Tuesday, May 1, 2018

LOMPIGHEID: "Omgekeerd omgekeerd."

Last week I was browsing through one of the books on the shelf at work, which had in it three essays by the inter-war German Marxist Karl Korsch. One of the essays, a 1932 introduction to Capital mentioned mentioned a section in Chapter 24, "The So-Called Labour Fund" as exemplary of Marx's critique of political economy. The "labour fund" was more commonly known as the wages-fund, the doctrine famously recanted by John Stuart Mill in 1869.

After it had been repudiated in various degrees by the economists who formerly propounded it, the defunct doctrine became a straw man "fallacy" attributed to precisely the trade unionists who had been the targets of the doctrine's disdain. Marshall dubbed the re-purposed doctrine the fallacy of the fixed work-fund. David F. Schloss christened it the Theory of the Lump of Labour.

As is my habit, I searched on "labour fund" and "lump of labor/labour" to see if anyone had previously made the connection between Marx's critique in Capital and the ubiquitous attributions of the fallacy by economists to non-economists. What I discovered was a six-page discussion of my own historical investigation by a Belgian economist, Walter Van Trier, published in 2013 in the Belgian journal Over-Werk.

The title of the journal is somewhat of a pun as "over" means both "about" and "above" in Dutch, so it could mean both about work and overwork in English. The word lompigheid also contains a bit of a pun -- as one might guess lomp is lump and lompigheit (with a 't') refers to lumpiness, while lompigheid (with a 'd') means rudeness or clumsiness.

I am posting below a translation of the section from Van Trier's article that deals specifically with my analysis of the lump of labor fallacy. The full article, in Dutch, can be found here. Happy May Day!

Lompigheid? Of gezonde intuïtie? (Clumsiness? or Healthy Intuition?)

Will the unemployment rate among young people increase if older people are kept working longer? Does the flow of migrants to our labor market reduce the chance of a job for 'our' employees? Is the relocation of economic activity to the South a threat to employment in the North? Does the reduction of working hours lead to more employment?

These are questions that you and I and perhaps our policy makers are regularly involved in. Economists, on the other hand, are not really awake to them. Or, it would be more accurate to say they are acutely awake to the conclusion that many lay people are inclined to answer these questions positively without fully considering the implications of the proposed policy measures. Economists suspect laymen who follow such reasoning are prey to a misconception known as the 'lump of labor fallacy' – the assumption (at least implicit) that there is a 'fixed' amount of work in the world. In that case, more hours of work or jobs for some workers would inevitably lead to fewer hours of work or fewer jobs for others. Topsy-turvy upside-down.

In 'Why Economist Dislike a Lump of Labor', (Review of Social Economy, 65, 3, 2007) and 'The ‘Lump-of-Labor' Case Against Work-Sharing: Populist Fallacy or Marginalist Throwback?” (International Trends, theory and policy perspectives, Routledge, 2000) – plus assorted unpublished conference papers and such, which you can find on the internet with some searching – there is  an interesting reconstruction of the origin of this idea by Tom Walker, no professional academic but a shop steward (trade union representative) who spends a lot of time thinking about economics and blogs under the name 'Sandwichman'.

The earliest formulation of the 'lump of labor fallacy', according to Walker, can be found in Thoughts on the Use of Machines in the Cotton Manufacture, a pamphlet from 1780 attributed to the magistrate, Dorning Rasbotham. The pamphlet was a reaction to Luddite revolt in Lancashire in the year before and contains the following passage: "There is, say they [the rioters, note added by Walter Van Trier], a certain quantity of labour to be performed. This used to be performed by hand, without machines, or, with a little help from them. But if now machines perform a larger share than before, suppose one-fourth part, so many hands, as are necessary to work that fourth part, will be thrown out of work, or suffer in their wages. The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand."

