Saturday, October 31, 2020

Austrians and Full Employment

In this video, the Austrian libertarian “Radical Liberation” claims that “full employment” is not a term used in Austrian economics:

While it is true that Austrians rarely speak of “full employment” (which is a very low level of involuntary employment, and does not mean zero unemployment) as a policy goal, the claim that Austrians do not think in terms of the concept of “full employment” is actually rubbish, because Austrians just use expressions such as “no involuntary unemployment,” “clearing of the labour market” or a “tendency to clearing of the labour market.”

To see this, consider these passages from Austrian economists:
(1) “Similarly, most economists would readily admit that keeping the price of any good above the amount that would clear the market will cause unsold surpluses to pile up. Yet, they are reluctant to admit this in the case of labor. …. In a free market, wage rates will tend to adjust themselves so that there is no involuntary unemployment, i.e., so that all those desiring to work can find jobs. Generally, wage rates can only be kept above full-employment rates through coercion by government, unions, or both.” (Rothbard 2008: 43).

(2) “Unemployment in the unhampered market is always voluntary. In the eyes of the unemployed man, unemployment is the minor of two evils between which he has to choose. The structure of the market may sometimes cause wage rates to drop. But, on the unhampered market, there is always for each type of labor a rate at which all those eager to work can get a job. The final wage rate is that rate at which all job-seekers get jobs and all employers as many workers as they want to hire. Its height is determined by the marginal productivity of each type of work.” (Mises 2008: 596–597).

(3) “We know from ‘microeconomic’ analysis that if there is a ‘surplus’ of something on the market, if something cannot be sold, the only reason is that its price is somehow being kept too high. The way to cure a surplus or unemployment of anything, is to lower the asking price, whether it be wage rates for labor, prices of machinery or plant, or of the inventory of a retailer.” (Rothbard 2006: 44).

(4) “A worse problem is that, since the 1930s, government and its privileged unions have intervened massively in the labor market to keep wage rates above the market-clearing wage, thereby insuring ever higher unemployment.” (Rothbard 2006: 45).

(5) “There is always work to do at some price. For that reason, there can be no such thing as involuntary unemployment in a free market. Everyone who wants to work is working and everyone who does not want to work is in that position by choice. This is a truth that follows from the universal reality of scarcity.

There are only two reasons for unemployment: legal restrictions that forbid contracts from forming (France has plenty, and the United States does too) and price restrictions that prevent the market for labor from clearing properly (France has that too, as does the US). In other words, involuntary unemployment is always and everywhere brought about by the same cause: government restriction of the market.” (Rockwell 2006).
For Austrians, the whole point of flexible money wages is that it is supposed to cause a strong tendency towards the clearing of the labour market, which is just another way of saying that free markets are supposed to have a strong tendency towards elimination of involuntary unemployment and high levels of employment (“full employment”).

So we can see here how ignorant and incompetent Austrians are if they claim that they do not understand the concept of “full employment.”

Mises, L. 2008. Human Action: A Treatise on Economics. The Scholar’s Edition. Mises Institute, Auburn, Ala.

Rockwell, Jr., Llewellyn H. 2006. “The French Employment Fiasco,” 11 April

Rothbard, Murray N. 2006. Making Economic Sense (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.

Rothbard, Murray N. 2008. America’s Great Depression (5th edn.). Ludwig von Mises Institute, Auburn, Ala.