The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword to Economists and Teachers
• Economic Principles
• Part I: Elements of Value and Price
• Chapter 1: Purpose and Nature of Economics
• Chapter 2: Choice and Value
• Chapter 3: Goods and Psychic Income
• Chapter 4: Principles of Evaluation
• Chapter 5: Trade By Barter
• Chapter 6: Money and Markets
• Chapter 7: Principles of Price
• Chapter 8: Competition and Monopoly
• Part II: Usance and Rent
• Chapter 9: Agents For Changing Stuff and Form
• Chapter 10: Agents For Effecting Changes of Place and Time
• Chapter 11: Consumption and Duration
• Chapter 12: The Principle of Proportionality
• Chapter 13: The Concept of Usance-value
• Chapter 14: The Renting Contract
• Chapter 15: Principles of Rent
• Part III: Valuable Human Services, and Wages
• Chapter 16: Human Beings and Their Economic Services
• Chapter 17: Conditions For Efficient Labor
• Chapter 18: The Value of Labor and the Choice of Occupations
• Chapter 19: Principles of Wages
• Part IV: Time-value and Interest
• Chapter 20: Time-preference
• Chapter 21: Rate of Time-preference
• Chapter 22: Money and Capitalization
• Chapter 23: Capitalization of Monetary Incomes
• Chapter 24: Saving and Borrowing
• Chapter 25: Capitalization and Interest
• Part V: Enterprise and Profit
• Chapter 26: Enterprise
• Chapter 27: Management
• Chapter 28: Profits and Costs
• Chapter 29: Various Shades of Profits
• Chapter 30: Costs and Competitive Prices
• Chapter 31: Monopoly-prices; Large Production
• Part VI: Dynamic Changes In Economic Society
• Chapter 32: The Problem of Population
• Chapter 33: Volitional Doctrine of Population
• Chapter 34: Decreasing and Increasing Returns
• Chapter 35: Basic Material Resources: Their Use, Consumption, and Conservation
• Chapter 36: Machinery and Wages
• Chapter 37: Waste and Luxury
• Chapter 38: Abstinence and Production
• Chapter 39: Value Theory and Social Welfare

PART III

VALUABLE HUMAN SERVICES, AND WAGES

CHAPTER 16

HUMAN BEINGS AND THEIR ECONOMIC SERVICES

§ 1. Man and wealth as economic agents. The whole stock of economic agents in a community at any moment may be classified as wealth and men, objective goods and human beings. In our study thus far of value and price, we have limited our illustrations to objective commodities, and to the uses of the objective (non-human) agencies of production. Little has been said about the other great class of economic agents, human beings. Yet everything that has been said as to the fundamental principles of value and price, applies fully to the uses (services) of men. Indeed it is only by an abstract method of treatment of wealth that the services of men have appeared to be left out of consideration. In truth the presence of men is always, and must always be, implied and understood in any study of the value of wealth. This means not merely that man is the evaluater, the chooser of goods (for of course a world without mankind would be a world where value was nonexistent); this means also that man is the doer of acts that themselves have value and the doing of which profoundly affects the whole economic situation in which objective goods are valued. Labor is a complementary agent, some portion of which is indispensable to the use of wealth. Within limits man’s efforts and goods may be mutually substituted. Each act a man performs, expressing, as it does, a choice, implies some economic valuation in relation to his other acts and to wealth. In applying his own labor to producing goods for his own use, or in selling his goods or his labor to others, his labor is being constantly valued and, only less often, priced.

Man’s labor is valued or priced because, like other agents (non-human agents), it is serving for the gratification of desires. In the process of gratifying human desires the man is correlative with the machine. Both have within them the capacity of yielding services or uses, and the services of the man are valued in the same way as the uses of the machine. The labors of the physician, of the blacksmith, or of the day laborer are bought just as is the use of the rented house or of the hired taxicab. This parallelism is somewhat obscured by the ambiguity of the term “labor” which is used to mean not merely the service (labor), but the people (laborers) who render the service. In such phrases, for example, as “labor and capital,” or “land and labor,” the term “labor” is used of the persons who perform the labor.

