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KARL BRUNNER, The Triple Revolution: A New Metaphysics - Ralph Raico, New Individualist Review 
New Individualist Review, editor-in-chief Ralph Raico, introduction by Milton Friedman (Indianapolis: Liberty Fund, 1981).
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The Triple Revolution: A New Metaphysics
MAN’S CONCERN WITH salvation is ancient indeed. For millenia he has relentlessly poured out his intellectual resources in this pursuit. The pressures and frustrations of reality have demanded consoling orientations toward the universe and the social environment, and man has proved almost more than equal to this challenge of “existential anxiety.” A profusion of products has been created to satisfy this demand; and over the centuries a rich pattern has evolved, from the biomorphic interpretations of the cosmos as in primitive societies, up to the metaphysical systems of modern philosophy and theology.1
A concern for salvation in this world and this life through the manipulation of institutional arrangements is not entirely new. This secular eschatology shares with other types of Erlösungslehren an essentially noncognitive, emotive-pictorial use of language and the commitment to a global strategy. It holds that redemption from evil cannot be assured by a piecemeal procedure of trial and error. The social order must be totally reshaped in order to achieve salvation. Deliverance comes through a force or a process which invariably destroys the inherited social organization, and thus opens the path to the New Jerusalem.
The theme is old and has been played in many variations; but the clash of ideologies permitted by an open society inevitably generates new conceptions. Among the products recently cast up we note in particular the Manifesto of the Triple Revolution, prepared by an Ad Hoc Committee for the Triple Revolution, and issued in March 1964 with an admirable sense for publicity. A variety of programs on radio and television have since been devoted to the diffusion of the Word. Article in magazines and newspapers have similarly elaborated the message. In this article I intend to analyze the claims and proposals of the “Triple Revolution” group from the standpoint of economic theory, and then indicate some of the wider philosophical implications of this phenomenon.
The Manifesto opens with a declaration that “mankind is at a historic conjuncture which demands a fundamental re-examination of existing values and institutions.” The historic conjuncture results from “three separate and mutually reinforcing revolutions”: cybernation, weaponry, and human rights. The Manifesto, however, barely mentions the last two, and concentrates on the cybernation revolution. It is claimed that the advent of complex computers, data-processing and self-regulating machines, creates an historical break in the evolution of social life. “A new era of production has begun. Its principles of organization are as different from those of the industrial era as those of the industrial era were different from the agricultural.” The new machines, it is claimed, introduce a regime of unlimited productive capacity.2 With cybernation, abundance has become a “fact”; scarcity is the result of obsolete institutions and inappropriate values. With abundance abounding, rationing and allocation mechanisms become redundant.
In the Marxist eschatology, the state was expected to wither away. Not so according to some prophets of the Triple Revolution. The economic organization is expected to vanish, but the state will absorb society.3 While paradise could (almost?) immediately be achieved, inherited institutions and values prevent its realization. An economic organization based on private property and guided by market price signals converts the impact of cybernation into rising poverty, expanding unemployment, and corrosive “alienation of man.” The new machines displace people in droves, first from manufacturing industries and agriculture, and subsequently from the service industries. Man cannot compete with these machines. Poverty, therefore, expands and men become totally alienated from a hostile society. In the new era dominated by cybernation and automation, it has become impossible to achieve full employment in the context of a market economy. Fiscal policy may, admittedly, provide some transitory remedies; but they are of dubious value in alleviating the unavoidably growing unemployment.4
THE NATURE OF THE ultimate society remains strangely obscure, however. We seem assured that it will be a Good Society which will have exorcised the curse of alienation brought on by a market system of economic organization. There is, however, no discussion of the institutional arrangements of the new society of abundance which will have vanquished the Satan of Scarcity. One point only emerges with clarity: The vanishing amount of labor required to assure abundance suggests that any connection of income with productive effort is totally obsolete, and in a “deeper sense” immoral. Incomes must be disbursed independent of productive contribution.
Instead of a description of institutional arrangements and of their manner of operation in the new society, we are offered tortuous debates on the New Morality required for a society which radically dissociates income from productive effort. The agonizing discussions about the inappropriateness of inherited moralities yield no enlightenment concerning the mode of operation of the new society. It is not clear whether any income whatsoever may be claimed by the individual eager to share abundantly in the abundance, or whether a limited income is assigned to every member of society “according to his needs.” The vague references which may be culled from pamphlets suggest the second interpretation. Should this be correct, one wonders about the justification for such limited allocations in the midst of “unlimited” plenty.
We are, however, provided with somewhat more information concerning the transition from the old to the new order. Massive government programs and a massive expansion of the government sector and government activities are necessary to alleviate “the physical and psychological miseries” created by cybernation in a market system. The key word is definitely “massive,” whether it pertains to public education, public works, low cost housing, rapid transit systems, or public power systems. Among the etcetera may be noted income redistribution through taxation (on a massive scale, of course); and extensive use of licensing, and minimum wage laws are also proposed. In summary, the Manifesto, supplemented by individual elaborations and comments offered by its propounders, casts a “cacotopian” gloom over contemporary society and its economic organization, and reveals the promise of a Happy and Good Society achievable through radical social engineering and an appropriate reshaping of moral values. It also traces suggestive outlines of a program to alleviate the pains of transition.
