All Commentary
Thursday, December 1, 1983

On Labor Unions

Mr. Greaves, economist, lecturer, and author of numerous articles and books, sewed with the U. S. House of Representatives Committee on Education and Labor during the preparation and passage of the 1947 revisions of the National Labor Relations Act, popularly known as the Taft-Hartley Act.

Unemployment can be a dreadful condition. The inability to find a needed job is a heart-rending experience for anyone. For those with young children to feed and clothe, it is a terrifying predicament. It gnaws at and destroys the spirit and self-confidence of even the strongest souls. With nerves on edge, family harmony too often flies out the window.

In addition to the deep mental anguish, there are also physical and financial losses. An adult’s health, as well as his spirit, may suffer irreparably. A child’s growth may be permanently stunted. The loss of the family car can reduce both the hope and the possibility of getting another job. The foreclosure of a mortgage on the family home can liquidate the savings of a lifetime. In short, a prolonged period of unemployment can wreck a person’s life.

Then, too, the unemployed are not the only sufferers. With millions of able-bodied persons searching for a source of income or twiddling their thumbs in frustrated idleness, the potential quantity of goods and services available in the market place is greatly reduced. This means higher prices and lower living standards for everyone. Government programs to provide a floor for the unemployed also mean higher taxes and/or still higher prices as a result of the political creation and distribution of unearned dollars. Actually, mass unemployment and its aftermath is probably the greatest single driving force behind our politically sponsored inflation.

So solving the problem of mass unemployment is a major task of our time. Before we can solve it, we must locate the root cause. There was no unemployment at Plymouth or Jamestown. There was no mass unemployment during this country’s first hundred years of existence. What is different today?

Not a Free Market

One major difference is that there is no longer a free market in jobs and wage rates. There are now laws on the statute books that grant certain groups of workers the privilege of demanding and getting higher wages than they could and would earn in a free market. The unemployed are no longer permitted to compete and thus reduce the higher than free market wage rates of the privileged few. So those shut out from the higher paying jobs must compete for work and drive down the wage rates in unorganized occupations. Then, they face the floor decreed by minimum wage laws which often prevent employment at these reduced market wage rates.

Employers cannot long pay workers the legal minimum wage rate if consumers cannot or will not buy the resulting goods and services at prices that cover costs. As a result, rail-lions are now legally prevented from taking either high paying jobs or lowpaying jobs. The free market in jobs and wage rates has been legally destroyed.

It should thus be evident that the remedy for mass unemployment is to repeal the laws which prevent people from competing for the higher paying jobs or taking the lower paying jobs—lower paying, until workers acquire the skill and experience needed to climb the ladder to higher incomes.

Historian Clarence B. Carson has written a small book, Organized Against Whom?, which tells some of the story of how we strayed from the free market path for jobs and wage rates. It is an ugly story vividly describing the coercion and violence employed by many in the labor union movement in their effort to convince the electorate that they are entitled to special privileges and immunities. They have successfully convinced many that labor unions are the protectors of downtrodden poorly paid workers who are supposedly at the mercy of greedy all-powerful employers who rob them of their rightful earnings.

Today, thanks to socialist and labor union propaganda, there is little understanding of the fact that employers are merely middlemen operating in a heavily taxed and very competitive market place. Actually, employers have very little to say about wage rates. Employers are compelled by market forces to pay employees in accordance with the value that consumers place on the production of their marginal employees, the last hired. If employers pay higher wage rates than they get back from consumers, they suffer losses and sooner or later cease to be employers. If employers seek to increase their profits by paying lower than market wage rates, competitors soon bid away their employees. Thus, the free market competition of employers is the salvation of workers looking for higher wages.

