it is likely that a substantial portion of
   these people would be unemployed if they were not in jail. If America
   and the UK did not have the huge surge in prison population since the
   1980s neo-liberal reforms, the unemployment rate in both countries
   would be significantly higher. In the late 1990s, for example, more
   than a million extra people would be seeking work if the US penal
   policies resembled those of any other Western nation. [John Gray, Op.
   Cit., p. 113] England and Wales, unsurprisingly, tops the prison league
   table for Western Europe. In 2005, 145 per 100,000 of their population
   was incarcerated. In comparison, France had a rate of 88 while Germany
   had one of 97. This would, obviously, reduce the numbers of those
   seeking work on the labour market and, consequently, reduce the
   unemployment statistics.

   While the UK is praised for its "flexible" labour market in the 2000s,
   many forget the price which was paid to achieve it and even more fail
   to realise that the figures hide a somewhat different reality. It is
   therefore essential to remember Britain's actual economic performance
   during Thatcher's rule rather than the "economically correct" narrative
   we have inherited from the media and economic "experts." When Thatcher
   came to office in 1979 she did so promising to end the mass
   unemployment experienced under Labour (which had doubled between 1974
   and 1979). Unemployment then tripled in her first term, rising to over
   3 million in 1982 (for the first time since the 1930s, representing 1
   in 8 people). This was due in large part to the application of
   Monetarist dogma making the recession far worse than it had to be.
   Unemployment remained at record levels throughout the 1980s, only
   dropping to below its 1979 level in 1997 when New Labour took office.
   It gets worse. Faced with unemployment rising to well over 10%,
   Thatcher's regime did what any respectable government would -- it
   cooked the books. It changed how unemployment was recorded in order to
   artificially lower the official unemployment records. It also should be
   stressed that the UK unemployment figures do not take into account the
   Thatcherite policy of shunting as many people as possible off the
   unemployment roles and onto sickness and incapacity benefits during the
   1980s and 1990s ("In some countries, like the UK and the Netherlands,
   many [of the unemployed] found their way onto sickness benefit . . .
   Across the UK, for example, there was a strong positive correlation
   between numbers on sickness benefits and the local unemployment rate."
   [Glyn, Op. Cit., p. 107]). Once these "hidden" people are included the
   unemployment figures of Britain are similar to those countries, such as
   France and Germany, who are more honest in recording who is and is not
   unemployed.

   Eighteen years of high unemployment and a massive explosion in those on
   incapacity benefits is hardly an advert for the benefits of "flexible"
   labour market. However, a very deep recession, double-figure
   unemployment for most of the decade, defeats for key strikes and unions
   plus continued high unemployment for nearly two decades had an impact
   on the labour movement. It made people willing to put up with anything
   in order to remain in work. Hence Thatcher's "economic miracle" -- the
   working class finally knew its place in the social hierarchy.

   Thus, if a politician is elected who is hailed by the right as a "new
   Thatcher", i.e., seeking to "reform" the economy (which is
   "economically correct" speak for using the state to break working class
   militancy) then there are some preconditions required before they force
   their populations down the road to (private) serfdom. They will have to
   triple unemployment in under three years and have such record levels
   last over a decade, provoke the deepest recession since the 1930s,
   oversee the destruction of the manufacturing sector and use the powers
   of the state to break the mass protests and strikes their policies will
   provoke. Whether they are successful depends on the willingness of
   working class people to stand up for their liberties and rights and so
   impose, from the streets, the changes that really needed -- changes
   that politicians will not, indeed cannot, achieve.

   Nor should it be forgotten that here are many European countries with
   around the same, or lower, official unemployment rates as the UK with
   much less "flexible" labour markets. Taking the period 1983 to 1995, we
   find that around 30 per cent of the population of OECD Europe lived in
   countries with average unemployment rates lower than the USA and around
   70 per cent in countries with lower unemployment than Canada (whose
   wages are only slightly less flexible than the USA). Furthermore, the
   European countries with the lowest unemployment rates were not noted
   for their labour market flexibility (Austria 3.7%, Norway 4.1%,
   Portugal 6.4%, Sweden 3.9% and Switzerland 1.7%). Britain, which
   probably had the most flexible labour market had an average
   unemployment rate higher than half of Europe. And the unemployment rate
   of Germany is heavily influenced by areas which were formally in East
   Germany. Looking at the former West German regions only, unemployment
   between 1983 and 1995 was 6.3%, compared to 6.6% in the USA (and 9.8%
   in the UK). This did not change subsequently. There are many regulated
   European countries with lower unemployment than the USA (in 2002, 10 of
   18 European countries had lower unemployment rates). Thus:

