Wednesday, July 22, 2015

Sandwichman's Lump-of-Labor Odyssey

The first mention of the lump-of-labor fallacy I ever encountered was in a 1997 column by Jock Finlayson, vice president for policy and analysis of the B.C. Business Council. It was a Business in Vancouver debate with Ken Georgetti, president of the B.C. Federation of Labour, on the merits of restricting overtime to combat unemployment.

At the time, I had been active in advocacy for shorter working time for a little over two years. An abiding interest in the idea had been stoked in 1995 when I wrote a research proposal to do a narrative policy analysis of the employment prospects of work time reduction. Funding for the project never materialized in the wake of a comprehensive provincial government spending freeze announced three weeks after the proposal submission deadline. Meanwhile, however, I had established a web site, the Timework Web, to compile research and commentary on shorter working time.

A little past the midway point in his column, Finlayson wrote, "Work-sharing rests on the belief that the economy can generate only a fixed amount of work. History provides little support for this gloomy view, which economists have labelled the lump-of-labour fallacy." The passage caught my attention because of its distinctive "ungrammaticality," to use Michael Riffaterre's clumsy term.

Riffaterre used that term in a generic sense to refer to "any wording unacceptable in context" rather than exclusively to overt violations of the rules of grammar.
These clumsy wordings, in Riffaterre's analysis, point to the text's intertextuality, "The text refers not to objects outside of itself, but to an intertext. The words of the text signify not by referring to things, but by presupposing other texts."

For narrative policy analysis, such peculiarities of wording are not mistakes to be indulged but "jackpots" for decoding a text. The challenge then becomes one of retrieving the corpus of texts – the "intertext" – to which the peculiar passage refers. The archival work to do so would have been inconceivable before the Internet and wide availability of full-text searching of databases of journal articles, pamphlets  and treatises.

Finlayson probably learned about the lump-of-labour fallacy from Paul Samuelson's ubiquitous introductory economics textbook. But Samuelson didn't know when or where the fallacy claim originated, explaining that the fallacy "was widespread during the Great Depression 1929-1935 and is still encountered in today's France." (correspondence with the author).

Using JSTOR, I was eventually able to trace the "lump of labour" phrase to an 1891 article on piece work by David Frederick Schloss. By then, January 1999, I was already aware that the fallacy claim -- and rebuttals of it -- had long preceded that specific label. It took me 15 more years of occasional forays back into the archives (and keeping my eyes peeled) before I finally got to what I believe is the rock bottom of the story.

The argument that there is – or, more correctly, if there is – a fixed amount of work appeared in John Graunt's 1662 Natural and Political Observations made upon the Bills of Mortality: "that if there be but a certain proportion of work to be done, and that the same be already done by the non-beggars, then to employ the beggars about it, will but transfer the want from one hand to another."

Commentators have speculated that Graunt's close friend and associate, William Petty, may have been the author of the political and literary embellishments to the actuarial observations in Graunt's book, so the discussion of beggars may well be Petty's. The section goes on to address a key proposition of mercantilist trade policy – the assumption that there is "but a certain proportion of trade in the world":
This little hint is the model of the greatest work in the world, which is the making of England as considerable for trade as Holland; for there is but a certain proportion of trade in the world, and Holland is prepossessed of the greatest part of it, and is thought to have more skill and experience to manage it. Wherefore to bring England into Holland's condition, as to this particular, is the same, as to send all the beggars about London into the West Country to spin, where they shall only spoil the clothiers wool, and beggar the present spinners at best; but, at worst, put the whole trade of the country to a stand, until the Hollander being more ready for it, have snapt that with the rest.
So the fixed amount of work is not some naïve, intuitive belief known or shown to be held by advocates of work sharing but an explicit hypothesis stated by one of the forerunners of what would become political economy and economics. The canonical refutation of this hypothesis, with regard to work, appeared in a 1780 pamplet by Lancashire magistrate Dorning Rasbotham, Thoughts on the Use of Machines in the Cotton Manufacture, written in response to anti-factory rioting near Bolton, Lancashire, the previous year:
There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very 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. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers. Men will cross land and sea to go thither.
It is likely that the refutation of the mercantilist proposition of "a certain proportion of trade" had become a rhetorical commonplace during the course of the 18th century so that it became unnecessary to identify who said there was "a certain proportion of trade in the world" or "a certain quantity of labour to be performed."

In the early 19th century, particularly in the wake of the Luddite disturbances of 1811 and after, the notion became commonplace, without any evidence, that it was the rioting workers who harbored the proverbial belief in a fixed amount of work. The prosecutor in the trial of George Melior (or Mellor), William Thorpe and Thomas Smith for the murder of William Horsfall couldn't resist adding a criminal aspect to what he described as the delusion, ascribed to the defendants without evidence, that machinery reduces the demand for labour:
Mr. Horsfall is represented to me to have been a man, who had upwards of four hundred persons at work under him, extremely beloved by his men, and they greatly attached to him. He had very large manufactories, of course, from the employment of so many men; and he employed the machinery which was the object of the abuse of these misguided people. I have not the means of making such observations as I have frequently and lately heard made, upon the delusion which has prevailed upon that subject, amongst the lower orders. It has been supposed that the increase of the machinery by which manufactures are rendered more easy, abridges the quantity of labour wanted in the country. It is a fallacious argument: it is an argument, that no man, who understands the subject at all, will seriously maintain. I mention this, not so much for the sake of you, or of these unfortunate prisoners, as for the sake of the vast number of persons who are assembled in this place.
By the end of the 19th century the viciousness of the alleged belief in a fixed amount of work – and consequently a diminishing demand for labor – had become a leitmotif of the relentless assertion that the fallacy underpinned demands for shorter hours of work. Denunciations of the fallacy are typically supplemented with this or that explanation of why reducing working time is unnecessary or not economically feasible or will happen spontaneously through worker's choices of leisure, etc. In the aggregate, these add-ons are unpersuasive, often shallow and frequently contradict one another.