The Voluntary Way

In a free society, labor unions, like other organizations, would be voluntary groups trying to advance the interests of their members. They would abide by the laws and seek no special privileges or immunities. Unions that offered employers the most competent and reliable workers, who were willing to work for competitive free market wage rates, would grow and prosper. Labor unions that offered incompetent workers, insisted on featherbedding, or other unnecessary or costly conditions and demanded higher wage rates than competent non-union members would willingly accept would soon fade away. Certainly, in a free society no group should or would resort to violence, coercion or special privileges to obtain what it seeks.

The free market operates according to the Golden Rule. The higher values one contributes to the market place, as valued by consumers, the more one receives in return. Free market operations are always voluntary transactions by which all parties exchange something they have for something on which they place a higher value. Goods and services thus continually move to persons who place a higher value on them. Barring human error or the use of force or fraud, all parties gain from all such transactions. The prevention of the use of force or fraud is a prime function of government.

Dr. Carson tells us how many labor unions now operate, with the help of laws and court decisions, coercing employers to join with them to grant them a monopoly of certain jobs. Such unions are thus able to shut out the competition of competent applicants for those jobs. Then, by demanding still higher wage rates, some unions further reduce production and employment by pricing some of their own members, those with low seniority, out of their high paying jobs. In short, labor unionism, as now practiced, is not only the enemy of employers, investors and consumers, but it is primarily the enemy of competent job seekers who, as a result of union action, must remain underpaid or unemployed.

Unions Gain Monopoly Status

Today, we live in an economy of political privileges with all kinds of lobbies trying to get for their members what they consider their “fair share” of the political largesse. Un questionably, labor unions have been one of the first and strongest of these political pressure groups. As Dr. Carson narrates, they won their first great political victory in 1914, when they persuaded Congress to decree: “That the labor of a human being is not a commodity or article of commerce.” Congress has great powers, but it did not by this legislation alter the fact that labor is one of the factors of production traded in the market place.

With this law on the books, union leaders waged a propaganda campaign demanding that government help them raise wage rates above those of the free market, which they maintain, falsely, are set too low by the whims of all-powerful employers. Their propaganda campaign was accompanied with strikes and violence that disturbed the entire nation and contributed to the mass unemployment of the depression period that started in 1929.

As a result of this propaganda and the show of force, Congress and the courts were persuaded in the 1930s to grant these labor union advocates of self-serving coercion most of the special privileges and immunities they sought. Now, we have the results. Employers as a breed are becoming scarce. So are investors willing to place their savings in new or expanded production facilities. The combined result is that the ranks of the unemployed are now reckoned in the millions. Mass unemployment has even caught up with many of the legally privileged union members. The economic laws of the market cannot long be circumvented without eventually producing undesirable consequences.

As Dr. Carson tells us, our constitutionally chosen government has empowered the labor unions to accomplish all this. He may be a bit harder on the unions than they deserve. There can be no excuse for their resort to violence and coercion. However, they can hardly be blamed for taking advantage of the special privileges and immunities from prosecution that Congress and the courts have conferred on them. In taking advantage of existing laws, they are doing no more than many college kids, lots of old folks and millions of persons in between. Of course, that does not make it right or permanently possible. Neither Congress nor the courts have any power to repeal the laws of economics. They could make us all millionaires, but only by destroying the value of the dollar. A price must be paid for every interference with the inexorable laws of economics.

A Story of Special Privilege

It would seem we are fast losing the freedom for which our Founding Fathers pledged their lives, their fortunes and their sacred honor. As Dr. Carson writes: “The thrust of the American Revolution was in the direction of removing special privileges and legal supports from groups and organizations.” For decades now the courts have supported Congressional grants of “special privileges and legal supports” on a wholesale basis. As Carson writes, this has been “a fundamental departure from the principles of good government,” not to mention the principles of sound economics.

Our government has permitted, encouraged and even underwritten the power of labor unions to coerce all other elements of our society to bend to their will. This small book tells much of the story of how this came about. In doing so, it exposes many of the errors in the popular fallacies, the acceptance of which has permitted labor unions to attain their present position of power. This story is one with which every American should be familiar.

