Labor Unions, Thugs, and Storm Troopers

1. New York Times Columnist Eduardo Porter on How to Raise Wages

The following three paragraphs are a quotation from the article "Unionizing the Bottom of the Pay Scale" by New York Times columnist Eduardo Porter. The article appeared on the front page of the business section in the December 5, 2012 National Edition. The subject of the article is the present attempts going on to unionize the employees of such establishments as fast-food restaurants and Walmart, whose workers are at the low end of the general wage scale in the US.

Union leaders know they are fighting long odds — hemmed in by legal decisions limiting how they can organize and protest, while trying to organize workers in industries of low skill and high turnover like fast food. But they hope to have come upon a winning strategy, applying some of the tactics that workers used before the Wagner Act created the federal legal right to unionize in 1935.

“We must go back to the strategies of nonviolent disruption of the 1930s,” suggests Stephen Lerner, a veteran organizer and strategist formerly at the Service Employees International Union, one of the unions behind the fast-food strike. “You can’t successfully organize without large-scale civil disobedience. The law will change when employers say there’s too much disruption. We need another system.”

In the 1990s and 2000s, the S.E.I.U. unionized tens of thousands of mostly Latino janitors from Los Angeles to Houston, including thousands of illegal immigrants, who were until then considered impossible to organize because of their legal status. It did so by putting pressure not only on the building maintenance contractors but also on the building owners who hired them, often resorting to bare-knuckle tactics. In 1990, the union asked members to mail their trash to Judd Malkin, the chairman of the company that owned buildings in the Century City complex in Los Angeles, printing his address on garbage bags. Mr. Malkin met Mr. Lerner soon thereafter.

Porter believes, wrongly, that labor unions are able to improve the standard of living of wage earners throughout the economic system and that they do so by means of securing increases in money wage rates. He, along with almost everyone else, commits the fallacy of assuming that because earning more money is obviously an intelligent policy for an individual wage earner to pursue, it follows that it must be an intelligent policy for all wage earners taken together to pursue. He is totally ignorant of the fact that increases in money wage rates obtained by labor unions reduce the quantity of labor demanded and thereby cause unemployment, less production, higher prices, and an added burden of supporting the unemployed. He is ignorant of the fact that what serves to increase money wages without causing additional unemployment is merely the increase in the quantity of money and consequent increase in the volume of spending in the economic system. But this phenomenon serves equally to raise prices and thus does not improve the standard of living of wage earners.

To state these points in the customary terminology of demand and supply, the only way that wage rates can rise is either if there is less supply of labor, which means unemployment, or more demand for labor, which will also mean more demand for consumers’ goods and thus higher prices of consumers’ goods. Thus, however surprising it may be, we must conclude that higher money wages, whether obtained through less supply of labor or more demand for labor based on a larger quantity of money, simply do not raise the standard of living of the average wage earner. We must conclude that if they really wish to raise the standard of living of the average worker, the unions are utterly misguided in making the increase in money wages their goal. But that is their goal and they have no other comparably major goal.

I want to acknowledge that there is a way that an increase in the demand for labor can raise wage rates without increasing the demand for consumers’ goods and prices. And that is insofar as it takes place as the result of an increase in saving. What would contribute to this would be reductions in government spending accompanied by equivalent reductions in  taxes that are paid out of funds that would otherwise be heavily saved and invested. In this category are the corporate income tax, the progressive personal income tax, capital gains taxes, and inheritance taxes. The additional savings that resulted would be expended in substantial measure in paying additional wages. The wage earners would be in a position to increase their consumption spending correspondingly. This would not represent an increase in overall, total consumer spending, because it would be financed by an equivalent, indeed, more than equivalent reduction in consumer spending on the part of the government. Thus, while wages rose, nothing would be present to make prices rise. Of course, such tax reductions are absolutely anathema to the labor unions and their supporters.

What does improve the standard of living of wage earners is increases in the productivity of labor, i.e., the output per unit of labor. This serves to increase the supply of goods relative to the supply of labor and thus to reduce prices relative to wage rates. It can be accompanied by prices actually falling while wage rates remain unchanged. Or, when the effects of an increase in the quantity of money and volume of spending going on at the same time are allowed for, by prices staying the same while wage rates rise, or by both prices and wage rates rising but with prices rising by less than wage rates.

I must point out that an essential foundation of a rising productivity of labor is a sufficiently high degree of spending to produce capital goods rather than consumers’ goods. This outcome too is supported by reductions in government spending accompanied by equivalent reductions in  taxes that are paid out of funds that would otherwise be heavily saved and invested.

Porter and almost everyone else is totally unaware of these facts. Above all they are ignorant of the fact that the wage earners' standard of living does not rise from the side of wage rates rising but from the side of prices falling. As indicated, the fall in prices need not be an absolute fall. But it must at least be a relative fall. That is, prices must fall at least in comparison with what they otherwise would have been if the only factor operative were an increase in the quantity of money and volume of spending.

When one grasps the fact that the standard of living of wage earners rises from the side of prices falling rather than wages rising, it is but a short step to the conclusion that labor unions are not only utterly ignorant about how to raise the standard of living of wage earners in general, but operate in diametric opposition to the interests of wage earners in general.

Labor unions can raise the standard of living of narrow groups of workers, by gaining monopolistic privileges that limit the number of workers who can be employed in a given line of work or by causing or maintaining an artificial need for the services of workers of given types. But in these cases they reduce the standard of living of other workers.

The workers who are barred from working in the unionized fields must find work in other fields, where their added numbers serve to depress wages. If minimum wage laws prohibit that fall in wages, then the workers displaced end up simply as unemployed or take the jobs of other workers who become unemployed.

Compelling the continued employment of more workers than are needed to produce a product despite the fact that economic advances have made their employment in that line of work no longer necessary, has the effect of maintaining a product price that is unnecessarily high and thereby of depriving wage earners throughout the economic system of the funds they would have had available as the result of a lower price to spend on other products. And, it should be realized, the production of those other products, previously not affordable because of lack of available funds, would have required the employment of an amount labor equal to the labor initially displaced.

In the light of these facts, one can understand how the productivity of labor over the last 225 years or so has risen by enormous multiples with a comparably enormous positive effect on real wages and the general standard of living and no negative effect whatever on the overall rate of unemployment. Indeed, the total number of wage earners employed has also increased enormously, in line with the increase in population made possible by the rise in the productivity of labor and consequent rise in the standard of living.

