Business Ideology and Textbook Lore: from Muddle to Model

by the Sandwichman

Thanks to Google Books, the Sandwichman is boolean-mining a century of textbook lore. Nearly a decade ago I did a similar thing with JSTOR, the full-text journal database. What I'm looking at is how and when my selected piece of economics textbook lore -- the lump-of-labor fallacy -- got introduced and transformed.

The remarkable thing to note, so far, is the resurgence of the phrase in Economics discourse in the first decade of the 21st century. There has been a sharp increase in the number of books published since 2000 that cite the lump-of-labor fallacy, most of them tacitly assuming its legitimacy and authenticity.

To begin, I would like to review a few key benchmarks that are being confirmed as I dredge several hundred books indexed in Google Books. After that, I will to mention some important associations -- and dissociations -- of the expression with restriction of output, shorter working time and make-work.

The term "lump work" appears to have first appeared in print in Henry Mayhew's magnificent London Labour and the London Poor, which was serialized from 1849 to 1850 in the Morning Chronicle. It referred to a system of labor sub-contracting common at the time on the docks and in the building trades in England. Later, the system came to be known as "sweating", particularly in the clothing industry and is more commonly known as piece-work. Nothing comes up in Google Books to challenge the source of the term with Mayhew and, presumably, his documentation of a slang term.

The "Theory of the Lump of Labour" was probably coined by D.F. Schloss in the early 1890s. Schloss was an investigator on Charles Booth's survey of working conditions and poverty in London, essentially a replay of Mayhew's study. In Schloss's usage, the term is anecdotal and refers to workers' objections to the piece-rate system. His usage also alludes to complaints from employers and economists against restriction of output by workers and their contention that it is explicit aim of union rules to enforce such restriction. Again, there are several additional pieces of textbook evidence confirming Schloss as originator of the "theory" and none contradicting it.

Schloss's use of the phrase clearly connects it with the notion of restriction of output and particularly union regulations resulting in such restriction. But it is notable that Schloss seeks to present a balanced view of the question. In other words, workers have legitimate grievances against work speed-up and employer "sweating". On the other hand, they take their objections too far in the other direction if they suppose that they will be better off collectively by withholding effort.

Schloss's textbook, Methods of Industrial Remuneration was published in England in 1894. The chapter in question appeared in 1891 as a journal article. The next earliest textbooks I could find mentioning the lump-of-labor theory or fallacy were published in 1903 and 1904 and were American. The timing may be significant. There had been a controversial and failed Engineers' strike for the eight-hour day in Britain in the late 1890s followed by a feature series in the London Times attacking unions. Both of those events seem to have influenced an aggressive anti-union campaign in the U.S. led by the National Association of Manufacturers.

At this point, I don't think it is useful to argue that economics textbook authors were voicing support for the employers' political views. It's just that restriction of output and the lump of labor were topical. What is of more interest is that initially the anti lump-of-labor claims were directed at objections to the introduction of new machinery, not demands for shorter working time. So far, the earliest textbook I've found that fuses the lump-of-labor objection to demands for shorter hours is Frank Fetter's 1916 Economics. A 1904 textbook by Fetter discussed the lump of labor in connection with machinery, but not hours.

Although Fetter's 1916 textbook connected demands for shorter hours with the lump-of-labor notion, he did also discuss several good reasons for reducing the hours of work and concluded that doing so may be welfare-enhancing even in circumstances where it reduced output to some degree. Fetter didn't identify welfare with income or consumption of commodity. This brings me to the evolution of the fallacy claim first from an anecdote largely incidental to the issue of working time to a claim fused with that issue and finally to its status as the "decisive rebuttal" of the job-creating potential of reduced working time.

The Kling/Sandwichman Convergence

Arnold Kling follows up Sandwichman's recent post with Why Measure GDP? One of the commenters there, Kevin Dick offers an intriguing proposition:

It would be interesting to see to what extent the free market would provide a substitute for the GDP as an index if the government stopped tracking it. 

This brings up another possibility for GDP that is somewhat related to (4) and (5)–as an input into individual and consumer economic planning. 

I imagine the market could probably find a more optimal index (or array of indices) given the chance.

