To Adopt Keynesian Terminology Is to Legitimize ItTags InflationLabor and WagesMedia and Culture
Some years ago, there was published a book in the German language with the title L.T.I. These three letters stood for three Latin words, lingua Tertii Imperii, the language of the Third Reich. And the author, a former professor of Romance languages at one of the German universities, described in this book his adventures during the Nazi regime. And his thesis was that all people, without any exception, in Germany of course, were Nazis—not because they had accepted openly and consciously the doctrines of Nazism, but because they had, without a wrong cooperation necessarily, accepted the language, the terminology in which these doctrines were expressed.
And of course one knows very well that these Nazi doctrines had a very long history from Hegel to Heidegger and from Friedrich List to Sombart, and as these people—the victims of the Nazis included—used the terminology, they practically accepted the fundamental thesis of Nazism.
This is a very pertinent remark, because what makes the power of the accepted doctrine is that its terminology is used and spoken also by those people who sincerely believe that they are not affected by these ideas.
And I had the impression, unfortunately, in listening to the discussions of this meeting, that we too have not completely freed ourselves from the impact of the terminology and the language, let us say, of the American Economic Association, of the Committee for Economic Development, of the newspapers who are in favor of a little bit of credit expansion, of a little bit of inflation, and so on.
And it is precisely this, that we accepted—most of the speakers, or many speakers, there are very remarkable exceptions—accepted this terminology, that we left yesterday this meeting, at least the morning meeting, with the impression that there was great sympathy, in this meeting, for a little bit inflation—of course not for the hyperinflation of Germany in 1923, but for something else, for an inflation which is a little bit more civilized.
Now, in what did the difference between the hyperinflation in Germany and the little inflation consist?
The hyperinflation in Germany (one shouldn’t always talk only about the hyperinflation in Germany, if one uses this term; one should also mention that the same thing occurred in this country with the Continental currency in 1781 and fifteen years later in France with the mandats territoriaux), the reason why in Germany the inflation became a hyperinflation was that within the borders of the German Reich, between 1914 and 1923, [there] was nobody, but nobody, in order to use the terminology of Gimbels [department store, laughter], who did realize that there is a connection between the quantity of money, the quantity of printed banknotes, and the rise in prices and foreign exchange rates. Nobody!
It was in the winter of 1918–19 [that] the deputy governor of the German Reichbank attended in Vienna a number of official meetings in which I participated too, and when I mentioned this fact, that the quantity of mark and other monies is decisive in bringing prices up and all these other consequences, he said: “But nobody mentioned this before. You are quite alone with this very absurd idea.”
And this was the fact. You can prove it with the German literature of these years. It’s accessible to everybody. You can discover it. There had all kinds of explanations, but not the true explanation.
And in what concerns these other breakdowns of hyperinflation, the Continental currency in this country and in France, one must say [that] at that time economic doctrine was not yet very well developed, and there was at least a personal excuse; if you admit excuse[s] for bad policies. I myself believe that there is never any excuse for bad policies.
Now, the difference between the hyperinflation in Germany and the inflation in these countries consisted in the fact that there are opponents in these countries. If in the ‘30s such people as Benjamin Anderson had not every day and week opposed the policy of the government, the United States would have had in the ‘30s hyperinflation in the same way in which Germany had it in 1923.
And that if we have today only a little bit [of] inflation, an inflation which is not bad, as people say, which is, after all, even good from some various points of views, this is due to the fact, for instance, that my distinguished friend Mr. Henry Hazlitt publishes every week an article in which he points out that there are great dangers in increasing the quantity of money and expanding credit and that there are other economists in this country who write the same thing and so on.
The difference is not something immaterial, something tangible, something which one may qualify as some mysterious historical accident. The difference is public opinion. And the public opinion in this country is very much in favor of hyperinflation, and especially in connection with the problem which we are discussing today—with the problem of labor, with the problem of unemployment, and so on. And the only reason that these people who are in favor of such tremendous inflation didn’t succeed up to now (nobody knows what will happen tomorrow…) is that there is still an opposition.