The only contribution of the labor unions to this process is to impede it. At every step of the way, they fight the rise in the  productivity of labor whenever it threatens to reduce the number of jobs available for their members. Indeed, they openly pride themselves on "making work" rather than making goods, apparently incapable of grasping that making work by requiring more labor to produce a good than is necessary, serves to prevent the production of other goods, that would have been available in addition to the one, particular good they are concerned with.

Labor union membership in private employment has greatly declined over the decades, from about 35 percent in the mid 1950s to about 7 percent today. The reason is the fact that unionization imposes artificially high costs on firms. It does so in the form of above-market union wage rates and reduced efficiency and quality of product resulting from union hostility to improvements in productivity, arbitrary work rules, and the difficulty or even impossibility of firing incompetent workers.  Under such conditions, firms cannot meet the competition of other firms, foreign or domestic, that are non-union, and thus sooner or later must go out of business. The most recent large-scale example is that of Hostess Brands. It finally had to close when one of the major unions it had to deal with was unwilling to accept a wage reduction, with the result that 18,000 workers became unemployed. This kind of story, repeated hundreds of times over, explains the decline in union membership.

To continue in existence, labor unions need "fresh blood" to drain. Their most fruitful source in recent decades has been government employees, who now account for about half of their overall membership. By making huge contributions to the political campaigns of corrupt politicians, and having their members vote for those politicians en masse, the public-employee unions can secure outlandish wage and pension benefits for their members, financed by the taxpayers. In the face of governmental bankruptcies or impending bankruptcies, this process has encountered growing opposition and, hopefully, may now be nearing its end.

I must briefly comment on the specific main subject of Porter's article, the current attempt to unionize the lowest-paid workers in the economic system. If successful, it may well serve to improve the standard of living of those workers in this group who keep their jobs. They will receive higher wages.

But the rise in price of things such as hamburgers and other fast foods, and the kind of goods that Walmart sells, that will be necessary to cover the higher costs imposed by the rise in wages, will result in a reduction in the quantities of these goods that buyers can afford to buy. This in turn must result in a reduction in the number of workers who are employed in producing or distributing these goods. These workers will then either be unemployed or drive down wage rates elsewhere in the economic system.

In addition, the real wages—the standard of living—of workers throughout the economic system who buy these products will be reduced because of the need to pay higher prices for them, including, of course, the very considerable part of this group who are themselves low-income earners. And the prices that they pay will be higher not only because of the union-imposed rise in wage rates, but also because of the union-imposed reductions in the productivity of labor.

Can this outcome really be Porter's and the unions' idea of economic improvement for the poor?

And now I come to one point on which Porter is right, the point that appears in the final paragraph that I quoted from his article. It is Porter's realization that to achieve their goals, labor unions must rely on tactics of intimidation and thus, implicitly, on force and violence. This is the meaning of the "bare-knuckle tactics" that he lauds as having proved successful in union organizing efforts in the past. Porter refers only to "the union ask[ing] members to mail their trash to Judd Malkin, the chairman of the company that owned buildings in the Century City complex in Los Angeles, printing his address on garbage bags." He does not mention such things as preventing access to factories and stores by mass picketing, physically assaulting non-union workers, setting off stink bombs in factories, and shooting out truck tires. But the implication is clear. It is does not go away by using the word “nonviolent” before “disruption.”

Intimidation, force, and violence, that is Porter's and the unions' s theory of how to raise the standard of living of the average wage earner. It is the theory of those whose heads are as empty of knowledge of economics as were the heads of our apelike ancestors.

2. The California Federation of Teachers Incites Hatred Against the Rich

The California Federation of Teachers describes itself, on the home page of its
web site as "the statewide affiliate of the American Federation of Teachers. The CFT represents faculty and other school employees in public and private schools and colleges, from early childhood through higher education."

The CFT is a labor union. Its parent organization belongs to the AFL-CIO. As such, it is an organization founded on precisely the same kind of ignorance of economics that I have just described. The effects of its operation on the quantity and quality of the product of its members and their employers (principally the California Department of Education) are what one would expect from the influence of a powerful labor union. Namely, in this case, very low performance on the part of the students and graduates, who generally rank near the bottom nationwide in math and English test scores.

However, when it comes to matters of knowledge of economics, and all that depends on knowledge of economics, such as understanding much of modern history and modern literature, current events, and contemporary public policy, the effect of its existence is even worse. This is because in these areas, it and many, if not most, of its members, work to fill the minds of young students, who are in school to gain knowledge, with worse ignorance than that with which they came to school. Its and its members' ignorance of economics serves to produce hordes of ignorant malcontents who are hostile to the capitalist economic system, individual rights, economic freedom, and the founding principles of the United States.

(Of course, here and there, one might find a member of the CFT who would disavow all of its destructive beliefs and activities and agree with the principles I've expressed. But can anyone believe that he would be allowed freely to teach those principles? That he would not encounter overwhelming pressure not to do so and that his life would not be made very difficult, to say the least? Whatever else it might be, the CFT is almost certainly not an organization devoted to supporting free inquiry and open discussion that would constitute a challenge to the basis of its very existence. The fact that it uses dues paid by its members to advance its political agenda, irrespective of the convictions and choice of the individual members, is confirmation of this fact.)

It should almost go without saying that in addition to teaching the same kind of pro-union ideas that Porter propounds, the CFT and its members also teach much of the rest of the Marxist body of doctrine, above all, the exploitation theory. This is the belief that capitalists and the rich (in today’s jargon, “the 1 percent”) systematically steal from and impoverish the great mass of the people (i.e., “the 99 percent”).

The vacuum-filled heads of the Marxist “teachers” contain absolutely no awareness of the fact that under capitalism the wealth of the rich is accumulated through the repeated introduction of new and improved, more efficiently produced products that serve to raise the standard of living of everyone. And that as that wealth is accumulated, it does not stand as a giant pile of food on the plates of gluttonous capitalists but as capital, i.e., as means of production that produce the products that everyone—capitalists and non-capitalists alike—buys and that provide the foundation of the demand for the labor of all those who are wage earners. The wealth of the capitalists—the “rich”—in other words, is the source of the supply of goods that non-capitalists buy and of the demand for the labor that the non-capitalists sell. Everything that reduces this wealth, reduces the demand for labor and the supply of products. In both ways, it reduces real wages and the general standard of living.

Thus, contrary to the beliefs of the ignoramuses of the CFT, taxing the wealth of the rich does not serve to transfer food from the plate of a glutton to the plate of a starving person, or to provide benefits of any kind to the poor that in any sense are free. On the contrary, it serves to make people poorer, by reducing the demand for their labor and the supply of products available for them to buy.