§ 2. Labor as contributing to income. In the processes of production and of valuation man plays a dual rôle. He is first the economic subject—the being who has desires and makes choices—but also he is an economic agent, an instrumentality in the gratification of desires—his own as well as those of other people. This is quite simple in the case of chattel slavery. To the master, his slave is on the same economic plane with his horse, his machinery, or his land—each is valued simply for the use it yields. The free man, however, is his own master, a person whose desires and choices are the starting point in the study of value; and at the same time he is an agent in the gratification of his own desires, directly and indirectly. Not only do other people by their services contribute toward the gratification of our desires, but we actually render many services to ourselves in such acts as dressing, shaving, polishing shoes, cooking, making clothes, etc., which form a very considerable part of most persons’ incomes.

Human efforts have the same relation to desires that the uses of material goods have. Labor contributes to income either directly (psychic) or indirectly in the changes it causes in material goods. To be an economic good human effort must meet either a desire in the laborer himself, or a demand from some other person. Many services afford an income directly which is immediately enjoyed. A tropical potentate has an attendant to fan him, another to carry an umbrella, and a third to beat a tom-tom; a humble American citizen is shaved, doctored, sung to and played for, or is his own barber, doctor, and entertainer. The income in such cases is directly enjoyed in personal comfort, in the consciousness of heightened beauty, in the feeling of self-esteem. Something of value is thus created but takes no material form apart from the consumer (who may be the laborer himself).

But the results of most labor may be seen to rest, at least temporarily, in some material form. Effort is put upon a material thing to be used later. The work of the waiter in spreading and arranging the table is not an immediate service, for it is embodied in material form an hour or two before the meal. The service of cook, no less than that of gardener and butcher, is put into material form before it comes to the consumer. The woodman fells, cuts up, and splits a tree, and piles it at the door, putting his labor into a good to be consumed months afterward. But whether labor is embodied or is not embodied in material form, its economic significance lies in the fact that, like wealth, it provides valuable uses (services) to men; that is, it contributes to income.1

§ 3. Psychic income gained in play. When we consider the fact that this income may be directly in psychic form, it becomes difficult to justify on economic grounds the contrast usually supposed to exist between labor and play. Play—that seems to our modern commercial minds the very negation of economics. Work, work, to fill the granaries fuller, to build larger houses, to produce more material goods, to increase the bank accounts! But is not such a view mere miserliness in disguise? The aim of all human effort, whether work or play, is psychic income. The life of man is a constant adjustment of his own desires and capacities to the outer world, partly by changing objects in creating wealth, partly by changing himself through the use of wealth and of his own faculties. Normal and healthy human beings find a keen pleasure in the putting forth of those powers that develop and preserve strength, activity, and health. This is the purpose of most of the sports, games, and pastimes found in every land and time. In the mere putting forth of the powers of mind and muscle there is a joy felt by children and men of all races, and this is heightened by companionship, emulation, and even by a spice of danger. We may call labor any human effort having as its motive something outside of the gratification in the action itself. Actions which have no objective aim, no purpose (except of course making the points of the game, e.g., crossing the goal) outside the pleasure of the mere doing, are play. Play is not dependent on a useful objective result later to be enjoyed, but, like beauty, is its own excuse for being. The distinction, therefore, between work and play is one as to the superficial form of expressing human energy, rather than as to the fundamental economic result as it has usually been considered. The nerve-tired student goes out-of-doors to bat the tennis ball, making no change in the material world, except to wear out his shoes and to lose the ball, but finding that hour rich in the joy of life. When the patient fisherman sitting in his boat, was asked, “What luck?” he answered cheerily, as he threw out another line, “Just the luck of a good time.”

