Contemporary theories of unemployment and of unemployment relief

Front matter

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Preface

Certain explanations of the choice and arrangement of material in this monograph are necessary.

The subject of unemployment is one which ramifies into many channels. An exhaustive survey of the field being impossible, the necessity of severely limiting the study to certain lines of investigation involved the neglect of other equally important phases of the question. So far as has been possible the work has been held strictly to a study of theories as to the causes of the modern phenomena of unemployment and as to the methods by which unemployment can be prevented or relieved. Facts concerning the extent of unemployment have been touched upon only where they have a bearing upon either of these two subjects.

Though the paper has been prepared primarily to present present-day theories, its scope has been slightly enlarged so as to include, on the side of theory, a brief statement of the treatment of the subject of unemployment by the classical economists, and, on the side of practical relief, as representing the working-out of certain theories, a summary of the treatment of the able-bodied poor under the English Poor Law. A brief compendium of the course of tramp and vagrancy legislation in the various states of the United States is also included. It was felt that without some such foundation the study of contemporary theories would have been too far divorced from practical relief and from previous economic thought.

7] 7

8 PREFACE [8

With the exception of some early study by Henry C. Carey, Francis A. Walker, Henry George and a few relief administrators, the subject of unemployment is one that has only recently attracted attention in the United States. The course of recent opinion in this country on this subject has been largely influenced by continental and, especially, by English thought. It is in the latter country that scientific method has been most effectively applied to the study of this problem. This exposition begins, accordingly, with a treatment of the development of English practice and of present English theories on the subject.

The method adopted for the arrangement and presentation of the material involve the breaking-up of the complete theories advanced by the various writers in order to present their various views on each of the main theories that are held today. This arrangement sacrifices the possibility of comparing the views of one authority, as a unified whole, with those of another ; but it makes possible the full presentation of each of the main types of theory without the repetition and disorganization that would result from the full statement, in chronological order, of the complete program of each thinker considered.

The definitions given to the term " unemployment " by the various authorities cited vary widely, some using it to cover merely the involuntary idleness of able-bodied workers, others cloaking under it all idleness, whatsoever its cause or nature. The limiting extent to which certain authorities apply the term is indicated in the consideration of their theories. Throughout this paper, however, unless otherwise noted, the term is used in a broad sense ; in the writer's opinion the vagrant and other types of " unemployables " are legitimate elements of the

9 ] PREFACE g

problem of unemployment, even though the social or industrial cause be one step further removed than in the case of the temporarily unemployed wage earner.

The inclusion in the present paper of a study of French and German theories has not been possible. Important contributions to the subject have been made by continental students and by continental practice. It is hoped that it will be possible to make such a survey at some time in the future.

The writer desires gratefully to acknowledge his indebtedness to those who have aided him in the preparation of this monograph. Professors Carl C. Plehn and Jessica B. Peixotto of the University of California have given helpful advice and criticism. Sincere thanks are due Professor Henry R. Seager of Columbia University for valuable assistance in the revision of the manuscript and in the preparation of proof. To Professor Carleton H. Parker of the University of Washington the writer stands deeply obligated for the enthusiasm which he has contributed to the performance of this work.

Chapter I Page

The Development of English Unemployment Theory and Remedial Practice

1. The Classical Economists on Unemployment 13

2. The Able Bodied Under the English Poor Law 22

3. The Unemployed Workman Act 31

4. Board of Trade Labor Exchanges 36

5. The National Insurance Act 38

Chapter II

Contemporary English Theories of Unemployment and of Unemployment Relief

1 . Loss and Lack of Industrial Quality 42

2. Proposed Remedies for Qualitative Maladjustments 52

3. Industrial Fluctuations 59

4. Proposed Remedies for Unemployment Resulting from Indus-

trial Fluctuations «... 67

5. The Labor Reserve 84

6. Proposed Remedies for Underemployment 90

7. The Personal Equation in the Problem of Unemployment. . . 100

8. Proposed Remedies for Unemployment due to Personal Failings 104

9. Unemployment Insurance 107

10. The Relief of the Unemployed. . .* 113

CHAPTER III The Development of American Unemployment Theory and Remedial Practice

