- Part I. Production and Population.
- Part I, Chapter I Wages a Question In the Distribution of Wealth.
- Part I, Chapter Ii Nominal and Real Wages.
- Part I, Chapter Iii Nominal and Real Cost of Labor.
- Part I, Chapter Iv the Degradation of Labor.
- Part I, Chapter V the Law of Diminishing Returns.
- Part I, Chapter Vi Malthusianism In Wages—the Law of Population.
- Part I, Chapter Vii Necessary Wages.
- Part I, Chapter Viii the Wages of the Laborer Are Paid Out of the Product of His Industry.27
- Part I, Chapter Ix There Is No Wage-fund Irrespective of the Number and Industrial Quality of Laborers.
- Part II. Distribution.
- Part Ii, Chapter X the Problem of Distribution: Competition: the Diffusion Theory: the Economical Harmonies.
- Part Ii, Chapter Xi the Mobility of Labor.
- Part Ii, Chapter Xii the Wages Class.
- Part Ii, Chapter Xiii the Capitalist Class: Returns of Capital: Rent and Interest.
- Part Ii, Chapter Xiv the Employing Class: the Entrepreneur Function: the Profits of Business.
- Part Ii, Chapter Xv CoÖperation: Getting Rid of the Employing Class.
- Part Ii, Chapter Xvi the True Wages Question.
- Part Ii, Chapter Xvii What May Place the Wages Class At a Disadvantage?
- Part Ii, Chapter Xviii What May Help the Wages Class In Its Competition For the Products of Industry.
- Part Ii, Chapter Xix May Any Advantage Be Acquired By the Wages Class Through Strikes Or Trades-unions?
- Concluding Remarks.
Part II, Chapter XIV
THE EMPLOYING CLASS: THE ENTREPRENEUR FUNCTION:
THE PROFITS OF BUSINESS.
WE have seen (Chapter I.) that much confusion has been introduced into the theory of wages by the economists carrying the classification which results from their analysis of functions in production over into the distribution of wealth, assuming, it would seem, that industrial functions must needs characterize distinct industrial classes. We have seen that, in fact, the laborer and the capitalist are largely the same person; and that no division of the product into shares, representing the claims of different parties, in such cases takes place. We have now to note a further source of error in the almost universal neglect by the text-book writers to make account of an industrial function which, while, the world over and history through, it characterizes a class no more than labor or capital, does yet, in the most highly organized forms of industry, especially in these modern times, characterize a distinct and a most important class. This class comprises the modern employers of labor, men of business, "captains of industry." It is much to be regretted that we have not a single English word which exactly fits the person who performs this office in modern industry. The word "undertaker," the man who undertakes, at one time had very much this extent; but it has long since been so exclusively devoted to funereal uses as to become an impossible term in political economy. The word "adventurer," the man who makes ventures, also had this sense; but in modern parlance it has acquired a wholly sinister meaning. The French word "entrepreneur" has very nearly the desired significance; and it may be that the exigencies of politico-economical reasoning will yet lead to its being naturalized among us.
This function, then, of the man of business, middleman, undertaker, adventurer, entrepreneur, employer, requires to be carefully discriminated.
The economists, almost without exception, have regarded capital and labor as together sufficient unto production, the capitalist being the employer, the laborer being the employed. It may fairly be presumed that the failure to recognize a third party to production, the middleman, has been due in part to the fact that these writers have been accustomed to take their illustrations of the offices of labor and capital from the savage state, or at least from a very primitive condition of industry. The bow, the spear, the canoe, are the favorite subjects when it is to be shown how it is that the results of labor may pass into the form of capital; how it is that capital may assist current labor; and how it is that a reward can be given to capital out of the product of industry without any wrong being done to the laborer. And it is true that when the forms of production are few and simple, and when the producer and the consumer are either the same person, or are found in close proximity, the possession of capital is the one sufficient qualification for the employment of labor; and, on the other hand, a supply of food and of tools and materials is all that labor needs to institute production.
