It is naught, it is naught, saith the buyer: but when he is gone his way, then he boasteth (Proverbs 20:14).
Once again, Hazlitt returned to the issue of government price fixing. In Chapters 13, 15, 16, and 18 price fixing was in the form of price floors. It is in this chapter, too.
This may not be seen initially as a case of government price-fixing. By the end of this chapter, I hope you will see that it is entirely a case of government price fixing. It is one more example of a price floor.
1. Owners
One set of owners possess money: business owners. They may also possess capital equipment, which includes land and buildings. They possess business plans. These plans involve hiring human laborers.
Another set of owners possess the ability to deliver labor services. These people are eligible to rent out these services.
A third set of owners will decide at some point whether to purchase goods and services that have been produced by a combination of business capital and labor services. They will determine retroactively which sellers prosper and which do not.
All participants possess the legal right to bid.
2. Window
The window is a product of a society’s moral, legal, and cultural traditions and institutions. It is known as the free market. Those with money to spend work out arrangements with people who want to sell goods to buyers, i.e., spenders of money.
In this system, people who hire workers seek to locate people who rent out these services at some price. Economic exchange always depends on an agreed-upon price. Buyers compete against buyers. Sellers compete against sellers. Only in the final stage of the hiring process does face-to-face bargaining take place: would-be employer vs. would-be employee. The prospective employer does not know how little money the prospective employee will accept, and the prospective employee does not know how much money the prospective employer will pay. In this zone of ignorance, there may be negotiating. But probably not. Time is not a free resource. Employers usually make this offer: “Take it or leave it. I am too busy to negotiate.”
The employer acts as an economic agent of future customers. He will give them an opportunity to buy the output of his production process. The employer also acts as an economic agent of his employees. In order to earn money, employees must sell their services to customers. The employees do not know how to market their services directly to customers, but the employer believes that he does. So confident is the employer that he is willing to pay money to the employees to perform certain tasks, irrespective of the near-term decisions of customers. The business pays these employees until the lack of customers makes it evident to the employer that he has misjudged customer demand. Only then will he fire some or all of his employees.
The wage is a signal to other workers and other employers regarding the prevailing conditions of supply and demand. If this wage is a market-clearing wage, there will be no rival workers offering to work for a lower wage for the same job, and there will be no rival employers offering to pay more.
3. Stone
A union organizer comes before workers and makes this argument. “You are being exploited by your employer. He is able to exploit you because you are just one person. Your employer is rich. He does not have to worry about feeding his family. You are not rich. You are living paycheck to paycheck. You are in a weak position as a solitary employee. But if you gather together with other employees, you can challenge this exploitation. You can bargain collectively. Your employer cannot afford to fire all of you at once. You will then get paid what you are really worth.”
This may sound plausible. The workers individually do not have any clout. The employer can fire any individual. He can replace the fired individual. The replacement is willing to accept the job. This seems unfair.
Why is it unfair? Two people come to an agreement: the employer and the replacement worker. The replacement worker has a right to bid. Workers compete against workers. Employers compete against employers. Why is this immoral? Why is this unfair? But the union organizer says that it is unfair.
If the government does not interfere, the union organizer can test his theory of wage formation in the marketplace. He can persuade workers to threaten to quit. Maybe the employer will cave in. Or maybe not. He may decide to replace all of the strikers. This is what Ronald Reagan did in 1981 when the Air Traffic Controllers union went on strike. He gave them a deadline. If they refused to return to work, he would replace all of them. Most of them refused. He replaced all of them in one day. No planes crashed. The union had overplayed its hand. It thought Reagan was bluffing. They were wrong. No other government union ever tried this again.
The simpler the job, and the more numerous the number of unemployed workers who can do this job, the easier it is for the employer to break the strike. He replaced the strikers.
Union organizers know this. So do union members. So, unions pressure the government to force employers to negotiate “in good faith” with union members if half of the workers, plus one person, vote to be represented by the union. This began in 1933 in the Untied States. The government passed the Wagner Act. It set up the National Labor Relations Board to enforce the new rules. The government threatened any employer with violence — fines — if he did not allow the union to recruit members. If they won the election, it became illegal for the employer to replace striking workers.
Thus, unions that gain a 50% plus one vote operate in a judicial system in which there are government-enforced price floors on wages. Non-union members may bid for jobs, but it is illegal for employers to accept these bids. They must join the union. They must pay union dues. They may not be paid a wage below that which the union, through government coercion, has imposed on the employer.
