Organized Labour’s Marxian Solution to the Current Crisis


Karl Marx identified the basic cause of repeated economic crises affecting capitalist societies as “underconsumption” – consumers purchase less than needed to buy up the supply of goods in the economy, which leads to reduced production, unemployment and financial problems.  He argued that it is the inevitable result of capitalists’ exploitation of workers, who are paid less than is owed to them.  He foresaw an end to these crises coming when workers rise up, throw off their shackles and take over capital and the income it produces.


Marx’s influence has been strong because it justifies the raising of wages with government help, which is welcomed by workers and politicians competing for their votes.  For union leaders the higher wages are a return to their political lobbying efforts.  In the past, even employers welcomed the raising of wages during recessions, partly because they believed Marx’s analysis that it would restore prosperity and partly because it would prevent communist revolutions.


During the Great Depression of the 1930s Presidents Herbert Hoover and Franklin Roosevelt enacted policies to eliminate underconsumption.  Richard Vedder and Lowell Gallaway in their book Out of Work (The Independent Institute, 1993) document how the legendary industrial leaders of the age in the United States like Pierre Dupont, Henry Ford and Andrew Mellon had lobbied Hoover to adopt a policy of “jaw-boning” employers into paying higher wages.  Here is the rationale for this policy given by Henry Ford:


“Nearly everything in this country is too high priced.  The only thing that should be high priced in this country is the man that works.  Wages must not come down, they must not even stay at their present level; they must go up.”


Don Lescohier, a prominent historian of American labour wrote:


“In 1930-31 [wage cuts] were opposed both by the government and by leading employers, in the hope that the maintenance of wage-earners’ income would furnish a market for products and help business recovery.” (quotedMarx , Unions and Current Crisis in Vedder and Gallaway)


Roosevelt’s policies aggravated the situation by the use of indirect increases in wages - strengthening unions, the creation of social benefits financed through payroll taxes on employers and the payment of above-market rates to workers on the public infrastructure projects.


How great was the damage done by these higher wages created by government policies?  Vedder and Gallaway estimated Hoover’s Roosevelt’s raised the unemployment rate from 6.7 percent to 17.2 percent.


It is important to remember this history because powerful unions in Canada recommend wage increases to solve the economic crisis of 2008, using the same rationale provided by Marx.  On October 6, 2008, Ken Georgetti, the President of the Canadian Labour Congress issued a statement on the economic crisis, which said:

Unemployment will soar if governments, at the national and international level, do not take real measures to fix the real problem of stagnant wages…” (