If properly chosen, play strengthens and vivifies both soul and body, leaving an afterglow of health and happiness. Such play is directly resultant in psychic income, necessarily involves a personal valuation, and if taken with due regard to present duties and to future needs (aye, there ’s the rub!) is worthy of a place in the scale of the socially productive. The choice of sports and temperance in their pursuit are among the surest tests of wisdom in men and in societies. Not to know how to play, and how to live joyously in the hours free from business cares, is just as surely a cause of real poverty as not to know how to work. For real poverty is lack of psychic income. Some persons can work effectively, others can play effectively (which does not always mean great expertness). A rich life, truly successful, is possible only to those who can combine the abilities both to work and to play. A love of vigorous play no less than the power of sustained work, marks the dominant and progressive peoples of the earth.

§ 4. Play- and labor-motives mingled. Actions of a second kind are those pleasurable in themselves and at the same time leaving an objective result. The hunter enjoys the day better if he returns with well-filled bags of game. In extreme cases the distinction between the sportsman and the “pot-hunter” is not hard to find. It is a matter of emphasis; the one has his chief joy in the sport, the other in the material results of the sport. But always the motives are somewhat mingled. The study of primitive peoples shows that all of the more important industrial activities were first of the nature of play. The primitive man did only the things he liked to do, unless driven by the direst want. The whole tribe danced and sang, went through intricate dramatic ceremonials before going upon a hunt or planting corn, made a tournament of the hunt itself, and even of hoeing and reaping the crops, and concluded with festivals in celebration of the successful hunt and of the bountiful harvest, to the delight of every member of the tribe. Thus were men gradually habituated to actions having an object outside and beyond themselves.

§ 5. Disagreeable labor. Actions of a third kind are those disagreeable in themselves, but performed by force of will, because leading to some desired result. A large part of what is called labor to-day is of this kind, either like taking medicine—positively disagreeable but endured for the hope of ulterior benefits—or in the milder cases only relatively undesirable, being not what one would most prefer to do at the time. The end sought is an objective good resulting from the labor.

The social ideal clearly is that all labor should be made desirable. Social dreamers love to picture a day when all shall find for effort a full reward in the mere doing—the reward of the artist, of the scholar, of the saint—in addition to the objective result in economic wealth. In some occupations possibly we are slowly nearing this ideal. Not only in the professions and in the esthetic arts, but in commerce, in mechanics, and in the humblest walks of life are found men free from envy, rejoicing in their daily tasks. Such is the normal feeling of the healthy optimist. And yet in every serious occupation there are numberless moments and occasions when the spirit flags and only hard necessity holds men to their tasks. The complicated and often long-continued tasks of modern industry can not be accomplished by mere play; neither can they by labor done only with immediate pleasure. The dilettante does not go far or long or steadily; the real tasks of the world are done by men that labor, now with joy, now wearily, but unfailingly. A large part of the heavy monotonous hand-labor is an evil just because it yields so little of the joy of workmanship and is so purely drudgery endured for the day’s wage at the end.

§ 6. Physical differences among men. As material things differ in their uses and fitness to yield economic uses, so do men differ in their powers of labor. The most obvious difference is in physical strength, which varies with age, individual, race, and sex. Differences due to age are the most obvious. The child, at first weak, grows toward his maximum of physical strength, which he attains before his fullest intellectual capacity.2 The period of maximum physical working power lasts fifteen to twenty-five years according to the individual and to the kind of work, and then gradually declines as the old worker approaches again the inefficiency of the child. Families and strains of stock differ notably in physical powers; one excels in stature, another in development of muscle. The differences within families are inexplicable; sometimes one brother excelling in one thing, the other in another. The physically perfect man is a rare product. Among three thousand students are but twoscore endowed with the remarkable combination of lungs, heart, muscle, nerve, and character, that makes possible the finest athletes. The natural dexterity of some workers marvelously surpasses that of the average man, and seemingly is due not to special training, but to natural qualities of sight, touch, nervous reaction, or muscular energy. The national and racial differences in working power, even in the simplest tasks, are marked, but are difficult to explain, as so many influences, customs, habits of life, and varieties of diet modify the result. We can not tell how much of the Englishman’s great superiority over the East Indiaman is due to individual native differences of mind and body, how much to the social environments in which they have lived. Certainly tho, the difference is not mainly one in size; in the Boxer War the little brown men of Japan outmarched all the others. Certainly fiber counts for more than bulk, and character for more than muscle.