Many people no doubt find the arguments used to support the Manifesto’s approach appealingly plausible. The impact of new machines on the workers directly affected appears quite simple and obvious. Such impressions, however, possess a most ambiguous significance. For many centuries they confirmed that nobody could live on the other side of the earth, and it seemed just as obvious to most men that the sun revolves around the earth. The history of many sciences clearly shows that impressions must be carefully distinguished from observation reports. Impressions transcend a mere recording of observations in that they contain interpretative conjectures bearing on the observations noted. Consequently, they provide no evidence for the underlying and hidden theoretical notions. Moreover, the psychological sense of conviction accompanying such implicit interpretations cannot possibly establish their truth. The history of man’s knowledge supplies many examples demonstrating the inadequacy of the most convincing, most obvious, and most plausible impressions of our environment. A critical examination of the ideas which the Manifesto advances with an overpowering sense of urgency for immediate radical action thus acquires considerable importance. That such an examination can only be conducted by means of technical economic theory is due to the nature of the subject matter. I shall proceed in this manner with some reluctance, since I feel certain that my treatment is destined to receive much less attention in the popular press than did the Manifesto of the Triple Revolution. Yet in the last analysis, after all, it is through economics and not prophecy that we can come to the truth in this matter.
THE EXISTENCE OF “idle” resources has often been observed in both market and non-market economies. On this point, the two types of economic organizations do not differ. They do differ, however, in the manner of occurance and the appropriate interpretation of the phenomenon.
The market process releases signals in the form of price movements which reallocate resources and output. If information about evolving market structures and the reallocation of resources were available without cost, resources would move instantly in the directions determined by the changes in demand and supply. In the context of a “full-information world” with no adjustment costs, economic resources would never be “idle,” and markets would always be cleared. But this is not our world. Information must be produced, or gathered, at a positive social and private opportunity cost. Resources with alternative uses must be invested to collect, evaluate, and comprehend information about market positions. The more information one requires, and the more rapidly one wishes to collect a given amount of it, the greater will be its cost. Similarly, the readjustment of inherited resource-utilization patterns also necessitates a specific allocation of resources with alternative uses. Readjustment involves costs, which rise with both its magnitude and its speed.
Once we recognize the crucial role of the costs of information and adjustment, we can arrive at a more intelligent understanding of the nature of the market process. Idle resources will then appear as a rational attempt to minimize the costs of information and adjustment in the face of shifting demand and supply patterns. Consider, for instance, the position of a landlord having lost some tenants and being left with a number of vacant apartments. There is always a sufficiently large reduction in the rent which would lure new tenants immediately. Nevertheless, landlords rarely choose this option. The likelihood of his taking this action would be substantially greater if the landlord could immediately terminate the tenure of provisional low-rent tenants. But this action is precluded by the tenants’ behavior. They insist, as a rule, on some minimal period of assured tenancy. This behavior is a consequence of the readjustment costs noted above. If readjustments imposed by others proceeded without inconvenience, i.e. without cost, tenants would be indifferent between two apartments differentiated only by the existance or absence of an advance notice before having their lease cancelled. The existence of readjustment costs thus induces tenants to prefer contracts requiring advance notice and preferably longer advance notice. This latter condition is due to the greater costs of readjustment when it must be done at greater speed. Under these circumstances the landlord will reject the option of immediately luring a tenant by lowering the rent. The market has informed him so far that he can rent the apartments at the accustomed prices. He has at the moment no information which would rationally justify a lowering of his rents.
Keeping an apartment vacant, coupled with a continuous sampling of the market and calling information to the attention of potential buyers, thus forms an alternative to immediate and large rent reductions. Both alternatives involve costs: the direct purchase of other resources (advertising, real estate agents, etc.) or the allocation of one’s own resources (showing customers around, etc.). The latter includes most particularly the cost of the immediately available lower revenue foregone by holding the apartment vacant. The resampling of the market yields, on the other hand, information on the maximum price obtainable. The more a supplier samples the market, the greater is the probability that he will find somone willing to pay a higher price; and the higher this price, the greater the return for the landlord. The returns diminish, though, as the period of resampling and information distribution lengthens. On the other side, the marginal cost of information persists or may even increase; and so the landlord will reach a point where he will maximize his profits. A bargain is struck at the best price sampled at the moment. Under this wealth-maximizing action, however, emerges an unused, an “idle” resource, viz. vacant apartments. Yet simply to call these apartments “idle resources” is dangerously misleading. It conveys an impression of functionless, useless, and inefficient waste; and this is not necessarily the case. Vacancy emerges from a rational use of resources in the face of incomplete information and substantial adjustment costs. Holding apartments vacant implies, under the circumstances indicated, a more economical usage of resources, in response to the relevant operation of informational and adjustment costs.
THE SAME FORMAL analysis applies to any asset, as, for example, labor. The workers’ search for jobs and the employers’ search for employees, the collection of information about jobs and employee characteristics, do not proceed without substantial costs. Moreover, the adjustment of the supply of labor services to the range of new job opportunities is not costless; neither is the hiring and firing of employees. A discharged worker could always find a job, quite immediately, at a sufficiently low wage. Yet if the market indicated up to the time he was discharged that he could reasonably expect to find jobs at accustomed conditions and the inherited wage, he would reject the option of an immediate job at lower wages and prefer to sample the market through appropriate search activities. The search would involve costs of various types, foremost of course the potential wage forfeited by remaining unemployed and searching for a job of the same type and wage as the old. The nature of the prevailing relief and unemployment benefit systems modifies this cost, and thus affects the outcome substantially. This sampling of the population of potential buyers of labor services supplies the unemployed worker with an expanding volume of information. If the market situation for his general skills is fundamentally unchanged, the repeated resampling yields a rising maximal wage offer. The rate of increase diminishes, however, with repeated sampling; and the worker will accept employment when marginal adjustment and information costs (modified by benefits) threaten to exceed the expected increment in the maximal wage offered.