But when, in the development of industry, the forms of production become almost infinitely numerous and complicated; when many persons of all degrees of skill and strength must be joined in labor, each in his place contributing to a result which he very imperfectly, if at all, comprehends; when the materials to be used are brought from distant fields, and the products are in turn to be scattered by the agencies of commerce over vast regions, the consumers constituting an ill-defined or an undefined body, personally unknown to the producer or any immediate agent of his; then a reason for an employer exists which is wholly in addition to that which exists in a primitive condition of industry. The mere possession of capital no longer constitutes the one qualification for employing labor; and, on the other hand, the laborer no longer looks to the employer to furnish merely food and the materials and tools of the trade; but to furnish also technical skill, commercial knowledge, and powers of administration; to assume responsibilities and provide against contingencies; to shape and direct production, and to organize and control the industrial machinery. And, moreover, so much more important and difficult are the last specified duties of the employer; so much rarer are the abilities they require, that he who can perform these will find it easy to perform those; if he be the man to conduct business, capital to purchase food, tools, and materials will not, under our modern system of credit, long be wanting to him. On the other hand, without these higher qualifications, the capitalist will employ labor at the risk, or almost the certainty, of total or partial loss. The employer thus rises to be master of the situation. It is no longer true that a man becomes an employer because he is a capitalist. Men command capital because they have the qualifications to profitably employ labor. To these, captains of industry, despots of industry, if one pleases to call them so, capital and labor alike resort for the opportunity to perform their several functions. I do not mean that the employer is not in any case, or to any extent, a capitalist; but that he is not an employer simply because he is a capitalist, or [???] the extent only to which he is a capitalist.
Now all this is evident to any man who looks carefully on our modern industry. Yet the economists, having made their analysis of production in a primitive state wholly neglect these later developed duties of the employer, this new and far higher function; and insist on regarding the capitalist as himself the employer. They resolve the entire industrial community into capitalists and laborers; and divide the whole product between the two. To the contrary, I hold that no theory of the distribution of wealth, in modern industry, can be complete which fails to make account of the employing class, as distinguished in idea, and largely also in its personnel, from the capitalist class.
It would, I admit, be difficult to prove the importance of the entrepreneur function in industry, just as it would be difficult by argument to establish in the mind of an objector, a true conception of the functions of the general in war. Those who know nothing about warfare might believe that campaigns could be conducted on the principle of popular rights and universal suffrage. Why not? There is the materiel of war (capital) in abundance; here are the soldiers (laborers), who, if any fighting is to be done, will have to do the whole of it; why should not these soldiers take those guns, and do their work? In much the same way, those who know little practically about production are easily persuaded that the trouble-some and expensive "captain of industry" may be dispensed with, and his place occupied by a committee or a mass meeting.
We have had but few instances of actual attempts to conduct campaigns on the town-meeting plan, the most notable, perhaps, being the crusade of Walter the Penniless and the first Bull Run; but there have been numerous efforts made to get rid of the entrepreneur, and it is in the almost universal failure of such efforts that we have the highest evidence of the importance of this functionary in modern industry. Coöperation, which is nothing more or less than the doing away with the middleman, has several distinct advantages, of vast scope, in production; yet these have been weighed down again and again, even under conditions most favorable to the experiment, by the losses resulting from the suspension of the employing function. Let those who resolve the industrial community into capitalists and laborers only, and divide the whole product between these two classes, explain, if they can, the failures of coöperation.
It has been said that the omission of the economists to recognize the employers as a distinct class in modern industry, is presumably due, in part, to the tendency to go back to the savage, or to a very primitive state, for illustrations of the nature and offices of labor and capital. But I believe that it is also in part due to the fact that the real employing class is covered up, more or less, from casual view, by what may be called a false employing class, many times more numerous. This false employing class, as I make bold to call it, is composed of several considerable bodies of so-called employers.
1. Those who hire servants or retain assistants who are to be paid out of revenues already acquired. Reasons have already been assigned for removing persons so engaged or employed from the wages class, and treating them by themselves as the "salary or stipend class." Of course, the same reasons require the removal of their masters or patrons from the lists of the employing class. If we were to consider the domestic servants, alone, of England and the United States, we should find the so-called employers to be far more numerous than those who pay wages to laborers whom they hire for profit. No wonder that when those who are paid out of revenue are confounded with those who are paid out of the product of their labor, the inclusion of the masters of the former class should obstruct the view of the far less numerous employers of the latter class.
