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Sound Money 3: The Full-Employment Doctrine

by Seerat Fayaz   ·  February 9, 2022   ·  

Sound Money 3: The Full-Employment Doctrine

by Seerat Fayaz   ·  February 9, 2022   ·  

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Inflationary or expansionary doctrine comes in a variety of flavours. However, its core material stays constant. 

The most basic and unsophisticated interpretation is that there is an apparently inadequate amount of money. According to the grocer, business is terrible since my customers or prospective customers do not have enough money to increase their purchases. So far, he is correct. But when he adds that increasing the amount of money in circulation is what is required to make his firm more profitable, he is erroneous. What he truly wants is to raise the amount of money in the pockets of his clients and prospective customers while keeping the quantity of money in the hands of others constant.

Adam Smith and Jean-Baptiste Say demolished this bogus grocer ideology once and for all. Lord Keynes reintroduced it in our day, and it is now one of the fundamental policies of all governments that are not fully subservient to the Soviets, under the guise of full-employment policy. Nonetheless, Keynes was unable to make a compelling case against Say’s law. Neither his pupils nor the slew of faux and real economists in the offices of various countries, the United Nations, and a variety of other national and international organisations have fared any better. The fallacies implicit in the Keynesian full-employment thesis are fundamentally the same faults that Smith and Say have long destroyed.

Wage rates are a market phenomena; they are the prices paid for a specific amount of work of a specific quality. If a guy is unable to sell his work at the price he desires, he must cut the price he is asking for it or else he will remain unemployed. If the government or labour unions set wage rates that are higher than the potential rate of the unhindered labour market and enforce their minimum-wage edict via pressure and coercion, a portion of individuals looking for work will stay unemployed. Such institutional unemployment is unavoidable as a result of the strategies used by today’s self-styled progressive governments. It is the true result of pro-labor policies that have been mislabeled.

There is only one effective approach to raise real wage rates and enhance wage workers’ standard of living: increase the per-head quota of capital invested. This is what laissez-faire capitalism achieves to the degree that it is not hindered by the government and labour unions. 

We don’t need to look into whether today’s politicians are aware of these truths. Mentioning them to students is frowned upon at most colleges. Books that are dubious of official ideologies are not generally purchased by libraries or utilised in courses, and as a result, publishers are hesitant to publish them.

Newspapers seldom question the prevalent belief because they fear a union boycott. Thus, politicians may be quite serious in believing that they have achieved “social benefits” for the “people,” and that the increase of unemployment is one of the ills inherent in capitalism, not the result of the policies they are bragging about. Whatever the case may be, it is clear that the status and prestige of the individuals who now rule the nations outside the Soviet bloc, as well as their professorial and journalistic supporters, are inextricably linked to the “progressive” concept, and they must adhere to it.

If they do not wish to abandon their political goals, they must resolutely deny that their own policies tend to make mass unemployment a permanent occurrence, and they must try to blame capitalism for the unintended consequences of their policies. 

The greatest distinguishing element of the full-employment concept is that it does not give information on how market pay rates are decided. Discussing the peak of pay rates is frowned upon by “progressives.” They do not discuss pay rates while discussing unemployment. According to them, the peak in wage rates has nothing to do with unemployment and should never be referenced in conjunction with it.

If there are unemployed, says the progressive doctrine, the government must increase the amount of money in circulation until full employment is reached. It is, they say, a serious mistake to call inflation an increase in the quantity of money in circulation effected under these conditions. It is just “full-employment policy.”

We can avoid frowning on the doctrine’s terminological strangeness. The fundamental idea is that any increase in the amount of money in circulation causes prices and wages to rise. If, despite the rise in commodity prices, pay rates do not rise at all or trail far behind the rise in commodity prices, the number of persons jobless due to the high wage rates will fall. However, it will fall simply because such a combination of commodities prices and wage rates implies a decline in real pay rates.

It would not have been required to increase the amount of money in circulation to achieve this goal. A reduction in the height of the minimum-wage rates imposed by the government or union pressure would have had the same impact without triggering all of the additional effects of inflation. 

It is true that in certain nations during the 1930s, resort to inflation was not immediately followed by an increase in the height of money wage rates as determined by governments or unions, resulting in a decline in real wage rates and, as a result, a decrease in the number of jobless. However, this was a one-time occurrence.

When Lord Keynes predicted in 1936 that a push by employers to reduce money-wage deals would be far more fiercely contested than a gradual and “automatic” reduction of real pay rates as a result of rising prices,8 he had already been rendered obsolete and contradicted by the march of events. The masses had already begun to see through the inflationary ruse. The unions’ interactions with wage rates became dominated by issues of buying power and index numbers. The full-employment argument in favour of inflation was already out of date when Keynes and his supporters declared it to be the guiding principle of progressive economic policies.

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