Bryan Caplan  

The Standard History of Labor: Lemony Snicket Edition

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When I teach labor economics, I debunk a caricature I call the "Standard History of Labor."  The Standard History goes something like this:
1.  In the days before the minimum wage, unions, etc., life was terrible for workers because employers paid them whatever they felt like paying them.
2.  But then government became more progressive, and changed the laws.
3.  Life is now better for workers because employers' greed has been tamed.
I often quote popular expressions of this narrative, but I've never come across one as funny  (even unintentionally) as the one in Book 4 of the Lemony Snicket series.  A worker at the Lucky Smells Lumbermill explains the plight of his class.  Factory employees get a stick of gum for lunch, a damp casserole for dinner, and no chance to escape because...
[T]hey don't pay us in money.  They pay us in coupons.  See, here's what we all earned yesterday: twenty percent off a shampoo at Sam's Haircutting Palace.  The day before that we earned this coupon for a free refill of iced tea, and last week we earned this one: 'Buy Two Banjos and Get One Free,'  The trouble is, we can't buy two banjos, because we don't have anything but these coupons.


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COMMENTS (17 to date)
agnostic writes:

Why isn't there econ history in popular-market econ books? It's always econ101 concepts, the economic way of thinking, etc.

But aren't some people going to wonder what all the fuss about markets is about? So they allow you to cleverly figure out puzzles in everyday life -- OK, but does that mean they help us understand how our standard-of-living has improved? How can readers even appreciate that fact if it isn't presented?

FP2P has a great early chapter with lots of data on how good we've had it -- with the implication being, "Don't mess it up, you chuckleheads" -- but every other pop econ book I've read never talks about that. Actually, A Farewell to Alms does. So that's two...

Mark writes:

Reading the lecture notes you link to, I have to wonder why you even pretend to act like history actually matters.

Craig Bardo writes:

Amity Schlaes, Robert Higgs, Thomas Woods?

Loof writes:

It is standard for economists pivoting on a capitalist theory of value to make fun of any labor theory of value, even Adam Smith’s. So, The Standard History of Labor: Lemony Snicket Edition appears part of the norm.

Regarding Standard History of Labor going something like points 1, 2, & 3:

1. In the days before the minimum wage, unions, etc., life was terrible for workers because employers paid them whatever they felt like paying them.

Terrible is somewhat extreme, though in Burma nowadays with no minimum wage, unions, etc. employers do pay them whatever they feel like paying them - and at times pay them nothing.

2. But then government became more progressive, and changed the laws.

Yes, L can foresee when the Burmese government becomes even one little bit progressive and changes the laws the wages and working conditions would improve.

3. Life is now better for workers because employers’ greed has been tamed.

Employers greed hasn’t been tamed; its been taxed with labor laws: minimum wage, unions, etc.

For Burma, perhaps a labor market, free and fair, with no more regulations than needed would be the best balance, between the values of capital and labor.

agnostic writes:

"Amity Schlaes, Robert Higgs, Thomas Woods?"

I mean something longer-term when I refer to "history." Long-term trends in the wages of the unskilled, of the standard-of-living, of homicide rates, ease of starting a business, etc.

Also, must include a lot of the pre-Great Depression era if it's to give the lay reader a good picture of how thankful they should be to live in an industrialized capitalist society.

Damien writes:

Usually, when people invoke the Standard History of Labor, it is to underline how important it is for us to support unions today, how we should be grateful to them for helping us get higher wages, safe(r) working conditions, etc. It is especially common in European countries where the Standard History of Labor is uncritically taught in history and literature classes (usually by someone with no idea how wages are determined in the real world). Look how people in Dickens's novels were miserable, look how the poor miners in Zola's Germinal lived!

I have met many people who argued that, if workers didn't organize, strike, etc., "we'll soon make as little as people in [insert random poor country]". Because, as y'all know, employers can pay you whatever they want (strangely enough, not everybody makes exactly the minimum wage, but that's presumably because unions are keeping employers in check).

As for Burma:
http://en.wikipedia.org/wiki/Economy_of_Burma

"Under British administration, Burma had been the wealthiest country in Southeast Asia."

"After a parliamentary government was formed in 1948, Prime Minister U Nu attempted to make Burma a welfare state and adopted central planning."