1. Miscellaneous Types of Early Theory 118

2. The Early American Economists on Unemployment 124

3. Methods of Practical Relief 127

4. Tramp and Vagrancy Legislation in the United States 130

12 CONTENTS [ I2

Chapter IV

Contemporary American Theories of Unemployment and of Unemployment Relief

PAGE

1. General Statement 138

2. The Relation of Immigration to Unemployment 146

3. The Floating Laborer. 157

CHAPTER V Conclusion , 163

Appendix I. American Statistics on Unemployment 165

Appendix II. References 170

CHAPTER I The Development of English Unemployment Theory and Remedial Practice

I. THE CLASSICAL ECONOMISTS ON UNEMPLOYMENT

The period during which the classical system of economics of the Manchester School was being formulated was one characterized by distress from unemployment at least equally severe with any of more recent years. 1 Yet we find no exposition of unemployment as such. Certain problems closely connected with that subject are discussed, but chief emphasis is usually placed upon an aspect other than that bearing upon the question under consideration. Thus the possibility of general overproduction and " glut" is a favorite bone of controversy, but the point with which the economists are primarily concerned is whether profits could thus be reduced to zero, not whether the resulting flooding of the market would throw men out of work. However, there is a re-

1 Sir Robert Giffen, in his inaugural address as President of the Royal Statistical Society in 1883, stated "... the poor are to some . . . extent, fewer, and those who remain poor are, individually, twice as well off on the average as they were fifty years ago." Quoted, Webb and Freeman, Seasonal Trades (London, 1912), p. 7.

In Essays in Finance (second series), p. 379, Mr. Giffen writes: "... periodic starvation was in fact the condition of the masses of the working men throughout the Kingdom fifty years ago." Quoted, Seasonal Trades, p. 7.

Cf. also "Distress of Laboring Classes since 1815." T. R. Malthus, Principles of Political Economy (Boston, 1821), p. 379, et seq. 13] 13 lation more or less intimate between many of the modern theories and those set forth by the men of this school. A summarized statement of their views will pave the way for the presentation of later developments in this field.

On the question of the irregularity of employment Adam Smith says the first and, so far as his followers in this school are concerned, the last word. As one of the five classic reasons for the inequalties of wages between different industries Smith includes relative constancy or inconstancy of employment. 1 The more inconstant the employment the higher will be the wage, for "What he earns . . . while he is employed, must not only maintain him while he is idle, but make him some compensation for those anxious and desponding moments which the thought of so precarious a situation must sometimes occasion." This principle is repeated by Smith's successors for over one hundred years, practically unquestioned except by Senior, who disagrees as to the increased annual real wage. "But this evil (despondency because of precarious situation) is compensated, and in most dispositions more than compensated, by the diminution of his toil. We believe, after all, that nothing is so much disliked as steady, regular labor; and that the opportunities of idleness afforded by an occupation of irregular employment are so much more than an equivalent for its anxiety to reduce the wages of such occupations below the common average." 2 Senior contends, however, that the periods during which capital is unproductive must be compensated by a surplus profit when it is productively used.

1 Wealth of Nations, book i. chap. x.

2 Nassau W. Senior, Political Economy (6th ed., London, 1872), pp. 207-8. Also quoted in Seasonal Trades, p. 10.

I5 ] DEVELOPMENT OF ENGLISH UNEMPLOYMENT I5

Thomas R. Malthus, following Adam Smith, made two important contributions to the subject under consideration. His doctrine of population, at least as it was first enunciated, and as interpreted by later followers, exercised a vicious negative effect on the course of scientific study of the problems connected with destitution. The effect it had of completely overshadowing certain other doctrines advanced by Malthus in connection with this same subject has been almost equally regrettable. His theory of the pressure of population on the means of subsistence, the resulting destitution being merely one of the natural positive checks to an excess of numbers, is too well known to require detailing here. 1 Unemployment, according to this view, is caused solely by an excess of workers, and can only be dealt with by allowing full play to the rigorous process of natural selection. " A man who is born into the world already possessed, if he cannot get subsistence from his parents on whom he has just demand, and if society do not want his labours, has no claim of right to the smallest portion of food, and, in fact, has no business to be where he is. At Nature's mighty feast there is no vacant cover for him. She tells him to be gone, and will quickly execute her own orders if he does not work upon the compassion of some of her guests/' 2 His theory is essentially one of surplus population. Malthus's doctrines were eagerly accepted by the upper classes, for they lifted from their shoulders not only responsibility for the condition of the poor, but also responsibility for active effort toward social improvement.

