Power and Market: Government and the Economy

Laborers may also ask for geographical grants of oligopoly in the form of immigration restrictions. In the free market the inexorable trend is to equalize wage rates for the same value-productive work all over the earth. This trend is dependent on two modes of adjustment: businesses flocking from high-wage to low-wage areas, and workers flowing from low-wage to high-wage areas. Immigration restrictions are an attempt to gain restrictionist wage rates for the inhabitants of an area. They constitute a restriction rather than monopoly because (a) in the labor force, each worker owns himself, and therefore the restrictionists have no control over the whole of the supply of labor; and (b) the supply of labor is large in relation to the possible variability in the hours of an individual worker, i.e., a worker cannot, like a monopolist, take advantage of the restriction by increasing his output to take up the slack, and hence obtaining a higher price is not determined by the elasticity of the demand curve. A higher price is obtained in any case by the restriction of the supply of labor. There is a connexity throughout the entire labor market; labor markets are linked with each other in different occupations, and the general wage rate (in contrast to the rate in specific industries) is determined by the total supply of all labor, as compared with the various demand curves for different types of labor in different industries. A reduced total supply of labor in an area will thus tend to shift all the various supply curves for individual labor factors to the left, thus increasing wage rates all around.

Immigration restrictions, therefore, may earn restrictionist wage rates for all people in the restricted area, although clearly the greatest relative gainers will be those who would have directly competed in the labor market with the potential immigrants. They gain at the expense of the excluded people, who are forced to accept lower-paying jobs at home.

Obviously, not every geographic area will gain by immigration restrictions—only a high-wage area. Those in relatively low-wage areas rarely have to worry about immigration: there the pressure is to emigrate.32 The high-wage areas won their position through a greater investment of capital per head than the other areas; and now the workers in that area try to resist the lowering of wage rates that would stem from an influx of workers from abroad.

Immigration barriers confer gains at the expense of foreign workers. Few residents of the area trouble themselves about that.33 They raise other problems, however. The process of equalizing wage rates, though hobbled, will continue in the form of an export of capital investment to foreign, low-wage countries. Insistence on high wage rates at home creates more and more incentive for domestic capitalists to invest abroad. In the end, the equalization process will be effected anyway, except that the location of resources will be completely distorted. To o many workers and too much capital will be stationed abroad, and too little at home, in relation to the satisfaction of the world’s consumers. Secondly, the domestic citizens may very well lose more from immigration barriers as consumers than they gain as workers. For immigration barriers (a) impose shackles on the international division of labor, the most efficient location of production and population, etc., and (b) the population in the home country may well be below the “optimum” population for the home area. An inflow of population might well stimulate greater mass production and specialization and thereby raise the real income per capita. In the long run, of course, the equalization would still take place, but perhaps at a higher level, especially if the poorer countries were “overpopulated” in comparison with their optimum. In other words, the high-wage country may have a population below the optimum real income per head, and the low-wage country may have excessive population over the optimum. In that case, both countries would enjoy increased real wage rates from the migration, although the low-wage country would gain more.

It is fashionable to speak of the “overpopulation” of some countries, such as China and India, and to assert that the Malthusian terrors of population pressing on the food supply are coming true in these areas. This is fallacious thinking, derived from focusing on “countries” instead of the world market as a whole. It is fallacious to say that there is overpopulation in some parts of the market and not in others. The theory of “over-” or “under-population (in relation to an arbitrary maximum of real income per person) applies properly to the market as a whole. If parts of the market are “under-” and parts “over” populated, the problem stems, not from human reproduction or human industry, but from artificial governmental barriers to migration. India is “overpopulated” only because its citizens will not move abroad or because other governments will not admit them. If the former, then, the Indians are making a voluntary choice: to accept lower money wages in return for the great psychic gain of living in India. Wages are equalized internationally only if we incorporate such psychic factors into the wage rate. Moreover, if other governments forbid their entry, the problem is not absolute “overpopulation,” but coercive barriers thrown up against personal migration.34

The loss to everyone as consumers from shackling the interregional division of labor and the efficient location of production, should not be overlooked in considering the effects of immigration barriers. The reductio ad absurdum, though not quite as devastating as in the case of the tariff, is also relevant here. As Cooley and Poirot point out:

If it is sound to erect a barrier along our national boundary lines, against those who see greater opportunities here than in their native land, why should we not erect similar barriers between states and localities within our nation? Why should a low-paid worker ... be allowed to migrate from a failing buggy shop in Massachusetts to the expanding automobile shops in Detroit. ... He would compete with native Detroiters for food and clothing and housing. He might be willing to work for less than the prevailing wage in Detroit, “upsetting the labor market” there. ... Anyhow, he was a native of Massachusetts, and therefore that state should bear the full “responsibility for his welfare.” Those are matters we might ponder, but our honest answer to all of them is reflected in our actions. ... We’d rather ride in automobiles than in buggies. It would be foolish to try to buy an automobile or anything else on the free market, and at the same time deny any individual an opportunity to help produce those things we want.35

The advocate of immigration laws who fears a reduction in his standard of living is actually misdirecting his fire. Implicitly, he believes that his geographic area now exceeds its optimum population point. What he really fears, therefore, is not so much immigration as any population growth. To be consistent, therefore, he would have to advocate compulsory birth control, to slow down the rate of population growth desired by individual parents.

• 32Many States have imposed emigration restrictions upon their subjects. These are not monopolistic; they are probably motivated by a desire to keep taxable and conscriptable people within a State’s jurisdiction.
• 33It is instructive to study the arguments of those “internationalist” Congressmen who advocate changes in American immigration barriers. The changes proposed do not even remotely suggest the removal of these barriers.
• 34Advocates of the “free market” who also advocate immigration barriers have rarely faced the implications of their position. See Appendix B, on “Coercion and Lebensraum.”
• 35Oscar W. Cooley and Paul Poirot, The Freedom to Move (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1951), pp. 11–12.