     "Often overlooked in the 1990s in the rush to embrace market
     fundamentalism and to applaud the American model was the fact that
     several European countries with strong welfare states consistently
     reported unemployment rates well below that of the United States . .
     . At the same time, other European welfare sates, characterised by
     some of the lowest levels of wage inequality and the highest levels
     of social protection in the developed world, experienced substantial
     declines in unemployment over the 1990s, reaching levels that are
     now below that of the United States." [David R. Howell,
     "Conclusion", pp. 310-43, Op. Cit., p. 310]

   As such, it is important to remember that "the empirical basis" of the
   neo-liberal OECD-IMF orthodoxy is "limited." [Howell, Op. Cit., p. 337]
   In fact, the whole "Europe is in a state of decline" narrative which is
   used to justify the imposition of neo-liberal reforms there is better
   understood as the corporate media's clever ploy to push Europe into the
   hands of the self-destructing neo-liberalism that is slowly taking its
   toll on Britain and America rather than a serious analysis of the real
   situation there.

   Take, for example, the issue of high youth unemployment in many
   European countries which reached international awareness during the
   French anti-CPE protests in 2006. In fact, the percentage of prime-age
   workers (25-54) in employment is pretty similar in "regulated" France,
   Germany and Sweden as in "flexible" America and Britain (it is much
   higher for women in Sweden). However, there are significant differences
   in youth employment rates and this suggests where the apparent
   unemployment problem lies in Europe. This problem is due to the
   statistical method used to determine the unemployment figures. The
   standard measure of unemployment divides the number unemployed by the
   numbers unemployed plus employed. The flaw in this should be obvious.
   For example, assume that 90% of French youths are in education and of
   the remaining 10%, 5% are in work and 5% are unemployed. This last 10%
   are the "labour force" and so we would get a massive 50% unemployment
   rate but this is due to the low (5%) employment rate. Looking at the
   youth population as a whole, only 5% are actually unemployed. [David R.
   Howell, "Introduction", pp. 3-34, Op. Cit., pp. 13-14] By the standard
   measure, French males age 15-24 had an unemployment rate of 20.8% in
   2007, as compared to 11.8% in America. Yet this difference is mainly
   because, in France (as in the rest of Europe), there are many more
   young males not in the labour force (more are in school and fewer work
   part time while studying). As those who are not in the labour market
   are not counted in the standard measure, this gives an inflated value
   for youth unemployment. A far better comparison would be to compare the
   number of unemployed divided by the population of those in the same age
   group. This results in the USA having a rate of 8.3% and France 8.6%.

   Another source of the "decline" of Europe is usually linked to lower
   GDP growth over the past few years compared to countries like Britain
   and the USA. Yet this perspective fails to take into account internal
   income distribution. Both the USA and UK are marked by large (and
   increasing) inequality and that GDP growth is just as unequally
   distributed. In America, for example, most of GDP growth since the
   1980s has been captured by the top 5% of the population while median
   wages have been (at best) flat. Ignoring the enrichment of the elite in
   the USA and UK would mean that GDP growth would be, at least for the
   bulk of the population, better in Europe. This means that while Europe
   may have grown more slowly, it benefits more than just the ruling
   class. Then there are such factors as poverty and social mobility.
   Rates of poverty are much worse in the neo-liberal countries, while
   social mobility has fallen in the US and UK since the 1980s. There are
   less poor people in Europe and they stay in poverty for shorter periods
   of time compared to America and Britain.

   Moreover, comparing Europe's income or GDP per person to the U.S. fails
   to take into account the fact that Europeans work far less than
   Americans or British people. So while France may have lagged America in
   per capita income in 2007 ($30,693 to $43,144), it cannot be said that
   working class people are automatically worse off as French workers have
   a significantly shorter working week and substantially more holidays.
   Less hours at work and longer holidays may impact negatively on GDP but
   only an idiot would say that this means the economy is worse, never
   mind the quality of life. Economists, it should be remembered, cannot
   say that one person is worse off than another if she has less income
   due to working fewer hours. So GDP per capita may be higher in the US,
   but only because American workers work more hours and not because they
   are more productive. Like other Europeans, the French have decided to
   work less and enjoy it more. So it is important to remember that GDP is
   not synonymous with well-being and that inequality can produce
   misleading per capita income comparisons.