2. In this false employing class are large numbers of artisans who have single apprentices. Such an artisan might, for instance, earn $500 a year by his own unassisted labor, while his gains by the apprentice's services might be $50. So far, doubtless, he is an employer of labor, and his gains are entitled, on a nice judgment of the case, to be called "profits;" but these bear so small a proportion to his other source of income, and he is, in his capacity of employer, of so little account, that we cannot afford to be encumbered by carrying him on as the employer of a third or a fifth part of an able laborer. A single cotton manufacturer or iron master may employ a thousand times, or five thousand times, as much effective labor. It is of more importance that we should see the cotton manufacturer and the iron master in their true relations to the great body of labor seeking employment, than that we should trouble ourselves about the economical status of the fraction of a laborer who is perhaps, at present, spoiling more material than his work is worth. The principle of the law, de minimis non curatur, applies with even greater force in political economy. What we need in studying the problem of distribution is not a nice theoretical classification, but a just and strong exhibition of the great groups of our modern industrial society.
3. Another large body which we need to exclude, temporarily, at least, from the employing class, in order that we may get a proper view of its real constitution, is that where the condition is one of nominal employment but of substantial partnership. This includes a great number of cases where two men, or perhaps three, of a trade, approximately equal in skill and experience, the work of the one being merely a repetition of the work of the other, labor together at the bench, one being recognized as the master, the other receiving wages; yet where the reason for one being the employer and the other the employed is so slight, the equality of skill and experience so well maintained, the character and the profits of the business so well understood by him who receives wages, and the ability of that person to set up for himself so evident, that the employer virtually becomes little more than the senior member of a partnership where the nominal wages and terms of service are scaled to give a substantial equality of remuneration, with some slight compensation to the senior member for extra trouble and responsibility.
4. There remains to be characterized a fourth class of persons to whom I do not wish to deny the title of employer, but whom it is desirable for the moment to isolate, those, namely, who, having mistakenly become by occupation the employers of labor, through helplessness or false pride cling to the skirts of the profession, and remain in a small and miserable way conductors of industry, following humbly and at a distance the example of leading houses; content, in flush times, to make a little profit on a little product, using generally antiquated machinery, consuming materials of doubtful quality, and making a low class of goods, but shutting up promptly on the first intimation of hard times, or just so soon as competition becomes close and persistent. Numerically the men of this class constitute a considerable proportion of every trade; but if we consider the aggregate product, their part is comparatively slight.
I do not mean to embrace in this class any manufacturer merely because his establishment is a small one. It would be easy to show that in some departments of production, perhaps in most, petty establishments fill a place, take up a certain amount of labor not otherwise employed (as, for instance, the labor of the wives and daughters of agriculturists in the immediate neighborhood), find a distinct market to which, in a homely but useful way, they adapt themselves perhaps better than the monster factory can do. The commerce of the world requires not only the ship of 5,000 tons, but the schooner, the lighter, and the dory.
Yet of no small part of these petty establishments which make short runs from point to point between storm and squall, it may be boldly asserted that they answer no true industrial purpose. Their only raison d'être is found in the fact that their proprietors, having committed themselves to the profession of the entrepreneur, having come into the possession of a certain amount of the machinery and agencies of production, and being unable to betake themselves, at the point of life they have reached, to another occupation, or being unwilling to so openly confess failure, can pick up a very poor living in this way. And of employers of this sort, it is significant to note, laborers are not apt to be jealous. They are known to have a pretty hard time of it. Their lot is not envied, and they commonly receive the sympathy of the general community and of their hands; while the successful captain of industry, who amasses a giant fortune, is regarded by not a few as having despoiled the laboring class. Yet it is incontestable that the profits of the former constitute by far the heavier tax, dollar for dollar, upon the product of labor. Nothing costs the working classes so dearly, in the long run, as the bad or merely commonplace conduct of business.
Putting aside for the moment the several classes enumerated, we have plainly in view the real employing class of our modern industrial society: a comparatively small body of men, who control the destinies of labor no more than they do the destinies of capital. These men constitute a class strictly limited in numbers, and dealing most despotically, as indeed they must, with the outside world. The conditions of admission are a long self-initiation, a high premium of immediate loss, and a great degree of uncertainty as to ultimate success. Into this guild, in these modern days, no aspirant for profits needs to be inducted with ceremonies, or first invited by the existing membership. All are in theory free to enter; but the number who venture is closely restricted by the known conditions of business. Those only undertake it who are able, or, like the rowers of Mnestheus, think they are able, to sustain the ordeal of fierce and unrelenting competition; while those who have the courage to venture are continually sifted by commercial and industrial pressures and panics, so that only the fittest survive.
