THE LAW OF SUPPLY AND DEMAND
AND WORKER MARKETS
By M. Northrup Buechner
A series of essays elaborating Objective Economics: How Ayn Rand’s Philosophy Changes Everything about Economics by the author.
In the preceding blog, I showed how the Law of Supply and Demand applies to rental housing. I showed that the fundamental affect of the law is the creation of a harmony of interests (Adam Smith’s term). From the widest perspective, the harmony of interests consists of the fact that in a free market, everyone is able to do what he wants to do provided that it is consistent with the going market price. If he wants to sell at that price, he is able to sell. If he wants to buy at that price, he is able to buy. If he wants to neither buy nor sell, he is able to do that. If he wants to both buy and sell, he is able to do that. This interpretation of the harmonies of a free market is wide enough to apply to every market. We saw last time that in the rental housing market, there are much narrower, but equally benevolent consequences.
Now we want to take up the market from which, on its face, the law of supply and demand seems to be completely excluded—where the supply never equals the demand—that is “labor markets.” In general, I avoid the term labor markets because in economics it is unavoidably associated with Karl Marx and his view of labor as consisting of the ability to move things by physical muscle power. Labor markets are markets for human work, the outstanding feature of which is thought. They are markets for workers, for producers, for thinkers and builders, for all the various capacities human beings have developed that contribute to the material means, ends, goals, welfare, and ultimately, the lives of other human beings. More concretely, these are the markets in which workers find jobs and are put to work. Let us call them worker markets.
To grasp the role of the law of supply and demand in worker markets, the primary fact we have to understand is the time it takes workers to find jobs. Even in a laissez-faire economy, it would not be true that every worker who resigns or is fired would immediately get another job. Like today, many workers would spend weeks or months (but not years) looking for jobs. The average time spent looking would be less under laissez-faire than it is today, for numerous obvious reasons, such as no unemployment compensation, union monopolies, and licensing restrictions. But there still would be a big difference between the time spent buying (for example) a toaster (or almost any other consumer item) and the time spent looking for work.
The quantity demanded tends to equal the quantity supplied of most goods and services partly because their purchase by customers usually takes very little time. If customers want more of a businessman’s product, they buy more, the businessman gears up to produce more, and shortly the quantity demanded again equals the quantity supplied. This sequence of events is precisely what does not happen when a worker loses his job.