In the light of this background, one should consider the animated cartoon video that the CFT released the other day and that is now prominently featured on its web site. The video is titled “Tax the Rich.” It is narrated by Ed Asner, a Hollywood actor.

I urge readers to watch this video in full and listen carefully to Asner's commentary. It is a work not only of ignorance but of the kind of malicious ignorance with which one would try to incite a mob—the kind of ignorance that under the Russian Czars was used to foment pogroms and that under Hitler was used to set off the infamous Krystallnacht, i.e., the night in November of 1938 when Jewish-owned stores across Germany were attacked and wrecked by Nazi mobs.

Hitler depicted the Jews, who comprised not quite 1 percent of the German population, as a sneaky, gluttonously greedy conspiratorial group working to better themselves at the expense of the 99 percent or more of the German people who were non-Jews. He blamed the Jews for Germany’s defeat in World War I, for the hyperinflation that followed, and for the Great Depression. In the same way, the CFT and Asner depict our 1 percent—“the rich”—as another sneaky, gluttonously greedy conspiratorial group working to better themselves at the expense of the 99 percent or more of the American people who are not “rich.”

They blame “the rich” for the bubbles and crashes in the stock market and real estate market, and for people’s loss of their jobs and homes. Again and again, they claim that the suffering of 99 percent has been caused by the deliberate evil of 1 percent. So malicious is their propaganda, that in their attempt to ridicule the productive contribution of “the rich,” which the left has long been in the habit of mocking as “the trickle down theory,” their video shows a rich man urinating on members of the 99 percent. (It’s possible that this frame has now been removed from the video in response to complaints. But it is reproduced here.)

This is the kind of class hatred the California Federation of Teachers is peddling to the American people and which is being taught to the intellectually helpless children in the classrooms of its members. How long will it take if 99 percent of the people become convinced that all of their problems in life are the result of the evil of 1 percent of the people, before the 99 percent turns on the 1 percent in an orgy of hatred and destruction?

That is the outcome that the CFT, Ed Asner, and all the rest of the mindless left are preparing. They are in process of organizing the persecution of a highly productive and provident minority of 1 percent of the population by an increasingly miseducated and manipulated 99 percent.

*****

The first portion of this article showed how the success of labor unions in imposing their demands depends on the activities of thugs. Thugs are needed by the unions to perform such activities as mailing garbage to employers otherwise unwilling to deal with them and for creating "too much disruption" for employers to stand. Their tactics, "bare-knuckle," as Porter describes them, or brass knuckle, as one in fact should say, are required if the unions are to have their way. The thugs make offers, that in the terminology of The Godfather, employers "can't refuse."

The California Federation of Teachers and its members are pursuing policies that go far beyond the employment of thugs every now and then. Their policies and their day-to-day teaching are serving to manufacture a generation of hate-filled, mindless zombies, who know nothing but leftist propaganda and who will be readily available to serve as storm troopers in a future war against capitalism and "the rich." Their claim to knowledge will be little more than their ability to chant that they are part of the 99 percent and that they hate the 1 percent.

So long as the California Federation of Teachers controls most education in California, a foremost civic duty of every legislator and every voter in California is to take every opportunity to vote to cut the budget of the California Department of Education insofar as it is used directly or indirectly to promote the doctrines of class hatred and class warfare espoused by the CFT and its members.

An excellent opportunity to do this was offered in last month’s elections. A proposition was on the ballot in California, Proposition 30, that threatened a $6 billion cut in funding for public education unless the voters approved $6 billion in new and additional taxes. The voters clearly should have rejected the proposition and urged that whatever cuts that were to be made, be made above all in the funding for courses serving to spread the hate-filled ideology of the CFT and its members. Such spending cuts are as necessary in the body politic as is the surgical removal of malignant cancer tissue in the body of a human being.

At the present time, the public should demand apologies from the CFT, Ed Asner, and the producers of their disgraceful animated video. While its production was not a crime, the class hatred it espouses, along with all the class hatred regularly inculcated in students by the CFT and its members, serves to produce an intellectual climate in which crime—on a massive scale—will certainly be the result.


Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and The Benevolent Nature of Capitalism and Other Essays. His website is www.capitalism.net. His blog is georgereismansblog.blogspot.com. See his Amazon.com author’s central page.




 

WHERE PROFIT COMES FROM

Labor unions like to argue that the payment of higher wages is to the self-interest of employers because the wage earners will use their higher wages to make additional purchases from business firms, thereby increasing the sales revenues and profits of business firms. However, wrong and foolish it may be, this is an argument worth analyzing in some detail, because it can provide a gateway to a discussion of the actual sources of profit in the economic system.

The union argument, of course, ignores the fact that the business firms paying the higher wages and those earning the additional sales revenues and profits that are alleged to result are likely to be different firms. Indeed, insofar as any one, individual firm is considered, this will certainly be the case, if for no other reason than that very little, if any, of the additional wages paid by that one firm are likely to be expended by its employees in purchasing goods specifically from it. Whatever kind of firm it may be, it specializes in just one or, at most, a very few kinds of business. Yet its employees will almost certainly expend their higher wages in buying a wide variety of products, from a wide variety of firms.

The only way that an individual firm might expect to gain comparable additional sales revenues following its payment of additional wages is if the payment of additional wages takes place on the part of very many firms, throughout the economic system. In that case, while its employees spend most or all of their additional wages in buying from other firms, the employees of other firms may very possibly spend enough of their additional wages in buying from it, to provide it with additional sales revenues sufficient to match its additional payment of wages.

But even in this case, firms producing capital goods will not have additional sales revenues. This is because, in the nature of the case, all of the additional sales revenues accrue to the sellers of consumers’ goods. For it is consumers’ goods on which the additional wages are expended, not capital goods. All that the sellers of capital goods will have is additional costs of production, corresponding to their payment of additional wages.

Indeed, in any circumstances, even in the highly unrealistic case in which all firms sold nothing but consumers’ goods, there would be additional costs of production equal to the additional wages paid. The additional wages sooner or later always show up as equivalent additional costs of production. The consequence of additional costs of production equal to the payment of additional wages offsets the existence of additional sales revenues equal to the payment of additional wages.

Insofar as the effect of the payment of additional wages is the combination of additional sales revenues and additional costs of production, there can be no increase in profits in the economic system. In both being equal to the same thing—viz., the additional wages paid—the additional sales revenues and the additional costs are equal to each other. In the face of equal additions to sales revenues and costs, profits, the difference between sales revenues and costs, remain unchanged in the economic system in terms of their dollar amount. Equals added to unequals not only do not affect the amount of the inequality, but serve to reduce the percentage that the unchanged amount of profit constitutes of the now larger sales revenues and costs. Profit as a percentage of sales revenues and cost necessarily declines.