   A far better indicator of economic welfare is productivity. It is
   understandable that this is not used as a measure when comparing
   America to Europe as it is as high, or higher, in France and other
   Western European countries as it is in the US (and much higher than in
   the UK where low wages and long hours boost the figure). And it should
   be remembered that rising productivity in the US has not been
   reflecting in rising wages since 1980. The gains of productivity, in
   other words, have been accumulated by the boss class and not by the
   hard working American people (whose working week has steadily increased
   during that period). Moreover, France created more private sector jobs
   (+10% between 1996 and 2002, according to the OECD) than the UK (+6%)
   or the US (+5%). Ironically, given the praise it receives for being a
   neo-liberal model, the UK economy barely created any net employment in
   the private sector between 2002 and 2007 (unemployment had dropped, but
   that was due to increased state spending which led to a large rise in
   public sector jobs).

   Then there is the fact that some European countries have listened to
   the neo-liberal orthodoxy and reformed their markets but to little
   success. So it should be noted that "there has in fact already been a
   very considerable liberalisation and reform in Europe," both in product
   and labour markets. In fact, during the 1990s Germany and Italy
   reformed their labour markets "roughly ten times" as much as the USA.
   The "point is that reforms should have boosted productivity growth in
   Europe," but they did not. If regulation "was the fundamental problem,
   some positive impact on labour productivity growth should have come
   already from the very substantial deregulation already undertaken.
   Deregulation should have contributed to an acceleration in productivity
   growth in Europe whereas actually productivity growth declines. It is
   hard to see how regulation, which was declining, could be the source of
   Europe's slowdown." [Glyn, Op. Cit., p. 144]

   So, perhaps, "flexibility" is not the solution to unemployment some
   claim it is (after all, the lack of a welfare state in the 19th century
   did not stop mass unemployment nor long depressions occurring). Indeed,
   a strong case can be made (and has been by left-wing economists) that
   the higher open unemployment in Europe has a lot less to do with
   "rigid" structures and "pampered" citizens than it does with the fiscal
   and monetary austerity produced by the excessively tight monetary
   policies of the European Central Bank plus the requirements of the
   Maastricht Treaty and the "Growth and Stability pact" which aims to
   reduce demand expansion (i.e. wage rises) under the name of price
   stability (i.e., the usual mantra of fighting inflation by lowering
   wage increases). So, "[i]n the face of tight monetary policy imposed
   first by the [German] Bundesbank and then by the European Central Bank
   . . . it has been essential to keep wages moderate and budget deficits
   limited. With domestic demand severely constrained, many European
   countries experiences particularly poor employment growth in the
   mid-1990s." [David R. Howell, "Conclusion", Op. Cit., p. 337] This has
   been essentially imposed by the EU bureaucrats onto the European
   population and as these policies, like the EU itself, has the support
   of most of Europe's ruling class such an explanation is off the
   political agenda.

   So if "flexibility" does not result in lower unemployment, just what is
   it good for? The net results of American labour market "flexibility"
   were summarised by head the US Federal Reserve Alan Greenspan in 1997.
   He was discussing the late 1990s boom (which was, in fact, the product
   of the dot.com bubble rather than the dawn of a new era so many claimed
   at the time). He explained why unemployment managed to fall below the
   standard NAIRU rate without inflation increasing. In his words:

     "Increases in hourly compensation . . . have continued to fall far
     short of what they would have been had historical relationships
     between compensation gains and the degree of labour market tightness
     held . . . As I see it, heightened job insecurity explains a
     significant part of the restraint on compensation and the consequent
     muted price inflation . . . The continued reluctance of workers to
     leave their jobs to seek other employment as the labour market has
     tightened provides further evidence of such concern, as does the
     tendency toward longer labour union contracts . . . The low level of
     work stoppages of recent years also attests to concern about job
     security . . . The continued decline in the share of the private
     workforce in labour unions has likely made wages more responsive to
     market forces . . . Owing in part to the subdued behaviour of wages,
     profits and rates of return on capital have risen to high levels."
     [quoted by Jim Stanford, "Testing the Flexibility Paradigm: Canadian
     Labor Market Performance in International Context," pp. 119-155,
     Fighting Unemployment, David R. Howell (ed.), pp. 139-40]

   Under such circumstances, it is obvious why unemployment could drop and
   inflation remain steady. Yet there is a massive contradiction in
   Greenspan's account. As well as showing how keen the Federal Reserve
   investigates the state of the class struggle, ready to intervene when
   the workers may be winning, it also suggests that flexibility works
   just one way:

     "Some of the features highlighted by Greenspan reflect precisely a
     lack of flexibility in the labour market: a lack of response of
     compensation to tight labour markets, a reluctance of workers to
     leave their jobs, and the prevalence of long-term contracts that
     lock employment arrangements for six or more years at a time. And so
     Greenspan's portrayal of the unique features of the US model
     suggests that something more than flexibility is the key ingredient
     at work -- or at least that 'flexibility' is being interpreted once
     again from an unbalanced and one-sided perspective. It is, rather, a
     high degree of labour market discipline that seems to be the
     operative force. US workers remain insecure despite a relatively low
     unemployment rate, and hence compensation gains . . . were muted.
     This implies a consequent redistribution of income from labour to
     capital . . . Greenspan's story is more about fear than it is about
     flexibility -- and hence this famous testimony has come to be known
     as Greenspan's 'fear factor' hypothesis, in which he concisely
     described the importance of labour market discipline for his conduct
     of monetary policy." [Jim Stanford, Op. Cit., p. 140]

   So while this attack on the wages, working conditions and social
   welfare is conducted under the pre-Keynesian notion of wages being
   "sticky" downwards, the underlying desire is to impose a "flexibility"
   which ensures that wages are "sticky" upwards. This suggests a certain
   one-sidedness to the "flexibility" of modern labour markets: employers
   enjoy the ability to practice flexpoilation but the flexibility of
   workers to resist is reduced.

   Rather than lack of "flexibility," the key factor in explaining high
   unemployment in Europe is the anti-inflationary policies of its central
   banks, which pursue high interest rates in order to "control" inflation
   (i.e. wages). In contrast, America has more flexibility simply due to
   the state of the working class there. With labour so effectively
   crushed in America, with so many workers feeling they cannot change
   things or buying into the individualistic premises of capitalism thanks
   to constant propaganda by business funded think-tanks, the US central
   bank can rely on job insecurity and ideology to keep workers in their
   place in spite of relatively lower official unemployment. Meanwhile, as
   the rich get richer many working class people spend their time making
   ends meet and blaming everyone and everything but their ruling class
   for their situation ("US families must work even more hours to achieve
   the standard of living their predecessors achieved 30 years ago."
   [David R. Howell, "Conclusion", Op. Cit., p. 338]).

   All this is unsurprising for anarchists as we recognise that
   "flexibility" just means weakening the bargaining power of labour in
   order to increase the power and profits of the rich (hence the
   expression "flexploitation"!). Increased "flexibility" has been
   associated with higher, not lower unemployment. This, again, is
   unsurprising, as a "flexible" labour market basically means one in
   which workers are glad to have any job and face increased insecurity at
   work (actually, "insecurity" would be a more honest word to use to
   describe the ideal of a competitive labour market rather than
   "flexibility" but such honesty would let the cat out of the bag). In
   such an environment, workers' power is reduced meaning that capital
   gets a larger share of the national income than labour and workers are
   less inclined to stand up for their rights. This contributes to a fall
   in aggregate demand, so increasing unemployment. In addition, we should
   note that "flexibility" may have little effect on unemployment
   (although not on profits) as a reduction of labour's bargaining power
   may result in more rather than less unemployment. This is because firms
   can fire "excess" workers at will, increase the hours of those who
   remain and stagnating or falling wages reduces aggregate demand. Thus
   the paradox of increased "flexibility" resulting in higher unemployment
   is only a paradox in the neo-classical framework. From an anarchist
   perspective, it is just the way the system works as is the paradox of
   overwork and unemployment occurring at the same time.

   So while "free market" economics protrays unions as a form of market
   failure, an interference with the natural workings of the market system
   and recommend that the state should eliminate them or ensure that they
   are basically powerless to act, this simply does not reflect the real
   world. Any real economy is marked by the economic power of big business
   (in itself, according to neo-classical economics, a distortion of the
   market). Unless workers organise then they are in a weak position and
   will be even more exploited by their economic masters. Left-wing
   economist Thomas I. Palley presents the correct analysis of working
   class organisation when he wrote:

     "The reality is that unions are a correction of market failure,
     namely the massive imbalance of power that exists between individual
     workers and corporate capital. The importance of labour market
     bargaining power for the distribution of income, means that unions
     are a fundamental prop for widespread prosperity. Weakening unions
     does not create a 'natural' market: it just creates a market in
     which business has the power to dominate labour.

