"If There Is Any Such Thing": Why read Hoxie on theory?

Unionists are not theorists; unionism is an eminently practical thing. -- Robert F. Hoxie 

Theory and trade unionism are almost contradictory terms. -- Edward M. Arnos  

In accordance with this theory it is held that there is a certain fixed amount of work to be done... David F. Schloss

Paul Samuelson once wrote that it takes a theory to kill a theory. He didn't say it had to be a better theory. What would it take to kill a theory that never was?

The Sandwichman's summer project has been to consolidate my research and blog posts on the lump of labor from the last ten years into something like -- and yet unlike -- "the archaic stillness of the book." Sometimes, when cross checking old sources, new sources spring up out of the archives and one of the most astonishing was Robert Hoxie's commentary on what he called "fixed group demand theory."

The term appears elsewhere only in a few sources: a dictionary entry on the lump-of-labor theory in What's What in the Labor Movement: A Dictionary of Labor Affairs and Labor Terminology (1921) by Waldo Ralph Browne, in The Settlement of Wage Disputes (1921) by Herbert Feis, whose discussion mainly centered on Hoxie's analysis, and Warren Gartman made a brief, parenthetical reference to the theory in a 1950 report on Longshore Labor Relations on the Pacific Coast, 1934-50. By  far the most substantive treatment of fixed group demand theory was in Edward M. Arnos's 1915 article, "An Interpretation of the Working Rules of the Carpenters' Unions of Chicago." Arnos was a doctoral student at the University of Chicago at the time when Hoxie was conducting his research on organized labor's views on the Taylor method ("scientific management") and Hoxie engaged his students in the research project. Hoxie also wrote on the concept of fixed group demand previously without using the terminology. I reproduce both Arnos's and Hoxie's discussion below.

Hoxie's novel method was to ask people why they did something. Appendix II of his Trade Unionism in the United States contains an 18 page outline and summary of  the "students' report on trade union program." Appendix VIII of Hoxie's Scientific Management and Labor presents over 100 pages of questions used by Hoxie in that study. In the latter study, Hoxie prepared preliminary statements based on extensive reviews of the literature, summarizing the labor claims made by scientific management and the objections to scientific management by unions. He then circulated the summaries to proponents of scientific management and labor leaders, respectively, for their revision and approval. By his own account, Arnos's investigation followed similarly thorough methods.

The point of such rigorous investigation was not to vindicate or invalidate the theories in question but to examine their claims in the light of experience. The outcome was not a triumph for one theory and a defeat for another -- a sorting into economic laws and economic fallacies -- but an assessment of the extent to which each of the competing theories had merit and their respective limitations. Hoxie operated in the spirit of ethical debate as latter proposed by Anatol Rapoport.

There are two aspects of Hoxie's discussion of fixed group demand theory I would like to emphasize. The first is his explanation of unions' restrictive rules as pragmatic, opportunistic measures adopted locally and retained through trial and error rather than in accordance with some overarching "theory" of how the economy works.

The second is a subtle but devastating critique of the pretension of economic theory to apply simultaneously to both the universal long run and to local immediacy. In Trade Unionism in the United States, Hoxie rhetorically affirmed the validity of the classical economic analysis "when applied to society as a whole, if there is any such thing, and in the long run" while objecting that for workers, "there is no society as a whole, and no long run, but immediate need and rival social groups." A few years later, Maynard Keynes echoed the assessment that "this long run is a misleading guide to current affairs."

In a brief essay on "The Theory of Unionism: Principles of Uniformity," Hoxie thinly muzzled a searing critique of economic orthodoxy by presenting it as the employer's naïve conclusion: 

Apparently it rarely occurs to the employer that this analysis is not complete. Having assumed that definite laws determine the manner in which income is shared among the productive factors, he apparently concludes, somewhat naively, that just as the laborers in society will in the aggregate profit by increase in the social income, so also will the laborers in any individual establishment profit by increase in its income.

Hoxie's "employer" is simply parroting the old "Say's Law" truism that, as Alfred Marshall put it, "the demand for work comes from the National Dividend; that is, it comes from work: the less work there is of one kind, the less demand there is for work of other kinds; and if labour were scarce, fewer enterprises would be undertaken." Marshall's "national dividend" was an updated and sanitized label for what a decade earlier in The Economics of Industry, he still referred to as the "wages-and-profits fund," which was too close to the discredited wages-fund to escape scrutiny. The bottom line, though, remained that "there is no such thing as general overproduction." There is only ever "commercial disorganization; and that the remedy for it is a revival of confidence."

The chief cause of the evil is a want of confidence. The greater part of it could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production and their demand for the wares of others. If all trades which make goods for direct consumption agreed to work on and to buy each other's goods as in ordinary times, they would supply one another with the means of earning a moderate rate of profits and of wages. 