§ 7. Comparative strength of men and women. A difference in the physical strength of the sexes is found in some degree throughout the world, but it would appear to be far more marked in civilized than in savage communities. The records made at the field-games in the women’s colleges are improving; but still fall far short of the men’s records in any leading college: in the hundred-yard dash, thirteen seconds as against nine and a fraction; in the high jump, fifty-two inches as against six feet and over. The muscular force of American college women as tested in various gymnasiums (average of all students in college) is little more than one third that of men. The average strength of back for women is 35 per cent that of men, the average strength of legs, 41 per cent, and the average strength of right forearm, 38 per cent. This is an abnormal difference. The natural and possible strength is more nearly attained by men than by women under our social conditions. Women escape the physical toil which strengthens, but not the mental strain which kills. Men carry more of the wood, but the women not less of the worries. A fairer test is applied among peasants in field-work in France and Germany, where the strength of women is found to be about two thirds that of men. American women should do and will do more to attain their natural strength as we attain sounder ideas of education and saner modes of living.

§ 8. Differences in natural intelligence. Mental qualities are not easily distinguishable from physical qualities, if in the physical are included keenness of eye, quickness of nerve, and even superior judgment of materials, tools, methods, etc. Moreover, mental ability is a very complex idea. It may refer to one of the many different qualities of mind, to quickness of observation, talent for color, form, harmony, to memory or imagination, to readiness in speech, to systematic habits of thought, to power of intense and prolonged mental application, to mathematical power in various directions, to philosophical capacity, that is, a capacity to discover the more farreaching causes of things. These qualities unite in unending combinations to produce that kaleidoscopic variety of personality which makes the world so interesting. Some men the world calls geniuses have lacked some of these qualities almost entirely. Others who in most respects are either feeble-minded or insane (called idiot savants) have shown an uncanny talent in music, or in mathematics, the very subject which is the stumbling block for many otherwise bright minds.

Each of these natural mental traits has its peculiar part in fitting the man for some kind of work, and the absence or weakness of any one of them increases the difficulty of qualifying as an efficient worker in some occupations. Native intelligence shortens the time needed for preparation in any calling, hastens new methods, decreases the cost of supervision, saves materials, tools, and time, diminishes loss from breakage, makes possible the use of finer machinery and better appliances, and imparts those subtler qualities that distinguish the best from the mediocre products. It is impossible to measure these factors of native ability exactly, tho the psychological tests recently devised are giving remarkable results. But in every school children in all their activities show marked differences in traits, which, we all believe, are inherited in certain families. Mental capacity of the higher order develops more slowly and longer than do the physical powers and the senses. Judgment and wisdom are the fruits only of a life rich in experience.

§ 9. Talent and training as factors of efficiency. It is impossible to measure exactly the parts that natural talent and acquired ability play in determining any person’s efficiency. Two men sitting side by side in an examination, get the same grade; one of them has had excellent preparation from childhood, and all the opportunities that money, travel, and cultured associates can give; the other, under great difficulties, has prepared in a country district school with a little coaching now and then, and struggling against great odds, has at last entered college. The same grade does not mean either that in their natural ability or in their training in this particular subject, they are equal. Yet the grade is the best expression to be had of their efficiency in the particular work.

One person with great natural musical ability may have lacked alike good opportunities of study and the health and industry to gain skill by long practice; while another with less natural ability but more favored in health and in education will attain to a much greater success both artistically and economically as composer, performer, or director of music.