Malthus' relation to unemployment theories does not

1 For the theory in full see Malthus, An Essay on the Principles of Population (London, 1803). 2 Ibid., p. 53. Quoted, Seasonal Trades, p. 11.

j6 CONTEMPORARY THEORIES OF UNEMPLOYMENT [j6

end here, however. In his Principles of Political Economy? is included the earliest, most complete and most sympathetic treatment of the question of the unemployed that is found anywhere in the works of the economists of this school. In attempting to explain the distress of the laboring classes after 1815, he contends it to be due to the fact that capital, revenue, and the effective demand for produce had been diminished by the wars, while the working population was in excess of the demand, because of the many births during the preceding period, and the return of soldiers and sailors from the wars. He recommends as a remedy the employing of the working classes in unproductive labor, or at least in labor the results of which would not go for sale into the markets. The building of public works and the improvement of grounds and hiring of servants by the wealthy are advocated. Stating that " nothing can compensate the laboring class for a fall in the demand for labor," that "fluctuations always bring more evil than good to the working classes/' he urges that it should be the object of government to maintain peace and an equable expenditure. 2 The passage is noteworthy not only for the striking change in spirit since the earlier work, but for the recognition of the evil effects on the laboring class of industrial fluctuations, and for the recommendation of methods for relieving the distress due to unemployment.

Malthus' treatment of overproduction is worthy of note because of the importance of that subject in later discussion. He argues the possibility of a real excess of goods over the quantity that could be consumed, though he does not show the possible connection between overproduction and unemployment.

l T. R. Malthus, Principles of Political Economy (Boston, 1821), p. 371 et seq. 2 Ibid., p. 403.

I7 ] DEVELOPMENT OF ENGLISH UNEMPLOYMENT iy

Through the works of David Ricardo there are scattered references to subjects that are today looked upon as important factors in unemployment, but Ricardo does not develop them as such. The Malthusian doctrine of population is accepted in full. The maintenance of the poor out of public funds is severely condemned, the Poor Law of the day, which richly deserved censure, being sharply attacked. 1 An increase in population is looked upon not necessarily as causing unemployment, but as lowering wages below the natural price until the number of the poor is reduced by misery so that wages can again rise. 2 A question that has long been at issue is touched upon by Ricardo in discussing the effects of the introduction of machinery. 3 He contends that the employment of machinery always leads to an increase in the net product of a country, but not necessarily to an increase in the gross product. As the power of employing labor depends on the latter, there very often results a diminution in the demand for labor, population becomes redundant, and there is distress and poverty among the laboring class. Later economists took issue with Ricardo on this point. His general attitude on the question of relieving unemployment is shown where he endorses a statement that the great evil of the laborer's condition is poverty, resulting either from the scarcity of food or of work, but holds that the state should recognize the limitations of its power to remedy these conditions by legislation. 4 The same attitude is shown in another section where he argues that the distress arising from a revulsion of trade is a necessary evil

1 David Ricardo, Principles of Political Economy and Taxation (London 1881), p. 58. 2 Ibid., p. 51. 3 Ibid., pp. 235-242.

*Ibid., p. 58. (Footnote.)

t8 CONTEMPORARY THEORIES OF UNEMPLOYMENT [ig

to which a rich nation must submit. 1 This acceptance of the maladjustments of the industrial system and of the resulting misery as a necessary feature of that system is characteristic of the whole Manchester school.

James Mill deals with none of the subjects connected with the problem of unemployment except in bringing forward the Malthusian theory of population in explaining wages.