And of course you have to come to the paradox conclusion that what makes inflation possible is precisely the fact that there are real anti-inflationists. I don’t mean th[ese] anti-inflationists [who] say an inflation of one percent, 2 percent, 3 percent, and 4 percent is not so bad. There are very serious struggles within the American Economic Association and within the American universities of people with differences of opinions. There are people who are in favor of 2 percent, who are in favor of 3 percent. It’s a tremendous difference, and if people say that there is a conformity among these people they say, “How can you say this? I am in favor of two and a half percent a year and my distinguished colleague is in favor of two and three-quarter percent every year.”
Now we have the consequence of this state of affairs, or, let us say, the reason of this state of affairs is that they are theoretically completely misled, and that their theoretical ideas and the terms in which they express them are inadequate. There is, for instance, the term “level of prices” and the term “prices” (it is obvious that in the term “prices” there are also included wages). Now if it were true that this metaphorical term of “level” is correct, then we would not—as yesterday Professor [Eugênio] Gudin pointed out—we would not in the least be interested in the problems of changes in the purchasing power of money. All prices and all wage rates would move to the same extent upwards or downwards, and people would of course have to pay higher prices, but on the other [hand] they would have higher incomes, and the core problem w[ould] turn into a problem for bookkeepers and accountants, would not have any real value.
The thing which we are discussing today is precisely the fact that there is a discrepancy in these movements—that the prices of the various goods and services do not change at the same time and not to the same extent, and that therefore there are certain groups that are favored and certain groups that are discriminated against. I couldn’t understand how we could yesterday discuss this with this term “level of prices” and with this “what prices move.” Prices, prices…what is “prices”? There are different prices of different commodities. I couldn’t understand how people could discuss this on the second day of the meeting, when, at the same meeting, on the third day and on the fourth day, problems are to be discussed that only exist because there is such a discrepancy as I pointed out.
What is the whole problem of parity prices for agriculture which we will discuss tomorrow? The whole problem consists in the fact that the farmers maintain—whether they are right or wrong is another story—that the upward movement in the prices of commodities was not the same with regard to agricultural commodities than with regard to the products of industry. And what would we be discussing today if the wage rates were always moving in the same way, to the same extent, at the same time in which all other prices of things are moving? The problem is simply this: are or are not prices and wages determined on the market by the interplay of demand and supply? Or can they freely be manipulated?
Police officers tend to the assumption that if the police says that, from tomorrow on, the price of milk will be only 50 percent of what it is today, the whole problem is solved and milk will tomorrow be available at a much lower price than it was today, without any further consequences. The same people tend to the idea that the government is in a position to decree minimum wage rates and that these minimum wage rates will necessarily raise the wages paid to all people and that no further consequences will result. And the unions, of course—which have now assumed part of the duties of the government, insofar as they tax the people and as they resort to violence—the unions believe that their fiat, that their order brings wages up without bringing about any consequences, without resulting in unemployment. Most people, in this country and in all other countries, consider it as something really absurd when one tells them that unemployment—permanent, mass unemployment, prolonged year after year—is the consequence of wage rates fixed above the height which the unhampered market would have determined. Remember, for instance, what happened in Britain in the ‘20s, when people spoke about unemployment as an act of God—nobody knows how it happened and the government has to do something about it, and so on—without asking the question why did not mass unemployment develop when the horse breeder and the coach man were put out of work by the railroads, why there was no unemployment to such a great extent in the ages when there was no unemployment dole, and so on…
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To fix wage rates at a higher height than that which the unhampered market would have developed without bringing about unemployment of a part of the potential labor force, this is the decisive problem, that what the public sees and what unfortunately also many discussions of people who should know it better show is that people believe in a quite different doctrine. They believe that there is a cake available, and that it is [in] the power of the management to give from this cake as little as possible, almost nothing, to the workers, and that the workers unionized, resorting to violence, or the government by ordering, decreeing a minimum wage rate, are in a position to give a greater part of this cake to the workers.
We have here today wr[itten] about the excellent ideas and very useful suggestions of my distinguished colleague Professor Petro, but the decisive problem, whether people will accept these proposals or not, is whether they will preserve what is called the free rider argument.
People say the unions in fighting against the employers are raising wage rates for all workers. If a man is not a union member, does not pay union dues, does not contribute to all those expenses which union leaders consider necessary for the unions, then he enjoys advantages for the production of which he did not pay—the free rider argument.
