Wednesday, May 21, 2008

Textbook Lore versus George Gunton's Economic Theory of the Eight-Hour System

by the Sandwichman

Economics textbooks throughout the first half of the 20th century -- right up to and including Paul Samuelson's widely-adopted textbook of the 1950s and 60s -- repeatedly stressed the fallacy of union "theories" underlying their agitation for shorter hours. According to those textbooks, the fallacious union rationale for shorter working time was based on the assumption (the "lump-of-labor fallacy") there was only a fixed amount of work to go around and that if each worker did less of it, more could be employed.

Where did this alleged "union theory" come from?

The most likely suspect would appear to be the writings of George Gunton. Gunton, a disciple of shorter hours pioneer Ira Steward, was commissioned in 1889 by Samuel Gompers of the American Federation of Labor to write a pamphlet, "The Economic and Social Importance of the Eight-Hour Movement," outlining his theory of the eight-hour system. Gunton's pamphlet was thus the authorized statement of union reasoning behind their eight-hour campaign. Furthermore, in his pamphlet, Gunton claimed that if the eight-hour system were generally adopted in the US, the demand for workers would be increased by an amount approximately equal to the number of hours withdrawn from the market by currently-employed workers. This claim was soon rebutted by John Rae who pointed out that the redistribution of hours of work was "not a simple sum in arithmetic."

Even conceding that Gunton's claim does indeed look suspiciously like a theoretically-naive "simple sum in arithmetic," it is, nevertheless, more of a digression from Gunton's overall argument than its culmination and conclusion. What Rae did, in his retort to Gunton, was to ignore Gunton's own argument and retrofit a correspondingly simplistic argument to the obviously simplistic claim. Subsequent textbook authors followed suit, albeit with even less attention to the integrity of the original source. If we were to assume that textbook authors knew what they were doing in passing along the lump-of-labor claim, it would most accurately be described as dissembling and propaganda. However, it is more likely that the episode is simply one of arrogant prejudice swallowing its own tale.

Despite his lapse of making a sweeping and perhaps preposterous claim about the immediate results of the general adoption of the eight-hour system, Gunton's economic argument for the eight-hour system is actually rather sophisticated and dynamic -- much more so than what came to be the standard textbook treatment of the issue of shorter working time.

What was Gunton's argument, then? Briefly, Gunton argued that it is final demand that ultimately determines the amount of goods that can be profitably produced and sold and that the benefits of increased use of capital equipment derive from increasing returns to scale of production. Proceeding from those principles, it followed in Gunton's argument that higher wages and expanded employment would result in increased consumption which, in turn, would enable intensified use of machinery and thus a lower per-unit cost of production. As a consequence, under Gunton's assumptions, it is not necessary that the higher wages infringe on profitability.

Whether or not Gunton's assumptions hold up under rigorous scrutiny, they are unmistakably dynamic assumptions rather than static ones. The charges that they assume a fixed amount of economic activity, exhibit antipathy to technological improvement or call for restriction of output by workers are 180 degrees wide of the mark. And, remember, this is the official statement issued by the leading national organization of trade unions of the theory behind their eight-hour day campaign.

To credibly attribute some other motive or theory to unions would require -- at the very least -- either the citation of some other supposedly authoritative source or an explication of the discrepency between the trade unions’ stated rationale and their actual theory as demonstrated by practice. Do the textbooks do this? No. In fact, most accounts go no farther than to refer to the lump-of-labor theory/fallacy as if it were an uncontested fact that unions subscribed to it. In other words, whilst Gunton’s theory is at least plausible, the textbook accounts of the lump-of-labor are utterly unfounded. It is the legacy of that unfounded hearsay that continues to echo, uncorrected and generally unquestioned, in mainstream analyses of policies for the reduction of working time.


Myrtle Blackwood said...

"It is the legacy of that unfounded hearsay that continues to echo, uncorrected and generally unquestioned, in mainstream analyses of policies for the reduction of working time...

Can't agree. I believe, rather, that it is the legacy of a concerted campaign carried out by consecutive US Governments (in concert with big business) since Lyndon Johnson to eliminate benefits for workers in order to maximise or maintain monetary profits.

1971 – Gottfried Haberler, neoclassical economist and free-trader, retired from Harvard and became resident scholar at the American Enterprise Institute for Public Policy Research [a Republican think-tank in Washington DC.] He “denounced labour unions as the primary cause of inflation and urged a flood of cheap imports to undercut wages as well as the repeal of minimum wage laws and other ‘privileges’, as he called them, that workers enjoyed.” He campaigned, along with Milton Friedman, for a regime of national fiat currencies linked to another by flexible exchange rates.
Richard Parker’s Bio of John Kenneth Galbraith. Hardcover. Page 483. In the Chapter entitled ‘Galbraith and Nixon: Two Keynesian Presidents.”

