Can Capitalism Survive?

Benjamin A. Rogge
Rogge, Benjamin A.
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Indianapolis, IN: Liberty Fund, Inc.
Liberty Fund, Inc.
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Collected essays.
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Part V

Part V, Introduction


This paper was presented at a meeting of the Midwest Economics Association in 1957. It was later printed in Business Topics, a journal published by the School of Business at Michigan State University. As you will see, its message was not such as to bring me invitations to speak at trade union conventions—or at meetings of those pushing for right-to-work laws either.

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Part V, Chapter 1
The Labor Monopoly


In the paragraphs to follow you will find me critical of both the goals and techniques of trade unionism. Nor can I soften this position by announcing that, in spite of my sharp words, I am basically pro-union. I am not for "good" but opposed to "bad" (e.g., racket-controlled) trade unionism. I am not for "responsible," but opposed to "irresponsible" trade unionism. I am simply not pro-union, period. I can no more be pro-union than I can be pro- the Southern California Fruit Growers' Association or pro- the Retail Druggists Association of America.


But there is worse to come: I am not even anti-union but pro-labor. I cannot direct my concern to one man rather than another simply because one is a laborer and the other an entrepreneur or a landowner or even (God help us!) a member of the rentier class.


But, as W. C. Fields once said, "No man who hates both dogs and children can be altogether bad," and I will confess to one weakness. I am persuaded that proper economic policy requires that we fix our gaze steadily on the long-run interests of the consumer and ignore all else. Surely you are prepared by now for a quotation from Adam Smith, and here it is:

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it.*50


As a matter of fact, in the modern literature on my specific topic, the labor monopoly, I have found almost nothing that was not explicitly and intelligently discussed in The Wealth of Nations. My regret is that our public policy in this area has moved so far from his wise counsel.


In effect, Adam Smith proposed that unions be tolerated but in no way encouraged or granted special privileges and immunities. This was Adam Smith's position and it is also mine. In the sections to follow I shall present the reasoning and the value judgments that lead me to take this position.

Review of Opposing Views


I am aware that the policy position I have taken is not consistent with the present policy of this country. I am keenly aware of the fact that it is not only opposed by but is deeply disturbing to many persons, both in and out of the academic world, whose good will and intelligence I respect. Both this respect and the desire to make my reasoning, my assumptions, and my judgments as explicit as possible impel me to state why I cannot accept the conventional policy of the government or the conventional wisdom that supports it.


In beginning this review of the various shadings of the conventional wisdom, I must apologize for the obvious oversimplification and distortion of individual positions that is involved in creating such useful and meaningful but arbitrary groupings as "the human-relations group" and "the labor economist group."

The Human-Relations Approach


Perhaps the most extreme position is that taken by the personnel, human-relations group. To the members of this group, the question of whether there is or is not a labor monopoly is simply irrelevant. It is irrelevant because monopoly is a market-type word and they have decided that the market doesn't exist. Recently I scanned a collection of books with titles such as "Human Relations in Industry" and was dismayed to find that my discipline, economics, is obsolete.


Thus Norman Maier in his book, Psychology in Industry, writes, "Except in very general ways the law of supply and demand no longer applies to labor."*51 Joseph Tiffin in the book, Industrial Psychology, writes, "In general, management as well as labor is becoming less and less dependent on the so-called 'law' of supply and demand as a basic factor in determining wage rates."*52


And so it goes. As Kenneth Boulding, then of the University of Michigan, once said in a discussion of this topic, everywhere he turns he finds labor economists and industrial relations specialists jumping up and down on the corpse of supply and demand and proclaiming, "the labor market is dead; long live human relations."


Of course it is patently true that neither the employer nor the worker looks with favor on the labor market process as it impinges disadvantageously on him. To paraphrase St. Augustine, each is saying, "Oh Lord, make me be forced to compete, but not yet." The human relations experts say, "not yet, or ever." Many of them look with horror on the competitive struggle of the marketplace and on the conflict of the employer and employee over division of the product. They seem to imagine that the "right" system of industrial relations can be developed which will generate in each firm such a feeling of togetherness that, hand in hand, employer and employee will march joyously into the New Jerusalem.


Attractive as this picture is, I am nonetheless convinced that neither employer nor employee nor human-relations expert will like what he will get if we continue to move away from the labor market, if we insist that the services of labor must not be subjected to the vulgar calculus of the marketplace.


