Now the assumption that the general level of real wages depends on the money-wage bargains between the employers and the workers is obviously not true.
I guess I shouldn't say I just came across it: it pretty much outlines the greater part of the argument he's making. I was somewhat surprised to find that the greater part of the text is devoted to the question of involuntary unemployment. I thought that the latter was mostly a canard that was meant to counter Friedman's brand of liberalism, but it appears that this was already central to the marginal movement before Keynes' day.
Of course, in exploring whether unemployment is voluntary, we have to assume that all employment is voluntary--or that the wage contract is, anyway. This was a hotly contested issue in the US at around the time Keynes published his general theory and it is quite interesting to see that liberal economists have come up with no better defenses for the capitalist system than existed in the early 20th century, despite it going through enormous changes. In a way, it gives me a great deal of respect for R. H. Coase because, although he was evidently committed to the creed till the end, his early empirical work--i.e. his essay on "The Firm"--seems unique in this tradition for trying to evaluate these enormous industrial firms using the creed itself.
In any case, in reading Keynes', I noted that the word he uses to describe workers is, well workers. Or "Labour." The latter is a more British formation and the former is still often used in US speech today to talk about people who work for other people. But since all these terms inevitably sound Marxist or at least leftish, I started wondering about the term "employee." It is a more formal term and seems somewhat more washed of the political baggage the other two contain. More than that, it places the "worker" and "employer" in a relationship of interdependence: The employee is employed by the employer. It makes the Durkheim argument about the division of labor seem accurate.
I don't really know what the origins of it are, but according to the OED, "employer" or "imployer" has been around, in English, since at least the turn of the 17th century. "Employee" however, doesn't appear until the mid 1800s--about 1850. Here is the entry:
a. A person employed for wages; =EMPLOYÉ, which it has now virtually superseded. b. (nonce-use.) Something that is employed.
1850L. H. GARRARD Wah-To-Yah xii. 172 Horses and mules..were here herded, by their employees. 1854THOREAU Walden iv. (1886) 113 They take me for an employee. 1879TOURGEE Fool's Err. xxxv. 241 Their commands are..obeyed by the..employees. 1886A. MORGAN in Lit. World (Boston, U.S.) 15 May 172/1 The supines of Shakespeare outnumber the employees of most authors. 1891Pall Mall Gaz. 23 Oct. 2/1 To arrange a forty-eight hour week for the few binders, while retaining the fifty-four hours for the bulk of the employees. 1906Daily Chron. 9 May 5/5 ‘I don't like this affectation of “employee”,’ observed Judge Addison, in the Southwark County Court. ‘I prefer English words.’ 1909Ibid. 15 Dec. 1/3 The employee shares in the company are 50,000 of £1 each. 1928Britain's Industr. Future (Lib. Ind. Inq.) III. 141 The stimulation of employee-ownership under schemes of profit-sharing and investment by employees. 1954J. A. C. BROWN Soc. Psychol. Industry iii. 84 The supervisors of high production groups were those who were..more employee-centred.
The inflections here--"I prefer English words" and "schemes of profit-sharing and investment"-- suggest the French word from which it was taken, employé, which seems to have a slightly longer history, at least in English use:
One who is employed. (In Fr. use chiefly applied to clerks; in Eng. use gen. to the persons employed for wages or salary by a house of business, or by government.)Here, the pattern, basically, is that it is used to describe workers who are employed in government and, later, in corporations. The sense above of "schemes of profit-sharing and investment" is actually crucial to J. S. Mill's use of the term, which is obviously influenced by his experience as an "employee" of the British East India Company, where he spent most of his life as what might be called a PR clerk. The term comes from his Principles of Political Economy, and follows a section where he recommends "production on a large scale" be promoted in much the same fashion as a joint-stock company, such as his current employer. Overall, he says, these are an excellent model--save the problem of inefficient management, which he notes Adam Smith was concerned about. Here, he basically enunciates a philosophy of business that is still around today: that the people at the top are of superior intelligence and discipline to keep themselves--and everyone below them--on task; hence their very, very fat paychecks:
1834 O. P. Q. in Spectator 22 Nov. 1112/2 An old bankrupt employé of the Empire.
1848MILL Pol. Econ. I. ix. §2. (1876) 87 Connecting.. the interest of the employés with the..success of the concern. 1860GEN. P. THOMPSON Audi Alt. III. cii. 4 No representations against a Government employé shall be entertained. 1862Macm. Mag. July 257 All these employées should be women of character. 1879G. C. HARLAN Eyesight v. 64 In Italy, all railroad employés are subjected to rigorous examination.