"The 1962 coup d'état was followed by an economic scheme called the Burmese Way to Socialism, a plan to nationalize all industries, with the exception of agriculture. The catastrophic program turned Burma into one of the world's most impoverished countries."

"All fundamental market institutions are suppressed.[8][9] Private enterprises are often co-owned or indirectly owned by state."

So, yes, life in Burma would be better if the government "changed the laws", etc., but it's mostly because the government is the one oppressing the Burmese people and workers. Which makes it irrelevant to Bryan's argument.

JPIrving writes:

sell them coupons on ebay!

Joey Donuts writes:

Bryan's lecture notes should include a discussion of the goods market the employer faces. Monopolists tend to have a much larger share of their employees in unions. E.G. teachers, public utilities, government employees. I would guess that labor unions have seen growth in those areas while shrinking overall.

Blackadder writes:

Loof,

Singapore doesn't have a minimum wage and unions are constrained in their ability to bargain for wage increases. Perhaps poor working conditions in Burma have to do with something other than a lack of a minimum wage.

Tom West writes:

I think a lot of the "government rescued workers from evil business" dispute comes from a fundamental disagreement in identifying what is meant by "business".

A lot of the worst historical excesses occurred not because of a big-bad-business directly, but because the government backed the businesses up, preventing the workers from freely seeking alternate better employment.

For a Libertarian, this is a problem not with business, but with big-bad-government.

For those on the left, the understanding is that unless there's a strong pro-labor slant, government *will* end up as an arm of business, and thus the Libertarian view is either hopelessly naive or downright evil (i.e. they're purposely hiding the fact that government will become the thrall of powerful businesses for their own nefarious purposes.)

My take on reality is that there is no "natural" wall between powerful organizations of *any* type, be it business, unions, or anything else and government. Only a wide variety of different factions pulling in different directions can avoid government capture. While I understand those who want small government hope to decrease the advantages of capturing government, government is unique in the ability to essentially increase its own size at will. I think many fear either organizations becoming the de-facto government in the nominal government's absence, or having a small government that is easily captured (small = less momentum) which then grows itself to impose whatever policies its owner's desire.

CrisisMaven writes:

I think, for anyone who doesn't want to wade through a full textbook, Hazlitt debunked it all fairly well in his "Economics in One Lesson". Many of the prejudices can also be laid at rest by loking at the true statistics of the fate of the working "class". http://crisismaven.wordpress.com/references/

(Blackadder): "Singapore doesn't have a minimum wage..."

Nor, I have read, do Hong Kong, Switzerland, or Sweden. State-mandated benefits (e.g., medical insurance) have the effect of a minimum wage, however.

Here's an exercise for defenders of minimum wage laws:...
Take 4 sheets of paper (8 1/2 x 11) and fold each in half, vertically and horozontally. Across the top of each, write "In ___ (your State or country) it shall be illegal to sell ____ (commodity) for less than ___ (price per unit).
In the top left region of each sheet. write "Top-end buyers". In the bottom left region, write "Bottom-end buyers". In the top right region, write "Top-end sellers" and in the bottom right region, write "bottom-end sellers".

Take the first sheet and fill in the commodity blank with "mammal tissue (meat)" and the price blank with "$6.50/lb".
In each region, write "wins", "loses", or "indifferent", depending on whether a top-end buyer or seller benefits, is harmed, or is unaffected from the legislation.

In Peoria, Ill. it shall be illegal to sell mammal tissue (meat) for less than $6.50 per pound.

Top-end buyer...........Top-end seller
indifferent.............gains
Bottom-end buyer........Bottom-end seller
loses...................loses

Try "new cars" and "$45,000".
Try "new televisions" and "$600".
I suppose in the "new car" case, the top-end buyer gains from reduced traffic. In no case do bottom-end buyers or sellers gain.

Now try "labor" and "7.50/hour". Why is the result any different?

Adam writes:

Labor history? Douglas North's Structure and Change in Economic History, 1981, goes into European history before labor and labor markets existed. Slaves and serfs, about 85% of the population, were just part of the land in 11th century Europe. Those greedy wage "employers" hadn't been invented yet, so serfs had nowhere to go, no vista and no means of surviving beyond the virgate. Slaves were even worse off, owning neither their labor nor the products thereof. Nasty, short, and brutal lives for our ancestors over the course of generations.