I have no wish to idealize the successful employer of labor. He may easily be found to be a very unamiable and a very uninteresting person. For the perfect temper of business something doubtless of hardness is needed, just as it is the alloy of baser metal which fits the gold for circulating in the hands of men. A little too much sensibility or a little too much imagination, is often a sufficient cause of failure in the stern competitions of business. The successful entrepreneur need not even understand the theory of trade, or be a financier in the larger sense of that word. A kind of subtle instinct often directs the movements of the ablest merchants, bankers, and manufacturers. They know that the market is about to experience a convulsion, because they know it; just as the cattle know that a storm is brewing. They not only could not give reasons intelligible to others for the course they take; they do not even analyze their intellectual processes for their own satisfaction.
It is not necessary to draw the outlines of the representative entrepreneur. Living illustrations will rise before the mind of every reader, far more vivid than any art of mine could execute. M. Courcelle-Seneuil, in his Opérations de Banque, has grouped the qualities the employer should possess: "du jugement, du bon sens, de la fermeté, de la décision, une appréciation froide et calme, une intelligence ouverte et vigilante, peu d'imagination, beaucoup de mémoire et d'application."
I said that the real employing class is comparatively small. I do not speak alone of those employing workmen by the thousand or the ten thousand, or even of those alone whose pay-rolls count up hundreds of hands. If we go down to the captains of fifties and the captains of tens, it still remains true that the bulk of the wage-labor of England, France, Germany, and the United States, is controlled by a small, choice band of men, who are masters in industry because, whatever be their social quality, in industry they are masterly. To call these men the creatures of their workmen, and speak of the sums they exact in royalty on all the business which passes through their hands, as "the wages of supervision and management," seems to me as idle a fiction as it would have been to cal' the seigniors under the Old Regime the social representatives of the tiers etat, and to speak of the sums they lavished in pomp and pleasure, as their "allowances."
Are profits already at the minimum, so that we may not look to see an increase of wages obtained from this source? Much of what has been said relative to the asserted restoration to wages, of all sums which may go in excessive returns to capital, applies equally in the case of excessive profits, the remuneration of the man of business, the employer, the entrepreneur. It cannot safely be assumed that, to use Prof. Cairnes' phrase, covetousness be held in check by covetousness, inasmuch as luxuriousness will inevitably enter to absorb a portion of such undue gains. But here still another reason appears, namely, that, as the part of the employer in production is active; not abstinence, as in the case of the capitalist, but exertion; in addition, then, to the effects of luxuriousness, excessive profits will, with no small proportion of employers, allow the native propensity to indolence and ease of life to enter to take something from the zeal and enterprise with which business is conducted. It is only the exceptionally ambitious and resolute who will wholly withstand this propensity. So that when Prof. Perry says, "If, in the division between profits and wages, at the end of any industrial cycle, profits get more than their due share, these very profits will wish to become capital, and will thus become an extra demand for labor, and the next wages fund will be larger than the last," I am obliged to take the exception that a portion of these profits, so far as Prof. Perry includes in that term the gains of the man of business, will wish to become fine horses and houses, fine clothes and opera boxes; while another portion will wish to take the form of coming to the office an hour later in the morning and going home an hour earlier in the afternoon.
Hence, if we cannot safely assume that it is a matter of indifference to the wages class whether a little more or less goes in profits to the employer, it becomes of importance to inquire whether there is any reason to believe that profits are already at the minimum. And as to this, one can have no hesitation in saying that the probabilities are strongly against such a supposition. The present average rate of profits, or annual aggregate of profits, has notoriously been reached as the result of unequal competition, in which employers have been active, alert, and mobile, while laborers have been, in a great degree, ignorant and inert, resorting to the right market tardily, or mistakenly to the wrong market. It does not follow that because the laborers have lost heavily by this failure of competition, the employers have gained it all. Much has been lost to the laborers and to the world. Nowhere does the monopolist gain all that others lose by him. Yet the employing class have profited, and still profit, greatly by this partial immobility of labor. The lowest price which any laborer will receive for his services is no longer the highest price which any employer can afford to give.