I don't share Dick's confidence that the "free market could probably find a more optimal index" but the idea of a privatized GDP

Noah Smith Economic growth isn't everything

"We should remember that growth isn't the same thing as improvement in life satisfaction; the former is actually a lot easier than the latter. "

Agreed. But FIRST we should remember that economic "growth" is only an analogy, as Simon Kuznets, one of the "founding fathers" of national income accounting, pointed out some 65 years ago. The economy doesn't "grow" -- it changes. What "grows" -- or more properly, increases -- is Gross Domestic Product (GDP), which is an index, that is an indicator of economic activity, not a measurement. The difference between index and measurement is that the latter requires unambiguous, stable physical units.The GDP on the other hand, is constructed out of selected components and tabulated in units whose value changes from period to period.

So GDP is not a literally a measurement and increase in GDP is not literally growth. What are the consequences of such semantic sleight of hand? "Growth" has a positive connotation. Children grow. Flowers grow. Thus "growth is good." If growth is good than it is bad to oppose growth. The politics of pseudo-growth is to marginalize any objection to whatever can be cloaked in the magic mantle of growth.

Peter Victor video

Why GDP fails as a measure... period

At CBS Moneywatch, Mark Thoma reviews the standard "textbook" flaws in GDP that cause it to fail as a measure of wellbeing:

• It counts "bads" as well as "goods." 
• It makes no adjustment for leisure time. 
• It only counts goods that pass through official, organized markets, 
• It doesn't adjust for the distribution of goods. 
• It isn't adjusted for pollution costs.

Thoma then points to the discussion in Davos of another flaw in GDP -- it doesn't fully account for the benefits of technology. Isn't that just part of only counting goods that pass through official markets? GDP also doesn't adjust for the unpaid work outsourced to consumers. Some of the "benefits" of technology are a matter of perspective as well as taste. 

Although useful as a framing introduction, Thoma's discussion misses three crucial points. First, GDP was never meant to be a measure of wellbeing but a measure of the revenue-generating capability of the economy. In this capacity, a more salient flaw is the arbitrary treatment of government expenditures as output for final consumption when much government spending would be better treated as intermediate goods to avoid double counting.

Another flaw results from the instability of the unit in which GDP is measured and reported. Change in GDP from period to period doesn't simply represent a proportional increase or decrease of the same goods and services at the same prices but a changing mix of goods and services at different prices. Adjusting for "real GDP" with an average index for inflation may provide a short term, rough estimate of the vitality of economic activity but cumulative changes in the GDPs composition renders long-term assessments of "growth" essentially meaningless.

The third point is actually a combination of that last flaw and Thoma's first point that GDP counts "bads" as well as goods. But first a clarification of Thoma's explanation. -- GDP doesn't count the earthquake; it counts the repairs and rebuilding. Thus the problem is that the accounting is asymmetrical -- adding the repairs without subtracting the damage that required the repair. Over time, the proportion of total economic activity devoted to remedial goods and services increases, resulting in what Stefano Bartolini refers to as "negative externality growth." The cumulative effect is thus not just additive but multiplicative in that the increasing proportion of remedial goods and services distorts the index by which the prices for welfare-enhancing goods and services are adjusted.

A rubber band yardstick would be unreliable. This one is silly putty.

What it all adds up to is the arbitrariness of the idea of an objective aggregate measure of economic activity. Tinkering with some minor technical detail is not going to result in a "more accurate" measure -- simply a different measure whose accuracy or otherwise will be a matter of subjective judgment. 

The questions we need to ask are: What do we really want to know and why? What purposes were we pursuing when we sought to measure economic activity? Is measuring GDP helping to achieve those purposes? Are those purposes still our priorities? If not, what should be? What different institutions might we invent to achieve our purposes as we NOW understand them?

Who Needs Hatchet Jobs?

The Sandwichman was flattered to have been the subject of a two-and-a-half-page rebuttal by self-styled "anarcho-capitalist" economist Pierre Lemieux in his 2014 book Who Needs Jobs: Spreading Poverty or Increasing Welfare. Lemieux devotes an entire chapter to "The Lump of Labor Fallacy."

Lemieux gets two things right in his rebuttal. He affirms that the lump of labor fallacy is the inverse of "Say's Law" that "supply creates its own demand." Some people would argue that the so-called Law is not a law and that it is not Say's. Anyway, the logic is if you don't believe "supply creates its own demand" then you are assuming that the amount of work to be done is fixed. It's a bizarre claim and I'm glad someone confesses eagerly admits to making it.