Similarly the net economic quality of an artizan, an engineer, a lawyer, a business man, a worker of any kind, is a resultant of education and native talent, which along a broad zone are interchangeable, each in some degree indispensable, each supplementing the other. Any ability may be helped by education in the broad and true sense, tho a fool cannot be made wise by training, and tho many a potential genius doubtless has been dwarfed in dusty schoolrooms by stupid teachers. Education increases adaptability and enables a trained mind to outstrip an untrained mind of greater natural power. Education makes direction easier, fits for higher tasks, and decreases the difficulty of coöperation.

By education in this connection should be understood not merely knowledge gained in schoolrooms and by the aid of books and teachers, but every sort of experience and activity of mind and body which helps the natural capacities of the man to grow and strengthen. The subjective conditions, the eager mind and the strong character, most often bred of necessity and deprivation, are more valuable equipments for life’s work than is unheeded or half-comprehended schoolroom instruction. Hence the business man’s usual skepticism of the practical benefits of “higher education” in the more limited sense as applied to pampered youth with indolent minds.

§ 10. The moral qualities required in industry. The moral qualities of the worker are increasingly important as society grows more complex. But the need of a particular moral quality is relative to the special task in hand. Honesty is needed in the bank teller, but he need not spoil a good story. The champion bronco-buster of Arizona is not a Sunday-school superintendent. So, discipline, obedience, self-control, regularity, and punctuality are needed, for more and more in these days business is run by the watch. Confidence, patience, good temper, in fact all the virtues in the calendar are necessary at some time and place, and most of them are needed all the time in business. Places may be found in our developed society for those who are deficient in some of these qualities (it is fortunate that it is so), but these are the poorer places. Many men fail to recognize all the qualities necessary for success, and few are able to understand the cause of their own failures. Blind to their own faults, many are, for lack perhaps of one trait which to themselves seems insignificant, dropped down one notch after another in the scale of industry, and equally blind to the true cause of success in their rivals, they rail against the unjust fates.

§ 11. Necessary combination of qualities. Skill and capacity in industrial tasks is a resultant of many qualities. The simplest task calls for a combination of physical force and of judgment—even the digging of a ditch or the fitting of a stovepipe. For most industrial tasks rarer combinations of qualities are required. The retail salesman must be neat, punctual, polite, and long suffering. A confidential clerk must have discretion, judgment, and other moral qualities in an unusual combination. The substitution of qualities is possible within limits; a rare quality may make amends for the lack of a commoner one, and a man may, because of peculiar fitness in some regards, continue to hold a position for which in other ways he is little fitted. The rarest and most valued worker is one uniting many good qualities and fitted to deal with emergencies. The economic efficiency of the worker often is no stronger than its weakest link. A most frequent use for training is found in the fact that strengthening some one weak quality may raise the total efficiency in a remarkable degree.

§ 12. Inequality of talents shown by biologic studies. The political philosophy of the eighteenth century was based on the idea of natural rights and natural equality. Even so shrewd an observer as Adam Smith, misled by the prevailing view, discussed wages on the assumption that all men had equal natural ability. It is still a favorite assumption of radical social reformers that the natural ability of all men is equal, and that all the differences in success result from political injustice. The study of biology of late has made patent the unending differences that prevail throughout the animate world. No two members of the same family or species are just alike; no two pigeons have wings of just the same length. Nature by numberless devices is experimenting constantly with variations on either side of the established mean. The accepted fact of biologic evolution rests on the foundation of inequality, in structure and powers, selected, adapted and transmitted by heredity. In all life there is inequality, and the whole drama of human history as well as that of biologic evolution must be meaningless or illusory to one who does not see this truth. Accustomed now to this point of view, we as inevitably think of the natural inequalities in men as did Adam Smith of their equality. Inequality of talents is a continuing fact. Men in all their qualities of mind and body display this kaleidoscopic variety.

