From his vantage point in the mid-1920s, Henry Mussey ("Eight-Hour Theory in the American Federation of Labor" in Economic Essays, edited by Jacob H. Hollander, Macmillan Company, 1927) admired the political pragmatism of Samuel Gompers’s use of eight-hour philosophy to nurture the fledgling American Federation of Labor. "No student of American labor history," Mussey wrote, "can fail to be struck with the extraordinary importance of the eight-hour issue in union thinking during the formative years of the American Federation of Labor."
It is the ideas underlying the movement, especially in its earlier period down to 1892, with which we are concerned. Why did the men who were to unify the American labor movement take up first the question of hours, and for ten years make the shorter workday the central demand in their positive platform? The opinion may be hazarded that it is because the theory of the eight-hour day happened to fit particularly well the practical needs of their situation, and was therefore a tool well-nigh indispensable to them in their hard task of organization.Mussey was less convinced of the theoretical soundness of the Federation’s eight-hour philosophy, pioneered by Ira Steward in the 1860s. His apparent skepticism was in keeping with the almost obligatory disdain of academic economists toward populist panaceas for unemployment. Academic economists proclaimed the shorter-hours theory false, most of them apparently without bothering to read it. It didn’t conform to their preconceptions -- so it must be wrong and not worth examining.
Mussey himself comes across in his article as somewhat agnostic on the matter of that economic orthodoxy. "Any cub productivity theorist," he remarked, "can upset the idea [of increasing employment by spreading existing work among a larger number of workers working shorter hours] by a mere reference to long-time effects on wages, but the unionists were blissfully ignorant of such theories, and confident of the union’s power to maintain living standards and wages, so the theoretical fallacy did not trouble them." Does a "mere reference" by a "cub" productivity theorist add up to a decisive rebuttal of the eight-hour theory or is it a wry commentary on the superficiality of the pro forma academic dismissal of the theory? Was the "blissful ignorance" of the unionists a defect or a blessing? Mussey left it ambiguous as to exactly where his irony stood on the question.
Only five years after publication of Mussey’s account, Dorothy W. Douglas ("Ira Steward on Consumption and Unemployment," The Journal of Political Economy, August 1932) was extolling Steward’s eight-hour theory as a "philosophy of American wages and unemployment that sounds strangely apposite today." What had intervened decisively between Mussey’s 1927 ambivalence and Douglas’s 1932 enthusiasm was a financial collapse and the start of a deep depression.
Douglas condensed the two main aspects of Steward’s theory and their interconnection:
One, the stimulating effect of leisure and leisure-time consumption upon the standard of living and hence the wage demands of the lowest classes of labor... and the other, the stimulating effect of this more expensive labor upon the technique of production itself -- the effect of "driving" labor saving machinery. Finally, uniting the two, is a plea, now familiar to our ears of mass demand as alone making mass production possible.
What impressed Douglas most about Steward’s theory was his argument that unemployment and low wages lay at the root of economic depressions. According to Steward (in Douglas’s words), capitalists "assume that just a little surplus labor is good for business." Too much unemployment would be an inconvenience and even a scandal. But employers welcome just enough unemployment to discourage demands for higher wages. As an aside, such an attitude is evident in the acceptance in mainstream economics since the 1970s of the idea of a "natural" or "non-accelerating inflation rate of unemployment"(NAIRU).
The problem with this Goldilocks theory of unemployment (not too high, not too low, but just right), as Steward pointed out, is that there is, in effect, a multiplier effect. "An unemployed man is the most deadly fact that exists outside of a graveyard... Without raising a hand he takes more bread from others than he himself can eat.. more clothes than he can ever wear..." This specter of unemployment makes those who are still employed willing to work for longer hours and lower wages in "the deadly competition between those who have nothing to do and those who do too much for fear of doing nothing." Furthermore, the still employed workers become reluctant to spend what income they have for fear of future unemployment. "The most cautious and calculating laborers, who are not themselves discharged, are sufficiently alarmed by the first few discharges that occur about them to wait before buying." Meanwhile, employers find themselves with no choice but to lay off workers in response to the contraction of business.
Ironically, though, and again in contrast to Mussey, Douglas judged Steward’s practical proposals to be naive. Mussey had hailed the practical success of a labor strategy founded on Steward’s theory but doubted the soundness of that theory. Douglas admired the theoretical side, while discounting the likelihood of its practical political implementation. As things have turned out, both the theoretical and practical dimensions have been abandoned by economists and unionists, respectively.
Unbeknownst (apparently) to either Mussey or Douglas, Steward’s theory was given powerful, independent support in the neoclassical theory of the hours of labor expounded by Sydney Chapman, a star pupil of Alfred Marshall. Practically, a policy prescription quite similar to Steward’s was articulated by John Maynard Keynes in 1943. There is no indication that either Chapman or Keynes was familiar with Steward’s theory or its endorsement by the AF of L.