There is much scorn of unionists by economists and employers because of this lump of labor theory with its corollaries. This scorn is based on the classical supply and demand theory and its variants. Supply is demand. Increased efficiency in production means an increase of social dividend and increased shares, which in turn increase production and saving. Therefore, the workers cut off their own noses when they limit output or limit numbers. The classical position is undoubtedly valid when applied to society as a whole, if there is any such thing, and in the long run. But the trouble is that, so far as the workers are concerned, there is no society as a whole, and no long run, but immediate need and rival social groups.
The fixed group demand theory is as follows: The demand for the labor of the group is determined by the demand for the commodity output of the group. The community—wealth and distribution remaining the same—has a fairly fixed money demand for the commodities of a group. It will devote about a given proportion of its purchasing power to these commodities, that is, if the prices of the group commodity are higher, it will buy less units and vice versa, but expend about the same purchasing power. Therefore, the demand for the labor of the group, profits remaining the same, is practically fixed, and increasing the group commodity output means simply conferring a benefit on the members of other groups as consumers without gain to the group itself. Therefore, to increase the efficiency and the output of the group will not increase the group labor demand and group wages. Decreasing the efficiency and output of the group will not decrease the group labor demand and the group wage.
Increasing the number of workers tends to decrease their bargaining strength relatively and to lower the total wage and the wage rate. Increasing the efficiency and the output of the workers is equivalent to increasing the group labor supply, and so tends to lower the group wage and the wage rate. Decreasing the number of workers tends to increase their bargaining strength relatively and so to increase the group wage and the wage rate. Decreasing the efficiency and output of the workers tends to increase their bargaining strength relatively and so to increase the group wage and the wage rate. The introduction of labor saving devices is equivalent to increasing the labor supply and so lowering the wage rate. Limitation of output through shorter hours, etc., i.e., decreasing the supply of labor, increases bargaining strength and tends to increase the wage. Strikes and trade union insurance funds are means of temporarily withdrawing labor supply and so of increasing bargaining strength and increasing wages. In practice the group demand theory is simply the application by the unions of the principle of monopoly, admittedly valid. But this theory only in part explains union efforts to limit both individual and group efficiency and output and to limit numbers. These policies in part rest on other theories and considerations.
Robert F. Hoxie committed suicide on June 22, 1916. For an overview of his important but neglected contribution to economic thought see Charles R. McCann Jr. and Vibha Kapuria-Foreman, “Robert Franklin Hoxie: The Contributions of a Neglected Chicago Economist” Research in the History of Economic Thought and Methodology, Volume 34B, 2016.