This does not mean that industrial inequality as it exists to-day, the great disparity of incomes, correctly or justly reflects the degree of difference in men’s qualities, either native or acquired. It does not follow that a thousand-dollar income represents ten times the ability of a hundred-dollar one—far from it. But to those who ignore the inequality of men, the whole problem of industrial remuneration must remain a mystery. The differences in human capacity, in respect to the rendering of services of value, is one of the fundamental factors entering into the determination of labor-incomes.

CHAPTER 17

CONDITIONS FOR EFFICIENT LABOR

§ 1. Subjective and objective factors of efficiency. The efficiency of labor, in its broadest sense, is its ability to render services or produce things that minister to welfare. It is a resultant of many influences. In its broader sense, the phrase “efficiency of labor” implies any and every influence that makes for a larger and better supply of goods. In part it depends on the physical and mental powers of men, in part on things outside of the worker that either stimulate and strengthen him, or give him more favorable conditions in which to work. These are respectively the subjective and the objective aspects of efficiency. Many of the objective conditions count in the result only as they affect the men, benefiting their health and strength, stimulating their ambitions, promoting education, invention, thrift, etc. It is this class of forces, acting in and through men, of which we are now to speak. We leave aside for the time one of the largest objective aspects of the question, that of the material equipment with which the community as a whole is furnished, relative to the population. According as this equipment is more or less abundant, as labor is employed in a fertile or a barren field, with a sharp tool or a dull one, with a highly developed machine or a poor one, the product is more or less.1

We limit our attention here to the conditions of efficiency midway between the qualities and abilities of men (primarily subjective) and the natural equipment (primarily objective). Among a population of a given grade of intelligence and a given economic environment of natural resources, what causes will operate to make the laborers vary in their efficiency?

§ 2. Food and efficiency. Usually workmen that are getting good wages enjoy abundant food and creature comforts; poorly paid workers go scantily fed. The question arises: which is cause, which effect? Some maintain that all that is needed to make workmen more efficient is to feed them well. In some cases this is probably true. The Porto Ricans enlisted in the American regular army are reported to have increased at once in strength, weight, and vigor; the Filipino recruits, thanks to the American army rations, soon outgrew their uniforms. Some employers in Europe pay their workmen an extra sum on condition that it is spent for meat. But if wages increase, it is by no means certain that more or better food will be bought; or, if it is, that the workmen’s powers will be increased. There is a limit to the gain in efficiency by increasing food. There is some reason to believe that in America great numbers of our people, perhaps even many manual laborers, would be better off if they bought simpler and less costly food. The maximum of health and vigor may be attained with moderate outlay, and beyond that point richer food doubtless does more harm than good. Poor judgment in the selection of food is shown in many families, and there is little appreciation of its influence on health.

At one time an experiment in feeding pigs was tried on the Cornell farm. Four groups of six pigs each were kept in four different pens and fed four different rations. Tho alike in breed and age, the groups began at once to differ in disposition. One group squealed more; another scratched more; another waxed fat faster. Every week they were weighed, and finally were butchered, hung up, and photographed. At that same time, at the Elmira Reformatory some experiments were being tried on some criminals of the lower class. They were given daily baths, special physical exercises, and were fed on a specially bountiful diet. Scientific philanthropy stopped there, but photographs “before and after,” reproduced in the printed reports, show the great physical improvement that resulted, and a marked change occurred likewise in disposition and intelligence. Many laboratory experiments have been made of late to test the chemical nature and the physiological effects of foods. It is becoming more fully recognized that the quality and quantity of food, and the cooking of it, have a great influence on the economic quality of the worker.

