>From ACCOUNTANTS AND THE PRICE SYSTEM:THE PROBLEM OF SOCIAL COSTS
Donald R. Stabile, Journal of Economic Issues, March, 1993
>One does not have to be pro-labor or a Marxist to argue that wages that
>do not cover the social costs of the worker could prevail under
>conditions of competitive capitalism. It was Adam Smith's canny
>observation that in conflicts between the men and the master over wages,
>the master usually wins. Employers have advantages in terms of their
>fewer numbers, greater ability to out-wait workers in a strike, and
>preponderant weight of the law falling on their side [Smith 1967, vol. 1,
>74-5]. The important point is that competition would force firms to pay
>the lowest wages possible, without regard to whether they covered the
>social costs of work.
>
>Clark also recognized this potential for wage cutting and identified it
>as a special problem during recessions. The rule of thumb for a
>business's production decision is whether its selling price can cover
>variable costs; if not, the business should shut down and eliminate all-
>its variable factors, including labor. Having business pay the social
>costs of labor would change this decision. As Clark put it, "If ultimate
>costs are nearly all overhead it follows that it would pay for industry
>as a whole to keep going rather than stand idle, even if the product
>were worth next to nothing." Under its present accounting procedures,
>however, "industry as a whole is unwilling to treat its expenses as
>overhead and act accordingly" [Clark 1923, 27].
>
>In Clark's view, the decisive factors in avoiding wage competition were
>proper social cost accounting and a community approach to prevent cost
>shifting. He asked, heuristically, "If all industry were integrated and
>owned by workers, what would be the relation of constant to variable
>expense?" His answer is that "it would be clear to worker-owners that
>the real cost of labor could not be materially reduced by unemployment."
>Workers would understand that laying them off would not reduce their
>needs for surviving, but merely shift them [Clark 1923, 402].
Regards,
Tom Walker
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