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Christian Economics in One Lesson, Chapter 19

Written by Gary North on August 8, 2015

Do Unions Really Raise Wages?

It is naught, it is naught, saith the buyer: but when he is gone his way, then he boasteth (Proverbs 20:14).

Once again, Hazlitt returned to the issue of government price fixing. In Chapters 13, 15, 16, and 18 price fixing was in the form of price floors. It is in this chapter, too.

This may not be seen initially as a case of government price-fixing. By the end of this chapter, I hope you will see that it is entirely a case of government price fixing. It is one more example of a price floor.

1. Owners
One set of owners possess money: business owners. They may also possess capital equipment, which includes land and buildings. They possess business plans. These plans involve hiring human laborers.

Another set of owners possess the ability to deliver labor services. These people are eligible to rent out these services.

A third set of owners will decide at some point whether to purchase goods and services that have been produced by a combination of business capital and labor services. They will determine retroactively which sellers prosper and which do not.

All participants possess the legal right to bid.

2. Window
The window is a product of a society’s moral, legal, and cultural traditions and institutions. It is known as the free market. Those with money to spend work out arrangements with people who want to sell goods to buyers, i.e., spenders of money.

In this system, people who hire workers seek to locate people who rent out these services at some price. Economic exchange always depends on an agreed-upon price. Buyers compete against buyers. Sellers compete against sellers. Only in the final stage of the hiring process does face-to-face bargaining take place: would-be employer vs. would-be employee. The prospective employer does not know how little money the prospective employee will accept, and the prospective employee does not know how much money the prospective employer will pay. In this zone of ignorance, there may be negotiating. But probably not. Time is not a free resource. Employers usually make this offer: “Take it or leave it. I am too busy to negotiate.”

The employer acts as an economic agent of future customers. He will give them an opportunity to buy the output of his production process. The employer also acts as an economic agent of his employees. In order to earn money, employees must sell their services to customers. The employees do not know how to market their services directly to customers, but the employer believes that he does. So confident is the employer that he is willing to pay money to the employees to perform certain tasks, irrespective of the near-term decisions of customers. The business pays these employees until the lack of customers makes it evident to the employer that he has misjudged customer demand. Only then will he fire some or all of his employees.

The wage is a signal to other workers and other employers regarding the prevailing conditions of supply and demand. If this wage is a market-clearing wage, there will be no rival workers offering to work for a lower wage for the same job, and there will be no rival employers offering to pay more.

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

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