§ 3. Clothing and housing. Variation in quality and amount of clothing, while of course varying with the climate, is on the whole of less practical effect upon efficiency than that of food. Loss of heat and energy, dulling the powers, stiffening the muscles, causing illness with many trains of evils, make ill-clad workmen inefficient. The cost of clothing enough for comfort is, however, comparatively small, the amount spent for ornament is comparatively high. A man spends about one third of each day in sleep and his physical and mental powers and efficiency in his hours of work depend in large measure on the conditions making for restful sleep, on the comfort, decency, light, ventilation, and sanitary surroundings in the home. Nearly another third of each worker’s life (about half his waking hours) is spent in his house or in its neighborhood, where the sights, sounds, and physical conditions of streets, alleys, and places of amusement are constantly helping to determine his fitness for industrial tasks. Even more important are these conditions of the house and surroundings, good air, water, playgrounds for growing children, to enable a population to continue and renew itself with healthy and efficient workers. Many of these conditions are free goods in the country, and the simplest cottage in an open field makes them possible. They become more difficult to secure as manufacturing and densely populated commercial districts grow. People come to live in unnatural conditions, and evils of slums and bad housing appear.

Another third of the worker’s life is spent in his work-place, whether it be in the dwelling or in the field, street, store, or factory. Astonishingly little thought has been given, even by men working for themselves, to the effect that the work-place may have on the worker’s efficiency. Many employers, however, have come to see that it does not pay to have bad factory conditions. Even if the ultimate effects in causing sickness and shortening the worker’s life be ignored, the bad immediate effect to the employer is a reduction in the efficiency of the worker. A slight change in the weather affects the working of even a gasoline engine. Is not a worker as sensitive to condition of physical comfort and health? Any piece of machinery requires to be installed, maintained, and adjusted just right or it will fall short of its full capacity and wear out more quickly. It is so with a man. The best factories are now being planned as carefully as is the machinery, with a view to having excellent conditions of light, heat, ventilation, cleanliness, and comfort of the employees. Doubtless much larger and fuller provision of this kind would be to the advantage of employers, as well as for the welfare of the workers and of society in general.

§ 4. Schooling. Education in schools is a most imperfect index of training for industrial tasks. A large part of the purpose even of the elementary schooling is to fit for citizenship and for the receipt of the large psychic income possible through reading and the understanding of life about one. But one without reading, writing, and other elementary school subjects is in these days unfitted to take part in all but the simplest tasks. The percentage of illiteracy in the United States, tho still considerable, is steadily declining.

The decline in illiteracy accompanies a regular increase in the average period spent by the youth in school, which has risen from 3.4 years in 1870, and 4 years in 1880, to 5.9 years in 1910. Still a very large number of children drop out of school very early as is indicated by these figures.

Many of those that remain get no farther than the fourth grade. An average result, as follows, is indicated by the statistics: of the children entering the first grade,

• About 90 per cent attained the fourth grade.
• About 66 per cent attained the sixth grade.
• About 50 per cent attained the eighth grade.
• About 25 per cent entered High School.
• About 10 per cent graduated from High School.
• About 5 per cent entered a college, normal, technical or professional school.

§ 5. Political security and honest government. If men are to labor in the present and for the future, they must enjoy the protection of a stable and strong government. As the framers of the Constitution expressed it, the function of government is to insure domestic tranquillity, provide for the common defense, and insure the blessings of liberty to the citizen. Directness and certainty of reward are more essential than mere size of reward in insuring action and effort. There must be a close relation between work and the fruits of work. Political insecurity weakens this relation and makes the reward dependent on the chance of escaping the highwayman and the foreign invader. For fear of this, many a nation has sacrificed some of the precious elements of liberty, and has submitted to a strong despot. This was the economic motive in the feudal system.

The prevalence of standards of honesty in private and public business is a condition for high industrial efficiency. Corruption in government has the same effect as political insecurity; in fact, it is but another form of it. We are accustomed to the thought that in an Asiatic despotism a worker beginning a task is uncertain whether he will reap the reward, as public officials may at any moment seize upon the fruits of his labor. But in our own country similar evils are not entirely lacking. Assessments often are unfair, and justice sometimes is bought. Men in high executive positions are able to make or mar the fortunes of their followers. Sometimes a legislator from a country town goes to the state capital poor and returns rich. The spoils system in politics is costly to the community, not merely because a few men successful in gaining office get paid several times as much as they are worth; it is an economic evil because it tempts many other men to give up steady work. Such examples break down the motives leading to careful preparation for regular industry. They breed the notion that wealth is more dependent on chance or jobbery than on efficient service. Dishonesty in private business means the use of energy not to produce wealth, not to add to the sum for all to enjoy, but to get it from some one else. Public corruption and commercial dishonesty alike entail upon the industrious both immediate loss and the far greater cost of weakened character, relaxed energy, and decreased efficiency of labor.

