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( Originally Published Early 1900's )

1. Labor not a commodity.—In this chapter we must consider some of the most vital and important subjects within the range of economics, namely, the complex forces which combine to deter-mine the compensation of the man who works for another.

Labor is sometimes referred to as a commodity, subject like all commodities to the law of demand and supply. Laboring men, as a rule, protest against such designation. They resent it as an insult, and it is not strange that they do so. A commodity, whether animate or inanimate, is one of the products of labor in combination with land and capital, and has absolutely no voice in determining the price at which it shall sell in any market.

But labor is human service. It includes all kinds of work which men perform for others, whether in rendering service or in the production of commodities. The pay he gets is commonly spoken of as wages.

When a man's services are hired by the year, his compensation is ordinarily called a salary. The needs and rights and pay of salaried workers are not commonly thought of as part of the labor question. They do not commonly think of themselves as laborers, and are not at all resentful when they hear labor called a commodity. Nevertheless, the laws governing the rate of wages paid to the humblest workman in a factory also determine the salary which shall be paid the president of a railroad. If the labor of one is a cornmodity, so is the labor of the other.

2. Money wages and real wages.—It is important to bear in mind at the outset the distinction between the money wage a worker gets and his real income. The latter consists of the goods which he is able to buy with his money wage, and necessarily varies in amount according as the purchasing power of money fluctuates. When the general level of prices is rising, a workman's real wage is declining unless his money wage is proportionately increased. And'if prices are falling, the old money wage gives a workman greater command over commodities, so that his real wage is increasing.

During the period of the great war the rapid rise of prices, amounting in four years to something like 100 per cent in the United States, brought home to workmen generally the painful consciousness that their money wages were not their real wages, and many employers were forced to raise the rates of money wages. In a few instances employers in the United States, recognizing the unstable value of the dollar, entered into agreements with their employes whereby they agreed to increase the rate of wages at regular periods as the cost of living rose,' the employes on their side agreeing to accept a reduction of wages if the cost of living fell. In view of the fact that the general level of prices is seldom stationary, it might be well for employers generally to have an under-standing with their workmen that the money wages shall vary in some measure in accordance with fluctuations in the purchasing power of the dollar.'

3. Demand for labor.—The demand for labor like the demand for capital comes directly from the entrepreneur class. The entrepreneurs need labor quite as much as they need capital, and in the modern business world there usually exists keen competition among them. In the case of capital they look for a. low rate of interest and the easiest possible terms of repayment. When seeking labor they are as much concerned about its efficiency and productivity as they are about the wages they will have to pay. However, in dealing

1 The practical difficulties of such a plan are numerous but they are not insuperable, if what is sought is an approximate rather than an absolute solution of the problem. In the first place, wages cannot be adjusted to the current changes in the purchasing power of money since both cannot be determined simultaneously. The wages of this month cannot be adjusted to the prices of this month, but might be adjusted to those of the month preceding. To do this, requires a resort to commercial price indexes such as Bradstreets and Duns. The government Bureau of Labor Statistics in its Monthly Review gives the government index, but it is always belated. For example, the issue of November, 1918, contains prices for September, 1918, but this issue was not distributed to the public till January, 1919. If it be required that wages be adjusted not to wholesale but to retail price movements, the problem becomes much more difficult. Commercial price indexes for retail prices are not available, and the government compilation above referred to relates to food only. Furthermore the question would arise whether there could properly be one retail price index, or whether it would not be necessary to establish a series of them for different sections of the country with the entrepreneur the owner of capital has an ad-vantage over labor. Loanable capital exists in the form of money and credit, and its owner can transfer it from one market to another, or from one business to another almost in an instant and at slight expense. Labor, however, represents masses of individuals, men and women with established homes, their affections rooted in particular localities, their faculties trained for particular occupations. Hence labor is not so mobile as capital, and as a result the wages paid in certain industries at any given time do not represent perfect competition among employers for men.

The demand for labor is subject to certain important conditions:

First, their employers must be certain that there are markets awaiting fresh supplies of goods, and that the prices of goods will be high enough to yield them a profit after all expenses are paid.

Second, the employers must be able to obtain the necessary capital in the form of money and credit with which they can purchase the needed raw materials and machinery. The ability of the entrepreneurs of a country to undertake new enterprises and furnish work for more men is quite definitely limited by the amount of fresh loanable capital available in the money market, unless, of course, new capital is brought in from other countries.

This second condition was regarded as so important by the eminent English economist, John Stuart Mill, that he made it the fundamental principle of his theory of wages. To his mind, the demand for labor depended almost entirely upon the amount of capital in a country. A certain proportion of that capital would be expended upon machinery, another part on raw materials, and the remainder in the payment of wages. Since no owner of capital would willingly let it lie idle, the entire capital fund in a country was certain to be utilized in normal times, and the rate of wages would depend on the number of men seeking employment, among whom a certain portion of this capital fund would be divided. This theory was, known as the "Wage Fund Theory" of wages and was very generally accepted by English economists between 1840 and 1870. Economists do not now accept it as an adequate explanation of wages, but the fundamental proposition on which it was based, namely, that the demand for labor is conditioned by the amount of capital seeking employment, cannot be denied.