Although Marshall didn't mention this, it follows from his analysis of the impossibility of overproduction that in a crisis entrepreneurs commit the lump of confidence fallacy (or the fallacy of the fixed Confidence-fund). If only they understood how the "magic wand" of confidence works. Nor did Marshall happen to mention that the employers' stock remedies for hard times of cutting wages and/or laying off workers simply reflects their obliviousness to the fact that "there is no such thing as general overproduction."

Why worry about what Alfred Marshall wrote or didn't write 136 years ago? Because it is the dogma echoed down through the ages, such as in this 1986 gem by Richard Layard, How to Beat Unemployment:

The one fatal heresy in economic analysis is to take output as given. That is the 'lump of output' fallacy. You must always have a theory of how output is determined and you must never say, 'Higher output per worker reduces employment, because it reduces the employment needed to produce a given output'. Likewise you must never say 'More people cause unemployment', unless you can explain why output will not grow.

Along with Richard Jackman, Layard recycled the archaic and bogus analysis the next year in a pamphlet, "Innovative Supply-Side Policies to Reduce Unemployment" and yet again in 1991, adding Stephen Nickell to the team in Unemployment: Macroeconomic Performance and the Labour Market. This "analysis" became the basis of Tony Blair's and Gerhard Schroeder's miserable "New Supply-Side Agenda for the Left." Jonathan Portes's proudest accomplishment was explaining the lump-of-labour fallacy to successive cabinet ministers. And so the magic wand of confidence waves on...

But enough about the magic confidence wand (if there is any such thing). Below is some true grit from Hoxie and Arnos.

Robert F. Hoxie "The Theory of Unionism: Principles of Uniformity," in Readings in Current Economic Problems, 1915

The third charge against the unionist which we have undertaken to examine states that while he is struggling for increase of wages he is at the same time attempting to reduce the efficiency of labor and the amount of the output. In other words, while he is calling upon the employer for more of the means of life he is doing much to block the efforts of the employer to increase those means. 

There is no doubt that this charge is to a great extent true. In reasoning upon this matter the employer, viewing competitive society as a whole, assumes that actual or prospective increase in the goods' output means the bidding-up of wages by employers anxious to invest profitably increasing social income. It follows that in competitive society laborers as a whole stand to gain with improvements in industrial effort and process. In the case of the individual competitive establishment it is clear that the maximum income is ordinarily to be sought in the highest possible efficiency, resulting in increased industrial output. At least this is true where there are numerous establishments of fairly equal capacity producing competitively from the same market. Under such circumstances the increased output of any one establishment due to "speeding up" will ordinarily have but a slight, if any, appreciable effect on price. Each individual entrepreneur, therefore, is justified in assuming a fixed price for his product and in reckoning on increase of income from increase of efficiency and industrial product. Apparently it rarely occurs to the employer that this analysis is not complete. Having assumed that definite laws determine the manner in which income is shared among the productive factors, he apparently concludes, somewhat naively, that just as the laborers in society will in the aggregate profit by increase in the social income, so also will the laborers in any individual establishment profit by increase in its income.  

To this mode of reasoning, and to the conclusions reached through it, the unionist takes very decided exceptions. To the statement that labor as a whole stands to gain through any increase in the social dividend he returns the obvious answer that   labor as a whole is a mere academic conception; that labor as a whole may gain while the individual laborer starves. His concern is with his own wage-rate and that of his immediate fellow-workers. He has learned the lesson of co-operation within his trade, but he is not yet class-conscious. In answer to the argument based on the individual competitive establishment he asserts that the conditions which determine the income of the establishment are not the same as those which govern the wage-rate. Consequently, increase in the income of the establishment is no guarantee of increase of the wage-rate of the worker in it. Conversely, increase in the wage rate may occur without increase in the income of the establishment. Indeed, in consequence of this non-identity of the conditions governing establishment income and wage-rate, increase in the gross income of the establishment is often accompanied by decrease in the wage-rate, and the wage-rate is often increased by means which positively decrease the gross income of the establishment.  

The laborer's statements in this instance are without doubt well founded. The clue to the whole situation is, of course, found in the fact that the wage-rate of any class of laborers is not determined by the conditions which exist in the particular establishment in which they work, but by the conditions which prevail in their trade or "non-competing group." With this commonplace economic argument in mind, the reasonableness of the unionist's opposition to speeding up, and of his persistent efforts to hamper production, at once appears.