Furthermore, while it is not unreasonable to assume that the payment of additional wages results in equivalent additional expenditure by the wage earners and thus in equivalent additional sales revenues for sellers of consumers’ goods, it is by no means the case that it must result in an equivalent additional expenditure and sales revenues in the aggregate, i.e., for consumers’ goods and capital goods taken together. It might well be the case that the additional payment of wages comes at the expense of purchases of capital goods, notably the materials and machinery business firms buy. In that case, aggregate sales revenues in the economic system will be unchanged.

And if this is the case, then it is almost certain that business profits in the aggregate will substantially decline in amount as the result of an increase in wage payments. This is because expenditures for capital goods, especially machinery and buildings, show up as costs of production in business income statements much more slowly than do wage payments of equivalent amount. For example, an additional $1 billion of expenditure on wage payments is likely to show up as costs of production within a matter of weeks or months. However, that same $1 billion expended on machinery or buildings will show up as equivalent costs of production only over a period of years or even decades, as the machinery or buildings undergo depreciation.

Consequently, a shift in expenditure from machinery and buildings to wage payments would result in an increase in aggregate costs of production in the economic system in the current year, and many years thereafter, of the far greater part of the $1 billion. Profits in the economic system would equivalently fall because, in the conditions of the case, the increase in aggregate costs would occur in the face of aggregate sales revenues that were unchanged.

It should be realized here that by the same token, a decline in wage payments that made possible an equivalent rise in the expenditure for machinery or buildings would result in a substantial increase in profits in the economic system. This is because, in this case, aggregate costs of production in the economic system would fall as depreciation cost, representing a relatively modest fraction of the additional $1 billion that was now spent on machinery or buildings, replaced what would have been current operating costs representing the far greater part or all of the $1 billion otherwise spent in paying wages.

This conclusion, of course, flies in the face of the views of the labor unions and the Keynesians, who believe that reductions in wage rates reduce business profits insofar as they result in a reduction in total wage payments and consequently consumer spending. The truth, as I have just shown, is the exact opposite insofar as the reduction in wage payments serves to increase expenditure for durable capital goods.

Profits and the Average Period of Production

There is an abstract principle that is present in these examples, one that relates to the “Austrian” concept of the average period of production and the closely related Ricardian concept of the necessary lapse of time that takes place between expenditures for means of production and the receipt of proceeds from the sale of the ultimate consumers’ goods that result. The principle is that, other things being equal, a lengthening of the average-period-of-production/necessary-lapse-of-time brings about a transitory decrease in aggregate costs of production in the economic system and increase in profits in the economic system. By the same token, other things being equal, a shortening of the average-period-of-production/necessary-lapse-of-time brings about an increase in aggregate costs of production in the economic systems and decrease in profits in the economic system.

I describe the change in aggregate costs of production as “transitory” because ultimately, if the amount of spending for means of production, i.e., labor and capital goods, remains the same in the economic system year after year, costs of production will equal that amount of spending, irrespective of the length of the average-period-of-production/necessary-lapse-of-time. For example, on the scale of an individual company, $1 billion per year expended on labor and materials will probably result in $1 billion of annual costs of production for that company within little more than a year. That same $1 billion expended year after year in purchasing machinery with a depreciable life of 10 years, will result in annual depreciation costs of $1 billion after 10 years. At that point, 10 years’ of machinery purchases will be in place, with the purchases of each year resulting in $100 million of annual depreciation cost, or $1 billion in all. Similarly, the expenditure of $1 billion year after year for buildings with a 40-year depreciable life must result in $1 billion of annual depreciation cost once 40 years have passed. At that point, there will have been 40 years of building purchases. With each of those 40 years’ purchases resulting in an annual depreciation cost of one-fortieth of $1 billion, the total annual depreciation cost from than point on will be $1 billion.

So long as further lengthening of the average-period-of-production/necessary-lapse-of-time occurs, the process makes a further contribution to aggregate profitability. But once further lengthening ceases, the contribution to aggregate profitability comes to an end. (Mises implicitly recognizes the contribution to aggregate profit made by a lengthening of the period of production. See Human Action, 3d ed. rev. [Chicago: Henry Regnery Co., 1966], pp. 294-97.)

Profits and the Increase in the Quantity of Money/Volume of Spending

Nevertheless, there is a second factor connected with the passage of time in the productive process that can be gleaned from our discussion of the union argument concerning wage payments, and whose contribution to aggregate profitability is capable of being permanent. This factor is the increase in the quantity of money/volume of spending in the economic system.

The increase in wage payments so much desired by the unions could make a contribution to aggregate profits in the economic system insofar as it was financed by an increase in the quantity of money. (A decrease in the demand for money for cash holding would also have this effect. However, inasmuch as decreases in the demand for money for cash holding cannot go on indefinitely and, indeed, ultimately depend on increases in the quantity of money, they require no further separate discussion.)

Moreover, what serves to contribute to profits in the economic system here is in no way peculiar to higher wage payments. It is present equally in greater expenditures for materials and supplies and machinery and buildings, i.e., in greater expenditures for means of production as such.

The contribution to profits in the economic system derives from the fact that additional expenditures for means of production resulting from the increase in the quantity of money serve to raise sales revenues in the economic system immediately or almost immediately while they serve to increase the costs of production deducted from sales revenues only with a more or less considerable time lag. Thus, what business firms spend in buying capital goods is simultaneously sales revenues to the sellers of the capital goods. What they spend in paying wages shows up very quickly as additional sales revenues for sellers of consumers’ goods.

Consistent with the principles of business accounting, in the case of all goods sold out of inventory, additional costs of production appear in business income statements only as and when the goods produced from the means of production purchased for larger sums of money are sold. That often entails a lapse of time of several months, and, sometimes, several years. For example, the additional expenditures made by an automobile company for labor and materials will not show up as costs of production until the automobiles produced in the process are actually sold, at which time cost of goods sold is incurred. Such outlays made in November or December of a calendar year will not show up in the auto firms’ current-year income statements ending on December 31, but only in the income statements of the following year.

In the case of a distillery, producing aged whiskey, such time interval may be 8, 12, or 20 years, or even more. Of course, in the case of the machinery and buildings purchased by business firms, major time intervals are present everywhere before additional depreciation cost comes to equal the additional outlays.

In these intervals, sales revenues are increased without costs being increased, or increased equivalently, and thus profit emerges. And then, if the increase in the quantity of money and volume of spending is continuous, by the time costs do rise to reflect the higher level of expenditures made in purchasing the means of production, there are further increases in the expenditures for the means of production and thus in sales revenues. In other words, there is a continuing contribution to aggregate profit.

