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Unemployment and Free Labor Markets

Unemployment and Free Labor Markets

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September 30, 2010

Question: If you claim that everyone has to exist by his own effort, will this lead to great unemployment? You may say that in a free labor market unemployment won’t exist, but is there evidence for this claim? Was the 19th-century free labor market a low unemployment market?

Answer: I am sorry that, living in Argentina as you do, you have suffered through a terrible economic collapse. But you were not living in anything like a real free market, and the games the Argentinean governments played with the currency and the banks are just one example. So please do not think your recent experience teaches much about capitalism.

I am not going to provide you with a book of historical research in this answer. All I will say is this: In the free market, there are many means of insuring oneself against misfortune. Commercial insurance is one form, mutual aid societies and (voluntary) trade unions are another, and many people use family or neighborhood networks to weather bad times.

Objectivists do not think that the free market effortlessly provides everyone with an easy life and great wealth. It is a fact that the free market does tend to provide the great many with an easy life and great wealth, but not everyone, not at all times. Historically, I think you will find that generally free-market policies are strongly correlated with low rates of involuntary unemployment. I think you will find that average 19th-century unemployment rates in America or Britain compare favorably with the situation today in semi-socialist countries like Brazil, Spain, and France. I'm pretty confident that the situation in Argentina was much better in the late 19th century when the economy was relatively free than it has been since Peron came to power, but correct me if I'm wrong. Free-market Hong Kong had very low levels of unemployment, and unemployment declined in Britain and Ireland after pro-capitalist reforms in the 1980s and 90s, respectively. But again this is not the ultimate reason Objectivists advocate the free market.

Objectivism advocates the free market because it is just. It is just that each person support his own life as best he can. It is just that no one be forced to support others against his will and without regards for the choices he has made. It is just that people deal with others by trade. It is just that each person be responsible for his choices. It is this justice that the free market puts into practice.

In the free market, one is not guaranteed well-being or security. But one is free to achieve those things.