Friday, August 7, 2009

The Fundamental Truth of Basic Facts III

by the Sandwichman

Moving right along from Liberty Lobby Carothers and Brookings Institute Moulton we arrive at Thomas Nixon Carver's December 1931 presentation at the annual meeting of the American Economic Association, summarized in the American Economic Review for March 1932. Professor Carver was best known for his contribution to the abstinence theory of interest from the perspective of marginal productivity.

Professor Carver detected four 'errors' in the reasoning of those who advocate shorter working time as cure for unemployment:

First, shorter hours does not reduce unemployment, "it only smears it more evenly." Instead of 10% unemployed and 90% employed, everyone would be employed 90% of the time and unemployed 10% of the time.

Second, more leisure doesn't increase the demand for goods unless it is accompanied by greater purchasing power. Furthermore, leisure could just as easily be spent in the cultivation of the arts and graces. "If the cult of leisure should result in the popularization of Gandiism [sic], humanism or any of the highbrowisms, it would decrease the desire for material goods."

Third, if shorter working time is accompanied by an increase in wages to hold total income constant it will raise the unit cost of products, resulting in decreased sales. "Even though each worker produces less, it may not take any more workers to produce the reduced volume than it took before." Besides, even though workers' money income stayed the same, price increase would mean their real income went down.

If instead of reducing the hours of work, the money wages of workers were reduced, this would result in lower prices, expanded employment and more or less level real wages. Shorter work time bad; lower wages good.

Fourth, it is a mistake to assume that shorter hours would have the same effect globally as it might when applied in only one or a few industries.
"If, as the purchasing power of money wages falls, money wages are advanced in order to keep real wages at the old level, that will send the cost of production still higher, reduce the quantities that can be purchased by those who are not wage workers, call for a still smaller volume of production, and completely nullify any supposed advantage to the unemployed."

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