If the employer does succeed in insulating his own workers from the temptations of the marketplace, he will find that he must then take care of them through thick or thin and that the guaranteed annual wage will have to give way to the guaranteed lifetime wage. He will also find that his motivation problems have assumed staggering proportions. Good human relations or lousy human relations, the worker you can neither fire nor promote on the basis of performance is going to be a hard worker to stir into action.


But the worker too will find his security a very mixed blessing. To discover too late that he has made an unwise first decision and yet to be condemned by the weight of seniority and other considerations to that job is likely to be a frustrating experience. The old freedom to pick and move will be gone, because of course to move would be to threaten another man's job and hence his property. Even the union that administers this job security system will find it a mixed blessing. The workers will now turn their ambitions to control of the controllers and the fights for power within the unions will be bitter and bloody. Moreover, the amount of power exercised by the leadership over the economic process will be so tempting that cases of corruption and racketeering will be commonplace. These circumstances may in turn engender such a great amount of public ill will that the unions will find themselves more and more under the control and guidance of government. Even the human-relations expert will be disappointed to find that competition and conflict can go on outside the marketplace. In fact the nonmarket conflict is likely to be more personal and hence more degrading than the old market-channeled conflict.


In sum, neither the employer nor the employee nor the human-relations expert is likely to approve of what he will get, if he gets what he now seems to want. The question of the impact of the trade union on a market economy cannot be assumed away by assuming away the labor market.

The Macroeconomic Approach


I turn now to the economists and find in many of them a like tendency to consider the labor monopoly issue, at least in its typical concerns, to be largely irrelevant. For example, to one group of economists, the microeconomic or individual-market aspects of labor monopoly are of little interest. What is important is the impact of wage determinations on the income- and employment-determining aggregates. Thus trade union influence on wage rates is of significance primarily as it affects beneficially or adversely the chances of the economy's attaining and maintaining full employment. Thus, if unions have increased the downward rigidity of wage rates, they may have introduced a valuable expectations-damping factor in deflationary movements. Similarly, the redistributive effects of wage increases may move the average propensity to consume in the right direction at the right time.


I have no doubt but that trade-union action may coincidentally and occasionally serve the interests of economic stability; but I also have no doubt that it may coincidentally and occasionally work directly contrary to the purposes of economic stability, particularly in an inflationary environment. For the effect to be always the right one would require a degree of social control of trade-union policy that is not likely to be asked or granted in our society. Surely the interests of economic stability can be served by techniques more certain in effect and with fewer unwanted side effects than trade unionism.

The Approach of the Labor Economists


Leaving the macroeconomic approach, I now turn to the approach of the labor economists. It is always dangerous to ascribe a point of view to a group in which there may be a considerable range of opinion, but still I find a surprising homogeneity of approach in the textbooks on labor economics.


In general the authors of these books treat the central question of labor monopoly with rare delicacy and with esthetically remarkable displays of verbal footwork. In many of the books, the word monopoly is not even in the index. Note the care with which the author of the following passage has handled this question.

To return to the original question as to whether unions are monopolies, there is no doubt they hold some degree of monopoly power. That is their nature and purpose, and we give them legal protection with the specific aim of increasing the bargaining (i.e., monopoly) power of labor. In only rare instances do unions actually control the supply of labor to a firm or occupation, and their freedom to do so should not (in the opinion of the author) be protected. But to say that unions hold monopoly power leaves the important questions unanswered. When and where is the monopoly power of the union clearly stronger than the monopsony power of the employer, and what are the best techniques for removing the discrepancy—or the reverse discrepancy? How can we prevent undue injury to the public from disagreements between union and management in essential industries? These and many other unanswered questions illustrate the pointlessness of discussing the problem of unions in the framework of monopoly analysis, and point to the direction in which the answers—if, indeed, there are any—are to be found.*53


J. M. Clark has phrased it as follows: "We are opposed to monopoly; when we find a kind we do not want to oppose, we will call it by a different name."*54


It may be true that a trade union does not match the description of classical enterprise monopoly in every detail. But its goal of manipulating the market to extract an advantage for those involved is certainly a monopoly-type goal. Personally, if I were paying dues to a union, I would most certainly feel cheated if the union leaders refused to act like monopolists, if they made no attempt to manipulate the market in my favor. I may question whether trade unions in America have in fact been able to exercise strong monopoly power, but I can never question their desire to do so.


