Front Page Titles (by Subject) 5: Unemployment Insurance - Socialism: An Economic and Sociological Analysis
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5: Unemployment Insurance - Ludwig von Mises, Socialism: An Economic and Sociological Analysis 
Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).
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Assistance of the unemployed has proved to be one of the most effective weapons of destructionism.
The reasoning which brought about unemployment insurance was the same as that which led to the setting up of insurance against sickness and accident. Unemployment was held to be a misfortune which overwhelmed men like an avalanche. It occurred to no one that lack of wages would be a better term than lack of employment, for what the unemployed person misses is not work but the remuneration of work. The point was not that the “unemployed” could not find work, but that they were not willing to work at the wages they could get in the labour market for the particular work they were able and willing to perform.
The value of health and accident insurance becomes problematic by reason of the possibility that the insured person may himself bring about, or at least intensify, the condition insured against. But in the case of unemployment insurance, the condition insured against can never develop unless the insured persons so will. If they did not act as trade unionists, but reduced their demands and changed their locations and occupations according to the requirements of the labour market, they could eventually find work. For as long as we live in the real world and not in the Land of Heart’s Desire, labour will be a scarce good, that is, there will be an unsatisfied demand for labour. Unemployment is a problem of wages, not of work. It is just as impossible to insure against unemployment as it would be to insure against, say, the unsaleability of commodities.
Unemployment insurance is definitely a misnomer. There can never be any statistical foundation for such an insurance. Most countries have acknowledged this by dropping the name “insurance,” or at least by ignoring its implications. It has now become undisguised “assistance.” It enables the trade unions to keep wages up to a rate at which only a part of those seeking work can be employed. Therefore, the assistance of the unemployed is what first creates unemployment as a permanent phenomenon. At present many European states are devoting to the purpose sums that considerably exceed the capacity of their public finances.
The fact that there exists in almost every country permanent mass unemployment is considered by public opinion as conclusive proof that Capitalism is incapable of solving the economic problem, and that therefore government interference, totalitarian planning and Socialism are necessary. And this argument is regarded as irrefutable when people realize that the only big country which does not suffer from the evils of unemployment is communist Russia. The logic of this argument however, is very weak. Unemployment in the capitalist countries is due to the fact that the policy both of the governments and of the trade unions aims at maintaining a level of wages which is out of harmony with the existing productivity of labour. It is true that as far as we can see there is no large scale unemployment in Russia. But the standard of living of the Russian worker is much lower than the standard of living of the unemployed dole receiver in the capitalist countries of the West. If the British or Continental workers were ready to accept wages which would indeed be lower than their present wages but which would still be several times higher than the wages of the Russian worker, unemployment would disappear in these countries too. Unemployment in the capitalist countries is not a proof of the insufficiency of the capitalist system, nor is the absence of unemployment in Russia a proof of the efficiency of the communist system. But the fact that there is unemployment as a mass phenomenon in almost every capitalist country is nevertheless the most formidable menace to the continuance of the capitalist system. Permanent mass unemployment destroys the moral foundations of the social order. The young people, who, having finished their training for work, are forced to remain idle, are the ferment out of which the most radical political movements are formed. In their ranks the soldiers of the coming revolutions are recruited.
This indeed is the tragedy of our situation. The friends of trade unionism and of the policy of unemployment doles honestly believe that there is no way to ensure the maintenance of fair conditions of life for the masses other than the policy of the trade unions. They do not see that in the long run all efforts to raise wages above a level corresponding to the market reflection of the marginal productivity of the labour concerned must lead to unemployment, and that in the long run unemployment doles can have no other effect than the perpetuation of unemployment. They do not see that the remedies which they recommend for the relief of the victims—doles and public works—lead to consumption of capital, and that finally capital consumption necessitates a lowering of the wage level still further. Under present conditions it is clear that it would not be feasible to abolish the dole and the other less important provisions for the relief of the unemployed, public works and so on, at one single stroke. It is indeed one of the principal drawbacks of every kind of interventionism that it is so difficult to reverse the process—that its abolition gives rise to problems which it is almost impossible to solve in a completely satisfactory way. At the present day the great problem of statesmanship is how to find a way out of this labyrinth of interventionist measures. For what has been done in recent years has been nothing else than a series of attempts to conceal the effects of an economic policy which has lowered the productivity of labour. What is now needed is first of all a return to a policy which ensures the higher productivity of labour. This includes clearly the abandonment of the whole policy of protectionism, import duties and quotas. It is necessary to restore to labour the possibility to move freely from industry to industry and from country to country.
It is not Capitalism which is responsible for the evils of permanent mass unemployment, but the policy which paralyses its working.