DG (the Grim Reaper) Lesvic

Because there is a lag in market's response to changing conditions, demand for labour may be temporarily inadequate at prevailing prices to clear the market.

Hayek says something similar in the Nobel lecture.

"We have indeed good reason to believe that unemployment indicates that the structure of relative prices and wages has been distorted (usually by monopolistic or governmental price fixing), and that to restore equality between the demand and the supply of labour in all sectors changes of relative prices and some transfers of labour will be necessary."

He's wordy here, and he can't resist a political presumption (that could be true), so I'll paraphrase. He says,

"Unemployment indicates that relative prices and wages are distorted and that restored demand for labour requires price changes and transfers of labour."

He doesn't say how these price changes and transfers of labor occur, and he doesn't suggest any inevitability of the changes. He only says that restored demand for labor requires them.

Hayek suggests that "monopolistic or governmental price fixing" distorts the relative prices and wages so as to limit demand for labor, and I agree, but "monopolistic or governmental price fixing" covers a lot of territory.

For example, if banknotes promising gold are legal tender, a gold standard itself is governmental price fixing. After all, a gold standard is simply a state decree that banks shall exchange banknotes for gold at an established price, like so many dollars per ounce of gold.

When demand for gold spikes under this standard, as when persons must pay more taxes in notes promising gold, the price of gold may not rise; therefore, by the laws of supply and demand, other prices must fall. Other prices fall as gold bankers demand the sale of collateral by calling in loans. This deflation is the simplest "systemic" effect of unwinding credit.

But direct taxes aren't the only rents payable in a legal tender than can distort demand. Contractual obligations of proprietors to one another can have the same effect. After all, these obligations are simply decrees of authorities over capital, like the taxes.

If corporate officers contractually obligate a corporation to provide tenured employees (including themselves) retirement at 55 with enviable pension benefits, the employees technically "earn" the benefits, but if the corporation becomes unprofitable, the "earnings" were only an illusion. If the corporation never becomes unprofitable because it effectively monopolizes some essential good, the benefits differ little from a tax imposed on consumers of the essential good.

Hayek is aware of this fact, because he writes "monopolistic or governmental price fixing" to make the distinction. In my way of thinking, a "private sector" organization effectively empowered to fix a price is "governmental", but that's only a matter of semantics.

This is a particular issue for those that ignore the unseen.