     "The notion of perfect natural markets is built on the assumption
     that market participants have no power. In reality, the process of
     labour exchange is characterised not only by the presence of power,
     but also by gross inequality of power. An individual worker is at a
     great disadvantage in dealing with large corporations that have
     access to massive pools of capital and can organise in a fashion
     that renders every individual dispensible . . . Unions help rectify
     the imbalance of power in labour markets, and they therefore correct
     market failure rather than causing it."
     {Op. Cit., pp. 36-7]

   The welfare state also increases the bargaining power of workers
   against their firms and limits the ability of firms to replace striking
   workers with scabs. Given this, it is understandable why bosses hate
   unions and any state aid which undermines their economic power. Thus
   the "hallmark" of the neo-liberal age "is an economic environment that
   pits citizen against citizen for the benefit of those who own and
   manage" a country. [Op. Cit, p. 203]

   And we must add that whenever governments have attempted to make the
   labour market "fully competitive" it has either been the product of
   dictatorship (e.g. Chile under Pinochet) or occurred at the same time
   as increased centralisation of state power and increased powers for the
   police and employers (e.g. Britain under Thatcher, Reagan in the USA).
   This is the agenda which is proscribed for Western Europe. In 2006,
   when successful street protests stopped a proposed labour market reform
   in France (the CPE), one American journalist, Elaine Sciolino,
   complained that "the government seems to fear its people; the people
   seem to fear change." [New York Times, March 17 2006] Such are the
   contradictions of neo-liberalism. While proclaiming the need to reduce
   state intervention, it requires increased state power to impose its
   agenda. It needs to make people fear their government and fear for
   their jobs. Once that has been achieved, then people who accept
   "change" (i.e. the decisions of their economic, social and political
   bosses) without question. That the French people do not want a British
   or American style labour market, full of low-wage toilers who serve at
   the boss's pleasure should not come as a surprise. Nor should the
   notion that elected officials in a supposed democracy are meant to
   reflect the feelings of the sovereign people be considered as unusual
   or irrational.

   The anti-democratic nature of capitalist "flexiblity" applies across
   the world. Latin American Presidents trying to introduce neo-liberalism
   into their countries have had to follow suit and "ride roughshod over
   democratic institutions, using the tradition Latin American technique
   of governing by decree in order to bypass congressional opposition. . .
   Civil rights have also taken a battering. In Bolivia, the government
   attempted to defuse union opposition . . . by declaring a state of
   siege and imprisoning 143 strike leaders. . . In Colombia, the
   government used anti-terrorist legislation in 1993 to try 15 trade
   union leaders opposing the privatisation of the state
   telecommunications company. In the most extreme example, Peru's Alberto
   Fujimori dealt with a troublesome Congress by simply dissolving it . .
   . and seizing emergency powers." [Duncan Green, The Silent Revolution,
   p. 157]

   This is unsurprising. People, when left alone, will create communities,
   organise together to collectively pursue their own happiness, protect
   their communities and environment. In other words, they will form
   groups, associations and unions to control and influence the decisions
   that affect them. In order to create a "fully competitive" labour
   market, individuals must be atomised and unions, communities and
   associations weakened, if not destroyed, in order to fully privatise
   life. State power must be used to disempower the mass of the
   population, restrict their liberty, control popular organisations and
   social protest and so ensure that the free market can function without
   opposition to the human suffering, misery and pain it would cause.
   People, to use Rousseau's evil term, "must be forced to be free." And,
   unfortunately for neo-liberalism, the countries that tried to reform
   their labour market still suffered from high unemployment, plus
   increased social inequality and poverty and where still subject to the
   booms and slumps of the business cycle.

   Of course, bosses and the elite are hardly going to present their
   desire for higher profits and more power in those terms. Hence the need
   to appear concerned about the fate of the unemployed. As such, it is
   significant, of course, that right-wing economists only seem to become
   concerned over unemployment when trade unions are organising or
   politicians are thinking of introducing or raising the minimum wage.
   Then they will talk about how these will raise unemployment and harm
   workers, particularly those from ethnic minorities. Given that bosses
   always oppose such policies, we must conclude that they are, in fact,
   seeking a situation where there is full employment and finding willing
   workers is hard to do. This seems, to say the least, an unlikely
   situation. If bosses were convinced that, for example, raising the
   minimum wage would increase unemployment rather than their wages bill
   they would be supporting it wholeheartedly as it would allow them to
   pressurise their workers into labouring longer and harder to remain in
   employment. Suffice to say, bosses are in no hurry to see their pool of
   wage slaves drained and so their opposition to trade unions and minimum
   wages are the product of need for profits rather than some concern for
   the unemployed.

