I know a lot of you have little use for all the equations, all of the talk of marginal this equals marginal that, that sometimes goes on here. So rather than going through some long economic analysis on labor markets, since it’s Labor Day, I thought an institutional approach to labor’s relationship to government under capitalism as expressed by Thorstein Veblen might be more interesting. The neoclassical position developed by J.B. Clark in The Distribution of Wealth is presented in the post below this one.
Thorstein Veblen (1857-1929) believed government existed to protect the existing social relationships and, in a capitalist system, that meant protection of property and the privileges of ownership. In a capitalist system, power ultimately resides in the hands of the ownership class because this class controls government. According to Veblen:
...modern politics is business politics... This is true both of foreign and domestic policy. Legislation, police surveillance, the administration of justice, the military and diplomatic service, all are chiefly concerned with business relations, pecuniary interests, and they have little more than an incidental bearing on other human interests.
Though Veblen believes that government exists to protect business interests, he did realize there were different political parties, and people could vote for the party of their choice. However, each party represents competing business interests, not the interests of workers:
The business interests ... within the scope of a given government fall into a loose organization in the form of ... a tacit ring or syndicate, proceeding on a general understanding that they will stand together as against outside business interests. The nearest approach to an explicit plan and organization of such a business ring is the modern political party, with its platform, tacit and avowed. Parties differ in their detail aims, but those parties ... stand for different lines of business policy, agreeing all the while in so far that they all aim to further what they each claim to be the best, largest, most enduring business interests of the community. The ring of business interests which secures the broadest approval from popular sentiment is, under constitutional methods, put in charge of the government establishment.
But why, if there are two parties, are only business interests represented? His explanation is that the working class believes in a “harmony of interests,” what’s good for business is good for society generally, and therefore this best serves the interest of the working class as well:
Representative government means, chiefly, representation of business interests ....for there is a naive, unquestioning persuasion ... among the ... people to the effect that, in some occult way, the material interests of the populace coincide with the pecuniary interests of those business men who live within the scope of the same set of governmental contrivances. This persuasion is an article of popular metaphysics, in that it rests on an uncritically assumed solidarity of interests, rather than on an insight into the relation of business enterprise to the material welfare of those classes who are not primarily business men. This persuasion is particularly secure among the more conservative portion of the community, the business men, superior and subordinate, together with the professional classes, as contrasted with those ... portions of the community who are tainted with socialistic or anarchistic notions. But since the conservative element comprises the citizens of substance and weight, and indeed the effective majority of law-abiding citizens, it follows that, with the sanction of the great body of the people, even including those who have no pecuniary interests to serve in the matter, constitutional government has, in the main, become a department of the business organization and is guided by the advice of the business men. The government has, of course, much else to do besides administering the general affairs of the business community; but in most of its work, even in what is not ostensibly directed to business ends, it is under the surveillance of the business interests.
Veblen believes control of government by business pervades every important branch of government. All important officials are drawn from the business community and the people selected are people with business like characteristics. There is nothing unnatural about this since those are the characteristics required for these administrative positions within government:
[The] intervention of government agencies in these negotiations between the owners and the workmen rebounds to the benefit of the former. Such is necessarily the case in the nature of things. ... As things go in any democratic community, these government agencies are administered by business like personnel, imbued with the habitual bias of business principles-the principles of ownership; that is to say, under current conditions, the rights, powers, and immunities of absentee ownership. In the nature of the case, the official personnel is drawn from the business community,-lawyers, bankers, merchants, contractors, etc.; ... “practical men,” whose preconceptions and convictions are such as will necessarily emerge from continues and successful experience in the conduct of business of that character.
Because business controls every important facet of government, any conflict between business and labor will, in the end, always be decided in favor of business. Anything the working class does that might threaten business interests is repressed by the coercive powers of government, and labor has no chance of prevailing in any protracted power struggle with business interests.
Note: This draws upon E.K. Hunt’s History of Economic Thought, pgs. 314-317. The Veblen quotes are from Theory of Business Enterprise and Absentee Ownership.