I have received more personal emails regarding my earlier essay Declare Detroit a Free City than all my other essays put together. Some have been especially poignant. For example, one lady said that she and her husband, who has been unemployed for two years from a company for which he worked for twenty-five years, would move to a Free Detroit themselves, confident that her husband could find work. I pointed out to her that Ludwig von Mises explained that the only real barrier to economic expansion was the limited supply of labor, which puts a practical limit to the expansion of the division of labor. In other words, the larger the pool of labor, the more specialized is the economy, which results in lower costs of production.
No Unwilling Unemployment in a Free Market
By himself an individual cannot exist much above basic survival, if he can even do that. However, larger groups who engage in peaceful cooperation develop a division of labor which allows each individual to specialize according to his comparative advantage, accumulate capital, and provide everyone else in the group with goods and services that would be impossible for them to produce in a hermit’s existence. Given the fact of an unlimited desire to improve our condition that is limited only by the size of the labor pool, Mises explained that under free market capitalism there is no unwilling unemployment. There is always more work to be done than there are people to it. Therefore, the first step to freeing Detroit from its downward economic spiral is to remove whatever barriers exist that prevent people from working.
Step One–Free the Market for Labor
The greatest of these barriers to work are the myriad and complex laws that interfere in the ability for labor and capital to arrive at mutually agreeable terms of employment. Minimum wage laws should be the first to go, but also the many costly labor regulations that business must consider when hiring. Government has been piling on costly mandatory benefits, whether these benefits would be valued by the employee in a free labor market or not. Again, Mises explained that business must take into account the total cost of labor, not just the wage cost. If business must pay for other benefits, then that cost must be added to the explicit wage cost to arrive at the real, total cost of labor.
Protecting the All Important First Rung of the Ladder
Minimum wage laws and onerous regulation raise–or eliminate altogether–that critical first rung on the employment ladder for many workers, preventing them from gaining that all important first step on the road to independence and self-reliance. The entry level employees and younger workers, those who have less marketable skills and whom labor laws are supposed to benefit, are the ones who are harmed the most by labor laws. These workers are locked out of the labor market by the inexorable laws of economic reality. If their skills provide business with less revenue than their total costs of employment, no business can employ them for long without running out of capital. Hence, they never get on the ladder at all. This is a tragedy not only for them but for all of us, too.
Dismantling the Ladder: Cooperative Relations Under Constant Attack
Our lawmakers seem to live in an alternative world where they believe that wages may be mandated ever upward with no adverse economic consequences. In this tragic world–where unfortunately WE live–they are doing everything possible to stop new entrants from entering the labor force and gaining the skills that businesses would be willing to give them. Currently there even is a movement afoot to outlaw the practice of “employing” interns. Internships are one way for workers with low marginal productivity to gain skills and contacts in the careers of their choice. Typically, an intern works either for free or perhaps for room, board, and a small stipend. Hypocritically, Congress itself “employs” many interns. My son was an unpaid intern for our congressman for two summers while in college. Needless to say his eyes were opened to the ways of the world, which have served him well as an attorney.
The most egregious attempt at interference in what has always been a free labor market occurred recently in the great farm state of Iowa. The U.S. Department of Labor, with assistance from the U.S. Department of Agriculture, attempted, unsuccessfully, to bring the children of farm families under their regulatory umbrella! The rest of us benefited immensely when Iowa’s farm families said NO!. Not only was this an intrusion into the hearths and homes of some of the most hard working and independently reliant people in America, it would have created a precedence for even more intrusions into American families’ everyday lives. Tell junior to take out the garbage and mow the grass? Make sure you pay minimum wage, buy workers’ comp insurance, and file that W-2 at the end of the year! (Don’t think that this could not have happened!)
Detroit Could Become a New Beacon of Freedom
What might ordinary people achieve if all barriers to the free use of their labor were removed? Might they not be inspired to move to such a place, set up shop, take on interns, establish apprenticeships, and produce the goods and services that all of us need and cannot produce for ourselves? They would be following in the footsteps of all those who crossed an ocean to do just that, seeking only the opportunity to live and work freely. Detroit could become the new beacon of freedom and liberty for the oppressed people of America, like the lady who told me that she and her husband would move to a Free Detroit. She and her husband would follow in the honorable tradition of our pilgrim ancestors and all who came here later seeking only freedom. Let us establish such a place, a haven free of the oppressive hand of the parasitic state. And let us establish it in the most dysfunction real estate in America–the bankrupt city of Detroit. All that our oppressors have to fear is our success.
Patrick Barron is a private consultant in the banking industry. He teaches in the Graduate School of Banking at the University of Wisconsin, Madison, and teaches Austrian economics at the University of Iowa, in Iowa City, where he lives with his wife of 40 years.
Tags: capitalism, cooperative relations, Detroit, free labor market, free market, Ludwig von Mises, minimum wage