The market situation may, however, change fundamentally during a worker’s search for one of two reasons: either because a change in the general supply conditions has permanently lowered the relative demand for his special skills, or because the aggregate demand for output is falling. In the first case, the information collected through persistent resampling of the market will always disappoint the worker. The low wage offers experienced will induce him eventually to readjust his anticipations and, consequently, his labor supply decision. This readjustment presents him with a choice between two courses of action: either to accept employment at substantially lower wages on the basis of unspecialized skills, or to invest some resources (and thus incur additional costs) in order to acquire new skills. In either case, he will eventually find employment—after possibly a substantial revision of anticipations and matching reservation prices.
In the second case, a different situation emerges. The initial anticipation level and reservation price of the discharged worker correspond to the information previously available through his employment. The unemployed worker thus samples the market with the anticipation of finding a similar job at the accustomed wage. But while he slowly acquires information, aggregate demand declines and thereby changes the phenomena sampled.
The maximal wage offers fail to rise in the manner expected and may even fall. Anticipation-level and reservation price will gradually be adjusted downwards, in the absence of legal or institutional constraints. Nevertheless, they will lag behind the decline in aggregate demand. An indefinite period of unemployment will eventually be absorbed as soon as the aggregate demand stablizes, even without a subsequent increase, though such an increase would be a necessary condition for absorption of unemployment in the case where institutional constraints prevent a downward adjustment of wages. Otherwise, this increase in business activity accelerates absorption.
THIS OUTLINE OF AN economic analysis of unemployment may be summarized in the following manner: Unemployment is broadly determined by: (a) the nature of the costs govering information gathering and adjustments in the types and directions of the labor supply (relief and benefit systems and opportunities for choice between employment and non-employment activities may play a crucial role at this point); (b) the magnitude and frequency of relative shifts in demand for products; (c) the magnitude and frequency of shifts in the supply conditions of product markets, particularly in the underlying technology shaping production; and (d) the comparative variability of aggregate demand for output. It is the variability relative to the prevailing speed of information diffusion and the associated adjustment speed of anticipations and reservation prices which actually matter in this context.
It follows from these considerations that larger marginal adjustment costs, smaller marginal information costs, and large and frequent demand shifts compounded by an accelerating technological impact on production tend to raise the average level of unemployment generated by the market process. Furthermore, the larger the relative variability of aggregate demand for output, the larger are the fluctuations of unemployment around its average as determined by the above set of factors.5
The analysis outlined above, based on general economic theory, provides an interpretation of unemployment. It also determines a balance of social costs, the social cost of unemployment juxtaposed with the social cost of lowering average unemployment or holding its level below some ceiling. One may also use this analysis to investigate the nature of institutional arrangements which contribute to reduce both types of costs and, most particularly, assure a continuous close balance of the types of costs.6 Moreover, we can extract some general information from this analysis about the impact of cybernation on the level of unemployment. The effect of cybernation essentially coincides with the broad pattern of consequences emanating from new technologies observed over a long period in the past. It will effect the level of unemployment only in the cases where cybernation involves an accelerated rate of technological innovation. In addition, it would require a continuous acceleration in order to raise the average level of unemployment persistently. So far the balance of evidence assembled by investigators of technological innovation yields little support for the assertion that innovation has been accelerated and definitely no support for the expectation of a continuous acceleration. This finding does not deny the existence of substantial social readjustment costs associated with the impact of cybernation; and one might legitimately raise the issue of the proper distribution of these costs. One could reasonably expect that cybernation would sharpen the wage differential between skilled and unskilled, and within the skilled group itself shift the balance of wages and employment conditions in favor of the professionally better educated. The readjustment costs and the differential impact on labor types will occur, however, independently of the level of unemployment due to the rate of acceleration of the cybernation process. Our analysis cannot be understood therefore to imply a smug indifference. It emphasizes, on the contrary, the importance of appropriate institutional arrangements designed to minimize the social adjustment costs associated with the continuous introduction of new technologies. Economic analysis can even be usefully applied to clarify the consequences of various arrangements for distributing these costs among different groups of our society. No rational choice among these arrangements can be made without careful application of this underlying analysis.7
THIS ANALYSIS, BASED on validated economic theory, yields no “paradox of poverty amidst abundance” nor any general erosion of employment opportunities. The Manifesto of the Triple Revolution is quite correct in its assertion that economic analysis denies such “paradoxes” and gloomy predictions. One might have reasonably expected, therefore, that the Manifesto would present (or refer to) an alternative analysis of economic processes, combined with a careful assessment of the relevant evidence which would enable us to appraise the comparative validity of the conflicting theories. At this point, however, an astonishing fact emerges. The prophets of the Triple Revolution have simply failed to provide any such alternative theory. Analysis appears to be replaced by the assertion that the structure of the world has fundamentally changed. As a result of this unspecified historical break, expanding poverty and rising unemployment are the necessary consequences of the patterns of innovation presently at work. Nevertheless, “observations” are adduced apparently as evidence in support of the non-existent analysis. The following are statements culled from the Manifesto:8
(1) It is noted that productivity per man-hour rose at an average pace above 3.5 per cent since 1961. This acceleration of productivity is attributed to the impact of new machinery.
(2) Prices of machines replacing labor are low compared to the annual wage of the replaced worker.
(3) It is increasingly more difficult to create the increment in aggregate demand necessary to absorb the growing labor force into employment.
(4) Unemployment rates averaged 5.7 per cent in the earlier 1960’s. Teenage unemployment has risen steadily, and minorities exhibit a comparatively high unemployment rate.
(5) Nearly 4 per cent of the labor force sought full-time work in 1962 but could find only part-time jobs.