4. Supply of labor.—No argument is necessary to prove that the rate of wages in any industry is some-how related to and dependent upon the supply of labor. It is a matter of common observation that wages go up where there are more jobs than there are men, and that wages tend downward when men are more numerous than jobs.

If the population of a country, because of immigration or because of a high birth rate, is increasing at a rapid pace, it is quite possible for the supply of labor to outrun the demand. Then among certain classes low wages and poverty are inevitable. Continued high wages and uninterrupted prosperity are not possible in a country if the growth of population exceeds a certain rate. Just what that rate is in any particular country it is practically impossible to determine. We must be satisfied with the general conclusion formulated by Malthus in his "Principles of Population," that the tendency. of population in the past has been to outrun the means of subsistence. We observe this same tendency in all forms of animal life, and it is a regrettable fact that the great mass of mankind, altho endowed with reason, still hold that instinct and nature should determine how fast the earth's population shall increase.

The State by legislation cannot solve this problem of population, altho indirectly it may contribute to-ward its solution by prohibiting marriages among the manifestly unfit and by providing for all its children free opportunities for a broader and more practical education than they are now able to get.

5. Productivity of labor.—Labor and capital, working together under the direction of the entrepreneur, and making more or less use of land, produce the goods and services we enjoy. We have seen that the return to capital depends very much upon its productivity, and that the productivity of any given amount of capital, or unit of capital, tends to decline as the amount of available capital increases unless there is a corresponding increase in the demand for capital.

Labor is subject to the same law of diminishing returns. Every wise business man is constantly on his guard against unnecessary costs. He cannot afford to borrow more money than he needs merely to please capitalists, nor can he afford to hire more men than he needs merely to secure the favor of labor, for he is in competition with other men and will suffer if they are able to undersell him in the markets. So he seeks to equip his factory with the right number of ma-chines in order that each may be run with the highest degree of efficiency, and to employ just the right number of men so that each shall be steadily at work, one not getting in another's way, or standing idle waiting for material to work upon. Having obtained for his factory the right number of men and machines, his demand for labor and capital is satisfied, unless he can get men at lower wages or capital at a lower rate of interest. In any office or store only a definite number of men can work to the greatest advantage. If more men are given employment, the total product or total amount of business done may be increased, but the product per man will be less.

A farmer may have one hired man at thirty dollars a month and make profitable use of him. But it does not follow that he might profitably employ a second man at the same wage, even tho the second man were equally good. The second man might add only the value of fifteen dollars to the farmer's product. If a fresh supply of farm workers came into his neighbor-hood and applied for work among the farmers, they could not get jobs at thirty dollars a month., If they are to get jobs at all, the wages of all hired men must come down, for their productivity per man will decline.

It must be evident that the productivity of labor at any given time is dependent upon its supply. It depends, of course, upon many other factors—on the skill, health and strength of the workman, upon his education, upon the steadiness with which he sticks to his job, upon his loyalty to his employer. Workmen who do not believe these things are enemies of the existing order of society, and especially of labor.

6. Machine competition.—We have already called attention to the fact that capital and labor are allies, that each needs the assistance of the other, that an increasing supply of capital tends to increase the demand for labor, and to bring to it more employment and higher wages.

Despite the truth of this statement, capital and labor are in a state of constant competition. The entrepreneur, the man directing their employment, is always seeking to produce at the lowest possible cost, and is always comparing the relative advantages to him of machines and men. Countless machines now do the work formerly done by the human hand, and this process of labor displacement by machines will doubtless continue indefinitely.

What is the general effect of these labor-displacing machines upon wages and human welfare? It is enough to say here that invention is the mother of industrial progress, and that the world today is immensely richer than it would have been had labor leaders been able to bar the introduction of new machines into shops and factories. Machinery has increased the supply of wealth, has cheapened the prices of the necessaries and comforts of life, has indirectly tended in the long run to raise wages, and has in some countries enabled the ordinary workman to live in a home with comforts and luxuries instead of in a hovel.

But the fact remains that machinery is a competitor with labor, and that the entrepreneur always seeks to accomplish his purpose by the employment of that factor which costs him less. If he wishes to increase his output, he may, for example, be able to do so by the employment of one hundred more men, or he may do it by the purchase of ten more machines and the employment of only ten more men. Which course he will adopt depends very much on the rate of wages and the rate of interest. The net result of this competition between capital and labor is that each tends to get its share of the product and no more.