Having denied that unions try to or do exercise monopoly power, the labor economists go on to state that unions use their monopoly power to combat the monopsony power of the employers. Here at last is the classical case for trade unionism.


The relevant question would seem to be the following: Do employers in fact possess monopsony power in the labor markets in which they operate? Certainly they would like to do so and often attempt to do so. But I see nothing in the history of wage rates in this country and in comparisons of union and non-union industry experience that would lead me to conclude that employers in this country do now or have ever exercised significant monopsony power in the labor markets. The weakness of the individual worker in obtaining "fair" wages is one of the most durable and widely believed myths in the economic folklore of the modern world. Even my hero, Adam Smith, gave it some standing, though it may have possessed some greater validity in his day than in ours. Today's worker, with his far greater physical and psychological mobility, need hardly sit still to be exploited, and a solid core of movable workers will protect even those who have little or no mobility, just as I am protected in buying television sets by those who are shrewd enough to know that it is not magic but easily understood processes which cause them to work.


It is my firm belief that, as a general rule, workers need trade unions, not to assure themselves of roughly competitive wages, but only to assure themselves of wages above what the competitive market would assign them. If this fits in with our value system, let us endorse it, but let us at least be honest about it.


Now whether, through trade unionism, workers can in fact gain wages significantly different from what a competitive market would produce for them is itself a debatable question. I am inclined to agree with Milton Friedman, of the University of Chicago, and others who argue that the economic impact of unions has been exaggerated by both their friends and their foes. Admittedly, they have been more successful in some industries than in others, and the joint-demand approach gives us a pretty good explanation of why this should be. Also, they have been most successful when they have been able to enlist the direct or indirect support of government in their activities. Thus, my barber informs me that a non-union barbershop in Indiana is almost certain to be found unsanitary by the state inspection teams, while a union barbershop can get by with almost anything.


In minimizing the influence of unions on wage levels and structures, I do not mean to say that unions cause no problems. Certainly, union action is capable of inconveniencing large segments of the American economy. Certainly, unions can and do interfere with the efficient use of workers and machines in the individual plants and thus tend to lower the overall productivity of the economy. And certainly, they constitute at least a latent political pressure group of great strength and, from my point of view, of dangerous and mistaken social philosophy. Yet, paradoxically, I am disturbed by our interfering with the right of union members to spend union funds in support of parties and candidates.


These and other problems do arise; however, I do not believe that unions have in fact been able to produce any generally significant changes in the level or structure of wages in this country.


But whether unions do or do not succeed in accomplishing what they wish to accomplish is not the important question. The important question is what should be the policy of the country toward a group that seeks to manipulate the market to the advantage of its members.

Criticism of Current Policy


The American answer of this century has been that government should encourage and protect this particular group, the trade unionists, as they seek to organize and to manipulate the market. This answer seems to have been based in part on the countervailing power thesis, in part on certain ideas of distributive justice, in part on the great American tradition of siding with the underdog.


Whatever the reasons were that led to this position being adopted, it has resulted in a series of legislative enactments, starting with the Clayton Act and various railway acts, which have given unions special privileges and immunities enjoyed by no other group in our economy.*55 Surely this approach directly violates one of the traditional philosophical positions of our society, namely, equality before the law.


The special privileges of trade unions have been imaginatively described by Edward Chamberlin of Harvard University, in the following passage:

If A is bargaining with B over the sale of his house, and if A were given the privileges of a modern labor union, he would be able (1) to conspire with all other owners of houses not to make any alternative offer to B, using violence or the threat of violence if necessary to prevent them, (2) to deprive B himself of access to any alternative offers, (3) to surround the house of B and cut off all deliveries, including food (except by parcel post), (4) to stop all movement from B's house, so that if he were for instance a doctor he could not sell his services and make a living, and (5) to institute a boycott of B's business. All of these privileges, if he were capable of carrying them out, would no doubt strengthen A's position. But they would not be regarded by anyone as part of "bargaining"—unless A were a labor union.*56


Surely if we must favor income redistribution (which I do not), we can find ways of implementing our wishes that do not violate the concepts of rule of law and equality before the law.