(6) Many men and women stopped looking for employment and withdrew from the labor force. It is reasonable to estimate that over 8 million people are not working who would like to have jobs today as compared with the 4 million shown in the official statistics.
(7) The number voluntarily withdrawn from the labor force is continuously increasing.
(8) Labor force participation rates are declining.
(9) The stablization of the unemployment rate at 5.5 per cent does not reflect the market’s absorption of labor into employment but rather withdrawal of discouraged would-be workers from the labor force.
(10) During the period 1957 to 1962 more than half of the new jobs were created in the public sector. The private sector almost ceased to create new jobs, with the exception of the service industries.
THE STATEMENTS listed above contain a weird mixture of interpretative assertions, vague conjectures, and observations. Some of the statements have simply no bearing as evidence for the Manifesto’s thesis, but instead contribute to an appropriate psychological receptivity on the part of unwary readers (including the signers of the Manifesto?). This applies particularly to points (1), (2), (4), (8), and (10). All these points are quite consistent with an explanation based on the previously developed analysis of no discriminating evidence and thus no support for the Manifesto’s central thesis. It should be noted, in particular, that the unemployment patterns alluded to under point (4) are quite closely associated with the repeated extensions of minimum wage laws and the rise in minimum wages. Economic analysis implies that both the extension and increase in minimum wages will raise the unemployment rate of teenagers and of the least skilled workers. It is especially Negroes, therefore, who are unfavorably affected by the legislators’ desire “to help the poor.”9 Similarly, the observed variations in the growth rate of labor productivity can be explained within the framework of economic analysis. Neither recent growth rates nor observed accelerations assume levels significantly different from past cyclical experiences. Moreover, the growth rate declined somewhat in the past year and the current year compared to the levels reached in the earlier expansion phases. These observations yield little support, indeed, for the Manifesto’s thesis of a revolutionary breakthrough.
Point (2) deserves some further attention. The statement, while emotively suggestive, is almost meaningless. Information about the machine price relative to the annual wage is not sufficient to yield implications bearing on our issue. And point (3), of course, is not an observation: It remains a sheer unsupported conjecture suggested by the retardation of the economic process over the period 1957 to 1961 compared to the movements before 1957. The sluggish retardation of the 1950’s has been replaced meanwhile by a surging and maintained expansion. Both retardation and subsequent acceleration, nevertheless, require an explanation.
The upswing, beginning in 1949 and ending in the summer of 1953, was supported by a substantial monetary expansion. As a matter of fact, the growth rate of the monetary base (i.e., the volume of high-powered money issued by the Federal Reserve authorities) accelerated until 1952 and moved to levels not reached since 1945. The resulting surge in aggregate demand continued to lower unemployment rates even beneath the typical sharp decline accompanying the first phase of an upswing. A different pattern emerged with the upswing beginning in the late summer of 1954. The initial acceleration in the monetary base was suddenly broken in 1955 and its subsequent growth rate was held to a comparatively low level and even declined gradually during 1957. Some indications suggest that money demand contracted over the middle 1950’s. This fall contributed to maintain the initially acquired momentum for some time in spite of the retardation in the base.10 Still, the pronounced deceleration of the monetary base probably weakened somewhat the movement of aggregate demand. Unemployment declined sharply for some months but resisted further erosion after that. The next cyclic period, beginning in early 1958 and terminating around the middle of 1960, was characterized by a pronounced acceleration of the monetary base followed by a remarkable deceleration. The early acceleration contributed to prolong the rapid decline of unemployment rates from their peak until the turn of the year 1958/59. But the sudden deceleration obstructed absorption of unemployment beyond this level. Unemployment thus rose at the beginning of the downswing from a higher low point than before. Furthermore, the sharply restrictive monetary policies were not attenuated by changing demand factors which contributed to raise the velocity of spending. The period from 1957 to 1961 may very well be characterized as a time of comparative monetary restriction. This monetary restriction differentiates this period from both the early postwar adjustment phase (1945 to 1949) and the first post-adjustment phase (1949 to 1957). The monetary restriction resulted in higher unemployment, a serious retardation of employment in the private sector, and sluggish movement of production and Gross National Product. Monetary policy was however decisively reversed in 1961. There emerged the longest acceleration in the monetary base ever observed and attributable to Federal Reserve action since the Federal Reserve started operations in 1914. Moreover, this acceleration pushed the growth rate of the monetary base to levels not observed since the war. This remarkable monetary expansion gradually and persistently lowering unemployment rates, contrary to the “cacotopian gloom” of the Triple Revolution, was also accompanied by a rapid expansion of production. Gross National Product, and even employment in the private sector.
The comparative stagnation of employment in the private sector from 1957 to 1961/62 was thus a consequence of a severe monetary restriction. If this stagnation had been the first symptom of the cybernation revolution, as suggested by the Manifesto and its supplementary elaborations, then the subsequent movements of private employment and unemployment could not have occured. Yet they did occur and they were the natural outcome of a historic monetary expansion most admirably engineered by the Federal Reserve authorities.11
UNDER THE STIMULUS of an appropriate monetary and fiscal policy, the market process created ample opportunities for employment. The relevant development may be usefully sketched with the aid of the comparative movements of employment and employment potential. The latter describes the “portion of the total population which is of approximate working age.”12 Such a comparison is particularly pertinent for the appraisal of points (6) and (7) mentioned above. These assertions made by the Manifesto would merit attention if the population’s employment potential grew substantially more than actual employment. Morover, the Manifesto’s case rests chiefly on an accelerated divergence of employment and employment potential since the turn of the decade. From 1948 to 1964 total population at working age (twenty to sixty-four) rose at an average rate of 0.9 per cent, whereas employment rose at an average rate of 1.07 per cent. “Since April 1961, while total employment has increased at a 1.7 per cent annual rate, population aged twenty to sixty-four is estimated to have increased at a rate of about 1.1 per cent per annum, and population aged eighteen to sixty-four increased at a 1.3 per cent rate.13 Thus, it follows that, contrary to the assertions trumpeted in the Manifesto, jobs and employment have been growing more rapidly than the population of working age. The assertions made by the Triple Revolution group simply have no basis.
