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Christian Economics in One Lesson, Chapter 10

Written by Gary North on June 6, 2015

The Fetish of Full Employment

And Pharaoh commanded the same day the taskmasters of the people, and their officers, saying, Ye shall no more give the people straw to make brick, as heretofore: let them go and gather straw for themselves. And the tale of the bricks, which they did make heretofore, ye shall lay upon them; ye shall not diminish ought thereof: for they be idle; therefore they cry, saying, Let us go and sacrifice to our God. Let there more work be laid upon the men, that they may labour therein; and let them not regard vain words (Exodus 5:6-9).

This passage should be familiar. I used it to begin Chapter 7: “The Curse of Machinery.” I am using it again for a simple reason: Chapter 10 is a recapitulation of Chapter 7. In Chapter 10, Hazlitt presented a variation of the argument in Chapter 7. In Chapter 7, he answered those critics of the free market who rejected mechanization of the labor markets because this supposedly would displace workers. Here, he used the same line of reasoning to refute critics of the free market who insisted that the federal government must intervene into the labor markets to guarantee full employment, which critics insisted the free market could not do.

Pharaoh had three economic goals. First, he wanted full employment for Israelites — life without leisure. Second, he wanted the same output of bricks. Third, he wanted reduced costs: the costs associated with producing straw, which Egyptian taskmasters had previously borne. Straw was used in making bricks. He turned the task of gathering straw over to the Israelites. In short, he wanted something for nothing: the same quantity of bricks, but cheaper for Egypt. But Pharaoh was a better economist than any Keynesian today. He knew there would not be something for nothing by means of a state decree. The Israelites would be forced to work harder.

There would be fuller employment: more work for the Israelites. Whatever free time they had possessed before Moses and Aaron challenged the authority of Pharaoh was now removed. Pharaoh punished them for the “vain words” that their covenantal representatives had spoken in his presence. He would show them who was in charge. The Israelites would bear the negative sanction of additional employment. The implication was clear: any further demands for a week’s vacation to go and sacrifice to God would be followed by additional negative sanctions.

Pharaoh saw full employment as a negative sanction. So did the Israelites. In contrast, modern advocates of state intervention into the labor markets see full employment as a positive sanction. It is so positive, they argue, that voluntary contracts between employer and employees must be prohibited by law. The state must toss a stone.

A great benefit of the free market is this: it allows full employment for those who wish to work for a wage, and it allows leisure for those who do not. The only way that any society can gain both results is through an absence of state regulations over the labor markets. This is the “miracle of the market” — in the labor markets, as in all other markets. “But wait! There’s more!” The free market also fosters full employment of all known resources, not just labor: land, raw materials, tools, and accurate information about economic conditions: past, present, and future.

1. Owner
There are multiple owners. The first owner is a person who owns capital. This capital includes a forecast regarding what customers will be willing and able to pay for a particular good or service in the future. He is an entrepreneur, for he possesses money, a forecast, and a plan to meet his forecast. The second owner is a worker who possesses the skills associated with producing this good or service. The third owner possesses scarce resources other than labor — resources that are crucial to the entrepreneur’s plan of production. The fourth owner is the potential future customer who will own money at the time the good or service is brought to market.

Each possesses resources. Each has goals that may be attainable through a judicious application of their individual rights of ownership. In short, they possess opportunities for cooperation in the division of labor.

2. Window
These resource owners come together in a complex series of joint ventures. There is no central plan. The employer seeks employees at some wage, who in turn seek employment at some wage. If the wage is adjusted through competitive bidding, there will be no potential employees willing to work at that wage. There will also be no opportunities for the employer to increase his expected rate of profit by hiring an additional laborer. These are market-clearing wages, task by task. Then the employer will put them to work. He will also provide them with complementary factors of production: commercial land, tools, and raw materials. He puts up his own money, or money he has raised from investors and lenders, to make all this possible.

(For the rest of this chapter, click the link.)

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