The struggle over money-wages is often believed to determine the general level of real wages.
Workers have an imperfect mobility.
- Wages do not tend to an exact equality of net advantage in different occupations.
- Anyone who accepts lower money-wages relative to others, will get lower real wages.
- This makes workers resist it.
On the other hand, it would be impracticable to resist every reduction of real wages, due to inflation.
- Workers do not resist this unless the inflation is extreme.
A resistance against lower money-wages does affect an increase in aggregate employment as a resistance against lower real wages does.
In other words, the struggle on money-wages primarily affects the distribution of the aggregate real wage between different labour-groups.
A union of a group of workers is for the protection of their relative real wage.
- resist reductions of money-wages
- do not resist reductions of real wages from increases in aggregate employment
These make them instinctively more reasonable than the Classical economists.
The Classical school says that unions will block any increase in aggregate employment.
- But this is wrong because trade unions:
- resist cuts in money-wages.
- do not go on strike for every rise in the cost of living*.
*Superphysics Note: This is actually the weakness of working class that is subtly exploited by the profit and rent earning class
‘Involuntary’ unemployment does not mean the mere existence of an unexhausted capacity to work.
‘Frictional’ unemployment is not ‘involuntary’ unemployment.
A small rise in the price of consumer goods relative to the money wage can cause ‘involuntary’ unemployment when both of the following are greater than the existing volume of employment:
- the aggregate supply of labour willing to work for the low value money-wage and
- the aggregate demand for such labour at that low value wage
This means that the second postulate means:
- ‘full’ employment, and
- an absence of ‘involuntary’ unemployment.
[Marginal disutility of employment means workers refusing to work for slave wages.]
Therefore, “apparent unemployment” is the result of temporary loss of:
- work of the ‘between jobs’ type or
- intermittent demand for highly specialised resources or
- the employment of free labour from the effect of a trade union ‘closed shop’
Thus Classical economists concluded that apparent unemployment is caused by a refusal by the unemployed to accept a reward* which corresponds to their marginal productivity.
*Superphysics Note: In a depression, real wages become slave wages due to the reduced total economic activity.
A classical economist may sympathise with workers refusing to accept lower money-wages. But such a condition is temporary. Scientific integrity forces him to declare that this refusal is the cause of the problem.
If the classical theory is only applicable to the case of full employment, it is wrong to apply it to the problems of involuntary unemploymen if there be such a thing.
The classical theorists resemble Euclidean geometers in a non-Euclidean world. They discover parallel lines often meet. They rebuke the lines for not keeping straight. But the real remedy is to throw away* the axiom of parallels and to work out a non-Euclidean geometry.
*Superphysics Note= Here Keynes blames Classical theory for staying with non-profit maximizing, non-monetary paradigm. He urges it to go with the current corrupted reality.
Something similar is required today in economics. We need to throw over the second postulate of the classical doctrine and to work out a system where involuntary unemployment is possible.