J. R. McCulloch, like his predecessors, attacks the Poor Law for its tendency to derange the natural relation between the supply of labor and the demand for it, 2 shows the connection between population and fluctuations in wage rates, 3 and repeats verbatim Adam Smith's statements as to variations in wages due to irregularity of employment. 4 Of chief importance is his attempt to refute Ricardo's contention that the introduction of machinery tends to reduce the demand for labor. McCulloch holds that improvements in machinery may sometimes force workmen to change their employments, but that they always increase the gross product, and therefore have no tendency to lessen the effective demand for labor. 5

The works of Nassau Senior are notable for an appreciation of the problem of unemployment and a careful consideration of the causes of unemployment. In some of the points he makes he anticipates later thought. His disagreement with Adam Smith as to the distress occasioned by irregularity of employment, and his rather questionable conclusion as to the joys of that state of affairs have been noted. Of greater validity is his other reason-

^icardo, op. cit., p. 161.

J J. R. McCulloch, Principles of Political Economy (Edinburgh, 1825), p. 355. z Ibid., p. 344, et seq. 4 Ibid., pp. 240-1.

IO J DEVELOPMENT OF ENGLISH UNEMPLOYMENT 79

ing on the subject. To the development of manufactures and the division of labor is ascribed the phenomenon of unemployment. "Few principles are more clearly established," Senior writes/ "than that the productiveness of labor is in proportion to its subdivision, and that in proportion to that subdivision must be the occasional suffering from want of employment." Another point which Senior mentions is first made by him among the economists ; that is, that unemployment is in part due to lack of mobility on the part of labor. " There can be no doubt that we have among our institutions and our habits much that fetters and misdirects the industry of our laborers ; and that these causes frequently occasion and always prolong the want of employment to which large portions of our laborers are frequently exposed." 2 A striking illustration of the position of the modern worker is given by Senior. The savage, like one of his own instruments, is clumsy and inefficient but a complete self-sufficing unit in himself. The civilized man, like a single wheel in one of his large machines, is marvelously efficient when combined with others, but alone almost useless. 3

In the works of the great " codifier " of the classical economists there is nothing new on the subject of unemployment. John Stuart Mill accepts the Malthusian doctrine of population, 4 discussing it solely in its effect on wages, quotes Smith on the irregularity of employment as tending

1 Nassau William Senior, Political Economy (London, 1872), p. 219.

3 Ibid., p. 219. It is significant, in connection with these theories of Senior, that he was one of the members of the Royal Commission on the Poor Laws of 1834, the rigorous "Principles" of which still dominate English poor relief.

4 J. S. Mill, Principles of Political Economy (New York, 1864; from 5th London edition), p. 206.

20 CONTEMPORARY THEORIES OF UNEMPLOYMENT [ 2 o

to increase wages, 1 and follows McCulloch in denying Ricardo's contention that the conversion of circulating into fixed capital can injure the laboring classes in the aggregate, though admitting that temporary distress may result. 2

J. E. Cairnes, in developing the theory of non-competing groups and in popularizing Senior's wage-fund doctrine, makes several points bearing upon the problem. An increase in the amount of fixed capital at the expense of circulating capital will, at least for a time, have disastrous results in the development of pauperism, he contends, because of the curtailment of the wages fund involved in this change. 3 However, such a curtailment will not be a permanent one, since ". . . the true and only limit to the employment of labor is increasing cost of production. Increase the productive powers of industry, extend the knowledge of the industrial arts which support and comfort mankind, and there is little danger that laborers will ever fail of employment for want of work to do." 4 Cairnes thus holds with Mill and McCulloch that distress due to the introduction of machinery will be merely temporary, involving a necessary change in the distribution of labor, but not a fallingoff in the total demand for labor.

With Cairnes the line of immediate disciples of the Smith-Ricardo-Mill school of economists comes to an end. Their direct contributions to the study of the problem of unemployment were not many. The three outstanding ideas on the subject which they leave us are that unemployment is compensated by higher pay and

'Mill, op. cit. t pp. 473-4.