Observations on the relative participation of various population groups in the labor force yield additional information bearing on the relevance of the Manifesto’s ideas. The participation rate of males in the labor force declined from 84.5 per cent in 1947 to 78.6 per cent in 1964. The participation rate of females rose on the other hand from 31 per cent to 37.4 per cent over the same period. The observation makes little sense if one believes that machines remove workers from the labor force and that service industries are increasingly exposed to the calamity of cybernation.
Still there remains the decline in the participation rate of males. How is this to be explained? It is important to recognize that this decline results from the falling participation rates of two specific age groups. Males between fourteen and nineteen years lowered their participation rate from 54.3 per cent in 1947 to 43.6 per cent in 1964, and males sixty-five and over lowered their rates from 47.8 per cent to 28 per cent over the same period. A slight decline can also be found for the age group fifty-five to sixty-four. The other age groups show either no significant change or even a slight increase. Moreover, there is no indication of any break in the participation of the middle group in the labor force. The assertions listed under points (5) and (7) simply do not hold for the central core of our working age population.
But what about teenagers and the oldest group? Do they not confirm the claims of the Manifesto? The answer is, No. Cybernation cannot be used to explain the peculiar pattern of evolving participation rates. The wholesale destruction of jobs under the Cybernation Revolution would create a random pattern of discouragement and defeat involving also the broad range from twenty years to fifty-five years. It would also affect the females over twenty years, whose participation rates have all been rising. What actually occurred is that considerable extension of the Social Security system, of pension plans and associated devices, expanded income outside of employment for older age groups. This gradual change in opportunities modified the comparative advantages and disadvantages of retirement and induced a growing number of older people to prefer a retirement status. It should be noted however that this process operated only on the male worker and is only reflected in the male participation rates. Our argument does not apply to the females, and we do observe that their participation rate in the age group fifty-five to sixty-four rose by 66 per cent from 1947 to 1964 and even increased slightly for those sixty-five and older. Once more, this movement yields no support for the thesis of wholesale and widely ramified job destruction through cybernation.14 The decline of teenage participation also can be understood as a response to peculiar institutional changes and expanding wealth. Expanded schooling has created opportunities for additional education, and increasing income has enabled families to exploit these opportunities. Repeated extentions of the minimum wage laws may also have contributed to the withdrawal of teenagers from the labor force and induced them to stay longer in school.15 Moreover, the decline in the teenagers’ participation rate is a long-run phenomenon and exhibits no acceleration in the last five to ten years. This observation again is difficult to reconcile with the claims advanced by the Manifesto.
THE PECULIAR assertions listed under points (5) and (7) possibly refer to the existence of “disguised unemployment.” This phenomenon is associated with the cyclical sensitivity of the labor force, i.e., the partial dependence of the labor force on aggregate demand. It follows therefore that reported unemployment understates the actual loss in employment occurring during a downswing. The disguised loss of employment has been estimated in several ways. Moreover, it has been suggested on occasion that reported and “disguised” unemployment are both components of some complete measure of employment loss. A more careful examination, based on economic analysis, renders this conception very dubious. The additivity of the two groups appears in the context of an argument which postulates that absorption of labor into employment from either group occurs at approximately equal net levels of marginal productivity; and most particularly, the marginal productivity of the unemployed in either group is supposed to be zero. This assumption is very doubtful, indeed. A growing number of people possess a meaningful choice between employment and non-employment activities, and in the marginal productivity (or marginal utility) of these non-employment activities may be quite substantially above zero. The relevant attraction of such non-employment activities is mirrored in the large turnover of participants in the labor force. An average participation ratio of 50 per cent does not mean that 50 per cent of the population is always in the labor force and 50 per cent is never in the labor force. There prevails a frequency distribution of participation time. Some people participate more continuously, others much less, and the resulting average over a given period yields 50 per cent. But this very behavior reveals the existence of attractive alternatives to employment activities. The positive marginal productivity of non-employment activities existing for a number of groups implies that the opportunity costs of job-searching and job-assessment (i.e. the costs of information) are quite sizeable. It follows therefore that “the net gain from moving into the labor force and the net loss from leaving it. . . can be quite small” for this group of people. The existence of non-employment activities with positive marginal productivity determines a pronounced supply elasticity with respect to market conditions—changing market conditions induce substitutions between employment and non-employment activities. Under these conditions, merely adding together reported and “disguised” unemployment misconceives the nature of productive labor. Additivity also misconstrues and badly exaggerates the loss in welfare terms. The opportunities for non-employment activities are particularly relevant for the so-called secondary labor groups, which include a good portion of the females, and the older and single males. The behavior of this secondary group confirms our supposition: The labor force participation of this group is remarkably responsive to employment conditions. The substitution elasticity between employment and non-employment conditions of this group induces a sensitive shift in time allocation between employment and non-employment activities. This analysis of “disguised unemployment” eliminates the Manifesto’s assertions listed under points (5) and (7) from further consideration until some analysis worthy of attention is supplied.