In my view, the persistence of the incongruous lump-of-labor fallacy claim is symptomatic of the rift between the scientific pretensions of economics and its ideological foundations. Paul Swaim, an economist with the OECD, once suggested to me that the fallacy is a type of error that economists themselves are constantly in danger of committing, in that they "cannot escape assuming that many potentially relevant variables are fixed."

This assumption is, of course, the standard ceteris paribus clause that Terrance Hutchison criticized extensively in The Significance and Basic Postulates of Economic Theory. Hutchison complained that it is usually not made clear by economists whether a particular ceteris paribus proposition is meant as "an empirical generalisation which can conceivably be false without any contradiction" or as "an analytical-tautological proposition." "Perhaps," Hutchison speculated,"such propositions are sometimes meant in one way, sometimes in another." Hutchison concluded, "That ceteris paribus propositions are frequently hopelessly ambiguous and that the ceteris paribus assumption should be used less often and more cautiously."

In a more recent review of the history of ceteris paribus, Joseph Persky observed that, ""In too many cases one is unsure of exactly what restraints are being imposed and by what authority the exercise is legitimated." Persky credited Alfred Marshall's role in popularizing ceteris paribus, which he apparently picked up from John Cairnes:
Although he doesn't cite Cairnes in his methodological discussions of the phrase, Marshall does use the following quotation from Cairnes in a discussion of the wages-fund theory: 'the rate of wages, other things being equal, varies inversely with the supply of labour.' 
The phrase Cairnes used there was actually 'other things being the same,' which appears eleven times in Cairnes's Some Leading Principles of Political Economy: Newly Expounded ('other things being equal' appeared twice and caeteris paribus six times). Notice that Marshall cited Cairnes "in a discussion of the wages-fund theory." More specifically, Marshall was criticizing Cairnes's attempt to "resuscitate" the wages-fund theory, in which Cairnes avoided the old pitfalls "only by explaining away so much which is characteristic of the doctrine." Marshall seems not to have noticed that it was precisely the hopeless ambiguity of the ceteris paribus device that enabled Cairnes to explain away so much!

Cairnes's attempt to revive the wages-fund doctrine was a response to William Thornton's apparently decisive repudiation of it in On Labour Its Wrongful Claims and Rightful Dues; Its Actual Present and Possible Future. The wages-fund doctrine had lent pseudo-scientific legitimation to fierce partisan polemics against trade unionism. In his chapter on trades unionism, Cairnes attacked a statement by Thornton to the effect that "the quantity of industrial work to be done is… 'at any give time a fixed quantity.'" Cairnes objected to this assumption vehemently, "...I must make bold to say that, within the range of economic reasoning, no more profound fallacy finds a place than is contained in this inference; nor, I must add, is there one more pregnant with practical consequences of a pernicious kind."

A review of Thornton's book in The Edinburgh Review for July 1869 took a more good-natured and humorous view of Thornton's self-contradictory gaffe:
That the rate of wages is governed, as Adam Smith and his followers have conceived, by the proportion between the capital disposable for the payment of labour and the number of the recipients of that capital, is a notion that Mr. Thornton scouts with contempt, and he consigns the chimerical 'wages-fund' to the lowest limbo of unrealities. Yet, while attacking the name, we find him occasionally, under the pressure of facts, using language which virtually admits the thing, as when he says, 'that at any given time the whole quantity of work to be done is a fixed quantity, and the uttermost which employers can afford to pay for having it done is a fixed amount'; and in other places his language recognises the inevitable fact that employment must be limited by the amount of capital which at the time being sets it in motion, that amount being the thing to which Smith, McCulloch, Fawcett, and other writers have assigned the offensive name.
If Thornton erred by "virtually admitting" the same notion that he elsewhere "scouts with contempt," Cairnes compounded error by not noticing that the "profound, pernicious fallacy" he bitterly denounced on page 251 of his book was none other than a restatement of the wages-fund doctrine he had stoutly defended back on page 174!

How is it possible that both Thornton and Cairnes could commit copy-cat errors while taking diametrically opposite positions on the question of the wages-fund? The answer lies in the inscrutable vagueness and ambiguity of the ceteris paribus clause. In the kaleidoscopic hall of mirrors where "other things remain the same," what "other things" are included in or excluded from the ceteris paribus pound is tacit as is exactly how they are "the same."

Compounding the uncanny coincidence fun, Persky credited William Petty with introducing the term ceteris paribus into economic discourse. As mentioned above, it is possible that Petty also introduced "a certain proportion of work to be done" into the economic discourse. This is not to say that a "certain proportion" and a "fixed amount" refer to the same thing, arithmetically. No doubt part of the shape-shifting rhetorical appeal of ceteris paribus arises from its equivocation on whether it is quantities or proportions or both that are remaining the same.

Would it even be possible for economists to use ceteris paribus assumptions "less often and more cautiously," as Hutchison prescribed, yet still perform the ideological/scientific somersault? On the evidence of the persistent projection of the lump-of-labor fallacy, I would have to conclude that the "hopeless ambiguity" of the ceteris paribus assumption provides an indispensable shield for the consensus economist's aura of objectivity at the same time that it remains treacherously porous for the heretic.