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Three Pop-up Economists

The Thirty Hour Work Week

Arthur Dahlberg's key argument in Jobs, Machines and Capitalism was that capitalism tolerated, encouraged and, in some circumstances, virtually required employers to waste the effort of workers by stimulating artificial needs for worthless consumer goods, expanding production facilities beyond actual requirements, differentiating products in frivolous ways and competitively establishing needlessly redundant distribution channels. The result has been that the vast majority has not benefited in proportion to the enormous increases in productive capacity.

Rather than attempting to address each instance of waste in isolation, Dahlberg, argued, the maintenance of a relative labor scarcity would impose a financial discipline on employers that would discourage the leaking of excess profits into such wasteful pecuniary competition. Such labor scarcity could be achieved by judiciously shortening the hours of work. The key to raising wages, in Dahlberg's view, was inducing a labor shortage not increasing wants and desires.

How many working hours are devoted to wasteful production – built-in obsolescence, excess productive capacity, propaganda, disposable fashion, and other forms of sheer waste? For the answer, we turn to Arthur Dahlberg's analysis of the effect of long hours on labor's share of income.

Although Dahlberg dismissed concerns that machines directly caused technological unemployment and pointed to statistical evidence confirming that view, he noted that the new jobs created in the wake of technological change would be different than the old ones. Those new jobs were different in that the products and services they produced were not as spontaneously demanded by those with purchasing power as were the products and services of the old jobs. This meant that there would be a lag in the expenditure of additional income, particularly by the upper income groups, while demand for the less urgently desired goods and services was stimulated by advertising, social pressure, non-essential model diversification, etc.

Thus "an ever-increasing part of the practically constant amount of expended labor energy is forced into the production of goods less necessary to those with purchasing power, goods for which demand must first be created." This shift to less urgently desired goods and services Dahlberg cited as "the primary cause of our wasteful production, our rationing of opportunity, our excess industrial plant, our enormous wastes of competition, our high-pressure advertising, our economic imperialism, and of our commercialistic and pecuniary standards."

Dahlberg's distinction between spontaneously demanded and non-spontaneously demanded goods did not entirely conform to the distinction between necessities and luxuries, although necessities would indeed tend to be spontaneously demanded. But some spontaneously demanded goods and services are not necessities. Dahlberg gives the examples of gin and perfume as non-necessities that are spontaneously demanded. Although he did not mention it, the spontaneous demand for goods and services would undoubtedly have a historical dimension, so that sports equipment, musical instruments, transportation, phone service, furniture, laundry equipment etc. would tend to become spontaneously demanded – but not yachts, home theatres, or all-inclusive vacations in Cancun. If the goods induce people with disposable income to spend their money as soon as they get it, they can be classed as spontaneously demanded goods.

Dahlberg argued that wages are determined by bargaining and the shift away from spontaneously demanded goods and services undermines labor's relative bargaining power, resulting in a smaller labor share of income. Because there is a lag between the production of the less urgent commodities and their purchase, in addition to workers "who are engaged in fantastic occupations and who always stand ready to compete for low wages," there is also generated a "residuum of unemployed which raises havoc with the bargaining power of workers and managers, and which, year in and year out, prevents the workers of industry from buying back what they produce."

Because of labour's reduced bargaining power, a larger share of income goes to return on capital and thus to the higher income groups who already have their spontaneous wants met. What they don't spend of this excess on artificially stimulated consumption, they may invest in excess production capacity or on additional marketing efforts. Dahlberg thus saw unemployment as the slow-moving consequence of the introduction of labor-saving technology unless the hours of work are reduced.

The Hours of Labour

At the meeting in Winnipeg, Manitoba in 1909 of the Economics and Statistics Section of the British Association for the Advancement of Science, Sydney J. Chapman unveiled his economic theory of the "hours it is wise to assign to labour." The "Hours of Labour" theory was subsequently published in The Economic Journal. Chapman's analysis arrived at several remarkable and far-reaching conclusions. First, the length of working day that would be best for workers' welfare is shorter than the length that would produce the largest output. Second, the play of competition would tend to make the working day too long, even from the standpoint of production. Third, improved methods of production would lead to a progressive reduction of the optimal length for the working day.

Not only were those conclusions novel from the point of view of conventional economic teaching, they also had important practical implications for public policy regulating the hours of work. If the hours of work established by the market were likely to be too long, even from the perspective of total output, then legal limitation of the working day could aid not only equity but also economic efficiency. This possibility challenges the economic truism that there is a "trade-off" between equity and efficiency goals and that economic efficiency is best served through the workings of a competitive market. Chapman's theory calls both of those suppositions into question. It does so from within the tradition of neoclassical economics, using the approved tools and standard assumptions.

Chapman argued that the importance of leisure, both to industrial productivity and to individual well-being, must rise along with technical progress. As industrial processes became more intensive and specialized, the faster pace of working and the mental concentration demanded from workers would accelerate fatigue and thus would make it less productive to continue working longer hours. The optimal length of the working day for output would thus decline. At the same time, higher incomes from increased output would also make leisure time both more attractive and more affordable to workers. Those changes in both the optimal length of the working day and the value of leisure to workers would lead to demands for corresponding reductions in the actual length of the working day: "agitation for shorter hours will be constantly breaking out anew."