In this first formulation, there is no direct link with working hours, the context in which the 'fallacy' is most often encountered today. That slant was added about half a century later in the context of the British debate on the Ten-Hour Factory Bill. Character, Object and Effects of Trades Union, an anonymously published version of a report from a Royal Commission from 1833 by E. C. Tufnell, described the motives of the trade unions to support the Ten-Hour Factory Bill in terms that point to a 'lump-of-labor' reasoning. A pamphlet, which appeared simultaneously with the book and which found great resonance in the press, summarizes the argument as follows: "The Union calculated, that had the Ten-Hour Bill passed, and all the present factories worked one-sixth less time, one-sixth more mills would have been built to supply the deficient production. The effect of this, as they fancied, would have been to cause a fresh demand for workmen; and hence, those out of employ would have been prevented from draining the pockets of those now in work, which would render their wages really as well as nominally high. Here we have the secret source of nine-tenths of the clamor for the Ten-Hour Factory Bill…"

Just like a number of other sources to which Walker refers in his publications, these authors describe a reasoning they attribute to opponents of mechanization or advocates of short-time working, a reasoning they label as a misconception and which we know today under the label 'lump of labor' fallacy '. But the honor to be the first to add the word 'lump' to this reasoning and to characterize it as 'the Theory of the Lump of Labour', is probably due to David F. Schloss (1850-1912).

In 'Why Working-Men Dislike Piece-Work' (The Economic Review, 1, 3, 1891, pp. 312-326), Schloss attributed the objection toward piecework by the budding workers' movement to the idea that workers who do their utmost and produce as much as possible take jobs from the unemployed. "The basis of this belief ...is the noteworthy fallacy to which I desire to direct attention under the name of 'the theory of the Lump of Labour'", says Schloss. His summary of the theory does not differ significantly from the older versions, but he illustrates more fully why it is a misconception. "No clear thinker believes that, in order to provide labour for the unemployed, it is advisable that we should give up steam-ploughs for ordinary iron-ploughs, these again for wooden ploughs, and, in the ultimate resort, should abandon these instruments and scratch the ground with the fingers. Just so, in regard to this doctrine of the Lump of Labour, it should be perceived that it is against the best interests of the community at large, and, first and foremost of the working-classes, for working-men to handicap the industry of the nation in deference to a theory which proclaims it to be the duty of every man to work, as it were, with one hand tied behind his back."

Remarkably – and at first sight quite paradoxically – Schloss explicitly remarked that his article has nothing to do with the question of the length of the working day and that one should not consider his exposure of the 'theory of the Lump of Labor' as a argument against working hours reduction. "...I shall not conceal my opinion that the claim of the working-classes to possess an amount of leisure adequate for the purposes of rest, of education, and of recreation is one in an eminent degree deserving of recognition." However, although a shorter working day is highly desirable both for social and economic reasons, it remains equally desirable to use the best tools and machines during this time and work as productively as possible without endangering health and comfort.

A distinctive feature of this literature is that each of these writings attributes 'The Theory of the Lump of Labour' to the advocates of reduction of working hours (or to the opponents of piecework or mechanization of production) without any evidence that the latter endorse this theory. This practice still exists today, says Walker. The contemporary ‘mainstream’ often creates such a foil in its criticism of the 'lump of labor fallacy'. However, there is nothing to indicate that advocates of short-time working, either yesterday or today, begin from the assumption that the amount of work is fixed, even if these advocates explicitly promote short-time working as one of the means to combat unemployment. It is easy to forget that the economic discipline does not form a homogeneous whole. Just think of economists like J. R. Commons, J. M. Keynes and Luigi Pasinetti, who, for various reasons, expected a positive influence on employment from reductions of working hours. Even today, there are still attempts to escape from the mainstream from a similar inspiration as the aforementioned.

Now take the following two recent examples that I pick from my bookshelf without much searching. In their latest work, Changer d'Economie, (Editions Les Liens qui Libèrent, 2012) – Les Economistes Atterés, a collective mainly of French economists, advocate a reduction in working hours, alongside other measures, to tackle the problem of unemployment. Or read the blog of the American economist and Boston University professor, Juliet Schor, author of the 1991 bestseller, The Overworked American: The Unexpected Decline of Leisure. Schor explains why "recent bad economic news means it's time for working less". Policymakers today can hardly be persuaded, she says, to pursue an economic policy that does not make large groups of people worse off and at the same time tackles the bigger challenges – climate change and ecological devastation. The central element of such an alternative approach is, in her view, a reform of the labor market based on reduced working hours. This may seem strange at a time when the mainstream argues that we are poorer than ever and have to work harder. But those who look closely at the experience of the past, says Schor, see that such a policy is very smart and yields a threefold dividend: less unemployment, less CO2 emissions and more quality of life. Twice a plea for short-time working, even in the context of a struggle against unemployment, but those who read well, see that this argument neither of Les Economistes Atterés nor of Schor relies on the idea of 'a fixed amount of work'.

