What Keynesian Economists and Typical Liberal Journalism Majors Don't Understand About the Labor Market

Murray N. Rothbard explains what Keynesian economists and liberal journalists who've never taken two classes in economics don't understand:

What of the Keynesian argument, however, that a fall in wage rates would not help cure unemployment because it would slash purchasing power and therefore deprive industry of needed demand for its products? This argument can be answered on many levels. In the first place, as prices fall in a depression, real wage rates are not only maintained but increased. If this helps employment by raising purchasing power, why not advocate drastic increases in money wage rates? Suppose the government decreed, for example, a minimum wage law where the minimum was triple the going wage rates? What would happen? Why don't the Keynesians advocate such a measure?

It is clear that the effect of such a decree would be total mass unemployment and a complete stoppage of the wheels of production. Unless . . . unless the money supply were increased to permit employers to pay such sums, but in that case real wage rates have not increased at all! Neither would it be an adequate reply to say that this measure would "go too far" because wage rates are both costs to entrepreneurs and incomes to workers. The point is that the free-market rate is precisely the one that adjusts wages—costs and incomes—to the full-employment position. Any other wage rate distorts the economic situation.

Paul Krugman really is for higher unemployment than would occur in a free market in labor.