Unemployment data mean very little by themselves; they require careful interpretation, and only analysis supported by relevant evidence yields a reliable interpretation. The movements of unemployment figures must be considered within the context of shifting patterns created by a changing and expanding economic system. This applies especially to the interpretation of the apparent growth of unemployment since the early fifties. No doubt, unemployment rates during the 1958 recession exceeded the unemployment rates during the 1954 recession. Similarly, unemployment rates during the upswing initiated in 1958 exceeded the unemployment rates during the expansion of 1954 to 1957. During the recession of 1961, however, unemployment rates were lower than at the previous low point and were also lower than during the recession of 1949. In addition, unemployment rates in the autumn of 1965 were close to unemployment rates in late 1948. This evolution in employment rates yields little support for the apocalyptic assertion of a total discontinuity in the nature of the economic process occurring around the turn of the decade. On the other hand, there exists some evidence suggesting that average unemployment rates will gradually rise with increasing affluence given our values and institutional arrangements. Increasing wealth raises the demand for schooling and also the demand for leisure. More extensive enrollment in schools induces a lower labor force participation of younger people, while Social Security arrangements and pensions exert a similar effect on the older age groups. The decreasing labor force participation of these groups reveals itself predominantly through an increasing proportion of intermittent work, increased labor turnover, and an increased proportion of inexperienced workers among both employed and unemployed. These trends are reinforced by the growing participation of women. The range of relevant tradeoffs between employment and non-employment activities will continue to grow. This change in the structure of employment is a natural response to expanding opportunities and not a symptom of impending catastrophe. Slowly rising unemployment rates are therefore not a harbinger of growing and entrenced poverty but the epiphenomenon of deepening affluence and a broader range of relevant choices. Should this argument be supported by subsequent analysis and evidence we would conclude that unemployment rates of the primary group consisting of males between twenty-five and fifty-four years of age provide a much better index of the unemployment situation. This central core group probably reflects the movements of “involuntary unemployment” much more reliably. Interestingly enough, these data substantially refute the dismal projections of the Manifesto of the Triple Revolution.
16 ECONOMIC ANALYSIS yields no case for the Triple Revolution. Of course, the Masters of the Manifesto were aware that “conventional analysis” denies their assertions, so they have dismissed economic analysis.17 It is quite clear, however, that they fail completely to understand the nature of this analysis, why it rejects their assertions, and on precisely what grounds. They provide no critical examination of any empirical theories supported by economics nor any reference to such examinations; nor do we find a comparison of the merits of received economic theories, which have successfully explained observable phenomena, with a carefully and explicitly constructed alternative theory justifying their contentions. Similarly, any careful analysis of the institutional arrangements which are suggestively proposed in order to ease the pain of transition is completely absent. The behavior patterns and the consequences which may be expected to arise from these proposed arrangements pose a serious problem both for the general welfare and for the survival of an open society. Even less is heard about the ultimate society of happy, just, and de-alienated abundance. They tell us nothing of the nature of such a society, of its institutional arrangements and its general mode of behavior. Are we supposed to infer the emergence of a millenium, a paradise maintained for “humanized man” with “creatively adjusted highest values”?
The fundamentally metaphysical character of the whole Triple Revolution venture comes into focus in many details. Analysis and evidence are dismissed in favor of emotive phillipics—a play on words replaces analysis, moral agonizing and impressionistic references substitute for evidence. The play on the words “scarcity” and “abundance,” for instance, provides an excellent example of the irresponsible misuse of language, of the surreptitiously emotive use of a pretended cognitive category. The economist applies the term “scarcity” to describe the relative limitation of an inherited resource situation in the context of a given technology. This limitation exists relative to the values pursued by individual members of a society. Scarcity is reflected in the curcumstances that every allocation of resources to particular tasks involves a sacrifice of some other valuable tasks; and this fact continues to exist even with cybernation. No society of our empirical world will ever be able to extract from its resources a total satiation of the wants of every member of that society. The principle of scarcity continues to prevail even in very affluent societies. The prophets of the Triple Revolutionary paradise carelessly shift the meaning of their words from “abundance” as denial of the economist’s “scarcity” to “abundance” as an emotive-effective description of a large and rising real income per capita. From such a confusion of concepts, only confusion can result.
A similarly effective usage dominates the term “facts.” Direct observations, interpretive guesses, and wild conjectures are equally referred to as “facts.” No doubt, facts may be hard to recognize; but not that hard, provided the difference between metaphysical speculation and empirical-rational procedures is maintained. The impressionistic misuse of language, in particular, is such as to constitute a scandal. Innumerable examples of this could be adduced. Here is a brief sampler:
. . .people are increasingly outside
. . .our social structure. . . . 18
Vague allusions to scientists working for the joy of achievement appear sufficient to justify a totally new society which does not have to rely on wealth incentives.19 And look at this hoary fallacy:
In the society of scarcity, one man’s well-being could be increased only at the expense of other men’s well-being. . . .20
Michael Harrington pronounces that “the question of collectivism has been settled.”21 A survey of his writings shows, however, no analysis nor even a remote hint of relevant evidence supporting this claim. Or, catch this one:
. . .Technology is in charge and men are not in charge.22
And an absolutely delicious example:
. . .at precisely the moment all economic problems disappear . . . we would have a finished society in which men would die not from floods or plagues or famines, not from their own idiocies about the economy. They would die from death, and at that point the historical shell around the fact of death would be broken. For the first time society would face up to death itself.23
A favorite procedure of the group involves references to single examples to support far-reaching generalizations. This applies particularly to the relation between cybernation-automation and unemployment.
