Labor Day

Monday is, of course, Labor Day. Similar to but distinct from the May 1st International Workers’ Day celebrated in many other nations, here is what our very own Department of (Organized) Labor has to say about it:

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

Well, now. There is no federal holiday celebrating the other three factors of production because land, capital and entrepreneurship don’t vote. Labor Day, born in the aftermath of the Pullman Strike of 1894 and President Grover Cleveland’s unconstitutional deployment of federal troops to Chicago to end the strike, today primarily marks the end of summer in the United States. To be sure, there will also be paeans by politicians to the nobility of labor, mostly of the organized variety; but most Americans, even labor union members, will focus more on cookouts, the Labor Day sales and the beginning of the football season than the condition, past or present, of the labor movement.

The Pullman strike was a wildcat strike, that is a strike undertaken without permission of the employees’ union, and was precipitated by the Pullman railroad car company cutting wages as demand for their products fell as a result of the Panic of 1893. (Yes, Virginia, the U.S. economy has experienced many severe recessions before and has recovered from every one of them, federal intervention or no federal intervention.) George Pullman refused to negotiate with the striking workers whose umbrella American Railway Union (led by Eugene V. Debs) then boycotted all trains carrying Pullman cars and threatened a nationwide strike if the boycotting railroad employees were disciplined.

As is always the case in historical matters, the devil is in the details. I’m no historian (indeed, I’m relying largely on the omniscient Wikipedia as my primary source here), but several of the details of the Pullman Strike are particularly intriguing to me.

Fears of incipient feudalism, or something somehow somewhat like it, have been expressed by readers here recently. Arguably, there have been cases in American history where local economies evinced some of the indicia of feudalism, especially including post Civil War sharecropping, isolated mining company towns and, indeed, Pullman, Illinois in 1893. Today merely a neighborhood in the South Side of Chicago, the original and now historic Pullman:

… was built in the 1880s by George Pullman for his eponymous railroad car company, the Pullman Palace Car Company. Pullman’s architect Solon Spencer Beman was said to be so proud of his creation that he asked George Pullman if the neighborhood could be named for himself. Pullman responded to the effect, “Sure, we’ll take the first half of my name, and the second half of yours.”

In a day when most workers lived in shabby tenements near their factories, Pullman seemed a dream, winning awards as “the world’s most perfect town.” Everything, from stores to townhouses, were owned by the Company. The design was pleasing, and all of the workers’ needs were met within the neighborhood. The houses were comfortable by standards of the day, and contained such amenities as indoor plumbing, gas, and sewers.

Another way of saying that “all of the workers’ needs were met” is to say that Pullman owned all the land, buildings, stores, etc. and required as a condition of employment that his workers live and do all their shopping there. So, on the one hand, while times were prosperous at the height of the Gilded Age Pullman’s employees were better off than factory workers in general.. On the other hand, when Pullman began to cut their wages – I presume in response to the economic downturn and not merely to make himself richer because the man was obscenely rich already – they were, in a sense, trapped.

But only in a sense. I don’t mean to discount or diminish the fact that such employees, like sharecroppers and coal miners elsewhere, typically had few alternatives. In fact, in cases where management extended credit to such workers, the result was often a form of debt bondage. But in many if not most cases they did have alternatives, however unpalatable or even frightening they may have been. This is, after all, a nation of immigrants; our ancestors often risked far more than what moving from one part of the nation to another entailed. Even here, in other words, claims of modern feudalism must be seen as hyperbole. There is, I insist, an important difference between having risky alternatives and having no alternatives.

The second intriguing aspect of the story is how, largely through manipulation by Pullman, himself, the federal government intervened. First, and ironically, the recently (and improvidently) enacted Sherman Anti-Trust Act was invoked to gain an injunction against the ARU as a “business combination” restraining interstate commerce. Second, because Pullman cars were often part of the rolling stock of trains also carrying U.S. mail cars, President Cleveland ordered 20,000 federal troops to crush the strike and run the trains. In short, big business employed big government to the detriment of fairly biggish labor. Labor Day became a federal holiday shortly after the Pullman Strike, as Cleveland sought in that election year to reconcile with labor (read: voters) as a matter of even handedness (read: political expediency). Debs, by the way, even though defended by Clarence Darrow, ended up spending six months in prison where he found enough free time to read Karl Marx. Pullman died two years later.

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I have nothing against federal holidays, especially insofar as they give the federal government one fewer day to do mischief. It is worth noting, however, that mere labor does not create wealth (yes, those other three factors are required and, yes, Locke was wrong) and also that the history of labor relations is not a history of good guys and bad guys. The American Railway Union, for example, was segregated – well, one function of unions is, after all, to keep the ‘wrong sort of people’ from entering the trade – and many of the replacement workers during the strike, aka strikebreakers, aka scabs, were African Americans seizing an opportunity that would have otherwise been closed to them. Arguably, organized labor has at least as much if not more of a history of racial discrimination than business.

There are those who believe government is necessary to curb the excesses of both big business and big labor. It is unclear, however, how this differs all that much from, say, selling arms to two rivalrous nations, maintaining a rough “balance of power” between both while further enriching the arms dealer. It may not be a recipe for harmonious labor relationships or even peaceful coexistence between labor and management, but it’s a guaranteed recipe for big government and all the cost and risk that entails.