What then am I proposing? I am proposing that we place trade unionism on the same basis as all other groupings in our economy and that whatever rules apply to the others would apply to unions as well. I am not proposing that we legislate unions out of existence. I am proposing only that we treat them as we should treat all collections of people seeking to manipulate the market. For the proper policy I turn again to Adam Smith and to the famous passage in which he outlines his approach to collusion among businessmen:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.*57


This was his approach to trade unionism as well, and this approach was substantially the one that developed under American common law and was controlling until the legislative enactments of this century. Unions were tolerated, but not encouraged, and were granted no special privileges, no immunities from the law of the land. I would suggest that we return the problems of trade unionism to the jurisdiction of the common law, which would mean sweeping away the relevant sections of the Clayton Act and the railway acts, as well as all of the Norris-LaGuardia Act, the Wagner Act, and the Taft-Hartley Act.


I realize that at this moment many of you do not know whether to laugh or cry. But let me sketch for you what seems to me to be the most likely path of movement in the years ahead. The relative popularity of state right-to-work laws is an important straw in the wind. It symbolizes the kind of authoritarian answer to unions that is almost certain to become more popular in the years ahead.


To me the right-to-work law is an unwarranted intrusion by the state in the dealings of employers and employees. If an employer and his workers agree that only Presbyterians or Masons or union members will be employed in the plant, the state has no business interfering in that agreement. (I might add that the state also has no right interfering in agreements that would limit employment to non-union workers; i.e., in outlawing yellow-dog contracts.)


As a matter of fact, in proposing right-to-work laws the political conservative is weakening his case against trade unionism. In developing his case for right-to-work laws, he argues that workers cannot escape the exploiting union; but in developing his case against trade unions, he argues that workers can escape the would-be exploiting employer. My own guess is that the exceptions to the sufficient-mobility requirement are about as numerous and significant in one case as in the other—and that in neither are the exceptions of sufficient impact or duration to justify special legislation.


If you believe that the state should not intervene in dealings between employers and employees, then that means not only no Wagner Acts, but no right-to-work laws and no administrative review of wage settlements as well. Yet we seem to be headed for ever more intervention by the state in dealings between employers and employees, in the internal affairs of unions and in the wage-price relationships in industry. Having created our Frankenstein monster, we are now going to break him to our will.


In the process the state is almost certain to undertake to dictate decisions about matters that should be left to the marketplace, and to create authoritarian patterns of action that will be degrading and debilitating to employers and employees alike. Unions were able to survive the times of adversity; whether they will be able to survive their successes is open to question.


If this forecast of the shape of things to come be even partly correct, then a suggestion that we review the legislative enactments of the last fifty years is not as ridiculous as it might seem at first blush. Failing a basic change in philosophy of the kind I have outlined, I see nothing but increasing difficulty in the years ahead. I have made my proposal in absolute seriousness and with no desire simply to shock or antagonize.


I am aware that it is difficult to "turn back the clock," but if we were convinced that it should be done, I suspect that we could find ways of doing it. I am also under no illusions that a full acceptance of my proposal would mean the end of all the vexing problems that arise in the employment relationship. Starting as I do with the assumption that man is imperfect, I can hardly arrive at the conclusion that he can create a utopia. The choices must always be among various degrees of imperfection, and the choice I have made seems to be the least imperfect of those now available.

Notes for this chapter

Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), p. 625.
Norman Maier, Psychology in Industry (New York: Houghton Mifflin, 1955), p. 6.
Joseph Tiffin, Industrial Psychology (New York: Prentice-Hall, 1952), p. 362.
Alfred Kuhn, Labor Institutions and Economics (New York: Rinehart & Co., 1956), pp. 594-95.
J. M. Clark in The Impact of the Union, ed. David McCord Wright (New York: Kelley and Millman, 1956), p. 364.
See listings in Roscoe Pound, Legal Immunities of Labor Unions (Washington, D.C.: American Enterprise Association, 1957); Sylvester Petro, The Labor Policy of the Free Society (New York: Ronald Press, 1957).
Edward H. Chamberlin, The Economic Analysis of Labor Union Power (Washington, D.C.: American Enterprise Association, 1958), pp. 41-42.
Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), p. 128.

Part VI

End of Notes

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