Adam Smith fixed his observation too exclusively on the superior energy and more
unremitting attention brought to a business in which the whole stake and the whole gain belong to the persons conducting it; and he overlooked various countervailing considerations which go a great way towards neutralizing even that great point of superiority.
Of these one of the most important is that which relates to the intellectual and active qualifications of the directing head. The stimulus of individual interest is some security for exertion, but exertion is of little avail if the intelligence exerted is of an inferior order, which it must necessity be in the majority of concerns carried on by the persons chiefly interested in them. Where the concern is large, and can afford a remuneration sufficient to attract a class of candidates superior to the common average, it is possible to select for the general management, and for all the skilled employments of a subordinate kind, persons of a degree of acquirement and cultivated intelligence which more than compensates for their inferior interest in the result. Their greater perspicacity enables them, with even a part of their minds, to see probabilities of advantage which never occur to the ordinary run of men by the continued exertion of the whole of theirs; and their superior knowledge, and habitual rectitude of perception and of judgment, guard them against blunders, the fear of which would prevent the others from hoarding their interests in any attempt out of the ordinary routine.
And in the case of both this class of professional managers and anyone below them, there were ways to incorporate them into the enterprise such that the self interest that was supposed to make them function as enterprising little workers in the free market would still be brought to bear in the large corporate structure: namely, stock options. The introduction of the latter is what prompts his use of the term "employé." The employee, in other words, is one who is incorporated into the corporation by making its interests their own.
It must be further remarked, that it is not a necessary consequence of joint stock management, that the persons employed, whether in superior or in subordinate offices, should be paid wholly by fixed salaries. There are modes of connecting more or less intimately the interest of the employés with the pecuniary success of the concern. There is a long series of intermediate positions, between working wholly on one's own account, and working by the day, week, or year for an invariable payment. Even in the case of ordinary unskilled labour, there is such a thing as task-work, or working by the piece: and the superior efficiency of this is so well known, that judicious employers always resort to it when the work admits of being put out in definite portions, without the necessity of too troublesome a surveillance to guard against inferiority in the execution. In the case of the managers of joint stock companies, and of the superintending and controlling officers in many private establishments, it is a common enough practice to connect their pecuniary interest with the interest of their employers, by giving them part of their remuneration in the form of a percentage on the profits. The personal interest thus given to hired servants is not comparable in intensity to that of the owner of the capital; but it is sufficient to be a very material stimulus to zeal and carefulness, and, when added to the advantage of superior intelligence, often raises the quality of the service much above that which the generality of masters are capable of rendering to themselves.
So, much in the way that I suspected, the term employee was used to talk about the interdependence of employees on employers and their mutual employment in the firm. However, somewhat surprisingly, from nearly the beginning of the use of the term it has referred to a particular class of workers in a firm: those who are given a share of the profits via stock options of some kind. Note, that as Mill goes down the labor hierarchy--from the managers to unskilled laborers--the method of using money to make them work shifts. The unskilled laborer isn't given stock options, he is given the option to do piece work, which Marx called, "the most fruitful source of reductions of wages and capitalistic cheating." Yet the effect of both the piece wages and stock options is to incorporate the worker or employee into the concerns of the efficient production of profits for the corporation:
In England this system is characteristically called the “sweating system.” On the other hand, piece-wage allows the capitalist to make a contract for so much per piece with the head labourer-in manufactures with the chief of some group, in mines with the extractor of the coal, in the factory with the actual machine-worker — at a price for which the head labourer himself undertakes the enlisting and payment of his assistant work people. The exploitation of the labourer by capital is here effected through the exploitation of the labourer by the labourer.  Given piece-wage, it is naturally the personal interest of the labourer to strain his labour-power as intensely as possible; this enables the capitalist to raise more easily the normal degree of intensity of labour.  It is moreover now the personal interest of the labourer to lengthen the working-day, since with it his daily or weekly wages rise.  This gradually brings on a reaction like that already described in time-wages, without reckoning that the prolongation of the working-day, even if the piece wage remains constant, includes of necessity a fall in the price of the labour. [. . . .] The wider scope that piece-wage gives to individuality tends to develop on the one hand that individuality, and with it the sense of liberty, independence, and self-control of the labourers, and on the other, their competition one with another. Piece-work has, therefore, a tendency, while raising individual wages above the average, to lower this average itself.The mechanisms that Mill describes, and that are implicit in the use of the term "employee" are basically a restatement of the lessons that Mill likely learned at the hands of his childhood tutor, Jeremy Bentham. Namely, that the most efficient organization is one in which the worker polices himself.