Other than portraying me as "a proponent of compulsory reduced working time", his initial summary of my argument in the first two paragraphs is fair enough except for a peculiar claim about S.J. Chapman ending his career as a "controller of matches" during World War II. Chapman retired before the start of World War II and suffered from a stroke in the early 1940s. There actually is a brief entry on Chapman in a 1991 book, The Professionalization of Economics, that ends with "Controller of Matches, 1939-44" but gives no explanation of what this title could possibly refer to.

Other than that the chapter is a superficial hatchet job, if I do say so myself. I am hoping that someone would be interested in doing a rebuttal to Lemieux's rebuttal. I have a dropbox full of pdfs for anyone who wants to pursue that. Here is a picture of Lemieux with Conrad Black in 2005:

Here is the excerpt from Lemieux's book in which he tries to refute the Sandwichman's critique of the lump-of-labor fallacy claim.

One recent proponent of compulsory reduced working time is activist Tom Walker. Although he claims that the lump-of-labor theory is not necessary for defending his proposal, he is obviously sympathetic to it and invokes economists who supposedly did not consider it a fallacy. Walker’s basic argument is that better-rested workers would become more efficient (have a higher productivity), push product prices down, and thus increase consumer demand for them.  

This argument rests on the double assumption that labor productivity can be increased by reducing working time, and that the employers don’t realize it and have to be forced to follow their own interest. Why would greedy capitalists fail to see something so obviously profitable that an armchair writer can discover it? Because, Walker argues, competition prevents employers from acting on their discovery even if they do find out that shorter hours are productivity enhancing. In this line of argument, Walker follows a 1909 article by economist Sydney Chapman, a British civil servant who, during World War II, ended his career as controller of matches for His Majesty’s government. The Chapman-Walker argument goes as follows. Suppose some firms realize the productivity potential of shorter hours and reduce the working time of their employees without cutting pay. Competing firm would “poach” the well-rested employees by offering them higher pay for more work. Thus, competition would lead all firms to end up overworking their employees again.  

This explanation is very weak. How could a poaching firm offer a pay raise to a worker who, by hypothesis, would become less productive when he worked more? And if the poaching firm did not offer a pay raise to the poached worker, why would he leave a firm where he works fewer hours to move to one which would overwork him for the same price? Such inconsistent behavior assumes that individuals are unable to choose the optimal number of work hours necessary to maximize their utility. Individuals can certainly make mistakes, but generally assuming that individuals cannot choose what is best for them, given their preferences and constraints, is at best paternalistic, at worst elitist. If an individual cannot make an optimal choice for himself between leisure and work, how could bureaucrats and politicians be able to do it for him? How would intellectual dilettantes know what’s best for other individuals—and how can they be so sure of their hunches that they are willing to coercively impose them? Chapman did recognize that intervention is justified “if it be assumed that the State can discover what is best for the country.” 

Walker cites John Hicks’s The Theory of Wages in support of his argument, apparently misreading the famous economist. Hicks had raised questions that became Chapman’s and Walker’s arguments, but he had broadly dismissed them. If they make an error about their employees’ productivity, employers will sooner or later realize it. Employees can also make temporary mistakes, but competition is a better way than government intervention to correct the situation. Talking about the individual who “endeavours to protect himself, through Trade Unionism and the democratic State,” Hicks concludes: 

"But our examination of the effects of regulation has shown that this protection can rarely be adequate. Carried through the end, it can only result in a great destruction of economic wealth."

Walker falls into Keynes’s trap of general overproduction, and further adds the idea that “demand for any given commodity will inevitably reach a saturation point.” It is not impossible that demand for a certain good will reach saturation. Consumption time being limited to 24 hours a day, and storage space carrying a cost, there is only a certain number of Ferraris that an individual would want. When each American owns three Ferraris, he may not want another one. He would rather consume something else during the time he is not driving or admiring his cars. But it is unlikely that consumption in general will ever reach a saturation point. There is always something else that some individual would like: a farm, a yacht, a plane, a private library, a larger ranch, a longer yacht, a larger plane, a larger private library, another vacation trip, and so forth. And if a given individual does reach general saturation, he may decide to give his money to others. The market response seems to make intervention in working time unnecessary and undesirable. 

