| Let us assume, for the moment, that
labor m not prepared to work for a lower money-wage and that a reduction in the
existing level of money-wages would lead, through strikes or otherwise, to a
withdrawal from the labor market of labor which is now employed. Does it follow
from this that the existing level of real wages accurately measures the marginal
disutility of labor? Not necessarily. For, although a reduction in the existing
money-wage would lead to a withdrawal of labor, it does not follow that a fall
in the value of the existing money-wage in terms of wage-goods would do so, if
it were due to a rise in the price of the latter. In other words, it may be the
case that within a certain range the demand of labor is for a minimum money-wage
and not for a minimum real wage. The classical school has tacitly assumed that
this would involve no significant change in their theory. But this is not so.
For if the supply of labor is not a function of real wages as its sole variable,
their argument breaks down entirely and leaves the question of what the actual
employment will be quite indeterminate. They do not seem to have realized that,
unless the supply of labor is a function of real wages alone, their supply curve
for labor will shift bodily with every movement of prices. Thus their method is
tied up with their very special assumptions, and cannot be adapted to deal with
the more general case. Now ordinary experience tells us, beyond doubt, that a situation where labor stipulates (within limits) for a money-wage rather than a real wage, so far from being a mere possibility, is the normal case. Whilst workers will usually resist a reduction of money- wages, it is not their practice to withdraw their labor whenever there is a rise in the price of wage-goods. It is sometimes said that it would be illogical for labor to resist a reduction of money-wages but not to resist a reduction of real wages. For reasons given below, this might not be so illogical as it appears at first; and, as we shall see later, fortunately so. But, whether logical or illogical, experience shows that this is how labor in fact behaves. Moreover, the contention that the unemployment which characterizes a depression is due to a refusal by labor to accept a reduction of money-wages is not clearly supported by the facts. It is not very plausible to assert that unemployment in the United States in 1932 was due either to labor obstinately refusing to accept a reduction of money-wages or to its obstinately demanding a real wage beyond what the productivity of the economic machine was capable of furnishing. Wide variations are experienced in the volume of employment without any apparent change either in the minimum real demands of labor or in its productivity. Labor is not more truculent in the depression than in the boom-far from it. Nor is its physical productivity less, These facts from experience are a prima facie ground for questioning the adequacy of the classical analysis. |