7. Various classes of labor.—Economists sometimes theorize about the general rate of wages, but there is no such thing, and we will therefore not waste time considering it.

All our readers are familiar with the fact that there are many different kinds of working men in any country. Roughly we first divide them into the skilled and the unskilled. The unskilled perform tasks requiring a maximum of muscle and endurance and a minimum of brains and training. In common speech they are usually referred to as day laborers.

There are numerous grades of skilled workmen and the wages of these tend to vary in proportion to the difficulty and cost in acquiring the necessary skill. In ordinary times numerous factory workers receive low wages because their tasks are simple and easily mastered, so that there are numerous applicants for the jobs. It takes but little training or knowledge to dispense soda water acceptably, to sell a limited number of articles behind the counter of a department store, or to operate a typewriter, so that in normal times there are many candidates for every open position, and the wage is small.

Instead of there being a general rate of wages, there are as many different wage rates as there Are different trades or occupations. A super-abundance of labor in one trade may cause a low rate of wages, even while a comparatively high rate prevails in another occupation requiring no more training or skill, for a man cannot easily give up one occupation and take up an-other. Young men in deciding upon their careers are prone to choose those trades and occupations which at the time are paying the highest wages. In a generation or so these callings, as a result, are over-supplied with labor and wages tend downward.

In some callings wages are higher than in others because of the disagreeable natures of the tasks that have to be performed. An ignorant servant girl, knowing but little about cooking, gets a, higher net wage in the United States than the average fairly well educated girl who works in a store or business office. Coal mining in the United States is largely the work of ignorant foreigners. Only a very high wage would tempt native born Americans into such work.

But we need not go into further details on the subject of this section. The important thing to remember is that there are various classes, that the working men of the different classes receive different rates of wages, and that the working men in one class are usually incapable of competition with those of another class.

8. Wages and the standard of living.—The rate of wages paid to men in any trade or calling depends very much upon their standard of living, and any circumstance which tends to raise that standard tends to raise the wage; and for the following reasons:

First, the man whose standard of living is fairly high, who eats good food properly cooked, who sleeps in well ventilated rooms under a tight roof, is physically and mentally more efficient than one who lives in poorer surroundings and who eats poorer food. As the standard of living rises, in any community, working men become more efficient and productive, and demand and receive higher wages. A higher wage is paid, not merely because the worker demands it, but because he earns it.

Second, a man who has been able to give his wife and children more comforts than he enjoyed in his own youth is likely to be anxious that his children shall be able to earn a good living, and his wife is equally anxious with him. So they practise many economies in order that their children may have a better education than they had and be fitted for a calling requiring superior ability and training.

Finally, a young man who has learned a trade and is drawing a wage enabling him to live better than he ever lived at home is, consciously or unconsciously, deterred from an early or reckless marriage by reluctance to lower his standard of living, and perhaps by ambition some day to be the head of a family living in good circumstances. If such a young man marries and has children, he and the mother are likely to be eager that their children fare as well as themselves if not better. So it happens that the standard of living is a factor in influencing both the efficiency of labor and the supply of labor, and hence in determining the rate of wages.

It does not follow, however, that the standard of living among any group of working men can be raised merely by raising their wages. The desire for a higher standard of living must originate within the man himself. Many men receiving an increase in wages squander it on vices and foolish luxuries. This fact received frequent illustration during the four years of the war in Europe, when wages in many industries, on account of the imperative demand for munitions and war supplies, coupled with the shortage of labor, caused wages in some industries to rise out of all proportion to the increase in the cost of living. Many workmen in the United States, and doubtless in other countries as well, made fantastic use of the large incomes which the war brought them, indulging gloriously in the luxuries of the very rich, instead of investing a portion of their earnings and using the balance to improve their mode of life in a way that might be permanent.

An American manager once took charge of a Mexican plantation. He found the peons working for a very low wage, less than fifty cents a day in American money. He was distressed and promptly ordered a doubling of the wages. On the Monday following the first week of the double wage no peons showed upon the plantation, and only a few appeared on Tuesday. Many of them had taken advantage of the opportunity to lengthen their usual Sunday carousal into the middle of the week.

9. Labor organizations.—During the last one hundred years laboring men and their friends have given much thought to the so-called labor problem and to measures which would seem likely to improve the conditions under which men work, and protect them from exploitation by their employers. There is exploitation when an employer takes advantage of a work-man's weakness or helplessness and secures the benefits of his labor without proper compensation. Over a century ago the labor movement resulted in the organization of various trade unions, and during the last fifty years similar organizations have grown up in the United States. The purpose of a trade union is to look after the welfare and guard the rights of its members, who are skilled artisans in some trade. In the United States the more general interests of the laboring classes are guarded by a federation of unions called The American Federation of Labor.

