Tuesday, February 15, 2011

Labor Justice

So the knee-jerk reaction to low-priced foreign imports is the imposition of tariffs and other restrictions on their importation in an attempt to "protect" domestic industry. Restrictions on the quantity of available goods cause the same number of dollars to chase fewer goods, causing prices to rise. It does not, however, follow that wages should also rise with prices. What causes wages to increase? "When two workmen run after one boss, wages fall; when two bosses run after a workman, wages rise."

Perhaps a more precise way to express that sentiment might be: "The rate of wages depends upon the proportion which the supply of labour bears to the demand." Wages therefore increase when the demand for them increases 1 (duh!). Now the demand for labor is directly dependent on the amount of available investment capital. It follows then that even if a government prohibits the importation of a good, this action has no effect on the quantity of investment capital, it can only change the allocation of that capital. What this means is that an increase in labour demand in one protected industry necessarily reduces the labour demand in another industry.

The sum of production is the result of capital and labour, minus any obstacles imposed. If obstacles are increased for a fixed amount of capital and labour, then the sum total must decrease. And if the amount produced is diminished, then how can one assume that their share of production will increase. Such a belief is dependent on the assumption that the "rich"2 who effectively make the laws will for some reason sacrifice an increasing portion of their decreasing fair share of production. It seems to me that one would be wise to reject this most suspicious act of generosity.

So what I'm wondering here is this: Is it not just that after working all day I should be able to use my earnings to purchase the most they can? Is it not obvious that the imposition of trade restrictions reduces this? Does it not also logically follow that ANY tariffs or any other sort of imposed restriction of trade is an unjust taking of my labour?


ideas taken from "Does Protection Raise the Rate of Wages" by Fred Bastiat
  1. ^ Also note that increasing wages does not increase prices unless that increase is imposed from outside, in which case the increase in price is still not due to the wage increase, but to the external imposition.
  2. ^ who are generally better politically connected than the rest of us.

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