   This applies to family issues as well. In its support for "free
   markets" you can get a taste of the schizophrenic nature of the
   conservative right's approach to family values. On the one hand, they
   complain that families do not spend enough time together as they are
   under financial pressure and this results both parents going out to
   work and working longer hours. Families will also suffer because
   businesses do not have to offer paid maternity leave, paid time off,
   flexitime, paid holidays, or other things that benefit them. However,
   the right cannot bring themselves to advocate unions and strike action
   by workers (or state intervention) to achieve this. Ironically, their
   support for "free market" capitalism and "individualism" undermines
   their support for "family values." Ultimately, that is because profits
   will always come before parents.

   All this is unsurprising as, ultimately, the only real solution to
   unemployment and overwork is to end wage labour and the liberation of
   humanity from the needs of capital. Anarchists argue that an economy
   should exist to serve people rather than people existing to serve the
   economy as under capitalism. This explains why capitalism has always
   been marked by a focus on "what the economy wants" or "what is best for
   the economy" as having a capitalist economy always results in profit
   being placed over people. Thus we have the paradoxical situation, as
   under neo-liberalism, where an economy is doing well while the bulk of
   the population are not.

   Finally, we must clarify the anarchist position on state welfare (we
   support working class organisations, although we are critical of unions
   with bureaucratic and top-down structures). As far as state welfare
   goes, anarchists do not place it high on the list of things we are
   struggling against (once the welfare state for the rich has been
   abolished, then, perhaps, we will reconsider that). As we will discuss
   in [24]section D.1.5, anarchists are well aware that the current
   neo-liberal rhetoric of "minimising" the state is self-serving and
   hides an attack on the living standards of working class people. As
   such, we do not join in such attacks regardless of how critical we may
   be of aspects of the welfare state for we seek genuine reform from
   below by those who use it rather than "reform" from above by
   politicians and bureaucrats in the interests of state and capital. We
   also seek to promote alternative social institutions which, unlike the
   welfare state, are under working class control and so cannot be cut by
   decree from above. For further discussion, see sections [25]J.5.15 and
   [26]J.5.16.

C.9.4 Is unemployment voluntary?

   Here we point out another aspect of the free market capitalist "blame
   the workers" argument, of which the diatribes against unions and
   workers' rights highlighted above is only a part. This is the
   assumption that unemployment is not involuntary but is freely chosen by
   workers. As Nicholas Kaldor put it, for "free market" economists
   involuntary employment "cannot exist because it is excluded by the
   assumptions." [Further Essays on Applied Economics, p. x] Many
   neo-classical economists claim that unemployed workers calculate that
   their time is better spent searching for more highly paid employment
   (or living on welfare than working) and so desire to be jobless. That
   this argument is taken seriously says a lot about the state of modern
   capitalist economic theory, but as it is popular in many right-wing
   circles, we should discuss it.

   David Schweickart notes, these kinds of arguments ignore "two
   well-established facts: First, when unemployment rises, it is layoffs,
   not [voluntary] quits, that are rising. Second, unemployed workers
   normally accept their first job offer. Neither of these facts fits well
   with the hypothesis that most unemployment is a free choice of
   leisure." [Against Capitalism, p. 108] When a company fires a number of
   its workers, it can hardly be said that the sacked workers have
   calculated that their time is better spent looking for a new job. They
   have no option. Of course, there are numerous jobs advertised in the
   media. Does this not prove that capitalism always provides jobs for
   those who want them? Hardly, as the number of jobs advertised must have
   some correspondence to the number of unemployed and the required skills
   and those available. If 100 jobs are advertised in an areas reporting
   1,000 unemployed, it can scarcely be claimed that capitalism tends to
   full employment. This hardly gives much support to the right-wing claim
   that unemployment is "voluntary" and gives an obvious answer to
   right-wing economist Robert Lucas's quest "to explain why people
   allocate time to . . . unemployment, we need to know why they prefer it
   to all other activities." [quoted by Schweickart, Op. Cit., p. 108] A
   puzzle indeed! Perhaps this unworldly perspective explains why there
   has been no real effort to verify the assertion that unemployment is
   "voluntary leisure."