3 J. E. Cairnes, Political Economy (New York, 1874), p. 179.

2i ] DEVELOPMENT OF ENGLISH UNEMPLOYMENT 2 I

the opportunities for idleness, that it is due to a surplus population, and that it is a necessary concomitant of industrial changes, and therefore merely temporary in character. Their study of the problem was not intensive. Engaged as they were in building up a science of political economy it could hardly be expected that they should exhaustively study one phase of the subject. Propagating, moreover, the idea of free enterprise and laissez faire in industry, they were not likely to emphasize a point at which the doctrine of absolutely unrestricted business enterprise broke down, in so far as the well-being of the working classes was concerned. It was on these grounds, in part, that Bagehot and Jevons and Toynbee, who followed Cairnes, broke away from the restrictions of the classical school. 1

1 For a brief review of the attitude of the Manchester school toward the problem of unemployment, see a paper by Juliet S. Poyntz, included in Seasonal Trades by Webb and Freeman, (pp. 7-12). It is rather a severe criticism of the school from the standpoint of a Fabian Socialist than a fair review.

W. M. Leiserson gives a good summary of the views of the early economists in an article in the Political Science Quarterly for March, 1916 (vol. xxxi, no. 1, pp. 5-9).

The views on the subject of unemployment of some of the lesser writers of the classical era, notably those of the Ricardian socialists, are worthy of exposition, but the scope of the present paper prohibits it.

There is much that is suggestive of labor doctrines concerned with unemployment in the socialist writings of the nineteenth century, especially in the works of Karl Marx. Marx' analysis may be briefly summarized.

With the advance of accumulation the proportion of constant (fixed) to variable (circulating) capital changes. If it was originally 1:1, it now becomes successively 2:1, 3:1, 4:1, 5:1, 7:1, etc., so that, as the capital increases, instead of 1-2 of its total value, only 1-3, 1-4, 1-5, 1-6, 1-8 etc., is transformed into labor power. Since the demand for labor is determined only by the variable constituent of capital, that demand falls progressively with the increase of the total capital. Capitalist accumulation, therefore, constantly produces a relatively redundant population of laborers— a surplus population. This surplus labor population forms

22 CONTEMPORARY THEORIES OF UNEMPLOYMENT [ 2 2 2. THE ABLE-BODIED UNDER THE ENGLISH POOR LAW

While the problem of unemployment is one that must be approached from the standpoint of industry, rather than from the standpoint of the Poor Law or of charit-

a disposable industrial reserve army. The course characteristic of modern industry, viz., a decennial cycle of periods of average activity, production at high pressure, crisis, and stagnation, depends on the constant formation, the greater or less absorption, and the reformation of the industrial reserve army, or surplus population. (In their turn the varying phases of the industrial cycle recruit the surplus population, and become one of the most energetic agents of its re-production). Moreover, on the possibility of throwing great masses of men suddenly on the decisive points without injury to the scale of production in other spheres, depends fluidity and transformability of capital. The whole form of the movement of modern industry depends, therefore, upon the constant transformation of a part of the laboring population into unemployed or half-employed hands. The over-work of the employed part of the working class swells the ranks of the reserve. Relative surpluspopulation is the pivot upon which the law of demand and supply of labor works.

The relative surplus population exists in every possible form. Every laborer belongs to it during the time when he is only partially employed or wholly unemployed. There are, however, three general forms — the floating, the latent, and the stagnant. The floating surplus population is found in the centres of modern industry, among the laborers who, repelled and then attracted, are swayed by the expansions, contractions and shiftings of production. It is constantly augmented by the boys who were employed up to maturity and then turned out, for capitalistic production wants constantly larger numbers of youthful laborers, smaller numbers of adults. Of its members, also, are the thousands who are always out of work, even when there is a complaint of the want of hands, because the division of labor chains them to a particular branch of industry. The latent surplus population exists in the rural districts, where capitalistic production, having taken possession of agriculture, has forced out a part of the agricultural population. This excess is therefore constantly on the point of passing over into an urban or manufacturing proletariat, and on the lookout for circumstances favorable to this transformation. The third category of the relative surplus population, the stagnant, is that part of the active labor army which is characterized by extremely irregular employment, furnishing to capital an inexhaustible reservoir of disposable labor power. It recruits itself constantly from supernumerary forces of modern industry and agriculable administration, it is yet necessary to understand the attitude which the Poor Law administrators have taken in order to view in the proper perspective modern theories and remedies.