It follows from this discussion that a continuing given percentage increase in the quantity of money/volume of spending in the economic system tends to add an approximately equivalent percentage increase to the economy-wide average rate of profit/interest. For example, a continuing 2 percent annual increase tends to add approximately 2 percentage points to the rate of profit/interest on top of what it would otherwise have been. This conclusion follows by conceiving of outlays for means of production in any given year as being paired with receipts from the sale of consumers’ goods in definite future years. If the volume of spending and thus of sales revenues in the economic system were growing at some definite compound annual rate, an equivalent additional rate of return on those outlays would be implied.

For example, if with no increase in the quantity of money/volume of spending, an outlay for means of production of 10 would grow to sales revenues of 11 in a year, but now a 2 percent increase in money and spending makes it grow to 11.22, the rate of return on the outlay of 10 is increased from 10 percent to 12.2 percent, an increase of approximately 2 percentage points. In the same, way an outlay of 10 that would otherwise grow to (11/10) x (11/10) in 2 years, will now, with a compound annual increase of 2 percent in money and spending, grow to (11/10) x (11/10) x 1.02 x 1.02. Again, on an annualized basis, there will be an addition of approximately 2 percentage points to the rate of return. Since every dollar of sales revenues in the economic system can conceptually be paired with outlays for means of production made at one specific time or another in the past, a uniform compound annual increase in money and spending covering the entire time interval must have this effect everywhere.

The increase in the rate of return resulting from the increase in the quantity of money/volume of spending should not be dismissed as inflation. In a free market, under a gold standard, the quantity of money would increase and that increase, as Rothbard has convincingly shown, would not be inflation. Inflation, Rothbard showed, applies only to increases in the quantity of money more rapid than increases in the supply of gold. The modest increase in the quantity of money in a free economy and its gold standard would almost certainly be accompanied by increases in the production and supply of commodities in general that were at least as great and, most probably, significantly greater. The result would be falling prices. However, and this is a very significant finding, these falling prices would not at all be deflationary, because, as I have just shown, they would be accompanied by an increase in the average rate of return on capital rather than a decrease, which last is a leading symptom of any actual deflation.

In a free market and its gold standard, a reasonable scenario would be a 2 percent annual increase in the quantity of gold and spending in terms of gold, accompanied by a 3 or 4 percent annual increase in production and supply in general. The effect would be prices falling at an annual rate of 1 or 2 percent along with an approximate 2 percent addition to the average rate of return. The real rate of return, of course, would be elevated further, to the extent that prices fell.

There is a further very important conclusion to be drawn here, concerning the actual significance of the rate of return, the rate of profit/interest. And that is that to a very significant extent, the nominal rate of return is the reflection of nothing more than the increase in the quantity of money and volume of spending, while the real rate of return is the reflection of nothing more than the rate of increase in production and supply. In other words, at least to this extent, the rate of return cannot possibly be at anyone’s expense. It is the accompaniment and marker of more gold and of more goods in general, i.e., of economic progress and general improvement.

It must be pointed out that profits derived from lengthenings of the average period of production are also ultimately at no one's expense. To the contrary, in adding to the total of the capital employed in the economic system, they serve to increase the quantity and quality of the products produced. To the extent that these products are consumers' goods, the effect is a rise in real wages inasmuch as they are purchased overwhelmingly by wage earners. To the extent that the larger supply of products produced is capital goods, it serves to bring about a further increase in the supply of consumers' goods, and thus in real wages, and yet a further increase in the supply of capital goods, which in turn will have the same result. Continuing increases in the supply both of consumers' goods and capital goods, and thus continuing increases in real wages can occur.

The Rate of Return Under a Fixed Quantity of Money/Volume of Spending

In addition to increases in the quantity of money/volume of spending and lengthenings of the average period of production, there is a third source of profit in the economic system. This is the consumption expenditure of businessmen/capitalists, i.e., the expenditure of businessmen/capitalists that is not for business purposes, not for the purpose of making subsequent sales.

Like the consumption expenditure of wage earners, this expenditure is a source of business sales revenues in the economic system. But, unlike the consumption expenditure of wage earners, it has no counterpart in expenditures that generate costs of production. Its sources are primarily dividends paid by corporations and the draw of funds from partnerships and sole proprietorships. These payments do not show up as costs of production on the part of the firms that pay them. They are simply a transfer of funds from the firms to their owner(s).

Their existence enables business sales revenues in the economic system to exceed the expenditures by business firms for means of production and thus also to exceed the equivalent costs of production generated by those expenditures. In this way, they are a source of profit in the economic system.

Interest payments by business firms are also a source of funds making possible consumption expenditure by businessmen/capitalists. Interest payments, of course, do show up equivalently in costs of production. Nevertheless, their existence helps to explain the existence of business profits pre-deduction of interest. And thus they help to explain the general rate of return on capital, which is calculated gross of interest. This rate of return—the rate of profit pre-deduction of interest—of course, is what determines the rate of interest. (In the terminology of Mises and most other economists of the “Austrian School,” these profits are called “originary interest.” Taken relative to capital invested, they constitute the rate of originary interest.)

Profits resulting from the consumption expenditure of businessmen/capitalists would exist in the absence of further increases in the quantity of money/volume of spending. Their existence, moreover, acts to put an end to any indefinite prolongation of the average period of production. This is because, to be worthwhile, a lengthening of the average period of production requires that businessmen find that the investment of additional capital results in cost savings or revenue increases at the level of the individual firm sufficient to yield something more than the prevailing rate of return on capital. Thus, the higher is the prevailing rate of return, the greater is the obstacle in the way of additional investment being worthwhile. At the same time, the greater is the volume of capital that has already been accumulated in the economic system relative to sales revenues, the smaller is the contribution to costs savings or revenue increases that is likely to be made by the investment of still more capital and a further rise in the ratio of accumulated capital to sales revenues.

The implication of this discussion is that ultimately the rate of return in the economic system is determined by the combination of the rate of increase in the quantity of money/volume of spending and the ratio of the consumption expenditure of businessmen/capitalists to their accumulated capitals.

The second factor is clearly the more fundamental and should be understood as a reflection of time preference. In conditions in which the annual consumption expenditure of businessmen/capitalists is on the order of 5 percent of their accumulated capitals, time preference is lower than in conditions in which it is on the order of 10 percent of their accumulated capitals. It is lower still in conditions in which it is on the order of 2 percent. In the first case, their capitals are sufficient to provide for the consumption of 20 years; in the second, for only 10 years; in the third, for 50 years. A lower time preference is required to make greater relative provision for the future.