North presents an economic theory of the state and social organization, and then evaluates it hypotheses over the course of 3 millenia. It's not an in-depth history, but one of tracing out the centuries long changes in human organization--from feudalism to capitalism, from serfdom to civil society, and from starvation to abundance. His analysis of Spain, France, and England from 1400 to 1800 is of particular interest in identifying the institutions that allowed England to evade Mathusian traps. A great read; a great economic history.

Loof writes:

Relative to Burma: the government made a big turnaround about 20 years ago. The horrifying results of tyrannical central planning was transformed to cruel private planning with greedy capitalists in partnership with the government. The US and EU have been left out of the profiteering and exploitation of labor with their sanctions on investment and trade. The foreign investment is mostly from China, Singapore, India, Korea, and Thailand. As such, the corporate exploitation of labor in Burma has “free” markets in the East to sell into, if not the West. Still, L’d bet with the most valuable precious stone industry in the world there’d be near global free marketing for traders. What greedy guy would forego the market for the vast majority of the world’s rubies, prized for purity? – and mined by drugged workers for pittance.

The pivotal point of Bryan’s teaching labor economics was “greed” (#3) to “progressive” (#2) change and then to #1: “life was terrible for workers because employers paid them whatever they felt like paying them.” Look at history, but Burma is actually a good example today. The specifics of minimum wage, unions, etc. are secondary to the core concept of labor justice and greedy capitalists incorporated selling their products on free markets.

An aside issue: Loof illegally interviewed villagers regarding forced labor for no money. The main beef among the Burmese was not the work for nothing per se, which usually was maintaining roads, fixing public buildings, etc.; it was more that privileged families were excused from the service. With the Shan people, fighting for freedom from the Burmese, it was slave labor.

Steve Sailer writes:

Consider the fates in Victorian England of the little boys, from age four on up, who were widely employed by master chimney sweeps to clamber up inside long flues and knock down the soot, at horrific cost to their health. Paul Johnson writes in A History of the English People (p.285), "often they were forced up by the use of long pricks, and by applying wisps of flaming straw to their feet. They suffered from a variety of occupational diseases and many died from suffocation."

The ruling ideology of the age assumed that, as regrettable as this might be, the laws of economics required it.

After all, how else would chimneys ever get swept?

The first bill banning the employment of children under eight from chimney sweeping passed Parliament in 1788. But, like many immigration laws in America today, it was ignored. So was the 1834 act.

Then, the greatest reformer of the Victorian Era, Anthony Ashley Cooper, the seventh Earl of Shaftesbury, began his almost endless crusade to abolish child labor inside chimneys. Like William Wilberforce, the victor over the slave trade, Shaftesbury was a Tory, an evangelical Anglican, and a relentless parliamentarian.

In 1840, Shaftesbury carried a bill to regulate child chimney sweeps over “ resistance that can only be called fanatical," in Johnson's words.

It also was not enforced.

Boys continued to die…" including a seven-year-old who suffocated in a flue in 1873.

Shaftesbury finally succeeded in passing effective legislation in 1875.

And, of course, that winter everyone in Britain froze to death due to clogged chimneys.

Oh, wait … sorry, that was in Bizarro Britain, where the reigning interpretations of economics actually applied. Rather like in Senator Kennedy's Abnormal America, where nobody will be able to afford to eat chicken without the Liberal Lion’s amnesty and guest worker programs.

In the real Britain, however, the master chimney sweeps quickly found other ways to clean chimneys.

Les Cargill writes:

(from the Four Yorkshiremen sketch...)
FOURTH YORKSHIREMAN:
Right. I had to get up in the morning at ten o'clock at night half an hour before I went to bed, drink a cup of sulphuric acid, work twenty-nine hours a day down mill, and pay mill owner for permission to come to work, and when we got home, our Dad and our mother would kill us and dance about on our graves singing Hallelujah.

Feierling writes:

I am admittedly rusty on my labor economics. I am confused about how coupons relate to minimum wage laws.

My best guess: Coupons are worth nothing without some amount of money. Minimum wage laws effectively cause unemployment for people who were previously being paid "substandard wages," thereby this sector of the population now has no money (so their coupons are worthless).

Can someone provide a brief explanation. Thanks!

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