After the recent Employment Situation Summary by the U.S. Bureau Of Labour Studies, it is becoming more clear that the concept of NAIRU is a chimera, a deceit.

In a 1943 article, Joan Robinson talked of why the establishment wishes to keep a fraction of the population unemployed. It is quoted in Nicholas Kaldor’s 1983 article, Keynesian Economics After Fifty Years:

… recession hit a number of countries and it became generally believed (rightly or wrongly) that ‘Keynesian’ instruments of economic policy were unavailable for coping with this situation. At the same time the anti-Keynesian school of economists, the ‘new’ monetarists, rapidly gained followers among influential people more or less simultaneously in a number of countries and this was combined by widespread and rapidly growing antagonism to Keynesian ideas. The reason for this antagonism, not openly acknowledged, was the change in the power structure of society which the pursuit of Keynesian policies had brought about. This was foreseen well before the adoption of Keynesian methods of demand management. Thus in an article in The Times in January 1943 on post-war Full Employment it was stated:

Unemployment is not a mere accidental blemish in a private- enterprise economy. On the contrary, it is part of the essential mechanism of the system, and has a definitive function to fulfil. The first function of unemployment (which has always existed in open or disguised forms) is that it maintains the authority of masters over men. The master has normally been in a position to say: ‘If you don’t want the job, there are plenty of others who do’. When the man can say ‘If you don’t want to employ me there are plenty of others who will’ the situation is radically altered.⁴

The change in the workers’ bargaining position which should follow from the abolition of unemployment would show itself in another and more subtle way. Unemployment in a private enterprise economy has not only the function of preserving discipline in industry, but also indirectly the function of preserving the value of money. If free wage bargaining as we have known it hitherto, is continued in conditions of full employment, there would be a constant upward pressure upon money wage-rates. This phenomenon also exists at the present time, and is kept within bound by the appeal of patriotism. In peace-time the vicious spiral of wages and prices might become chronic.⁵

⁴ The doctrine is usually associated with Karl Marx who argued that capitalism can only function with a ‘reserve army’ of unemployed labour. But Marx himself owes these ideas (though he never seems to have acknowledged it) to Adam Smith, who wrote in the Wealth of Nations that normally there is always a scarcity of jobs relative to job-seekers: ‘There could seldom be any scarcity of hands nor could the masters be obliged to bid against one another in order to get them. The hands, on the contrary, would in this case, naturally multiply beyond their employment. There would be a constant scarcity of employment and the labourers would be obliged to bid against one another in order to get it. If in such a country the wages of labour had ever been more than sufficient to maintain the labourer and to enable him to bring up a family, the competition of the labourers and the interest of the masters would soon reduce them to the lowest rate which is consistent with common humanity’ (Book I, ch. VIII, p. 24).

⁵ ‘Planning Full Employment – Alternative Solutions of a Dilemma’, The Times, 23 January 1943. (A ‘turnover’ article; the article was unsigned but its authorship is generally attributed to Joan Robinson.)