Establishing the relationship between time preference and the consumption expenditure of businessmen/capitalists relative to their capitals and, on that basis, to the rate of return on capital, serves to integrate time preference and its determination of the rate of return into “macroeconomics.”

Avoiding Confusions

It’s necessary to anticipate two possible confusions that may arise. One is the conviction that the claim that the consumption of businessmen/capitalists is a determinant of the rate of return on capital implies that to increase its rate of return, a company should increase its dividends and simply be sure that its stockholders consume the proceeds.

If enacted such a policy would, to some very modest extent, serve to increase the economy-wide average rate of return on capital. But the profits earned by the firm in question would be decimated. The extra profits would go to others, not to it. This is because such behavior would reduce its capital, which is an essential means of its competing for profits, by far more than it increased the economy-wide amount of profit.

For example, a huge firm, with a capital of $100 billion might increase its dividend by $10 billion and add $10 billion to the excess of sales revenues over expenditure for means of production in the economic system, and over costs equal to the now reduced expenditure for means of production. This would increase economy-wide profits from, say, $1 trillion to $1.01 trillion, a 1 percent increase. But at the same time, it would reduce the capital of this firm by 10 percent. Thus, the firm would be in a position to compete for its share of a 1 percent increase in profits in the economic system on the foundation of a capital that had been reduced by 10 percent. The profit it earned would thus certainly be much lower than it was before.

The second confusion that may arise is to ignore the fact that the discussion of profit in this article has been almost entirely at the level of the economic system as a whole, not at the level of the individual firm. As indicated in the last paragraph, competition exists at the level of the individual firm and plays a decisive role in determining its profits. Such factors as its relative efficiency and the relative quality of its products are vital for the profitability of the individual firm, but play little or no role in determining profits at the level of the economic system as a whole. This is because there competitive factors cancel out.

Summary

The central question that this article has been concerned with is what permits an excess of sales revenues over costs of production in the economic system as a whole. Here, as we have just seen, such things as producing a larger quantity of products more efficiently, or producing better products that can command premium prices, simply do not provide an explanation. This is because at the level of the economic system as a whole, they cancel out, with the profits of the more efficient, higher quality firms matched by the losses of the less efficient, lower quality firms.

The explanation of profit/interest in the economic system as a whole is provided by:

1) A shifting of expenditures for means of production from products and processes in which they show up more quickly as costs of production to be deducted from sales revenues, to products and processes in which they show up more slowly as costs of production to be deducted from sales revenues. In both cases, the same expenditure for means of production generates the same volume of sales revenues in the economic system, but in the second case costs are lower for a more or less considerable period of time, and thus profits are higher for that period of time. This, of course, represents a lengthening of the average period of production.

2) The increase in the quantity of money/volume of spending. This increase serves to increase sales revenues immediately or almost immediately while increasing the costs deducted from the sales revenues only with more or less substantial time lags. In the interval, profits are generated. The process is perpetuated by continuing increases in the quantity of money/volume of spending. At the same time that more money and spending add to profits and the rate of profit in terms of money, increases in the production and supply of ordinary goods can serve to prevent price increases or even result in price decreases, with the result that the nominal profits generated are accompanied by equivalent or greater real profits. This would be the situation in a free market and the gold standard.

3) The consumption expenditure of businessmen/capitalists. This is the source of sales revenues in excess of expenditure for means of production and of costs of production equal to those expenditures. It is the most fundamental source of profit in the economic system and ultimately rests on time preference.

Further Development of the Theory of Profit/Interest

I discuss all aspects of the present article at greater length, along with a host of other, related matters as well, in my book Capitalism: A Treatise on Economics. It will be helpful to provide a short bridge from this article to that book, in the form of the introduction of some new terminology.

In Capitalism, I refer to expenditure for means of production by business firms as productive expenditure, which is expenditure for the purpose of making subsequent sales. Productive expenditure is in sharpest contrast to consumption expenditure, which is expenditure not for the purpose of making subsequent sales, but for any other purpose.

Productive expenditure, of course, has two components: expenditure for capital goods and expenditure for labor—i.e., wage payments. Productive expenditure plays a twofold role in the generation of aggregate business profits: it is the source both of most of business sales revenues and of the costs business firms deduct from their sales revenues.

Productive expenditure can exceed costs deducted from sales revenues insofar as the costs it generates follow it with time lags. To the extent it does exceed costs, the sales revenues it generates also exceed those costs. There is profit.

Any excess of productive expenditure over costs is net investment. This is because, in accordance with the principles of business accounting, productive expenditure to a substantial extent constitutes additions to business asset accounts, notably, the gross plant and equipment and inventory/work in progress accounts. Expenditures on account of machinery or buildings add to the former; expenditures for materials add to the latter. Expenditures even for labor often represent additions to these accounts—for example the wages paid to workers constructing plant or to workers employed in the production of inventories.

Costs of production, on the other hand, largely represent subtractions from these accounts. Depreciation cost is a subtraction from gross plant and equipment. Cost of goods sold is a subtraction from inventory/work in progress. Thus, while productive expenditure adds to the asset accounts of business, cost of production subtracts from them. The difference between the sum of the additions and the sum of the subtractions is the net change, i.e., net investment.

Net investment reflects the effect both of changes in the length of the average period of production and changes in the quantity of money/volume of spending. The ratio of net investment in the economic system to accumulated capital in the economic system is the measure of the rate of profit/interest insofar as it is the result of these factors. In Capitalism, I call this ratio the “net investment rate.”

The rate of profit/interest in the economic system is explained by the combined operation of the net investment rate and one other rate, which I call the “net consumption rate.” Net consumption is the excess of spending for consumers’ goods over the wages paid by business firms. As explained, its primary source is the consumption expenditure of businessmen/capitalists. Net consumption is also equal to the excess of business sales revenues in the economic system over productive expenditure. Inasmuch as the expenditure to buy capital goods is present equally both in business sales revenues and in productive expenditure, the difference between sales revenues and productive expenditure reduces to the difference between the part of sales revenues constituted by consumption expenditure and the part of productive expenditure constituted by wage payments, i.e., net consumption.

Perhaps the simplest way to conceive matters is by starting with the fact that profit is the difference between sales revenues and costs. Sales revenues minus costs equals sales revenues minus productive expenditure plus productive expenditure minus costs. The first part of the result is net consumption; the second part is net investment. Thus, profit equals the sum of net consumption plus net investment. The further result is that the rate of profit, i.e., the ratio of profit to accumulated capital, equals the sum of the rate of net consumption plus the rate of net investment, with each of these rates being understood as the result of respectively dividing net consumption and net investment by the amount of accumulated capital in the economic system.