After all, Walker does have to rely on the lump-of-labor fallacy. He laments that the arguments for reducing working time to combat unemployment “have not been engaged by any of the authors who assert that reduced working time policies are populist nostrums bereft of sound economic reasoning.” The reason why few serious economists have engaged lump-of-labor arguments is, I suggest, that they are indeed bereft of sound economic reasoning.

Just to give you a whiff of Professor Lemieux intellectual standard, let me give a little more context for that concluding "lament" of mine. I was discussing the contributions of John R. Commons, Luigi Pasinetti and John Maynard Keynes -- I could have added Chapman, Maurice Dobbs, A. C. Pigou, John Maurice Clark and several labor economists that were well regarded in their day. So here is the full quote from my article that Lemieux truncated:

What Commons, Keynes and Pasinetti have in common, besides their views that the reduction of working time is one way to combat unemployment, is that their analyses have not been engaged by any of the authors who assert that reduced working time policies are populist nostrums bereft of sound economic reasoning.

In the page and half leading up to that lament I had summarized the relevant contributions of Commons, Keynes and Pasinetti. rather than engage those arguments, Lemieux chose to glibly misrepresent my passage by lifting it out of context. I've told this story before but it is appropriate here. Speaking to the motion to censure Senator Joseph McCarthy, Senator Sam Ervin gave this folksy illustration of McCarthy's slippery ways with words:

I now know that the lifting of statements out of context is a typical McCarthy technique. The writer of Ecclesiastes assures us that "there is no new thing under the sun." The McCarthy technique of lifting statements out, of context was practiced by a preacher in North Carolina about 75 years ago. At that lime the women had a habit of wearing their hair in top-knots This preacher deplored the habit. As a consequence, he preached a rip-snorting sermon one Sunday on the text, "Top Knot Come Down." At the conclusion of his sermon an irate woman, wearing a very prominent top-knot, told the preacher that no such text could be found In the Bible. The preacher thereupon opened the Scriptures to the 17th verse of the 24th chapter of Matthew and pointed to the words:

"Let him which is on the housetop not come down to take anything out of this house."

[Laughter]  

Any practitioner of the McCarthy (Lemieux) technique of lifting things out of context can readily find the text, "top not come down" in this verse.

Robots, Immigration... Pensions, Patents and Vacation

Robots

Growth, Slavery and the Curse of Fossil Fuels
 Evil Effect of Robot, Rent and Taxation
 Is There a Lump in Your Trump?
 Circular Reference Warning: The Productivity Quotient
 Dean Baker: "Don't Blame the Robots"
 Trigger Warning! The Wage Prisoner's Dilemma
 Robots, again? sciod
 Supply Creates Its Own Demon: Marc Andreessen and "Textbook Luddism"
 Basic Econometrics: Robots Demand Shorter Hours!
  "Growth Fellow"?
 "Technological Unemployment" Redux
 Skidelsky on Keynes and Queens

Immigration

Pensions

Will Surge of Older Workers Take Jobs From Young? 

Basic Econometrics: Robots Demand Shorter Hours! 

Sandwichman's KEYNESIAN Stimulus Plansandwichman plan 

Twenty-Five Years of Eight-Hour Propaganda

Vacation

Xenophobia: the One on the Right is on the Left?

An ad for Ted Cruz shows actors in suits running through fields and wading across a river, presumably representing the Rio Grande. The voiceover features the candidate from a November 2015 Republican presidential candidates' debate:

"I can tell you, for millions of Americans at home watching this, it is a very personal economic issue. And, I will say the politics of it will be very, very different if a bunch of lawyers or bankers were crossing the Rio Grande. Or if a bunch of people with journalism degrees were coming over and driving down the wages in the press.

"Then, we would see stories about the economic calamity that is befalling our nation. And, I will say -- for those of us who believe people ought to come to this country legally, and we should enforce the law -- we're tired of being told it's anti-immigrant. It's offensive."

Cruz is undoubtedly correct that if the jobs of lawyers, bankers and journalists were disappearing, we would hear much more about it. As to how many jobs of "ordinary Americans" are being stolen by immigrants -- probably not a lot in the larger scheme of things, compared to austerity policies, trade deficits and the fallout from reckless financial speculation.