The significance of a 'fixed amount of work' is not as evident as it seems at first glance, Walker notes. "...it could refer to an assumed upper limit on the demand for labor or to an erroneous assumption that the demand for labor is unaffected by changes in labor costs." Such ambiguity gives users of the 'fallacy claim' a tactical advantage. "Critics of shorter work-time policies point to long-term employment growth as conclusive evidence that such policies are not needed and then refer to increased labor costs for a microeconomic explanation of why they cannot work. Those two half-arguments, however, do not add up to a coherent whole. The long-term growth of employment was not achieved independently of either government intervention or reductions in the annual hours of work per employee. And arguments about the effects of shorter work-time on labor costs are incomplete without an assessment of its direct and indirect effects on productivity, worker health and labor turnover."

This weighing of output restrictions versus productivity gains – a trade-off made in the controversy of the last century – is an important point that, according to Walker, is disregarded in the current debate about the 'lump of labor fallacy'. In this context it is amazing, but also symptomatic, Walker notes, that the economic literature generally ignores the analysis of the optimal working day or working week made by S. J. Chapman in 1909. Chapman was appointed professor of economics at Manchester Victoria University in 1904. In 1915, he left academia for government service and from 1927 to 1932 served as Chief Economic Adviser to the British government.

Chapman's 'Hours of Labor' (The Economic Journal, 19, 75, 1909, pp. 353-373) is the published version of his Presidential Address to the British Association for the Advancement of Science, Section on Economics and Statistics. It remains an extremely interesting reading today, with the surprising central theme being the place of 'free time' in a future industrial society. In the first part, Chapman makes a double empirical observation – the average working time has steadily decreased in the past decades and this development was not accompanied by a proportional decrease in output – and draws two conclusions. First, the reduction in working time was primarily due to technological development and its effect on the demand for working time, not on the actions of the trade unions. Second, output did not drop proportionally because in more intensive industrial production methods workers need more free time to recover from their efforts and maintain their productivity. Based on these conclusions, in the second part of his explanation he formulated a theory of the optimal working day or week as a trade-off between working longer hours and obtaining greater productivity later on. The most important conclusion Chapman drew from his theory is that that it is unlikely that an optimal working day or week would come about through the operation of a free market. The reasoning is simple. Employers who give their employees the opportunity to work better rested and therefore more productively the next day via a shorter working day, run the risk that other employers will lure them away. For their part, employees prefer short-term returns and therefore ignore the effect of working longer on their later productivity. Short-term interest in both employers and employees therefore means that the working day (or work week) will be longer than optimal from a social point of view. Hence, according to Chapman, there can be benefits from interventions, such as a limitation of working time, which overrule the short-term preferences of both employers and employees.

This analysis was considered authoritative by Alfred Marshall, Cecil Pigou and Lionel Robbins. John Hicks described it in his classic, The Theory of Wages (1932) "as the classical statement of the theory of 'hours' in a free market." However, because the effects of 'working hours' and 'labor intensity' in calculations are very difficult to disassemble – and therefore difficult to deal with from a marginalist perspective – Hicks introduced a 'simplifying assumption' in his treatment of this issue. He considered the actual working hours as the optimal working hours. Note: explicitly with the caveat that each calculation on the basis of this assumption must then be worked back into a more realistic context. But this caveat is completely forgotten in the mainstream afterwards, says Tom Walker. Hence the strange absence in modern economic literature of a theory that was previously held to be authoritative. (Incidentally, a short, but clear 'mainstream' analysis of the conditions that must be met in order for an imposed redistribution of labor to lead to more employment can be found in the comment by Lawrence F. Katz on an article by J. Hunt in the Brookings Papers on Economic Activity, 1998, pp. 373-375).