This theory of profit/interest has major implications for the understanding of capital accumulation, the determination of real wages and the general standard of living, taxation, inflation/deflation, and the business cycle. It also provides the basis for the overthrow of virtually all aspects of Keynesianism and its system of national income accounting, along with an equally fundamental and thorough refutation of Marxism and the exploitation theory.

Copyright © 2011 by George Reisman. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics. His website is http://www.capitalism.net/.

The Fundamental Obstacles to Economic Recovery: Marxism and Keynesianism

In a previous article, I explained how falling prices, far from being deflation, are actually the antidote to deflation. They are the antidote, I explained, because they enable the reduced amount of spending that deflation entails to buy as much as did the previously larger amount of spending that took place in the economic system prior to the deflation.

Despite the fact that the freedom of prices and wages to fall is the simple and obvious way to achieve economic recovery, two fundamental obstacles stand in the way. One is the exploitation theory of Karl Marx. The other is the doctrine of unemployment equilibrium, which was propounded by Lord Keynes.

According to Marxism, any freedom of wages to fall is a freedom for capitalists to intensify the exploitation of labor and to drive wages to or even below the level of minimum subsistence. This dire outcome can allegedly be prevented only by government interference in the form of minimum-wage and pro-union legislation. Such legislation, of course, makes reductions in wages simply illegal in all those instances in which the legal minimum wage would have to be breached. It also makes reductions in wages illegal in all those cases in which carrying them out depends on the ability to replace union workers with non-union workers in defiance of existing laws or government regulations. The influence of labor unions on wages pervades the economic system, with government protection of labor unions serving to prevent wages from falling even in companies and industries in which there are no unions. This is because non-union employers must pay wages fairly close to what union workers receive lest their workers too decide to unionize. In that case, the firms would be faced not only with having to pay union wages but also with all of the inefficiencies caused by union work rules.

The Keynesian unemployment equilibrium doctrine claims that it would make no difference even if wages and prices were totally free to fall. In that case, say the Keynesians, all that would happen is that total spending in the economic system would fall in proportion to the fall in wages and prices.

Thus, say the Keynesians, if, in response to an economy-wide fall in total spending of, say, 10 percent, wages and prices also fell by 10 percent, then instead of 90 percent of the original total spending now buying as much as did the original spending, total spending would fall by a further 10 percent. As a result, say the Keynesians, no additional goods or services whatever would be bought; all that would allegedly be accomplished is to make the deflation worse than before, as sales revenues and incomes throughout the economic system fell still further.

In sum, while the influence of Marxism stands directly in the path of a fall in wage rates and prices, by blocking its way with laws and threats, Keynesianism aims to prevent any attempt to overcome these obstacles by allegedly demonstrating the futility and harm of doing so.

Both doctrines are fundamental obstacles in the way of economic recovery and must be deprived of influence over public opinion in order for economic recovery to take place. The prerequisite of this necessary change in public opinion is the existence of a powerful, demonstration of the utter fallaciousness of these doctrines that at the same time proves that a free market is the foundation both of full employment and of progressively rising real wages.

Happily, this demonstration already exists, in full detail. It can be found in my book Capitalism: A Treatise on Economics, in the 269 pages that comprise Chapters 11, 13-15, and 18, which are respectively titled “The Division of Labor and the Concept of Productive Activity,” “Productionism, Say’s Law, and Unemployment,” “The Productivity Theory of Wages,” “Aggregate Production, Aggregate Spending, and the Role of Saving in Spending,” and “Keynesianism: a Critique.”


Copyright © 2009, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. He is also a Senior Fellow at the Goldwater Institute. His web site is www.capitalism.net and his blog is www.georgereisman.com/blog/. A pdf replica of his book can be downloaded to the reader’s hard drive simply by clicking on the book’s title, above, and then saving the file when it appears on the screen.

“Change” Under Obama: From Dumb to Dumber and From Bad to Worse

A recent article in The New York Times quotes President Obama as saying, “I don’t buy the argument that providing workers with collective-bargaining rights somehow weakens the economy or worsens the business environment. If you’ve got workers who have decent pay and benefits, they’re also customers for business.” (March 2, 2009, p. B3.)

The President’s statement reveals a great deal about his understanding or, more correctly, lack of understanding of economics.

Collective bargaining is the joining together, typically through the instrumentality of a labor union, of all workers in a given occupation or industry for the purpose of acting as a single unit in seeking pay and benefits. It is an attempt to compel employers to deal with just one party—i.e., the labor union—and to come to terms agreeable to that party or to be unable to obtain labor.

The imposition and maintenance of collective bargaining necessarily depends on compulsion and coercion, i.e., on the use of physical force against both employers and unemployed workers. This coercion is necessitated, in substantial measure, precisely by the seeming success that collective bargaining can achieve.

That success is measured in terms of the rise in wage rates that it achieves. That rise in wage rates is all that labor union leaders and their ignorant supporters are aware of.

Precisely this “success,” however, is the cause of major problems. The first is that higher wage rates reduce the quantity of labor that any given amount of capital funds can employ. For example, at a wage of $20,000 per year, $1 million of payroll funds can employ 50 workers for a year. But at a wage of $25,000 per year, it can employ only 40 workers for a year. With every further rise in the wage, correspondingly fewer workers are able to be employed.

Higher wage rates also serve to raise costs of production and thus the selling prices of the products that the higher-paid workers are producing. These higher selling prices reduce the quantities of the products that buyers are able and willing to buy. And thus, whether as the result of the reduced purchasing power of capital funds in the face of higher wage rates or the reduced quantities of products demanded by customers in the face of higher product prices, the effect of collective bargaining is a reduced quantity of labor employed, i.e., unemployment.

It is shocking, indeed, frightening, that the President of the United States, whose main concern at the moment is supposedly with overcoming mass unemployment and preventing its getting worse, does not understand that any policy that drives up wage rates drives up unemployment.

The unemployment that collective bargaining causes is what explains why it is necessary to resort to coercion against wage earners in order to maintain the system. The self-interest of the unemployed is to find work, and to accept lower wage rates as the means of doing so. And taking advantage of that fact is to the self-interest of employers. Thus there are two parties, unemployed workers and employers, whose self-interest lies with a reduction in the higher wage rates achieved by collective bargaining.

If these parties are free to act in their self-interest, the system of collective bargaining must break down. How are they to be prevented from acting in their self-interest?