   Somewhat ironically, given the desire for many on the right to deny the
   possibility of involuntary unemployment this perspective became
   increasingly influential at precisely the same time as the various
   theories of the so-called "natural rate" of unemployment did (see
   [27]section C.9). Thus, at the same time as unemployment was proclaimed
   as being a "voluntary" choice economics was also implicitly arguing
   that this was nonsense, that unemployment is an essential disciplinary
   tool within capitalism to keep workers in their place (sorry, to fight
   inflation).

   In addition, it is worthwhile to note that the right-wing assumption
   that higher unemployment benefits and a healthy welfare state promote
   unemployment is not supported by the evidence. As a moderate member of
   the British Conservative Party notes, the "OECD studied seventeen
   industrial countries and found no connect between a country's
   unemployment rate and the level of its social-security payments."
   [Dancing with Dogma, p. 118] Moreover, the economists David
   Blanchflower and Andrew Oswald "Wage Curve" for many different
   countries is approximately the same for each of the fifteen countries
   they looked at. This also suggests that labour market unemployment is
   independent of social-security conditions as their "wage curve" can be
   considered as a measure of wage flexibility. Both of these facts
   suggest that unemployment is involuntary in nature and cutting
   social-security will not affect unemployment.

   Another factor in considering the nature of unemployment is the effect
   of decades of "reform" of the welfare state conducted in both the USA
   and UK since 1980. During the 1960s the welfare state was far more
   generous than it was in the 1990s and unemployment was lower. If
   unemployment was "voluntary" and due to social-security being high, we
   would expect a decrease in unemployment as welfare was cut (this was,
   after all, the rationale for cutting it in the first place). In fact,
   the reverse occurred, with unemployment rising as the welfare state was
   cut. Lower social-security payments did not lead to lower unemployment,
   quite the reverse in fact.

   Faced with these facts, some may conclude that as unemployment is
   independent of social security payments then the welfare state can be
   cut. However, this is not the case as the size of the welfare state
   does affect the poverty rates and how long people remain in poverty. In
   the USA, the poverty rate was 11.7% in 1979 and rose to 13% in 1988,
   and continued to rise to 15.1% in 1993. The net effect of cutting the
   welfare state was to help increase poverty. Similarly, in the UK during
   the same period, to quote the ex-Thatcherite John Gray, there "was the
   growth of an underclass. The percentage of British (non-pensioner)
   households that are wholly workless -- that is, none of whose members
   is active in the productive economy -- increased from 6.5 per cent in
   1975 to 16.4 per cent in 1985 and 19.1 per cent in 1994. . . Between
   1992 and 1997 there was a 15 per cent increase in unemployed lone
   parents. . . This dramatic growth of an underclass occurred as a direct
   consequence of neo-liberal welfare reforms, particularly as they
   affected housing." [False Dawn, p. 30] This is the opposite of the
   predictions of right-wing theories and rhetoric.

   As Gray correctly argues, the "message of the American [and other] New
   Right has always been that poverty and the under class are products of
   the disincentive effects of welfare, not the free market." He goes on
   to note that it "has never squared with the experience of the countries
   of continental Europe where levels of welfare provision are far more
   comprehensive than those of the United States have long co-existed with
   the absence of anything resembling an American-style underclass. It
   does not touch at virtually any point the experience of other
   Anglo-Saxon countries." He points to the example of New Zealand where
   "the theories of the American New Right achieved a rare and curious
   feat -- self-refutation by their practical application. Contrary to the
   New Right's claims, the abolition of nearly all universal social
   services and the stratification of income groups for the purpose of
   targeting welfare benefits selectively created a neo-liberal poverty
   trap." [Op. Cit., p. 42]

   So while the level of unemployment benefits and the welfare state may
   have little impact on the level of unemployment (which is to be
   expected if the nature of unemployment is essentially involuntary), it
   does have an effect on the nature, length and persistency of poverty.
   Cutting the welfare state increases poverty and the time spent in
   poverty (and by cutting redistribution, it also increases inequality).

   If we look at the relative size of a nation's social security transfers
   as a percentage of Gross Domestic Product and its relative poverty rate
   we find a correlation. Those nations with a high level of spending have
   lower rates of poverty. In addition, there is a correlation between the
   spending level and the number of persistent poor. Those nations with
   high spending levels have more of their citizens escape poverty. For
   example, Sweden has a single-year poverty rate of 3% and a poverty
   escape rate of 45% and Germany has figures of 8% and 24% (and a
   persistent poverty rate of 2%). In contrast, the USA has figures of 20%
   and 15% (and a persistent poverty rate of 42%).