In the first part of this work, when treating of production, I had occasion to show that the wages of the laborer might be increased in several ways without diminishing profits, the explanation being that the laborer's efficiency will be increased proportionally or more than proportionally. In dealing with the problem of Distribution, the laborer's efficiency will be assumed constant, and I shall inquire what causes may operate to increase the laborer's share of the product, not the absolute amount of his wages.
And, first, let it be noted that a gain might be effected through a reduction in what may be called the cost of employment, without involving any reduction in the aggregate profits of employers as a body. Let me illustrate: I was much struck at the complaints made at some of the meetings of agricultural laborers in England during the lockout of 1874, that many of the employers were hard-drinking men and poor farmers, and that if they attended more closely to their business and managed it better, they could afford to pay higher wages. Now no one should lightly credit the complaints of angry men; nor was there any reason to suppose that the farmers of the lockout section comprised more than the usual proportion of dissolute and negligent employers. What occurs to me as noticeable in this matter is the correctness with which these laborers apprehended the principle that when men who are unfit to conduct business force themselves into the employment of labor, it is at the expense of labor. The theory of competition assumes the intelligence and capacity of the employer to see and follow his own interests. His doing this is (assuming the mobility of labor) to be the very means by which the laborer's interest is secured. If the employer fails in this requirement of intelligence and capacity, it may be not the better but the worse for the laborer. Bad business management is the heaviest possible tax on production, and while the incapable employer gets little for himself, the laborer loses heavily in the rate or the regularity of his wages.
Now, several causes may help to swell the proportion of incapable employers. Shilly-shally laws relating to insolvency do this; fictitious currency does this; truck does this. Each of these causes enables men to escape the consequences of incompetency, and to hang miserably on to business, where they are an obstruction and a nuisance. Any thing which should decisively cut them off, and remit them to subordinate positions, would be a great gain to the laboring classes, and very likely, in the result, prove a real relief to themselves. Slavery, in like manner, enables men to control labor and direct production who never would become, on an equal scale, the employers of free labor; and it is not more to the inefficiency of the slave than to the incompetency of the master, that the unproductiveness of chattel labor is due.
The lower the industrial quality of free labor, the more ignorant and inert the individual laborer, the lower may be the industrial quality of the men who can just sustain themselves in the position of employer. Men become the employers of cheap labor who would never be the employers of dear labor, and who ought not to be the employers of any sort of labor. The more active becomes the competition among the wages class, the more prompt their resort to market, the more persistent their demand for every possible increase of remuneration, the greater will be the pressure brought to bear upon such employers to drop out of the place into which they have crowded themselves at the cost of the general community, and where they have been able to maintain themselves only because the working classes have failed, through ignorance and inertness, to exact their full terms.
But, secondly, a rise of wages due to a quickened competition on the part of the wages class, might be to a very great extent compensated by increased zeal, energy, and economy on the part of the really able men of business. It does no man good to have much odds given him; and the inertness of labor has always a mischievous effect even upon the best of the employing class. So far as the increasing demands of the laborer are due to his greater vigilance, activity, and social ambition, we may be pretty sure that these demands will be responded to fully by the entrepreneur. Whether we consider business on its side of enterprise, or on its side of economy, we shall find that it does the manager no harm to be sharply followed up. Where large margins are afforded, there is likely to be much waste; and, on the other hand, no man does his best except when his best is required. "It was an axiom of the late Mr. John Kennedy, who was called the father of the cotton manufacture, that no manufacturing improvements were ever made except on threadbare profits." Mr. Babbage, in his Economy of Manufactures, has shown that inventions and improvements in the mechanical arts have sometimes been healthfully stimulated by the goadings of industrial distress; and Mr. Chadwick has given an interesting exposition of the manner in which the increasing pressure of competition has served to promote the commercial ventures which have successively widened the market for British manufactures. But surely we need no "modern instances" to establish a principle so old and familiar. The weighty words of Gibbon: "the spirit of monopolists is barren, lazy, and oppressive," apply to all production in just the degree in which competition is defeated or deferred, whether by the force of law, or by the ignorance and inertness of the laboring classes.