The answer is physical force. Stepping outside the system of collective bargaining must be made illegal if the system is not to break down. That means employers and unemployed workers must be threatened with fines or imprisonment for acting in their self-interest and withdrawing from the system of collective bargaining. In the last analysis, they must be threatened with the specter of armed officers ready to cart them off to jail if they disobey the requirements of the system, and to club and shoot them should they physically resist being carted off to jail. (It is not always necessary that the physical force that imposes and maintains collective bargaining come directly from the government. It can often come from labor unions that the government chooses not to prosecute when their members physically assault strikebreakers, surround factories and refuse to allow entry or exit, start fires, set off stink bombs, shoot out tires, and perform other acts of vandalism and intimidation.)

In saying, “I don’t buy the argument that providing workers with collective-bargaining rights somehow weakens the economy or worsens the business environment,” President Obama confesses to not knowing that collective bargaining raises prices and causes unemployment. He confesses to not knowing that it raises costs and prices not only through the imposition of artificially high wage rates, but also in imposing on employers the use of unnecessary labor, sometimes as many as four or five workers to do the job that just one could do.

(A classic example of this is the insistence on the use of a carpenter, plumber, electrician, tile setter, and drywaller to make a simple repair in a bathroom, merely because the separate labor unions involved claim each operation as belonging to their respective members exclusively, i.e., claim a monopoly on that type of operation.) He confesses to not knowing how the enormous difficulties that labor unions put in the way of firing incompetent workers are responsible for such phenomena as so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. The automobiles companies were unable to fire such workers without precipitating a crippling strike, to which the system of compulsory collective bargaining gave them no alternative.

Collective bargaining, with its imposition of higher costs and prices and lower product quality, is at the root of the destruction of the American automobile industry and many other American industries. President Obama not only chooses not to know this, but selects union leaders as his companions, including the leader of the United Automobile Workers Union. (The Times article from which I quoted him is accompanied by a photograph that shows him, in what appears to be a round of golf, with Ron Gettelfinger, who is the president of the U.A.W., James Hoffa, who is the president of the Teamsters, and John Sweeney, who is the president of the A.F.L.-C.I.O. The article notes that “Mr. Sweeney has visited the White House at least once a week since Inauguration Day.”)

The reader should keep in mind the coercive nature of collective bargaining. Then he should consider Mr. Obama’s observation that “If you’ve got workers who have decent pay and benefits [as the alleged result of collective bargaining], they’re also customers for business.” This statement makes about as much sense as declaring that people who are successful at sticking up gas stations are also customers of gas stations.

Moreover, the workers who are unemployed by collective bargaining are not customers of business, or not very good customers (they can’t afford to be). And the products offered by business to its customers are poorer and more expensive because of collective bargaining. This is something, it must be stressed, that reduces the buying power of the wages of workers throughout the economic system, i.e., reduces what economists call their “real wages.” Mr. Obama needs to forget the nonsense he believes about collective bargaining and paying extortionate wages somehow benefiting business and learn to understand how it harms wage earners, how it harms every wage earner who must pay more and get less as the result of legally enforced collective bargaining. He must learn to understand how it also harms every worker who must earn less as the result of being displaced by collective bargaining from the better paying jobs he could have had if wage rates in those lines had not been driven artificially still higher by collective bargaining and thus reduced the number of workers who could be employed in them and thereby forced those workers into lower paying jobs.

Unfortunately, it does not seem very likely that Mr. Obama will ever learn any of this. He appears to be so charmed by the use of compulsion and coercion that he and his supporters in Congress are ready to unleash a reign of outright mass intimidation against American workers.

In a bow to Orwell’s 1984 and its world filled with such slogans as “war is peace,” “freedom is slavery,” and “love is hate,” Obama and his henchmen are readying “the Employee Free Choice Act.” This is an act designed precisely to end employee free choice, by depriving workers of the benefit of a secret ballot in deciding whether or not they want to join a union. In the words of The Times article, this is “a bill that unions hope will add millions of new members by giving workers the right to union recognition as soon as a majority of employees at a workplace sign pro-union cards. The bill would take away management’s ability to insist on a secret ballot election.”

Here we have it. Obama is against the secret ballot. No, he’s not yet announced any opposition to the secret ballot in elections for public office. But there’s absolutely no difference in principle between being against the secret ballot in elections concerning whether or not to unionize and being against it in elections for public office. In both cases, it is a matter of subjecting people to intimidation if they express a choice that is opposed to the one that an organized, powerful group wants them to make. In this case, that group would be the union goons who would distribute the “pro-union cards” that workers would be asked to sign or refuse to sign in their presence. Are Obama and his followers really so naive as not to know that any worker who would reject joining a union in these circumstances would, at a minimum, be exposing himself to ostracism and the chance of substantial personal economic loss in the event the union gained recognition and he is on record as having opposed it?

Be assured, they are not so naive. They look forward to the intimidation. They look forward to it in the recognition that that is what is required to swell the ranks of the unions once again.

The wider principle here is the readiness of Obama and his associates to resort to intimidation to further their goals. It is the method of street thugs and of dictators. That is what is present in their attempt to deprive workers of the secret ballot in deciding whether or not to unionize.

The last occupant of the White House often gave the impression of having an inadequate command of the English language and of experiencing great difficulty in speaking in grammatical sentences and using words in accordance with their proper meaning. The present occupant of the White House speaks impeccable English, with crisp, clear pronunciation. Nevertheless, his actual knowledge—of economics, of the meaning of individual rights, and of the nature of government—appears to lag far behind that of his bumbling predecessor.

Furthermore, while Bush may be accused of disregarding the rights of foreign terrorists at war with the United States, Obama is out to disregard the rights of peaceful, productive American citizens. This is apparent not only in his readiness to deprive American workers of the secret ballot in union organizing elections, but also in his efforts to dramatically raise the taxes of everyone earning more than $250,000 per year, in an attempt to achieve a substantial redistribution of income. It is also evident in his policies on energy and healthcare as well.

In sum, the “change” that Obama promised his mesmerized supporters in the election campaign, and is now in process of actually delivering, is nothing more than change from dumb to dumber and from bad to worse.


Copyright © 2009, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. He is also a Senior Fellow at the Goldwater Institute. His web site is www.capitalism.net and his blog is www.georgereisman.com/blog/. A pdf replica of his book can be downloaded to the reader’s hard drive simply by clicking on the book’s title, above, and then saving the file when it appears on the screen. The book provides further, in-depth treatment of the substantive material discussed in this article and of practically all related aspects of economics.