Happy Labor Day weekend. I’ll take my steak medium rare and, oh yes, what’s the score?

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14 Responses to Labor Day

  1. James K says:

    A little niggle: entrepreneurship does vote, it just doesn’t have very many votes.

    It is worth noting, however, that mere labor does not create wealth (yes, those other three factors are required and, yes, Locke was wrong)

    It’s not so much that Locke was wrong, any more than Malthus was wrong, they’re just out of date. In the 17th Century, labour was productive capacity, the only mistake is to apply agricultural era ideas to an industrial or post-industrial world.

    But for anyone who still feels inclined to believe that labour is the essence of wealth, I would ask: what resources do 3rd world countries tend to have in abundance?

  2. re: labor the source of all value, etc.:

    One thing that has often bothered me about the way the labor theory of value, such as I understand it, has been portrayed is that proponents tend to negate the fact that labor, as well as capital, is contributed by the entrepreneur and the direct investor and, often, indirectly by the portfolio investor. Another pebble in my shoe is that critics of the labor theory of value tend to claim (rightfully) that labor does not create all value and, usually in rhetorical flourishes not necessarily meant to be arguments, use this true claim to claim further that labor does not create a heckuva lot of value.

  3. re: “the recently (and improvidently) enacted Sherman Anti-Trust Act”

    I am curious to know the libertarian-friendly position on the Sherman Act and antitrust in general. There’s much to criticize from about almost any point on the political spectrum, but what is it libertarians specifically object to?

    It seems to me that they would not necessarily approve of cartels or “monopolies” (which as used in the Sherman Act and subsequent legislation I take to mean “firms that completely or almost completely dominate a market” and not the older “government-granted exclusive privilege). Cartels, especially, and especially if they succeed even if for a limited time, can impose externalities on third parties. And yet, I suspect libertarians don’t necessarily approve of making cartel-activity to be crimes.

  4. (Yes, Virginia, the U.S. economy has experienced many severe recessions before and has recovered from every one of them, federal intervention or no federal intervention.)

    I’m not sure this is fully correct insofar as I would wager there was some sort of federal intervention in response to all, or almost all, of the national recessions the US has had. I haven’t a lot of evidence at my fingertips, but the federal government sets trade policy (it’s first protective tariff in 1816), sets monetary policy (debtors tended in the 19th century to advocate for, rightly or wrongly, inflationary policies by the government), and has jurisdiction or certain kinds of bankruptcy laws, if I understand correctly. Not to mention the many “interventions” in quelling certain labor strikes, such as happened in 1877 and in the Pullman ordeal. Of course, many of the recessions were, at least arguably, caused or aggravated by federal intervention (Jackson’s war on the bank and his “specie circular,” for example).

  5. P.S. I apologize for my numerous comments, but a lost of the claims in Mr. Ridgely’s post struck some sensitive chords with me and I am curious to hear anyone’s comments, reactions, or answers.

  6. Jon Rowe says:

    Robert Bork actually wrote some notable libertarian/free market work on why Antitrust law is in tension with free market capitalism. During the Microsoft era, he backed off and more doctrinaire libertarians like Richard Epstein were using old Bork arguments against the new Bork. I think new Bork — post “Slouching Towards Gomorrah” — was trying to make a point about how the market is not sacrosanct.

    But the free market position is if a firm has a monopoly as long as barriers to entry are down it will attract competitors that under-price it, hence the “Antitrust Paradox” (I think the title of one of Bork’s works from that era). Hence government need be concerned chiefly that barriers to entry remain open. And other areas of common law take care of that.

  7. Thank you, Mr. Rowe.

    I actually had a chance to read (well, I skimmed) the Antitrust Paradox. Curiously, if I recall correctly, he states there that the prohibition of cartels is the one point of antitrust law that he thinks is good (or used to think so….I’m not familiar with his recent writing on the subject).

    I’m at best a lukewarm supporter of antitrust law (at worst, a moderate critic of it) and think it actually creates a barrier to entry by making it hard for businesses to know if they are violating the law or not. Also, as a moderate supporter of unions in at least some circumstances, I think antitrust laws, absent the various exemptions unions enjoy, impedes union organizing (or at least used to, before the Great Depression).

  8. Heidegger says:

    Damn, Mr. DAR, you sure write well. How much of an advance do I need to send you to write a book on say, something like, “Ridgely’s Ruminations on…”—just about anything would work. You’re much fun to read–always worthwhile, with a most interesting perspective on just about everything. Do consider this offer!

    And since it’s Labor Day weekend, I’d say John D. Rockefeller and Andrew Carnegie did more to “liberate” the working class than just about anyone in United States history.

  9. Jon Rowe says:

    I’d have to recheck the point on cartels. Perhaps you should ask Timothy Sandefur of “Freespace,” who is more an expert on economic liberties. He goes after cartels, but almost always they have the force of government behind them like a Taxi statute that says any new Taxi driver has to have the approval of those who already exist. It’s kinda a no brainer, but THOSE are the kind of cartels that free market types hate.