"An Interpretation of the Working Rules of the Carpenters' Unions of Chicago," Edward M. Arnos, 17th Report of the Michigan Academy of Science, 1916

Theory and trade unionism are almost contradictory terms. The trial and error method of testing rules, the ever changing conditions of the trade, the large number of men concerned in the agreement, the different nationalities represented in the union personnel, and the triennial agreements have left the carpenters' rules marked as if they are in a process. The constant changes in the agreements evince the carpenters' struggle to get control of the trade, first by one method or rule and then by another. This trial and error method has removed at least the trace of theory as a controlling force in the construction of the joint agreement. Journeymen are seldom conscious of any underlying theory of the rules in explaining their demands, methods, policies, and aims. Although the development of the rules has been free from the control of theorists, development has been in harmony with certain theories of business and human relationship. The theory of standardization, the theory of undercutting, the fixed group demand or lump labor theory, and the standard of living theory, are vital to the carpenters' rules. Journeymen may not realize the presence of any theories, nevertheless the officers interpret the rules in the light of these theories. To illustrate, one business agent said the rule prohibiting journeymen from taking their tools on the job before they were employed was to prevent men from gathering around the places of employment prepared to work, because the employers used their presence to intimidate the journeymen on the job; i. e., according to his theory of life, men who were out of employment would place themselves where they could underbid their fellows who were employed. To illustrate the underlying force of their fixed group demand theory, one of the officials said that they were in favor of a raise of wages to 70 cents per hour because there was a certain amount of work to be done and the carpenters could get 70 cents per hour as well as 65 cents. Thus consciously or unconsciously, the carpenters supported all of their rules by some of their theories of life. Let us consider these theories and their significance after careful analysis. 

… 

The presence of an unemployed group and their theory of undercutting necessitates standards and uniform units of measurement. Thus the first of the hypothetical theories is accounted for. This assumption of the constant over-supply of labor also presupposes that there is a fixed group demand for labor, thus their theory of a fixed group demand or "lump of labor" theory. The third theory to be considered is that of the fixed group demand. This fixed group demand is usually approached through the desire to share work among their members, which they accomplish by limiting the supply of labor. Their rules on apprenticeship so limit the number of apprentices that it is said that only the sons of the most prominent journeymen are indentured. The number of apprentices range from one to two per cent of the number of journeymen. Rushing and excessive work have the same effect upon the supply of labor, through the limitation of the amount of work to be done in a certain time. The eight hour day and holidays limit the number of working hours and thus limit the labor supply. The fixed group demand theory is supported by their experience of unemployment. The leaders contend that the unemployed are as numerous under low wages as they are under high wages. The hypothesis is that there is a certain amount of carpentering to be done in Chicago. This is fixed by the number of persons who live there. To quote an official, "a man wouldn't live in a tent if wages were high nor in two houses if they were low." Of course this opinion would not bear strict interpretation nor do they claim that for it. The constant increase in the scale of wages and the accompanying decrease in unemployment in the trade are often cited as proof of their hypothesis. Their wage slogans, "high wages breed high wages," "no wage reductions," "cheap wages make cheap men," and "get more now," have their origin in this group of facts. 

Their fixed group demand theory explains the union's defense for limiting the output. The public press has frequently denounced trade unions for limiting the output. Employers have made most bitter attacks upon the union for those rules and practices which result in limiting the output. The opponents of trade unions on this point usually argue that prices to the consumer are thus raised, and charge the union with a breach of good faith with society. The business man, the entrepreneur, and the classical economist would usually undertake to solve the problem of unemployment by reducing wages with the hope that the demand for labor would be increased by reason of the decrease in wages. Not so with the trade unionist. He has a different theory of business. The former groups think that prices and demand vary inversely, the latter group thinks that "there is a certain amount of work to be done and a certain number of men to do it. Each should be given a chance to do some of it." In a few words, their theory is that there is a fixed demand for commodities regardless of price, within a reasonable limit. According to this latter theory, a man does not buy a straw hat because it is cheap, but because it is the custom of certain classes to wear a certain kind of hat on certain occasions. The increase in wages for the makers of high hats would probably not decrease the demand for that particular kind of hat. On the other hand the author of the foregoing reasoning admitted that he would buy an automobile if the price dropped to one hundred dollars and unwillingly admitted that his demand in the automobile market would increase the demand for mechanics. Neither of the above theories are valid if applied to the extreme, and are contradictory when so applied. The carpenters observe from experience that a change in wages is not followed by a corresponding change in demand for labor. They try to take advantage of this slowness of "demanders" to adjust themselves to a changed condition of supply. The union theory operates in these cases where the demand for an article does not fall when the price is raised, or in technical language, Where the demand is inelastic, and the opponents' theory operates in those cases Where the demand for an article falls off rapidly as the price is increased, or in technical language, where the demand is elastic. The demand for salt and carpenter work is almost fixed or "inelastic," and the demand for automobiles is quite elastic. Therefore the carpenters' and the employers' theories are both valid as you limit their applications and neither theory has universal applications.