Robert E. Prasch

Reassessing the Labor Supply Curve

It is no exaggeration to state that the supply and demand model of price determination is the most widely accepted theory in contemporary economics. In the professional and textbook literature, this model is used to determine the price of every kind of commodity from theater tickets to corn, oil, votes and wages. However, problems can arise when a model as abstract as the theory of supply and demand is too readily applied to situations in which it may be inappropriate. Indeed, Institutional economists have long maintained that the application of the supply and demand theory to the labor market is often an important instance of such an error [Galbraith 1997; Lester 1947, 1941; Power 1999; Prasch 2000, 1999, 1998b]. This paper will argue that labor is qualitatively different from other commodities in at least one crucial attribute. Specifically, when the price of a typical commodity falls, the conventional theory of supply maintains that suppliers will substitute out of the business of providing that particular item, and devote their productive capacity to the provision of some other item. In the standard models, this substitution is thought to occur with zero transactions costs. Now this idea is not necessarily wrong. For example, it is reasonable to suppose that a low price for minivans will induce automobile manufacturers to supply more trucks or sedans. But is it plausible to apply this line of reasoning to the aggregate labor market? Or the market for unskilled labor? The problem is that most people depend upon the sale of their labor for the bulk of their income and, indeed, for their livelihood. In light of this fact, can we plausibly conclude that a low wage will induce more than a minority of people to substitute into leisure and forgo any effort to earn a living? After all, not many people

American Economists and Minimum Wage Legislation During the Progressive Era: 1912–1923

Several recent studies, such as that by David Card and Alan Krueger (1995), have led the economics profession to reconsider the theoretical and empirical arguments for and against minimum wage legislation. Most noteworthy was the fact that two respected members of the mainstream economics profession claimed to have found that an increased minimum wage did not lead to increases in unemployment. Moreover, their result was derived from the market for unskilled labor.

Reassessing the Theory of Comparative Advantage

This paper is a reassessment of the theory of comparative advantage and the policy of laissez-faire that has generally been built upon it. The method of analysis will be conceptual as the intent is to examine some of the more problematic assumptions and sometimes implicit preconceptions that underlie the model. In particular, it will be demonstrated that what often passes for a consistent and rigorous defence of free trade is neither. The paper ends with a plea for the re-introduction of a more historical and comparative approach to the trade policy debate.

The Economics and Ethics of Minimum Wage Legislation

Recent empirical studies have led the economics profession to question the proposition that minimum wage legislation necessarily leads to greater unemployment. This paper extends the analysis of these studies by providing several theoretical reasons why these empirical results may reflect a larger truth. Moreover, it addresses a relatively neglected aspect of the minimum wage debate - its ethical dimensions. Specifically, do the elementary principles of economic justice mandate that employees who “play by the rules”, should earn a “living wage”? This paper argues that the minimum wage is a successful economic policy that is consistent with economic justice.

John Bates Clark's Defense of Mandatory Arbitration and Minimum Wage Legislation

The ideal of Political Economy is not unrestricted competition, but competition that is truly free, because controlled by justice and by law. The distinction between freedom and license needs to be preserved in this department of political philosophy. With that distinction clearly maintained, we may still retain, in economics as in politics, our beautiful watchword, liberty (John Bates Clark 1879, p. 167).John Bates Clark has had a formidable impact on the development of economic theory and the theory of income distribution. In addition, Clarks marginal product theory of distribution has often played an instrumental role in the defense of laissez-faire policies. His theory has been used to criticize a wide variety of market interventions, including minimum wage legislation. As a result it is not surprising that Clarks theory of income distribution, and Clark himself, have drawn more than a few critics.

How Markets Work

An accessible and enjoyable look at the way the market REALLY works! How Markets Work presents a new and refreshing introduction to elementary economics. The venerable theory of supply and demand is reconstituted upon plausible and defensible assumptions concerning human nature, the law, and the facts of everyday life – in short – the ‘Real World’. The message is that markets differ in ways that matter. Starting with a brief survey of property and contract law, the lectures develop several ‘ideal types’ of markets – such as credit, assets, and labor – while illuminating the similarities and differences among them. Care has been taken to ensure that the reformulations presented are accessible to students and compatible with a variety of non-mainstream traditions in economic thought.

Thorstein Veblen and the revival of free market capitalism

With the restoration of laissez faire as the governing principle of contemporary economic ideology and policy making, Thorstein Veblen’s insights are once again timely. This book revisits his legacy, featuring original essays by renowned Veblen scholars.

Neoliberalism and Empire: How Are They Related?

It is argued that when the world’s economic and military hegemon pursues a foreign economic policy of liberalism, there are tendencies for that nation to acquire an empire. These arguments are illustrated with examples from the British Empire of the nineteenth century. The article concludes with some speculations on the current situation, with the United States now in the role of the world’s hegemon.

Professor Lester and the Neoclassicals: The 'Marginalist Controversy' and the Postwar Academic Debate over Minimum Wage Legislation: 1945-1950

Study of wage data and the actual processes of wage determination indicates that psychological, social, and historical factors such as the social outlook and generosity of the management, community attitudes and mores, tradition of the firm are highly important influences in particular cases. There appears to be a fairly high degree of irrationality in the wage structure and in company wage policies, judged either by the market analysis of economists or job evaluation within and between plants.

W. E. B. DU BOIS'S CONTRIBUTIONS TO U.S. ECONOMICS (1893–1910)

As a graduate student, Du Bois studied with two of the most important figures within what is today remembered as the German historical school of economics—Gustav Schmoller and Adolf Wagner. By taking seriously Du Boiss early ambitions in the field of economics, and rereading his early work as a social scientist in the context of early twentieth-century economic thought, the following article makes the case that Du Bois should be credited with having made several important contributions to U.S. economics. The article suggests that our failure to remember Du Bois as an economist is a joint consequence of two independent causes. The first is the racist attitudes of the U.S. academy of his time that simply would not accept a highly qualified African American as a colleague. The second is the sweeping changes that have so profoundly modified the method, form, and substance of U.S. economics over the past century.