IRA STEWARD ON CONSUMPTION AND UNEMPLOYMENT

Dorothy W. Douglas (Journal of Political Economy, August 1932)

SOME sixty years ago a New England labor leader gave form to a philosophy of American wages and unemployment that sounds strangely apposite today. The depression of 1873 gave point to his utterances, but the sermon had been composed long before the text. Ira Steward is said to have dedicated himself to the cause of shorter hours in 1850, when as a youth of nineteen he was working twelve hours a day as a machinist's apprentice. Subsequently he converted the Machinists' Union to his viewpoint, founded various eight-hour leagues in and around Boston, and carried his influence to the state legislature and to Congress. By the early sixties his activities were in full swing and we find his name in the columns of numerous labor and reform journals, always with the eight-hour slogan upon his lips, but always with a wider economic message accompanying it.

From the early 1860's on Steward is said by his friends to have projected a book to be entitled, The Political Economy of Eight Hours, and in the closing years of his life (after 1875) he actually got a chapter of it written. (See the fragment, "The Power of the Cheaper over the Dearer" in Professor Commons' Documentary History, Vol. IX.) For the most part, however, he contented himself with throwing out bits of his more philosophical thinking incidentally to his development of his central project of hours reform.

Steward's message has two aspects: one, the stimulating effect of leisure and leisure-time consumption upon the standard of living and hence the wage demands of the lowest classes of labor ("They must make progress in spite of themselves, before they will have opinions or say Yes or No to anything new or different from the old past way of doing."); and the other, the stimulating effect of this more expensive labor upon the technique of production itself-the effect of "driving" labor-saving machinery into existence. Finally, uniting the two, is a plea, now familiar to our ears, of mass demand as alone making mass production possible.

"EIGHT-HOUR THEORY IN THE AMERICAN FEDERATION OF LABOR"

Henry Raymond Mussey (1927)

No student of American labor history can fail to be struck with the extraordinary importance of the eight-hour issue in union thinking during the formative years of the American Federation of Labor. At its first convention, in 1882, the Federation of Organized Trades and Labor Unions of the United States and Canada, predecessor of the American Federation, passed a strong and interesting resolution on the subject; the following year it resolved that the question of shortening the hours of labor was "paramount to all other questions at present"; in 1884 it recommended to its constituent organizations concerted action to obtain the eight-hour day beginning May 1, 1886; and during the next twenty years no convention passed without some declaration concerning eight hours. In his report as president at the convention of 1889, Mr. Gompers declared: "In the whole history of the labor movement there has not been any question upon which the thoughts of the civilized world have been so thoroughly centered as upon the Eight-Hour Movement inaugurated by the American Federation of Labor at its last convention."
…
In that task of organization the eight-hour issue was a tool of great value – to no small extent, it is submitted, because its underlying theory made it an effective gospel under the circumstances then existing. That theory came down from the eight-hour advocates of the years 1865-72. Mr. Gompers once put the whole thing thus: "In the language of that foremost of economic and social thinkers, Ira Steward, 'The way out of the wage system is through higher wages, resultant only from shorter hours.'" The reader should note well the little word only, for it represented Steward's actual thought, and it represented the dominant wage theory of the American Federation during its first ten proselytizing years. In his autobiography Mr. Gompers testified to his debt to Ira Steward, George E. McNeill and George Gunton, as leaders of the earlier movement. They furnished the idea, and Mr. Gompers hammered out the organization to make the idea effective.

The standard of living or bootstrap theory of wages has not been popular with modern economists, though it may certainly claim a respectable father in the person of one David Ricardo. "The natural price of labor . . . varies," as every student will recall, "at different times in the same country, and very materially differs in different countries. It essentially depends on the habits and customs of the people." There is no need to enter into the refinements and contradictions of Ricardian theory. Grant only what is flatly stated in that passage, and it is only one step more to the position of the bootstrappers, namely, that labor can get more by demanding and taking more. That is what underlay the early eight-hour movement; that is what made the eight-hour idea so extraordinarily valuable to the builders of the American Federation. The productivity theorist who quarrels with them for accepting this basic idea because, as the theorist says, it is not true, is simply missing the point. Whether or not the idea may be said to be true in the abstract, a plausible argument, at any rate, may be made for the standard of living theory as explaining wages in New York cigar factories in the seventies and eighties, with an endless stream of European immigrants flowing through the city, and the margin of productivity a dim and distant thing on the western horizon. And whether or not the idea is or ever was true, the labor leaders found it extraordinarily useful in their business.
…

The Federation wanted eight hours, however, not only to raise wages, but also to lessen unemployment. Here also the unionists were fortunate in being ignorant of productivity theory. In his report as president in 1887, Mr. Gompers said: "The answer to all opponents to the reduction of the hours of labor could well be given in these words: 'That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long.'" The simple idea of employing more men by spreading the existing work among a larger number through the device of shorter hours played a direct and important part in Federation thinking during the early period, down to 1892. Any cub productivity theorist can upset the idea by a mere reference to long-time effects on wages; but the unionists were blissfully ignorant of such theories, and confident of the union's power to maintain living standards and wages, so the theoretical fallacy did not trouble them.