  10. James Hanley says:

    For the record, the score is Oregon 72–New Mexico 0. It’s good to be a Duck.

    Re: Cartels. A couple of points. First, cartels are predicted to be unstable and short-lived because, in game theory, terms, the equilibrium outcome is mutual defection (look up “prisoner’s dilemma”) The clearest example is OPEC. OPEC periodically agrees to cut production to drive up prices. But when prices go up, any member country benefits by cheating on the production quota and producing a little more, not enough to substantially affect the price, but enough to really make out on the premium price they’re getting. But as each country cheats, the extra production tends to bring the price back down again. Then the only way to capture any surplus is to add a little more production before anyone else does. But the faster everyone does that, the faster they return to full production, causing the price to fall again.

    Several years ago in my political economy class, at a time when OPEC was again trying to set lower quotas, I explained all that to my students, then asked them what they thought would happen with oil prices in the next 6 months. Despite the lesson, they all predicted prices would increase. I sighed, bitched a bit, mocked them a bit, then told them oil prices would fall before the end of the semester. I was right, but I’m still not sure they got the message.

    Second, Jon is right about cartels. Because they are unstable, they can remain stable only when enforced by law. So while we have federal laws banning cartel behavior by businesses, we have, mostly at the state level, mandated cartels. This is especially common in California agriculture, where all orange, raisin, and almond growers must join their respective cartels and sell their product only through the cartel.

    The effect is precisely what we would expect from an effective cartel, a screwing over of the consumer. The cartel ensures that not too much of the product gets on the market, to keep the price high, transferring wealth from consumers to producers. The orange cartel ensures that all oranges that go on the market are of a certain size and shape (next time you go to the market, notice this), ensuring that small and funny shaped oranges aren’t available for sale, because consumers might prefer those, at a discounted price. Granted, much of the funny looking fruit gets shifted to orange juice production, which isn’t too bad, but when there’s a surplus of oranges, they literally destroy vast quantities of oranges, instead of allowing consumers to benefit from lower prices. They just dig big pits and bury them.

    So not only are our antitrust laws (at least mostly) unnecessary, but we actually have legally mandated cartels doing exactly what the federal laws are trying to prevent. America is a living, breathing, regulatory perversion.

  11. AMW says:

    DAR, one point on company towns. A colleague of mine did some research on the economics of the company town (having grown up in one himself). He pointed out to me that most company towns were in far-flung, godforsaken areas with little or no population prior to the formation of the town. Usually such a town would crop up when a natural resource was discovered in such an area, and so the only reason for the existence of the town was, typically, the company itself.

    Now suppose the company offered to sell plots, and allow people to buy them, build their own houses and come to work for the company. That would be a pretty risky undertaking. Suppose you bought your house, came to work, and the company went bust (or at least the resource area you’d come to work in went bust). You’d not only lose your job, but the value of your house (likely your biggest financial asset) would plummet. Rational actors would respond by refusing to move to the new town. Same story basically holds for businesses that would serve the community.

    So how could the company attract workers? Provide the housing and businesses itself. The workers rent the housing, so if the company goes broke, they can move on relatively painlessly.

    There may have been some problems in some of the company towns, but they were not without their uses. And I suspect the median experience was no worse than living in any other one-horse town in a godforsaken wasteland.

  12. AMW says:

    Pierre Corneille,

    RE: Labor Theory of Value

    Strictly speaking, I would say that labor does not create any value. It is, rather, highly correlated with it. In many cases, one might even say that it is a necessary condition for value, but not a sufficient one. That’s because, ultimately, value is determined by one’s trading partner (or oneself, if production is for one’s own consumption).

    RE: Antitrust

    What flavor of libertarianism are you talking about? If it’s some version of utilitarian libertarianism, then opposition to antitrust would be predominantly pragmatic (similar to what you’ve read from Rowe and Hanley). Yes, monopolies can exist, and if barriers to entry are high the a given monopoly can persist for a very long time. So maybe there are some cases where antitrust regulation is justified. However, most barriers to entry are created by government anyway, cartels tend to break down, and if a monopolist can easily price discriminate then a lot of the economic inefficiencies associated with monopoly can be avoided. So government should take a minimalist stance on antitrust, and maybe it should just stay out altogether.

    If you’re talking natural rights libertarianism, the argument will likely be that if I’m the only one producing a good (i.e., a monopolist) and I came by that position without the use of force or fraud, then it’s nobody’s damn business how I price my wares. And making me lower my prices, or sell off part of my business, in the name of economic efficiency is simply throwing a thin veil across the gross violation of my liberty that such a policy would entail.

    RE: Federal Intervention in an Economic Crisis

    Yes, the government can fight a crisis under many different banners and on many different fronts. Nevertheless, while I’m no economic historian, I think you would be hard pressed to find federal activity prior to the Great Depression that would pass muster as economic intervention by today’s standards.

  13. Thanks to everyone for answering my questions and comments. You’ve given me a lot to mull over.

  14. I guess the saints of industry seek to use government to “coerce” as well. Have to meet force with force.

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