All Commentary
Monday, June 1, 1959

Unemployment and Unionism

Mr. Benegas Lynch is a business leader in Buenos Aires and President of the Centro De Difusion De La Economia Libre, an associa­tion for the study and teaching of the phil­osophy of freedom. This is an excerpt from his lecture of September 11, 1958, before the National Academy of Economics in Monte­video, Uruguay.

The main criticism leveled against economic freedom is the statement that, if things in the economic field are left to the spon­taneous regulation of the free market, then so-called cyclical crises will ensue, with their se­quel of mass unemployment.

This is an unjust and baseless accusation. Sound theory demon­strates, and practice confirms, that in every case unemployment is a consequence of the direct or in­direct action of the State.

Economic liberty presupposes a free market for wages, just as for all other products and serv­ices. The price or wage paid for work is generally subject to controls altering its natural level, either by the direct action of a State which sets wages arbitrarily without ‘regard to the market, or by indirect governmental action through unrepressed trade union violence.

To ask a higher price for one’s product than the prospective buyer is willing to pay precludes a sale and contributes to a cumu­lation of unsold products. The same thing happens when, instead of a product, a service is offered. If the wage demanded by a worker is higher than the person requir­ing this service is willing to pay, then the wage contract is not made and the worker is unem­ployed.

Every time wages are raised above the natural level freely es­tablished by supply and demand, unemployment will be the un­avoidable result. One alternative is to lower real wages and at the same time raise nominal wages by means of monetary inflation, a trick very widely used in the last few years. Nominal wages are raised, and at the same time money in circulation and bank credit are expanded, whereby real wages are kept at the same level, thus avoiding the unemployment which would otherwise have taken place. That is to say, the raising of wages above their natural level inevitably brings about either un­employment or inflation.

Man is not an object of trade, but his services are—like any product—when he offers them in the market and expects payment for them. The difference in the case of services is that it is be­coming increasingly common in many places for workers, acting in organized groups, to use force to get the price they want for their services. In its tendency to­ward mass action and indifference to the interest and choice of the individual, trade unionism gives its leaders tyrannical authority over members and nonmembers alike.

Coercion Destroys Rights

Modern trade unionism, by the use of force, not only distorts the wage market, causing unemploy­ment or inflation, but also inter­feres with the liberty to work, to trade, and to associate. Such ac­tion frequently makes it impos­sible to enter a wage contract vol­untarily; the right to abstain from working becomes the obliga­tion to take part in strikes against one’s will; and the right to asso­ciate becomes the obligation to join this or that union. Coercive force, instead of being reserved exclusively to the government for the protection of the life, liberty, and property of the citizens, is employed by these organized groups to attack many of those same fundamental individual rights.

It is paradoxical, however, that many of those who call themselves supporters of democracy and lib­erty should claim that the sort of compulsory unionism we have de­scribed is a legitimate manifesta­tion of democratic life. This kind of unionism neither follows demo­cratic practices nor contributes to liberty. On the contrary, trade unionism that attacks fundamental individual rights is an efficient weapon with which to kill liberty. Such unionism generally serves governments of a totalitarian ten­dency, and in conjunction with employers’ associations appointed by the State, works toward a cor­porative structure of society.

Free elections and democratic governments are no defense against such developments. In many cases these governments, on the one hand, interfere where they have no business, exceeding their powers; and on the other, they neglect their basic duty of enforc­ing respect for the life, liberty, and property of the citizens.

Democracy Is Not Enough

Against the rising authoritar­ianism of our times, which is at flood tide where the communist empire holds sway and every trace of liberty has completely disap­peared, it must be realized that democracy, of itself, is no guaran­tee of liberty for the countries of the West which practice it. In the areas of the world where there is yet a remnant of liberty, it is in danger of destruction through the popular vote—as in other ages—if effective brakes are not placed on political power.

Excessive government is the usurpation of power by those in control and the abdication of lib­erty by those who consent. The tendency toward excessive growth of government is accelerated in the West by the common but false be­lief that liberty cannot be lost under democracy.

The task before us is to displace this false hope with the idea of the inviolability of natural rights—to life, liberty, and property—the only guarantee for human liberty against the constant threat of enslavement by authoritarian governments.