You may not be surprised that Tom Walker is extremely harsh and sarcastic in his appraisal of the 'lump of labor fallacy'. "... [it] has persisted as an uncritical relic of textbook lore, cobbled together from disconnected and incompatible fragments of archaic economic doctrine. To put it bluntly, the lump-of-labor fallacy is a counterfeit – the economic equivalent to the Piltdown man hoax, which for four decades caused the skull of a modern man and the jawbone of an orangutan to be regarded as the missing link in human evolution." Nevertheless, Walker also considers the debate about this issue to be important beyond the problem of the number of working hours per day, per week or per year.  "Ultimately, the hours of work and the method or methods by which they are determined crucially affect social well-being and income distribution as well as employment and aggregate income.” It is therefore necessary to keep the debate about the effects of working hours reduction as open as possible and without theoretical bias. From a very different point of departure, Walker somewhat paradoxically comes to a position that strongly resembles the message of a remarkable opinion piece that Paul Krugman wrote about a decade ago in The New York Times (7/10/2003). Krugman then thought he saw an increasing following on the political right for the 'lump of labor theory' and warned about the negative consequences of policy based on this 'fallacy'. If such a naïve economic vision becomes trapped in the thinking of the masses, then two important dangers threaten, Krugman wrote. First, it inevitably feeds a feeling of fatalism. Second, it leads inevitably to protectionism. The most harmful consequence of this is that there will be less pressure to implement a more effective employment policy. In short, the greatest danger for a sound economic policy comes from those who think that they see 'a Theory of the Lump-of-Labor' in the proposals for working hours reduction. Or, as Tom Walker puts it, "Ritualistic repetition of the fallacy claim may discourage analysis and dialogue about how the hours of work should be determined and what might be the likely social, political and economic consequences of policy intervention to establish reasonable hours of work."

Oh yes, and then we come back to the term 'lump'. David F. Schloss, Walker thinks, was the first to use the expression "a Theory of the Lump of Labour." But why 'Lump'?  Why not 'Amount of Labor' or 'Quantity of Labor'? Or 'a Theory of the Labor Fund', after an obvious analogy with an economic theory – 'The Wages Fund', or the idea of a 'fixed wage bill' from which all workers had to be paid – that was prey to a similar 'fallacy', also used as an argument against the formation of trade unions and in the second half of the 19th century gave rise to extensive discussions among economists with J. S. Mill in one of the main roles.

Today 'lump' means 'a piece of solid substance, of any shape or size' according to my dictionary; hence 'a lump of sugar'. But it is also used for a certain amount of something, especially money, which is given or received at once (rather than in small pieces). Hence perhaps in the economic jargon 'a lump-sum payment', an amount whose height is not influenced by the behavior of the individual. Well, based on the material brought together by Tom Walker and some further personal research, it seems very plausible that Schloss with the metaphor 'a lump of labor' referred to a very specific social practice.

David F. Schloss was a senior official who worked for the London Board of Trade for a long time and from 1907 onward headed the Census of Production Office. He enjoyed great prestige and fame through publications such as Methods of Industrial Remuneration (1892) and Insurance against Unemployment (1905). The first was a standard reference at the beginning of the twentieth century, with French and German translations. The second, a comparative study of foreign unemployment insurance systems with a major influence on William Beveridge. More relevant in this context, however, is that Schloss started his career as a researcher for Charles Booth in the context of his large-scale research on 'Life and Labor in London' (1886-1903).

To a certain extent, Booth's research can be regarded as systematised empirical documentation of topics – poverty, prostitution, vagabonds, working conditions and the like – handled by Henry Mayhew in a series of articles that appeared in the Morning Chronicle in the years 1840-1860 and later bundled under the title London Labor and the London Poor. One of the topics that Mayhew – playwright, journalist researcher, co-founder of the satirical magazine Punch and inspiration of Christian Socialists such as F. D. Maurice – treated extensively, was the habits and 'regulations' around 'casual labor'. The most exploitative practices of subcontractors were known at that time as 'lump work'. The Oxford Dictionary cites Mayhew as an early literary source for the use of this terminology. Are you still surprised that at the beginning of his career, David F. Schloss was involved in exactly that part of the research that involved practices known as sweating or subcontracting by the lump?

1 comment:

Barkley Rosser said...

The definitive statement, I guess. Thanks.