1971: George P Shultz (then US Director of the Office of Management and the Budget) was the most forceful advocate for the action of removing the US dollar from the link to gold. He was a devotee of the market economist Milton Friedman.

1971 – August. Lewis Powell sends a ‘Confidential Memorandum’ to the US Chamber of Commerce sounding an alarm with its title: ‘Attack on the American Free Enterprise System’. In ‘Powell Memorandum’ he advocated constant surveillance of textbook and television content as well as a purge of left-wing elements.

1971 - When John Connally (Nixon's new Treasury Secretary appointed on 11th February 1971 and former Governor of Texas) set up the big 'Business Roundtable' and the oil industry well and truly took over the US Government. The new rules of government were placed entirely in the service of the largest US corporations:

- less and more government (depending on who benefits)
- lower taxes for business
- lower wages (dismantling the unions through corrupt secret ballots etc)
- deregulation of industries such as transport, finance, energy, telecommunications.
- internationally the US government was to intervene to ensure expanded markets for US corporations (for sales and production).
- a mercantilist advantage in the US with a favourably-weighted dollar.

Sandwichman said...


Did you mean to say that you "can't agree" that the hostility to shorter working time is more or less accidental and instead is the result of a concerted campaign? If that's what you meant, we might disagree less than you think. Except I would situate the origins of the concerted campaign at the beginning of the 20th century (National Association of Manufacturers) and attribute its smooth effectiveness to the systematic embedding of defamatory truisms in the college curriculum. In the 1930s, textbook publisher, McGraw-Hill, was a key player in the NAM's American Way propaganda pushback against the Roosevelt New Deal. This stuff didn't just spring Minerva-like from the head of Zeus -- or Milton Friedman -- in the 1970s.

Myrtle Blackwood said...

Sandwichman said: "Did you mean to say that you "can't agree" that the hostility to shorter working time is more or less accidental and instead is the result of a concerted campaign?.."

Yes. Sorry for my poor expression.

This is interesting. Could you elaborate with a posting on that topic?

Sandwichman said...

This is interesting. Could you elaborate with a posting on that topic?

Yes, I can. It may take a while to pull together a few things I've written previously and I have to warn that my case is speculative, albeit on pretty good circumstantial evidence.

Myrtle Blackwood said...

Thanks, Sandwichman. I look forward to it.

Meanwhile I found a little more 1971 history:

1971 – Patrick Buchanan writes a seven-page confidential memorandum for Nixon entitled “Dividing the Democrats”. Play the Democrats off against each other using accusations of ‘elitism’, nominating a judge who could divide Democrats regionally, use abortion and parochial-school aid between Catholics and social liberals. Obtain white working-class support with tax relief and denunciations of welfare..

“..Nixon claimed to speak on behalf of "the nonshouters, the nondemonstrators," but the cigar smokers in that South Carolina hotel were intoxicated with hate. Nixon was coldly mixing and pouring volatile passions. Although he was careful to renounce the extreme fringe of Birchites and racists, his means to power eventually became the end. Buchanan gave me a copy of a seven-page confidential memorandum - "A little raw for today," he warned - that he had written for Nixon in 1971, under the heading "Dividing the Democrats." Drawn up with an acute understanding of the fragilities and fault lines in "the Old Roosevelt Coalition," it recommended that the White House "exacerbate the ideological division" between the Old and New Left by praising Democrats who supported any of Nixon's policies; highlight "the elitism and quasi-anti-Americanism of the National Democratic Party"; nominate for the Supreme Court a Southern strict constructionist who would divide Democrats regionally; use abortion and parochial-school aid to deepen the split between Catholics and social liberals; elicit white working-class support with tax relief and denunciations of welfare. Finally, the memo recommended exploiting racial tensions among Democrats. "Bumper stickers calling for black Presidential and especially Vice-Presidential candidates should be spread out in the ghettoes of the country," Buchanan wrote. "We should do what is within our power to have a black nominated for Number Two, at least at the Democratic National Convention." Such gambits, he added, could "cut the Democratic Party and country in half; my view is that we would have far the larger half." The Nixon White House didn't enact all of these recommendations, but it would be hard to find a more succinct and unapologetic blueprint for Republican success in the conservative era. "Positive polarization" helped the Republicans win one election after another - and insured that American politics would be an ugly, unredeemed business for decades to come…”

The Fall of Conservatism. Monday 26 May 2008
by: George Packer, The New Yorker

The news media's performance during the Vietnam War:

"..A Gallup poll conducted in mid-1967 revealed that half of all Americans had no idea what the Vietnam War was about. As Phillip Knightley has stated, "Clearly those charged with informing the U.S. public (45 of whom had been killed and another 18 listed as missing) about Vietnam had not fulfilled their task..."

News media and the Vietnam War

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