The dislocation and disemployment that occur simply add the people to the twenty million families some of whom by now have had several generations living in this state.24
Or, we may read:
But these sectors, which have been soaking up the disemployed from productive and extractive functions, are beginning to fail to soak them up. New jobs are not being created in these fields.25
Both statements are, of course, palpably false. The first implies that unemployment should increase at a rate equal to gross dismissals from work. This assertion is immediately rejected by observation. Piel’s contention cannot survive exposure to observations on the movement of employment in non-manufacturing activities outside the government sector.
THE IMPRESSIONISTIC misuse of language is particularly reflected in a persistent confusion of value statements and cognitive statements. The proper separation of the two types of statements has been painfully slow in man’s history, and the distinction is often felt to endanger most of man’s elaborate constructions for orienting himself in a manner satisfying to his psychological needs. The logical clarification of these statements has therefore encountered deep-seated hostility. The careful separation of value assertions and theoretical statements forms, however, an absolutely crucial precondition for any progress of knowledge. This does not preclude their interaction in the analysis of rational action; but the explicit recognition of the mutual spheres of value assertions and cognitive statements exhibits the logical impossibility of deriving factual statements or even policy statements from value assertions only.
A major consequence of the tangled confusion involving valuations and theoretical statements deserves particular attention. As human beings, we do not respond at random to the various types of statements. Reactions to value judgements are much more pronounced than those to cognitive statements. This response pattern creates a surreptitious domination of value judgements over intellectual processes. A pervasive effect of the very language we use strengthens this pattern. The apparently autonomous existence of language induces a belief that since value judgements are articulated in sentences which exhibit the same grammatical form as cognitive statements, the two types of statements are of the same logical form. Cognition thus becomes irrelevant and even appears obstructive to the reformation of the world in the light of one’s valuation. At the very base of the Triple Revolution is rejection of critical analysis; we can thus recognize a radical rejection of man’s noblest achievement: his struggle, always endangered by entrenched ideologies, to respond intelligently to the challenge of his environment through a systematization of an ancient trial and error procedure.
An act of faith thus replaces the empirical assessment of human institutions; and the patiently piecemeal but reliable improvement of our lot is sacrificed to a dream.
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[* ] Karl Brunner is the Everett D. Reese Professor of Economics and Banking at Ohio State University. He studied at the State University of Zurich, Switzerland, and the London School of Economics.
[1 ] An excellent analysis of the structure of metaphysical conceptions can be found in Ernest Topitsch, Vom Ursprung und Ende der Metaphysik (Vienna: Springer Verlog, 1958). This analysis has a general bearing on the nature of non-cognitive belief-systems pervoding our society.
[2 ] This assertion is frequently repeated in elaborations of the theme. Gerard Piel states, for instance, that $200 billion of Gross National Product “is going unconsumed.” This remarkable assertion is obtained from the statement that there are 20 million families “whose level of life is something like three or four thousand dollars short of what our society has come to regard as a minimum scale”; see A Conversation: Jobs, Machines, and People (Santa Barbara, Calif.: Center for the Study of Democratic Institutions, 1964), p. 4.
[3 ] The reader may find the following references illuminating: “If all of us are going to be provided with enough to go around, rationing isn’t necessary any longer.” (Statement by Robert Theobald, ibid., p. 21. Michael Harrington discusses in another publication the existing prospects of Utopia. The vanishing of all economic problems in Utopia is characterized in a manner which creates the definite impression that this event is feasible and worth exploring as an achievable goal. The discussion appears in Cocatophia and Utopia (Santa Barbara, Calif.: Center for the Study of Democratic Institutions, 1965) The point is particularly clear when we read (on p. 24) about “intellectuals...willing to sacrifice and struggle to create Utopia or a decent society.” On p. 10 of the same Conversations, W. H. Ferry asserts that “we have entered a society of abundance, and economy of plenty, as against our former economy of scarcity.”
[4 ] The consequences for unemployment have been elaborated fulsomely. A sample may be noted here: Theobald states that until the new era, “more and more people were rising out of the poverty level....But today we are moving into a situation where people are being thrown out of the abundant society.” Jobs, Machines, and People, pp. 4-5. Piel, never to be left behind in the supply of impressive assertions, formulated a law of worker displacement as follows: “...the displacement of workers in both white-collor and blue-collor functions is proceeding at an exponential rate, that is, proceeding at the square of time.” Mr. Piel concedes that the operetion of his law is somewhat offset by a growing population, which mysteriously raises aggregate demand for output. This increase thus absorbes a portion of the displacement. He continues, however, to emphasize that “the problem is the enlarging gap between the employed labor force and the more rapidly increasing size of the labor force as a whole.” Employment may still rise for a few years, but “within a decade employment is going to level off and begin to fall.” (ibid., p. 10) Other statements supplied by the group suggest that unemployment has already begun to rise: “I accept the fact that full employment at this junction in time is a misleading goal if by full employment is meant the traditional kind of jobs in the private market—a market that has filed in the last five years to produce the kind and number of jobs necessary.” (Holstein in ibid., p. 15). And lastly, we may consider the central “facts” adduced by the Manifesto, p. 7: “(a) the rate of productivity increase has risen with the onset of cybernation; (b) an industrial economic system postulated on scarcity has become unable to distribute the abundant goods and services produced by a cybernated system or potential in it; (c) surplus capacity and unemployment have thus co-existed at excessive levels over the last six years; (d) the underlying cause of excessive unemployment is the fact that the capability of machines is rising more rapidly than the capability of human beings to keep pace; and (e) a permanent impoverished and jobless class is established in the midst of potential abundance.”