Perhaps as good an illustration as could be given of the effects of increased competition in winnowing the employing class of its least efficient members, and stimulating the enterprise and the economy of those who survive the process, is afforded by the course of English agriculture since the repeal of the Corn Laws, a measure which the landed interest believed at the time would be absolutely fatal, and which, indeed, would have ruined that interest but for the saving virtue of the forces here invoked. Yet English agriculture never stood on a better foundation than to-day: the gains of the farmer probably were never larger through an equal term of years. The reason is that the repeal of the Corn Laws, and the opening of English markets to the bread-stuffs of the world, put the agricultural interest on its mettle; the farmers found that they must abandon the old clumsy and wasteful ways; break up the old clumsy and wasteful machinery; pay higher wages for better work; breed only from the choicest stock; make improvements in every process of cultivation, from selecting the seed to garnering the grain; find some chance for saving, every day, from harvest round to harvest again, and that, too, without pinching useful expenditures. These things the farmers of England had to do, and consequently did them. The less energetic and thrifty, one by one, dropped out of a contest so severe and unremitting; those who survived studied their business as never before, scanned their expenses as men do who have small margin for waste, brought the latest results of chemical and physiological science into their selection of crops and of breeding animals, made a business, and not a drinking bout, of the annual fair, set up agricultural clubs, compared notes among themselves, and read Mr. Caird's letters in the Times.
But, thirdly, a rise of wages due to a quickened competition on the part of the wages class become more intelligent, frugal, and self-assertive, should it proceed so far, after exhausting the two resources already named, as to cut into the profits of the employing class, as a whole, would bring a partial compensation in the increased dignity and the heightened intellectual gratification attending the conduct of business and the control of labor, under such a condition. I have said, in a previous chapter, that the pride of directing great operations, and the sense of power in moving masses of men at will, could not, at present at least, be relied upon, primarily or principally, as furnishing the motive to production on the part of the employing class. And yet we know these do enter, in no inconsiderable degree, to make up the remuneration of the entrepreneur. It is true that but a small portion of the human race are much alive to these feelings, but it is also true that the men of the entrepreneur stamp are just those of all in the world to respond to such impulses.
We have a very pleasant and instructive picture, by Mr. Gould in his report to the British government in 1872, of the relations existing between the employer and the laborer in Switzerland. No country has achieved industrial success under heavier disadvantages. No continental country has developed a higher order of business managers. The Swiss employers maintain themselves against a severe and unremitting competition only by the constant exercise of all the industrial virtues. But the Swiss laborers are politically and socially their equals. The employer has no feeling of degradation in the contact: the laborer no feeling of inferiority. Perfect democracy and universal education have cast out all notions of that sort as between free Switzers. Hence the employers of labor of every class, even such as are wealthy, are found in general among their men, not to be distinguished from them in appearance, and taking hold freely with them at any part of the work, as occasion serves.
I cannot but believe that, as the working classes advance in individual and mutual intelligence, and push their employers closer with a more searching and vital competition, more and more will the reward of the employer come to consist of the zest of intellectual activity, the joys of creative energy, the honor of directing affairs, and the social distinctions of mastership.
For after all, it must be remembered that the employment of labor is an occupation, as truly as is manual labor itself; and that the body of employers must continue to employ labor, or find other ways and means to live. To assume that employers generally are going to leave business on account of a reduction of profits, would be more sensible if it were shown that they would also leave the world on that account. Not a little of the reasoning in books as to what employers will do, or capitalists will do, or laborers will do, if something happens which they cannot be expected to like, practically assumes that men have a choice whether they will be born into this world or not; and that, once in it, if they are not satisfied, they have at hand one or more eligible spheres into which they can pass, easily and gracefully, with a perfect assurance of welcome; and that indeed they will be quite likely to do so, unless treated with distinguished consideration here. Whereas, the most of us, in this world, do, not what we would like, but what we must, or the best we can; and I entertain no manner of doubt that long after profits should be forced down, if that were to happen, below what might be deemed an equitable rate, the superior men of every country, the men of thought, of prudence, and of natural command, would be found directing and animating the movements of industry.