THE OLD, OLD FALLACY

by the Sandwichman

Still no nibbles on my $10,000 prize offer. More clues:

• "Thus their error lies in assuming that there is a fixed Work Fund, a certain amount of work which has to be done, whatever the price of labour." (Alfred Marshall, Elements of the Economics of Industry, 1892, page 383)
  
• "It is the statement as an economic fact of the old, old fallacy that men can restrict their output and thus make work for more men, and still have industry unaffected and providing work for all to do." (Walter Drew, "The Real Problem of the Eight-Hour Day", National Association of Manufacturers, 1911?)
  
• "And we have the old fallacy that eight hours a day will mean more men to be employed." ("The Proposed Federal Eight Hour Law and What it Means" The Review reprinted in The Square Deal, 1912)
  
• "This view is connected with the lump-of-labor notion. It assumes that men will work no faster in a shorter day, and that there is so much work to be done regardless of the rate of wages; and concludes that the shorter day will reduce the amount of labor for sale and cause wages to rise." (Frank Fetter, Economics, vol. 2: Modern Economic Problems, 2nd edition, 1923)

So we begin to discover that the old, old fallacy has a bit of an identity crisis. Clearly Fetter's lump-of-labor notion was another name for Marshall's fixed Work Fund. The main advantage to Marshall's discussion of the fixed Work Fund is that it is a lengthy discussion that hints at -- even if it doesn't unequivocally state -- the identity of the object of its critique. A second advantage derives from Marshall's stature as an economist and as a pioneer of the formal university teaching of economics as a discipline.

Who's idea was Marshall criticising, how well does that critique hold up and how consistent with Marshall's overall discussion was subsequent textbook lore about the lump-of-labor?

Although the names Ira Steward and George Gunton don't appear in Marshall's chapter, it is clearly Steward's eight-hour theory that Marshall had in mind. Considering that Gunton's Wealth and Progress had been published four years earlier, it is more likely that Marshall was addressing the Gunton elaboration of Steward's theory. Whether he actually read Gunton (or Steward) or was merely reacting to second-hand accounts is not entirely clear from the discussion.

In my estimation, Marshall's critique of Stewardism missed its mark. But it did so in ways that are instructive for the subsequent career of the lump of labor fallacy claim. In short, Marshall's fallacy claim is hemmed in by profuse qualification and the "putting aside" of circumstances that could readily be argued to be the central issue behind the reduction of working time -- namely, the longer term impacts of psychological fatigue on output.

In other words, the way Marshall frames the argument leaves the fixed Work Fund (or lump of labor) claim vulnerable precisely to what Marshall's student, Sydney Chapman, later pointed out regarding market failure in the determination of the hours of labor. This would seem to be confirmed by Marshall's -- and his protege, Pigou's -- endorsement of the Chapman theory.

Marshall's use of the term "fixed Wage Fund" is also revealing in that it directly relates the fallacy claim to the wages-fund doctrine of classical political economy. It echoed John Wilson's sentiments, twenty years earlier, about a "Unionist reading of the Wage-fund theory." This also is significant because Steward's 1865 pamphlet was grounded in an explicit repudiation of the wages-fund doctrine at a time when that doctrine remained an article of faith for respectable political economists.

Marshall commenced the last section of his discussion of shorter hours with the following rather ambivalent statement:

All this tends to show that a general reduction of the hours of labour is likely to cause a little net material loss and much moral good: that it is not adapted for treatment by a rigid cast-iron system, and that the conditions of each class of trades must be studied separately.

But, of course, a "rigid cast-iron system" was exactly what militant employers' groups would subsequently insist upon:

We must face the fact that the eight-hour day involves a proportionate decrease in the productive capacity of our workmen, that this in turn means a higher labor cost, and a consequent higher cost of production, and this finally results inevitably in higher prices for us and a lessening of the ability of our manufacturers to compete in the markets of the world. We must face the fact that restriction upon the productive capacity of our workmen will not result in increased wages to the individual, or in securing employment for the unemployed, or increasing the profits of our industries; but that it will directly tend to do the opposite of all three of these things. (Walter Drew, "The Real Problem of the Eight-Hour Day")