For a long time employers fought most vigorously and uncompromisingly against the growth of trade unionism and against other forms of labor organization, feeling that these combinations of labor were equivalent to conspiracy against employers. Many of them have believed sincerely that the ultimate effect of trade unionism must be hurtful to society and to the laboring classes as a whole. Not many years ago only the exceptional employer at loggerheads with his men would negotiate with a committee representing them, especially if the committee happened to contain men not in his employ, and many employers would promptly discharge a man on discovering that he was a member of a union. The warfare between the advocates of the "open shop" and those who defend the "closed shop," in which only union men are employed, still goes on, but the tide of popular opinion has set in decidedly in favor of labor organizations.

Labor organizers insist upon the right of what is called collective bargaining, and they seek to enforce the recognition of this right chiefly by the threat of strikes. Their leaders call attention to the fact that an individual workman is helpless if his wage is reduced, nor is a body of unorganized workmen able to insist effectively upon just wages, reasonable hours of labor and proper environment. But when employers are faced by an organized body of men, whose representatives are able to stop the wheels of industry in many factories in different cities, experience has proved that it is wise for employers to treat these representatives respectfully and to submit their cause to arbitration if necessary.

Trade unionists have made many very serious mistakes and have often caused the public much annoyance and exasperation, sometimes ordering a strike without just cause so far as the public was informed, sometimes refusing to keep an agreement into which the employer had entered with good faith, sometimes walking out without notice and without grievance, merely because they were in sympathy with the strikers in some other shop.

Nevertheless, these and other evils of trade union-ism are more than counter-balanced by the good they are doing. They stand for temperance, for education, and for clean and decent living. They encourage reading and especially the study of political economy, and they seek in many ways to raise the standard of living among their members.

10. Education.—The interests of the working man are receiving more consideration today in all civilized countries than ever before. Many organizations exist having for their chief purpose the improvement of labor conditions, and countless statutes are enacted every year having the same end in view. Employers are generally inclined to take a more sympathetic attitude toward their employes, and when the two disagree public opinion usually takes sides with the employes. Thoughtful people realize more than ever that the labor problem cannot be solved at all unless it is first definitely recognized to be a human problem, the correct solution of which must bring increased welfare and prosperity to all classes.

Here we shall touch only upon the most important step that society must take if we are ever to reach any-thing like an economic millennium, every man having work which he loves because he is fitted for it and able to support his family in comfort. And that very important step can be summed up in a word which people have heard so often that it is often meaningless to them, namely, education.

Nobody denies that it is worth while for a nation to do its utmost in the invention and perfection of ma-chines in order that it may be a large producer of wealth and have a commanding place in the world's markets. But in the production of wealth men are more important than machines. Yet as a nation we are almost heedless and indifferent with regard to the development and training of the economic or productive faculties of our children. We Americans have bragged about our red school houses and about our universal education. Yet in our country schools the boy from the farm cannot learn the simplest rudiments about agriculture, nor can the farmer's daughter learn anything that will be of much value to her as a wife and mother. And in our great cities there is very little opportunity for a poor boy to learn a trade or to master the elements of business science and business practice.

Meantime population goes on rapidly increasing among the poor, and masses of children, barely thru the public schools, knowing a little about arithmetic and geography, and less about the English language, line up before factories and business houses clamoring for work. They do not know how to perform any particularly valuable service for society, and many of them. will never learn, for they will necessarily receive a low wage if they get employment, will live in poverty, and have no red blood and no ambition.

Unless something is done by society, by those who have the power, the wealth and the influence, to brighten the outlook of the poor in the United States and in other countries as well, only an inconvertible optimist can look into the future without visions of universal Bolshevism, anarchy and chaos, and the first and most important step, I repeat, must be the proper training of children. The most dangerous enemy of organized society is ignorance, not merely ignorance of reading, spelling and writing, but ignorance of the significance and importance of government, ignorance of the laws of health, ignorance of the laws governing the production and distribution of wealth, ignorance of the duties and responsibilities of parenthood. Society in self-protection must quickly take steps that shall insure the destruction of ignorance of this kind. This means that there must be many more school houses and training shops, and more and better trained and better paid teachers, until the day shall come when no boy or girl will be permitted to reach maturity, no

WAGES 289 matter how poor or how rich their parents, without having learned how to do work for which there is a demand, and for which fair compensation is offered.

This is not socialism, but the opposite. It is the logical and necessary goal of the present competitive system. It is the only sure way to solve the labor problem.


1. Explain the fact that altho workers may receive an increase in money wages, this does not always mean an increase in real wages; that there may even be a decrease in real wages.

2. How is labor subject to the law of diminishing returns?

3. Is there such a thing as a general rate of wages which can be applied to all classes of labor?

4. Does the standard of living rise as the result of better wages, or does it rise as the result of other conditions and demand better wages?

5. Discuss the evolution of trade unions.

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