But how many jobs is beside the point. People have expectations about their future prosperity. They save money to buy homes, to start a business or to retire. They put in overtime hours to try to "get ahead." If after ten, fifteen or twenty years in the work force they are "another day older and deeper in debt," they are prone to feel that something about the system is holding them back.

Maybe they are wrong. Maybe it is their own damn fault. Maybe they're right about the system holding them back but wrong in detail. In some cases, maybe they are right about the near term effects of immigration on their job security.

Economists have soothing words for these anxious people: "don't worry," they assure the common folk, "in the long run everything will be fine. The number of jobs will adjust automatically to accommodate the increase in the work force." This is, of course precisely the attitude Keynes lampooned with his remark about everyone being dead in the long run. Alan Manning, for example, explains in his lecture on the economics of migration:

"The important point is that in the... in the long run, increases in labor force -- and I'll try to explain why in a minute -- cause changes... bring about changes in employment more or less one to one."

Supply of labor, that is to "Say," creates its own demand for labor. Say's Law or the purported version of Say's Law, which reputedly sank without trace after Keynes criticized it. It comes as no surprise that people deny it when I point out that the lump-of-labor fallacy claim is the negative projection of Say's Law. But "increases in labor force... bring about changes in employment" is clearly a paraphrase of "supply creates its own demand."

Again, I'm not saying this is either what Say wrote or any kind of a law. "Say's Law" is simply the name attached to that particular idea.

So, the progressive "wonks" -- Oxford educated London School of Economics professors are combatting virulent right-wing xenophobia with... stale truisms that were discredited 80 years ago and sank without trace? ARE YOU KIDDING ME? I mean, am I kidding you? No. It's as if the quack physicians in Moliere's L'Amour Médecin had come back to life to prescribe leeches and emetics as panaceas.

See also my earlier post on Doctor Krugman and Mister Trump.

Flippity, flop -- it's done...

A customer walks into Nick's Bar and Grill and sees a sign advertising the special steak dinner $10. He orders the special and a beer. Ten minutes later, the server brings him a grilled Spam burger on a bun.  

"I ordered a steak." the customer complains. 

"I'm sorry sir," the server replies, "we're all out of steak but, don't worry, there is not a fixed amount of meat."

"I don't want Spam. I want steak." the customer protests. 

The server goes back to the kitchen and calls out the cook to explain, "Yesterday, we served 100 meat meals to 100 customers. Today, we had 150 customers and we served 150 meat meals to them. The amount of meat we serve is not fixed!" 

"But I don't like Spam. I ordered steak." the customer insists. 

The cook goes upstairs to the office and brings the manager down to explain, "We have monitored the serving sizes and the portions of Spam we served today to customers receiving Spam are exactly the same weight as the portions served yesterday. The portions of steak are even a little big bigger. There is not a fixed amount of meat to go round." 

The angry customer stands up and leaves.

Repeat this story several hundred times and you get the picture of the relentless farce of the lump-of-labor fallacy refrain. Why can't the customer understand that there is not a fixed amount of meat to be served? Why can't the worker understand that there is not a fixed amount of work to be done? Because, quite simply, that explanation has nothing to do with what the customer of working assumed.

The customer assumed that he would get a steak. The worker assumed that she would get a higher paying job with better prospects for promotion. Whether those expectations were realistic or not, the fact that the customer was served a piece of meat or the worker got a part-time, on-call position at Walmart doesn't mean that their wants were gratified.

This is not some complicated mathematical model that goes on for several pages. The is a simple matter of a stubborn refusal by economists to listen. Your lump-of-labor fallacy is bullshit, economists. The empirical evidence you present to "refute the mistaken assumption" is beside the point. YOU, the economists, are making the fallacious assumption, not the workers who are unhappy that there is not an unlimited supply of GOOD, WELL-PAYING jobs to go round.

The stock economists' prescription for that unhappiness is "more education" or, as the oracles of Davos would recommend:

• rapid adjustment!
• new reality!
• concerted effort!
• innovating!
• front and centre!
• new mindset (to optimize resilience)!

Who will stop the lump-of-spam fallacy spam? Flippity, flop -- it's done!