In my last post, I noted that the major thesis of Belloc’s The Servile State – that modern capitalism was inevitably tending towards the reemergence of legalized slavery – has been proven wrong by history. Belloc’s prediction, however, was supported by what at the time would have seemed like quite probable arguments. Why, then, has the servile state failed to materialize?
To see where Belloc’s chain of reasoning went wrong, we need to look closer at his account of how exactly the condition of legally compelled labor was supposed to reassert itself. As noted previously, Belloc considered the two main devices that would lead to the re-enslavement of the masses to be 1) unemployment insurance, and 2) the minimum wage.
What was so bad about unemployment and the minimum wage? In a word: unemployment. According to Belloc, the institution of unemployment insurance would remove the incentive for people to work, leading to the necessity of their being legally compelled to do so:
The state says to the serf: “I saw to it that you should have so much when you are unemployed. I find that in some rare cases my arrangement leads to your getting more when you are unemployed than when you are employed. I further find that in many cases, though you get more when you are employed, yet the difference is not sufficient to tempt a lazy man to work, or to make him take any particular trouble to get work. I must see to this.”
The minimum wage, Belloc thought, likewise would lead to unemployment, though here the cause would be not an unwillingness of potential employees to work but rather an unwillingness on the part of employers to hire them:
It would be impossible, without a general ruin, to compel capital to lose upon the man who is not worth even the minimum wage . . . To support the man gratuitously because he cannot earn a minimum wage, when all the rest of the commonwealth is working for its guaranteed wages, is to put a premium upon incapacity and sloth. The man must be made to work. He must be taught, if possible, to produce those economic values, which are regarded as the minimum of sufficiency. He must be kept at that work even if he cannot produce the minimum, lest his presence as a free laborer should imperil the whole scheme of the minimum wage, and introduce at the same time a continuous element of instability. Hence he is necessarily a subject for forced labor.
Belloc then goes on to describe the “labor colony” where such people would be taken.
Belloc wasn’t wrong in thinking the things like unemployment insurance lead to unemployment. To quote Lawrence Summers (the head of Obama’s National Economic Council): “To fully understand unemployment, we must consider the causes of recorded long-term unemployment. Empirical evidence shows that two causes are welfare payments and unemployment insurance.” The claim that the minimum wage causes unemployment is more controversial. However, most economists still believe that increasing the minimum wage leads to disemployment, and presumably almost everyone would believe this given a large enough increase.
But while unemployment insurance and the minimum wage may lead to more unemployment, the state has managed to keep the overall disemployment effect of these programs relatively low. In the case of unemployment insurance, this is achieved by making benefits only a fraction of one’s earlier employment, and by limiting the time during which a person may receive payments. In the case of the minimum wage, this is achieved by keeping the minimum wage level low enough that it doesn’t apply to most workers (in the U.S., for example, only about 5% of workers make the minimum wage).
In Belloc’s defense, he seems to have been thought that society was tending towards a state in which the vast majority of the population was living at the level of bare subsistence (he says that “it is the essence of slavery that subsistence or little more than subsistence should be guaranteed to the slave” and opines that “[i]n the perfect capitalist state there would be no food available for the nonowner save when he was actually engaged in production.”) If a man’s wages when employed were at the level of bare subsistence, the clearly one could not make his unemployment benefits much lower than his previous wages. Similarly, if the minimum wage applied to 95% percent of society (Belloc’s estimate of the proportion of the population at the time of his writing who made up the proletariat) then the disemployment effects caused by such laws could be severe.
This, however, raises a further question. Namely, how did we get from a society where virtually everyone was living at the level of bare subsistence to the current state of affairs in which virtually no one is (the question of whether people are doing “well enough” is of course distinct from the question of whether they are living at subsistence at the level of 1912). There are two main stories in answer to this question, a political story, and a markets story.
The political story is that people banded together and passed legislation ensuring adequate pay, safe working conditions, a social safety net, etc., and that these laws helped the mass of society to rise from poverty to what the authors of the Port Huron statement called “at least modest comfort.” The markets story, by contrast, says that the rise was due to increased productivity, free competition among employers, and so forth. The two stories are, of course, not incompatible. One might think that part of the rise in living standards over the past hundred years has been due to markets and part has been due to political activism. However, one might equally well reject either the political story or the markets story, thinking either that the laws in question were counter-productive but were outweighed by the advances due to the market, or that the free market leads to destitution, but that this tendency was stayed by legislative advances.
I provided an outline of this theory in a previous post and so won’t go into it again. In terms of the political story, all I will say is that the evidence in favor of a pure political story is somewhat lacking. Singapore, for example, has no minimum wage, no unemployment insurance, no real independent labor unions, and only the thinnest of social safety nets. Yet in the span of forty years it went from being one of the poorest countries on earth to being one of the richest. Examples like Singapore suggest that the political story is, at best, a secondary explanation for the West’s current prosperity.
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