[5 ] The above analysis implies that the economic process continuously operates to absorb into employment the labor force supplied. Two major implications follow: (a) over the long-run, employment and employment potential move closely together; and (b) the length and magnitude of an expansion is correlated with the length and depth of the previous contraction. The first point has been emphasized by A.C. Pigou and the second particularly by Milton Friedman. The reader may be usefully reffered to the textbook by A.A. Alchian and W.R. Allen, University Economics (Belmont, Calif.: Wadsworth Pub Co., 1964), chap. xxxi, p. 546. This chapter presents an excellent analysis of unemployed resources. My account has been strongly influenced by my discussions with Armen A. Alchian.
[6 ] This formulation covers an attention devoted to monetary and fiscal policy designed to remove the pronounced accelerations or decelerations in aggregate demand (relative to the speed with which information is circulated) which has generated all major fluctuations in unemployment.
[7 ] My survey of “A Highly Miscellaneous and Imperfect Bibliography of the Triple Revolution,” prepared by W. H. Ferry, yielded no indications or references to an analysis comparable to the analysis supplied by contemporary economic theory. Oral discussions with various signers of the Manifesto supplied no references to any analysis or evidence about the “change of the world.” One signer admitted upon repeated questioning by Allen Metlzer that he had not analyzed the problem; but then, he simply knew that the world had changed.
[8 ] I found almost no useful material bearing on this aspect in supplementary writings.
[9 ] Many well-meaning people are deeply offended when informed of this effect of minimum wages. The offense is frequently so great that analysis and evidence are simply disregarded. Emotive commitments easily dominate cognitive commitments. This behavior is, however, closely associated with a pervasive misconception, viz., that moral judgments are a sufficient condition for policy actions. The role of analysis, of a necessary knowledge about the structure of social processes, seems to escape the professional moralizers. One could reasonably argue that proper cognition also deserves a moral obligation. If one accepts this obligation one will wonder about the singular immorality of the professional moralizers who implicitly deny this particular moral obligation. Is it because it is too dangerous and inconvenient?
[10 ] The reader may usefully consult the chapters on postwar velocity in the superb book by M. Friedman and A. J. Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: National Bureau of Economic Research, 1963).
[11 ] The observations noticed expose the falshood of point (9) First, the unemployment role was not stablized at 5.5 per cent, but fell gradually. Secondly, if unemployment rates had been kept from rising by the withdrawal of “discouraged and defeated” workers from the labor force, one would expect employment—particularly private employment—and the labor force to be stationary. All three magnitudes rose persistently, however; and the statement under point (9) is quite untenable.
[12 ] This quote and the material summarized is from the Federal Reserve Bank of St. Louis Review, XLVI (Oct. 1964), 1-4.
[13 ] The assertion under point (6) that 8 million people would like to work in addition to the 4 million officially reported to be unemployed is almost fantastic. There is not even a hint of a suggestion how this figure is “reasonably estimated.” Neither is there even a clue to an analysis which determines such “reasonable” estimation. Furthermore, my survey of the literature yielded no material elucidating this assertion.
[14 ] A survey article prepared by Jacob Mincer adduces some noteworthy observations which bear on the interpretation of the decline in the participation rates of older men “In 1951, 22 per cent of retired claimed layoffs as a cause of retirement; only 9 per cent claimed it in 1963” Moreover, “compulsory retirement age was quoted by 22 per cent recently, compared to 11 per cent in 1951, poor health by 35 per cent. compared to 41 per cent earlier; and preferences for leisure by 17 per cent. compared to 3 per cent in 1951.” Labor Force Participation and Unemployment A Review of Recent Events, unpublished manuscript.
[15 ] The reader may find the following passages from Jacob Mincer’s manuscript illuminating. The age group fourteen to seventeen “had particularly severe declines during three cyclical troughs, as well as from fifty to fifty-one, fifty-five through fifty-seven, and sixty to sixty-one. The latter ... and two farmer declines coincide with Federal increases in minimum wages and the extension of coverage. Since 1956 this group had a drastic increases in unemployment with little change afterward. . . .Supporting evidence for the probable role of minimum wages in the labor market experience of this group is provided in a regression analysis of teenage unemployment by Arnold Katz. . . .”
[16 ] The passage in the text is also based on the manuscript by Jacob Mincer previously mentioned. We may again usefully quote from this manuscript: “Given some scope for timing of their activities, work in the labor market will be preferred at times when search costs are low and job conditions attractive....The optimization of timing of labor force activities creates the illusion of disguised unemployment. The more economical the timing, the larger the number of disguised unemployed....The paradox simply reflects the myopic preoccupation with GNP, when broader considerations motivate behavior.”
[17 ] This dismissal is not complete. It certainly applies to price theory, the explanation of market and allocation processes. However, the Masters appear to accept a somewhat naive version of Keynesian theory. On p. 6 of the Manifesto, military expenditures are presented as a “strong prop” of the economy. It appears that reductions in government expenditures would exert serious deflationary consequences independent of other policies, e.g., monetary policies. There is at present no evidence in support of such a position. The recently published Grand Debate in the American Economic Review IV (1965), 753-92, agrees at least on one point: the simple textbook versions of Keynesian-type theories, which apparently influenced the Manifesto’s statement, may be safely shelved.
[18 ] Helstein, Jobs, Machines, and People, p. 2.
[19 ]Ibid., pp. 21-22.
[20 ]Ibid., p. 23.
[21 ]Cacatophia or Utopia, p. 8.
[22 ]Ibid., p. 12.
[23 ]Ibid., p. 21.
[24 ] Hellstein, Jobs, Machines, and People, p. 5.
[25 ] Piel, Ibid., p. 6.