Note that the "productivity theorists" Mussey referred to would be better described as "19th century productivity theorists" who would not yet have had the benefit of Sydney J. Chapman's theory of the Hours of Labour, which displaced the naïve assumption that output was proportionate to the hours worked.

we don't have to saddle them with the unwarranted claim that they will relieve involuntary idleness.

Dear Professor Wray,

I agree with you that shorter hours are saddled with an "unwarranted expectation" for relieving involuntary idleness but that unwarrantedness is only because of a misinterpretation of where the job creation comes into the picture. For the most part, it doesn't come from dividing up the current hours of work and redistributing them in new jobs (although some job loss could be prevented by work sharing instead of layoffs, as John R. Commons suggested).

The real job creating potential of shorter hours is long-term and hygienic. Reducing the hours of work keeps them at a productivity frontier that enables higher wages and thus prevents the dumping of greater labor supply on the market. It enables people to be healthier both physically and socially and this feeds back into their work experience. It keeps labor unions strong and able to demand higher wages.

By the way, my first quote was from Keynes. He thought that in the long run, working less was necessary to maintain full employment. Pasinetti has argued that not only "can" we but we must take the fruits of higher productivity either in increased consumption (which it always takes time to learn to consume) or in shorter hours.

It seems to me that the prejudice against shorter hours as a "panacea" has evolved over the course of SEVENTY YEARS (that's when the FLSA enacted the 40 hour work week) into a blindness that the FAILURE to progressively reduce the hours of work becomes toxic. Long hours of work become a drag on wages and thus on consumption (see Dorothy Douglas's discussion). That's why I would urge you to stop assuming the hours/workers trade-off story is the sole rationale for shorter hours.

From a political standpoint I am with the billionaire expert. An entirely new way of looking at the relationship between government and business.
People like Joe Scarborough will laugh at fixing the immediate economic crisis with concrete. We need concrete, we need a medical internet that instantaneously permits doctors to communicate files with each other, a new health care system replacing the factionalized programs we have now.
Government must oversee corporate abuses and corporate management abuses which are separate issues.
God its great to get into a discussion with Randall Wray. This is great.

This post mentions that our economy's "financial fragility" has increased. One of the causes of this fragility is the network of "complex financial instruments" that make for deep interrealtionships among the different sectors of the economy. One sector's fall will cause massive damage to other sectors.

With the stock market in a tailspin, should we not be concerned about the insurance industry, especially the life insurance industry?

Insurance companies collect premiums before the claims are due. They take this excess money, Warren Buffet calls it his 'float', and invest it. Presumably, they make a profit from the investments, which provides the money necessary to pay the claims, plus quite lavish bonuses, big office buildings, etc.

However, if the insurance company loses money on the investments? What then?

An hour ago, I looked up an insurance company I have done a lot of business with. That company's consolodated financial statement shows that at the end of 2007, it held a surplus of 8 billion dollars. However, the NY times reported yesterday that company has (had) 3.3 billion invested with Bernard Madoff. In addition, the statement shows that at the end of 2007 it had 3.7 billion invested in the stock market, 1.5 billion in derivitives, and 12.6 billion in real estate mortgages.

Why did Warren Buffet step up to the plate a couple of months ago? Buffet's core business is insurance. He knows the insurance companies are in trouble.

Interesting. I think the greatest generation, as hard working and patriotic as they were, was just in the right place at the right time. Similar opportunities, on an equal scale, did not exist for the boomers, and the current generation, well watch any news lately?

My God, A big infrastructure program will only cause more inequality by building new roads and brides to the power and influential’s land causing older and present developments to decline.
What is needed is maintenance and repair of existing infrastructure not roads to new “clutter”.
Invest the money in people, in New Community Organizations not for the Corrupt who profited already from our no laws observed society!

Also, the #1 reason for early postwar success:

"Ten Plus Years of subtrend growth in GDP ex government, leading to massive resources sitting idle that could be employed once normalcy was restored."

It's like "Morning in America" in the 80's. The "Reagan Recovery" wasn't Reagan's doing. Growth accelerated because inflation was taken care of, money was again available, and there were productive resources sitting idle (empty factories, a high unemployment rate) which allowed for quick growth.

Oh, sorry, I forgot one thing. A former student of mine has a new book coming out that argues for the shorter work day/week. His name is Robert LaJeunesse--watch for his book. So I am neither completely uninformed, nor against the idea. My argument is that it is not enough--we also need more jobs and more hours for those who want them.

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