As long as the free rider argument is not destroyed in the prestige that it enjoys in public opinion, as long we will have the union shop or the closed shop, because this argument is rather convincing, it is an argument that cannot be refuted otherwise than if you want to have a short slogan to refute it—otherwise than by saying business is producing jobs and unions are producing unemployment. As long as people do not realize that this is the essence of the problem, it is absolutely useless to talk about the reform of the unions. It’s the question whether the picket line should have six men or eight men or if a man is beaten by the pickets whether this is a real offense or whether he is guilty or having insulted them or something else…
The decisive problem is this: is it possible that by an intervention from the outside – that means not from the market forces, not from people buying and selling on markets—by the police power or the power of the picket lines, is it possible to raise wage rates for all those anxious to get jobs and to earn wage rates?
I remember still that when in the ‘20s such ideas were mentioned people always told me “This is absurd what you are saying.” I remember what a sensation it was when one day at the end of the ‘20s or at the beginning of the ‘30s Monsieur Rueff published an article in which he pointed out that there is some connection, even a very close connection, between unemployment doles and the height of wage rates, and the great problem of unemployment in England. He dealt specially with the English example, because there were some reasons which made it possible for him to study precisely the English problem. But this is not a national problem, and this is not a problem of some industries. It is the fundamental problem of interventionism. The same problem which we have to discuss in all subjects which we are dealing with. This problem is a problem of economics, and if we accept the language, the terminology of these other people, we will never be able to master these problems.
The thing is [that it is] not only necessary to deal with details and raise, for instance, the question whether the American legislation concerning unions should be changed in this or in that regard. It is [that] as long as practically the whole political nation believes that the unions are very beneficial for the immense majority of the people, for the workers—that the unions are the only institution that prevents the millionaires from getting everything which by right belongs to the workers—we will have this situation. It is therefore, in my opinion, not correct to say that the fault lies with constitutional provisions, with democracy, or with all other things. Not democracy is responsible, but the fact that public opinion is convinced that all the blessings come from the unions and all the evils in the world come from management.
And unfortunately, these people who form management too believe in the same ideas.
In the same way in which this Professor Klemperer, whose book I mentioned before, pointed out that even the Jews in the concentration camp, speaking the language of the Third Reich, adopted virtually all the ideas of the Third Reich, we see that the businessmen have adopted this language.
There is for instance this talk about productivity, a rise in productivity. What they mean is an increase in the monetary value of the output per hour of work, but this increase, which the unions claim completely for themselves, is not due to the fact [that] the workers have improved productivity; it is due to the fact that better machines and better tools have been employed by the capitalists and by the entrepreneurs.
The marginal, the individual productivity of labor is much greater in this country than it is in any other country of the world. Certainly we all are convinced that the American worker is not only the best worker but the best specimen produced in world history. There is no doubt about that. [Laughs]
But nevertheless, if we admit even this, that there was never such a thing in history as the American worker, we must ask the question whether this refers to all American workers, whether a man who comes from the outside to the United States does not get the same wage rate and an American who would emigrate to India, let us say, wouldn’t be forced to accept in India the level of wages which are paid in India.
If one raises the question what makes the difference between the American standard living or, as it is popularly called, the American way of living and the foreign countries’, then we have to admit that it is the amount of capital invested per head of the worker. Therefore it is fantastic to say, as is always said, that the wages have to go up because the productivity of labor went up.
And instead of pointing out this fact, in most of the wage negotiations the representatives of the employers try to point out [that] wages went already up, [that] they went up even more than productivity, and so on. That there is no relation between the wage rates, or let us say, the marginal utility of labor, and the productivity of labor measured according to this system is never mentioned—that wage rates which are exceeding the marginal utility of labor necessarily bring about always unemployment.
And as long as we do not accept this idea, as long as we do not know this, we will not have any sound labor relations. As long as we do not accept this, we will not have a stable currency or a sound currency, because then, as soon as unemployment develops—even before it develops, even if it’s only threatening—then credit expansion sets in, the famous full employment policy of Lord Keynes. And in mentioning this name I want to close my remarks, because the truth is that Lord Keynes didn’t invent these things. On the contrary, he wrote them into a book only when they were already long popular, but they will probably be connected in history even more than with the name of Karl Marx, who was after all convinced that labor unions can NOT improve the standard of living of the workers.
More than with the name of Karl Marx, and more than with the name of Samuel Gompers, they will be connected with the name of Lord Keynes.