   Given that a strong welfare state acts as a kind of floor under the
   wage and working conditions of labour, it is easy to see why
   capitalists and the supporters of "free market" capitalism seek to
   undermine it. By undermining the welfare state, by making labour
   "flexible," profits and power can be protected from working people
   standing up for their rights and interests. Little wonder the claimed
   benefits of "flexibility" have proved to be so elusive for the vast
   majority while inequality has exploded. The welfare state, in other
   words, reduces the attempts of the capitalist system to commodify
   labour and increases the options available to working class people.
   While it did not reduce the need to get a job, the welfare state did
   undermine dependence on any particular employee and so increased
   workers' independence and power. It is no coincidence that the attacks
   on unions and the welfare state was and is framed in the rhetoric of
   protecting the "right of management to manage" and of driving people
   back into wage slavery. In other words, an attempt to increase the
   commodification of labour by making work so insecure that workers will
   not stand up for their rights.

   Unemployment has tremendous social costs, with the unemployed facing
   financial insecurity and the possibility of indebtedness and poverty.
   Many studies have found that unemployment results in family
   distribution, ill health (both physical and mental), suicide, drug
   addition, homelessness, malnutrition, racial tensions and a host of
   other, negative, impacts. Given all this, given the dire impact of
   joblessness, it strains belief that people would choose to put
   themselves through it. The human costs of unemployment are well
   documented. There is a stable correlation between rates of unemployment
   and the rates of mental-hospital admissions. There is a connection
   between unemployment and juvenile and young-adult crime. The effects on
   an individual's self-respect and the wider implications for their
   community and society are massive. As David Schweickart concludes the
   "costs of unemployment, whether measured in terms of the cold cash of
   lost production and lost taxes or in the hotter units of alienation,
   violence, and despair, are likely to be large under Laissez Faire."
   [Op. Cit., p. 109]

   Of course, it could be argued that the unemployed should look for work
   and leave their families, home towns, and communities in order to find
   it. However, this argument merely states that people should change
   their whole lives as required by "market forces" (and the wishes --
   "animal spirits," to use Keynes' term -- of those who own capital). In
   other words, it just acknowledges that capitalism results in people
   losing their ability to plan ahead and organise their lives (and that,
   in addition, it can deprive them of their sense of identity, dignity
   and self-respect as well), portraying this as somehow a requirement of
   life (or even, in some cases, noble).

   It seems that capitalism is logically committed to viciously
   contravening the very values upon which it claims it be built, namely
   the respect for the innate worth and separateness of individuals. This
   is hardly surprising, as capitalism is based on reducing individuals to
   the level of another commodity (called "labour"). To requote Karl
   Polanyi:

     "In human terms such a postulate [of a labour market] implied for
     the worker extreme instability of earnings, utter absence of
     professional standards, abject readiness to be shoved and pushed
     about indiscriminately, complete dependence on the whims of the
     market. [Ludwig Von] Mises justly argued that if workers 'did not
     act as trade unionists, but reduced their demands and changed their
     locations and occupations according to the labour market, they would
     eventually find work.' This sums up the position under a system
     based on the postulate of the commodity character of labour. It is
     not for the commodity to decide where it should be offered for sale,
     to what purpose it should be used, at what price it should be
     allowed to change hands, and in what manner it should be consumed or
     destroyed." [The Great Transformation, p. 176]

   However, people are not commodities but living, thinking, feeling
   individuals. The "labour market" is more a social institution than an
   economic one and people and work more than mere commodities. If we
   reject the neo-liberals' assumptions for the nonsense they are, their
   case fails. Capitalism, ultimately, cannot provide full employment
   simply because labour is not a commodity (and as we discussed in
   [28]section C.7, this revolt against commodification is a key part of
   understanding the business cycle and so unemployment).

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc15
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC3.html
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD1.html
   4. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc16
   5. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc15
   6. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html#secc71
   7. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html#secc92
   8. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html#secc91
   9. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc92
  10. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC8.html
  11. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html
  12. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc25
  13. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc12
  14. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC4.html#secc43
  15. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc14
  16. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html#secc92
  17. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC8.html#secc82
  18. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html#secc91
  19. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html#secc91
  20. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC3.html
  21. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html#secc91
  22. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC4.html
  23. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc14
  24. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD1.html#secd15
  25. file://localhost/home/mauro/baku/debianize/maint/anarchy/secJ5.html#secj515
  26. file://localhost/home/mauro/baku/debianize/maint/anarchy/secJ5.html#secj516
  27. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
  28. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html