Chapman arrived at this conclusion after reviewing a mass of evidence from the 19th century that reductions in the hours of work had not led to proportionate declines in output. From that evidence, he inferred that workers required more leisure time to fully recover from the fatigue of work as industrial methods became progressively more intensive. Thus, when the hours of labor were reduced, the better rested workers were often able to produce as much or more in the shorter hours than they had previously in longer hours. "Labour which has had its hours reduced will be capable after a time—when the use of leisure has been improved and the improvement has produced its effects—of managing satisfactorily more complicated machinery, and will be generally more responsible and trustworthy, and therefore less in need of continuous watching and directing."

Most importantly, Chapman's analysis also suggested that competition between employers would make it unlikely that a working day of optimal length could be established solely through the operation of a free market. The reason for this was that the achievement of a working day of optimal length for output in the long run would require employers to exercise short-term restraint. A working day of optimal length could only be maintained if all employers acted together in enlightened accord.

The length of day that would be best for workers' welfare would be shorter than that which could produce the greatest total output. Chapman considered three elements in assessing the optimal day for the worker:

  • the wage, which Chapman assumed for the purpose of analysis to exactly equal the worker's marginal productivity;
  • the marginal value of leisure, which Chapman assumed to vary in response to changes in the level of wages, and;
  • the disutility of work, which Chapman assumed to also be a function of the length of the working day -- he assumed work could be enjoyable during some intermediate period of the working day.

Chapman maintained that in forming their ideal of a working day, workers' would tend to disregard the effects of changes in work time on efficiency, and hence on wages. Accordingly, they would tend to prefer a working day longer than would be prudent in the long run, even though it would not be as long as that preferred by employers acting competitively. Thus, the exclusive concern of both employers and workers with immediate self-interest would bias the preferences of each toward longer than optimal hours.

Wealth is Disposable Time

Charles Wentworth Dilke's first premise was that "the wealth of a nation consists in its reserved surplus labour." It didn't matter how revenues were received -- whether as interest, rent, pension, or profit -- they originated from the same source. Second, this reserved surplus labour -- or capital -- "has a power of reproduction… when invested in machinery" or other productive facilities. But this accumulation is very limited "if the happiness of the whole, and not the luxuries of a few, is the proper subject for national congratulation." When the limit had been reached, the hours of labour could be drastically reduced, "where men heretofore laboured twelve hours they would now labour six, and this is national wealth, this is national prosperity." What limits the accumulation of capital is the decreasing interest that would be paid for its use.

Although Dilke's account of the source of capital and the limits of accumulation is indeed interesting, its function in the pamphlet is to set the stage for the crucial pair of questions that appear on page seven. After deducing from principles of political economy that capital, left to its natural course, would soon do away with further accumulation, the author asks why that seemingly inevitable result has never happened and how it is that with all the presumably labor-saving wonders of modern industry, workers (in the early 19th century) worked longer hours and more strenuously than ever before.

His conclusion was that "power has ever interfered, and by misdirecting the labour of one part, and destroying the labour of another, no longer permits a real accumulation of surplus produce, nor consequently such an increase of capital as shall reduce the value of existing capital, or reduce the capitalist to the necessity of labouring again." Dilke did not identify who this power was but presumably it was powerful capitalists and landowners, and the legislators who did their bidding.

These powerful actors interfere by maintaining "unproductive classes" at a constant proportion to productive laborers and by enabling the immense expansion of "fictitious capital" based ultimately on protectionism and government finance. Government does these things so that it may raise an enormous level of revenues that it couldn't through direct taxation of the laboring population, because "it would have been gross, open, shameless, and consequently impossible." Instead, it makes the holders of this fictitious capital accomplices in a stratagem to exact a much-enlarged revenue. As partner in crime, the capitalist lays claim to a generous portion of the booty. Not surprisingly, war is a "powerful co-operator" in this relentless process of destroying the produce of labor while expanding the claims of fictitious capital.

As for the claims of surplus value exacted by the capitalist, Dilke viewed them as causing the laborer "no real grievance to complain of" provided capital was confined within its natural limits. Not only was Dilke not opposed to capitalist production, he described it as leading to a virtually Utopian condition of freedom if only it was left to unfold according to its nature.

Far from "turning the Ricardian theory of value against capitalist production," as Friedrich Engels claimed in his preface to Volume 2 of Capital the author of The Source and Remedy of the National Difficulties, Charles Wentworth Dilke, proposed reform measures whose "adoption would leave the country at liberty to pursue such a wise and politic system of financial legislation as would leave trade and commerce unrestricted." For Dilke, the primary contradictions of capitalism (to use Marx's expression) lay not so much between capital and labor as between real and fictitious capital, productive and unproductive labor, convertible and inconvertible money, necessities and luxury goods.