I don't know exactly how this relates to the French bureaucratic origins that this term; but Bentham himself is evidence enough that the strict division between laissez-faire and the absolutist, bureaucratic state was never all that apparent to the people at the top advocating both. In this, the major difference in Bentham and Mill is that one advocated a stick and the other a carrot, respectively. According to L. J. Hume in his article "Jeremy Bentham and the Nineteenth-Century Revolution in Government" (The Historical Journal, Vol. 10, No. 3.)
Bentham provided first for the systematic arrangement of his functionaries in a hierarchy based on the line of authority or command, and in which all authority, all power of direction, flowed downwards from the legislature to successive levels of subordinates. Within the hierarchy, he sought to establish, at all levels, 'the completeness of the necessary mass of responsible power, together with the exclusion of all irresponsible exercise of power.' Subordinates' adherence to the legislature's instructions, and their acceptance of the limits to their power imposed by the legislature, were to be enforced through a chain of responsibility and liability to punishment (buttressed in turn by the administrative procedures which Bentham devised to detect and to prevent malpractice) that extended back to the legislature. Characteristically, the functions, the chain of command, and the arrangements for enforcing responsibility and punishing malfeasance were to be prescribed by legislature's instructions, and their acceptance of the limits to their power imposed by the legislature, were to be enforced through a chain of responsibility and liability to punishment (buttressed in turn by the administrative procedures which Bentham devised to detect and to prevent malpractice) that extended back to the legislature. Characteristically, the functions, the chain of command, and the arrangements for enforcing responsibility and punishing malfeasance were to be prescribed by law. (367)
The "employee" here, in the guise of the government functionary was supposed to be limited by law and governed by the legislature. And, in its broad strokes, this seems to be largely what, internally at least, would be necessary to have a large company function. Instead of laws, there would be company policies and, as in Bentham's system, where
He saw that in the ordinary course of administration functionaries must face choices between different lines of action, and that they must make the choices without specific guidance from the legislature. Thus he noted the existence of functions 'mutually competitional or say antagonistic. . .as to which, on this or that occasion, option may require to be made, by the appropriate functionary as to which of them exercise shall. ..be given to'. Again, he conceded that it would on occasions be necessary to permit subordinate officials, on their own judgement, to adopt emergency measures running counter to or lying outside the permanent law of the land. His analysis of this problem revealed him as equally concerned to provide authority for such action and to prevent its abuse. (368)The ability to make independent choices is what supposedly makes the joint-stock model more efficient. But anyone who has worked for a large corporation knows that, except for a few people near the top, one's range of independent action is fairly limited; choices must be run past superiors and, in the event that they are not, one must be able to justify them according to company policy.
The Public Choice argument that this is impossible to do in government unless one introduces market mechanisms into its structure represents the supposed partition of these two traditions: at roughly the same moment that Foucault started writing about governmentality. The argument went that, the government employees have their own self interest in mind and if the mechanisms of government aren't set up so that they can satisfy them, well they are sure to figure out a way to use those mechanisms to profit from their position in another way. The early 1980s saw James Buchanan entering the British civil service and trying to elaborate his utopia on the British public.
Fast forward to 2001, when much of Buchanan's philosophy was more apparent in the total deregulation of, for instance, the energy and finance industries in the US. There is no need to chronicle the effects of this extensively (Enron being the quintessential example), but just to note that, as a result, the US Congress passed the Sarbanes Oxley Act which, more or less, made it mandatory that the heads of corporations be able to verify their financial statements: in other words, it made it mandatory for the managers--the geniuses at the top of Mill's organization--to know what was actually going on in their organizations: to be so confident in it that they would stake their reputation on it. In other words, the market mechanism that was supposed to keep the whole structure of management in line had failed: it was necessary to have the Benthamite Law come in and "Stick" it to them.
Now I'm getting off on a tangent, but it is worth noting that, all those employee stock options: well they might have helped keep some of the "employees" at the bottom in line, but the ones at the top...not so much. In the end, Enron culminated in the upward distribution of wealth and employee stock options ended up being worthless. The Smartest Guys in the Room ended up gaming the system so that they could retire in style while their subordinates, who had worked much more dutifully in the interest of the company, "rode the stock to the bottom" along with the rest of the shareholders. So much for market discipline.