Previous to 1834 the Poor Law passed through three distinct periods, the division into periods being based upon the principles dictating Poor Law practice. From early times the poor have been divided into two classes, those unable to earn a livelihood, and the able-bodied, the " sturdy rogues and vagabonds." It was with the second of these classes that the Poor Law was first concerned, the "deserving poor" being left to churches,

ture, and especially from those decaying branches of industry where handicraft 'is yielding to manufacture, manufacture to machinery. There is, finally, the lowest sediment of the relative surplus population, the "dangerous" classes, those dwelling in the sphere of pauperism. It is pauperism which is the hospital of the active labor-army and the dead weight of the industrial reserve-army. Das Kapital, chap, xxv, sections 3-4, (London, 1901), pp. 642-664.

Marx anticipated in this analysis many of the later theories as to the causes of unemployment, as will develop in later discussion.

The reasoning of the other socialists of the day was rather more superficial than that of Marx, though tinged with the same intense revolutionary flame. The principle of the right to work was probably first enunciated in France by Fourier and Considerant. Upon it was based the scheme of employing in public works all who were out of work, which was attempted in 1848 (the ateliers nationaux) . The matter of seasonal irregularity was first studied about the middle of the century by Louis Blanc, who gathered statistics from 1500 work-people in 830 workshops in Paris, as to their daily wage and the number of months during which each was out of work during the year. Very early in the nineteenth century Robert Owen in England was earnestly working to relieve the distress due to unemployment, proposing state provision of work as a protection against the misery resulting from industrial fluctuations. With the exception of the contribution made by Marx, the chief element in which was the conception of a mobile army as a necessity in capitalistic production, there is nothing of exceptional value to present study in the works of the early socialists. Cf. Seasonal Trades, pp. 11-16.

guilds, and private charity. Up to the Act of Elizabeth in 1601 extremely harsh laws for the suppression of vagabondage were in force. Under the Acts of 1388 and 1405 gaol and stocks, with bread and water diet, were the mead of sturdy beggars. 1 The Act of 1531 made necessary licenses for begging ; he who was caught without a license was "to be beaten with whips till his body be bloody by reason of such beating." Scholars of Oxford and Cambridge begging without authorization under the seal of their universities were to be punished in the same way. The years 1547 and 1572 marked even more severe penalties. Branding, the enslavement of wives and children, and death were some of the punishments for "loitering, idle wanderers." The extreme severity of these laws of course prevented their strict enforcement. 2 The second of the early periods is that beginning with the Act of Elizabeth in 1601. The dominant principles were, first, the relief of the lame, impotent, old, blind and other poor people not able to work, and, second, the setting to work of those having no ordinary or daily trade of life by which to get their living. Funds were to be provided by the practically compulsory taxation of every inhabitant. Every parish was solely responsible for its own poor. Laws of settlement were strictly enforced under this act, to prevent the flocking of the poor to the parishes where they were best treated. 3 Parish poor houses first came into being during this period

1 Cf. T. Mackay, The English Poor (London, 1889), pp. 112-116.

3 Such laws, however, were not originated at this time. Measures restricting the mobility of labor were enforced before the time of Wat Tyler during the reign of Richard II, and at varying intervals thereafter. Cf. Mackay, op. cit., pp. 112-13.

because of the need for a test to prevent promiscuous giving by local justices. 1

In 1782, with the passage of Gilbert's Act, came the beginning of the form of poor-law relief to which Malthus and other of the early economists took such strong exception. The workhouse test was abandoned. All who were able and willing to work were to be provided by the Poor Law Guardians with employment " suited to their capacity and near the place of their residence." Moreover, they were " to be properly maintained and provided for until such employment were secured," and the deficiencies of the earnings of such work, if not enough for maintenance, were to be made up to them. Striking evils ensued. Money and food were doled out liberally, often without a labor test. In one place an independent laborer, by hard work, could earn 12 shillings a week, while a pauper, for nominal work, received 16 shillings a week. In some places people were forced by law to employ and pay a number of laborers, the number being based upon the amount of their property. 2 The poor-rate assessment became very high with these heavy drains upon it. The evil effects of the system, in the degradation of the working classes, in the fostering of an inefficient laboring force, and in the encouragement it gave to an excessive growth of population have been widely advertised since the breakdown of the old law. 3 In 1834, following the Report of