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The Relation of Capital to Labor

( Originally Published Early 1900's )

As society is constituted, employment can be given to labor only by and through the instrumentality of capital. That is to say, no person can employ labor unless he has money saved up which he does not want for his own immediate use, with which to pay the laborers their wages. These wages would be of no use to the laborer unless there were sustenance in the market for him to buy with his wages. This sustenance must be such as the owner does not want for his own immediate sup-port, else he could not afford to sell it. It is sustenance, as already shown several times, which constitutes the only real wages, and in paying the laborer money the employer only sup-plies him with the means of obtaining the sustenance. We might therefore simplify the problem by considering the employer as the owner of the sustenance which he gives the la-borer in exchange for his work, were it not for a liability to be misunderstood.

The laborer must also have tools and machinery to work with. Tools and machinery are forms of capital, and must be supplied by a capitalist. If, as may well happen, the laborer owns his own tools, he is himself to that extent a capitalist.

A third form of the capital necessary to the employment of labor is the raw material on which the laborer must perform the act of production. In agriculture the raw material comprises manure and seed. In the cotton-mill it is cotton; in a clothing-factory it is cloth.

Fixed capital in the form of tools and machinery, circulating capital in the form of sustenance, and circulating capital in the form of raw material may therefore be regarded as immediate necessities to the employment of labor. But it does not at all follow from this that there is any mathematical relation between the value of the capital and the amount of employment it gives to labor. In digging up a street, all the fixed capital necessary to the employment of a digger may be a pick and spade, each worth fifty cents. In a great cotton-factory capital to the value of hundreds of dollars may be necessary for each operative. We must therefore seek for some other mathematical measure of capital than the value of the accumulated fund, if we are to discover a mathematical relation between capital and the labor it can employ. To do this we must refer to the distinction already pointed out between capital as a fund and the flow of capital.

Let us inquire what constitutes the funded capital of a cotton-factory. We readily see that the owners of the factory, in establishing it and putting it into successful operation, had to invest their capital in the following way :

Firstly, they had to erect the necessary buildings and place in them the necessary machinery. Secondly, they had to supply themselves with a sufficient quantity of raw material to keep the operatives employed until they begin to receive returns from the sale of the goods. In order that they may incur no danger of the factory having to stop for the want of material, it is necessary always to have a considerable supply on hand. Thirdly, it was necessary to have a sufficient accumulation of money to pay the wages of the operatives until the owners be-gin to be reimbursed from the sales of the product.

If we take an inventory of the invested capital at any state of its progress, we shall find that, in addition to the forms enumerated, there is a greater or less supply of the finished products on hand waiting to be sold, and a certain amount of debts due from parties to whom sales have been made. It often happens that payment is not expected for three or six months after the delivery of the goods. When this is the case the owners of the factory must have a supply of raw material and finished goods sufficient to keep the factory going during the whole period that any particular portion of the material is undergoing the process of manufacture, and for three or six months longer. Thus at any time we shall find the capital to consist of buildings, machinery, stores of raw material, material undergoing the process of manufacture, stores of finished products waiting the market, money in bank to pay operatives, and debts due the company. Subtracting from these the debts due from the company, we shall have the value of the fund of capital.

In the average normal case this accumulated fund varies very slowly, although the principal items which make it up may vary greatly, one diminishing while the other increases. The sum total will represent the abstinence of the owners which has given rise to the factory. It is the fund on which they expect to gain a profit to compensate for this abstinence.

But we cannot, merely from the knowledge of how many dollars are thus invested, conclude what number of laborers the factory can give employment to. This depends upon the rate at which the capital is being transformed. We are to consider the capital as in a constant state of flow, material flowing in at one end, passing along through the factory, and flowing out at the other end. A smaller but much slower flow is going on in the fixed capital, the machinery being worn out and constantly needing labor to replace it. As a part of the same process we must consider the flow of wages to the operatives. As already pointed out, this flow may be considered as coming from the owners of the capital. Thus we may count up in all three flows of capital to the factory: the raw material to be transformed, the sustenance for the operatives and managers to consume, and the labor applied to the continual renovation of the buildings and machinery. From the factory we have the one flow of finished products which goes to society at large. The return flow of money, received in exchange for the finished products, branches off in the three directions through which labor and material come to the factory ; that is, one flow of the money goes to the operatives, another to the suppliers and repairers of buildings and machinery, and a third to the producers of raw material. Besides these we have a fourth flow to the owners of the factory. Considering these owners purely as capitalists, this last flow is their compensation for abstaining from the enjoyment of the capital invested in the factory. In so far as they are managers it is their compensation for the skill and labor which they have expended in the management.

We now see that the efficiency of the factory as a means of employing labor depends, not upon the amount of the accumulation, but upon that of the flow, especially of the flow to the operatives. In other words, the efficiency depends upon the value per annum which the factory can add to the flow of the raw material passing through it. This, again, is little more than the very obvious and childish-looking proposition that the factory can employ just as many laborers as it can profitably keep at work.

We have now to inquire what is the test that the laborers are profitably at work. The answer is that the value of the product turned out from the factory, considered as sustenance, must exceed the value of the material and labor devoted to the work of production. To take the simplest conceivable case : if a laborer, requiring no capital whatever, consumes one dollar's worth of food per day, and only turns out a product worth fifty cents a day, his labor is unprofitable. Such labor can-not be kept up permanently. If he uses one dollar's worth of raw material daily, then, in order that his work may be profit-able when he consumes at the same rate, the product of his day's labor must be worth more than the two dollars expended in production.

Taking the largest view of the case, the profitableness of the factory is measured by its capability of paying dividends to its owners. If no profit is made, then the value of what the factory consumes must be equal to or greater than that of the product turned out, and the establishment must be unprofitable not only to its owners, but to society at large.

There are two possible ways of measuring the benefit of such capital as a factory to laborers, namely :

Fallaciously, by the employment it gives to laborers.

Correctly, by the sustenance it produces for laborers.

Measured in the first way, the laborers are considered as consumers, and the sustenance which they consume is supposed to be due to the capital invested in the factory. But it must never be forgotten that this sustenance would never have been available if some one else than the laborers had not saved it, and that it was this saving, and not the' existence of the factory, which made it available. We must therefore regard this popular measure of the benefit of the factory as entirely fallacious. We should rather regard it as the measure of what the factory costs society at large, because labor is the producing power of society, and is limited in supply, and the work of the factory may be said to consume a portion of this supply.

The true measure of the value of the factory is not the consuming power of the laborers, but the producing power of their work, or rather, as just shown, the excess of the sustenance produced over that consumed.

The important question now arises : Let the factory produce a form of sustenance which the lower orders of laborers do not want, gold watches for example. Then, since the sustenance consumed is the food and clothing of the operatives, the work of the factory results in a positive diminution of food and clothing. Is its effect, then, not positively injurious to the poorer classes?

We reply, Yes, if we make abstraction of every agency except this particular factory. But, as already shown, the work of all the factories of a country is divided up in proportion to the demand for their several products. We may be sure, therefore, that for every watch-factory at work for the wealthy there will be a corresponding number of other factories producing coarse or fine food and clothing in proportion to the sustenance demanded by the various classes of society.

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