The book is not without its faults and contradictions. Some are only the result of an unfortunate choice of words. For example, lawlessness is referred to as the “state of nature.” Or, “An ancient union complaint could certainly be disposed of if governments neither recognized, gave status to, taxed, or otherwise noticed private organizations, except as they might disturb the peace.” That would mean no legal recognition or taxation of corporations or any other private organizations. In effect, it would repeal the First Amendment. For no press or religious organizations would have any status or right to be recognized in court. Or when Carson writes, “Congress is empowered to make laws regulating commerce.” The Constitution carefully limited that power to “interstate commerce,” and that is what it meant until the Supreme Court, in 1937, ignored the key word “interstate” in a 5 to 4 decision which upheld the National Labor Relations Act, popularly known as the Wagner Act.

There are some unfortunate contradictions in the book, as when we read, “Let me confess at the outset that I do not know what labor unions are.” Then the author proceeds in chapter after chapter to tell what they are and what they do. At another point we read, “Violence is not essential to unionism.” That is true, of course, if they operate within the rules and ethics of a free society. However, the thesis of this book is that labor unions are organized against society in general and against other workers in particular. As the author describes so well, they have for years pursued their policies by resorting to violence and coercion. For decades now the government has given its support to their anti- social actions—actions that impede not only full employment and prosperity but also the legitimate activities of many governmental entities.

Criticism might be made of such statements about labor unions as, “They are not economic organizations,” and “Nor is the labor union primarily a political organization.” If economics is the science of human actions to attain selected goals, then attaining union goals by boycotts, strikes and stopping others from working are certainly economic actions. This book presents many incidents illustrating how labor unions have used both economic and political means to attain their present position of power.

Perhaps this reviewer’s greatest disagreement is with the author’s assertion that “Labor unions are religious, or religion-like organizations and, as I say, once this is grasped they come into focus. Their immediate goals are ethical in character; their ultimate goals are religious. Their economic claims are ethical in character.” The latter might be so if they sought their legitimate ends by ethical means. However, there is nothing ethical or religious about the use of coercion, be it legal or illegal.

As for labor unions being religious, many economically ignorant labor union members and Congressmen undoubtedly swallow the propaganda and follow the wishes of the union bosses with a “religious” faith and fervor. We may live “in the age of the divine right of majorities,” as the author rightly states, but the fact that labor unions are “supported by compulsory tithes and taxes” does not make them religious or “established churches.”

Religion pertains to the supernatural—metaphysics. Except for the fact that reason tells us there must have been a Creator, religions deal with matters which cannot be logically proved or disproved. Religions are concerned with the irrational aspects of human life. Consequently, honest people, who are both sane and intelligent, can and do differ on religious matters. The aims and actions of labor unions are certainly neither heavenly nor irrational. They are earthy and concrete. Labor unions seek more for their members. There is nothing wrong with that objective if they pursued it by ethical means—by voluntary agreements for the mutual benefit of all parties. However, as Dr. Carson has so vividly pointed out, our present problems have arisen from the use of violence, coercion and special privileges which are neither ethical nor particularly metaphysi cal.

The mass media, which are largely manned and edited by labor union members, constantly present a one-sided favorable picture of union policies, privileges and activities. The public needs to know more about the antisocial effects of the prerogatives exercised by labor unions. This book strips away much of the veneer that covers the unfortunate deification of labor union activities, activities which, if committed by individuals or other organizations, would be properly labeled as crimes. We need more books which, like this one, expose the root cause of mass unemployment, a major blight not only on economic peace and prosperity but also on the pursuit of human happiness.

  • Percy L. Greaves, Jr. (1906–1984) was a free-market economist for US News (the forerunner of US News and World Report) and authored several books on economics, including Understanding the Dollar Crisis and Mises Made Easier. He was also a seminar speaker and discussion leader with the Foundation for Economic Education. Percy and his wife Bettina Bien Greaves were long-time associates and friends of Ludwig von Mises, and regular attendants at Mises's New York University seminar.