§ 6. Effect of caste upon efficiency. It may be said generally that customs and social ideals that raise or depress hope and ambition, affect efficiency. The institution called caste, which fixes the place of the worker and makes it impossible to rise out of the social position in which he is born, and disgraceful to do any work reserved to other castes, is depressing to energy. It exists in some form throughout the world, and where it is not called by that name, the same caste spirit is at work. The European peasants in the Middle Ages lived under the shadow of it. Where slavery exists the master class at times feels its hardships. “It is not so hard to live,” says the hungry Creole daughter in “The Grandissimes,” “but it is hard to be ladies. . . . We are compelled not to make a living. Look at me: I can cook, but I must not cook; I am skilful with the needle, but I must not take in sewing; I could keep accounts; I could nurse the sick; but I must not.” Nowhere in the world is there less caste than in America, but it is here. The negro’s low measure of industrial efficiency is partly the cause of so-called race feeling against him, but in the case of the more capable individuals it may be partly the effect of that feeling. To close to a capable worker all but the menial occupations is to weaken his motives for effort.

§ 7. American democracy and efficiency. Democracy has made for the efficiency of American industry much as have the great natural resources. America’s rapid advance in industrial lines has been favored by her ideas and institutions. The many rewards open to personal merit and the chance for every worker to improve his position, have helped to stimulate here to greater energy and to a faster working pace in most grades of labor than is found elsewhere in the world. There is danger that under the new conditions of population and industry something of the spirit of enterprise will be lost. To Western eyes already the young men in the older East seem to be trammeled by social conventions. In an older community there is less of hopeful ambition; one’s position depends more on what his fathers achieved; in the new community, more on what he does himself. If it is true, as wise students declare, that the frontier has been the nursery of our democratic ideas, we may well ask what effect the closing of the frontier will have on our national sentiment and on our material prosperity.

§ 8. Balance of advantage between work and leisure. Custom and national temperament affect the efficiency of labor by determining the normal period of labor-time. After the bare necessities of life are provided for, the worker has a wide or narrow margin of productive energy to use as he pleases. If four hours’ work a day would enable him to live, will he work longer or will he stop? The answer is determined by the balance between the value of leisure and the value of labor’s product. Is the lure of the fruits of additional hours of labor stronger than the desire for idleness? Does the pain of toil repel more than its fruits attract? Individual differences are plainly expressed when each man labors on his own field. The prudent man, in the old maxims, makes hay while the sun shines and plows deep while sluggards sleep. National and religious holidays in some countries make an enormous loss of time from industry a patriotic and pious duty. The use made of spare time differs according to climate, race, and temperament. In the tropics the margin is converted usually into loafing, in the temperate zones largely into objective forms of enjoyment. In the modern large organization of industry, working hours are much the same for all workers in the establishment. Individual preferences are still expressed, however, in irregularity of employment. In the South some manufacturers have found that on an average the negroes will work in a factory not more than five or six hours a day, perhaps working ten hours for four days and staying away two days a week. Such limited working hours mark a primitive standard of desires and primitive industrial qualities, altho a shortening of the long working day of ten or twelve hours, as incomes increase above bare subsistence, is in accord with a rational valuation of leisure. A moderate change in that direction can not but increase rather than diminish the efficiency of labor.

§ 9. Division of labor and exchange. The term “division of labor” is simple, but the thought is a complex one. Its full discussion would cover the whole field of political economy, but only its most essential aspects can here be touched upon. Division of labor is a term expressing that complex arrangement of industrial society whereby individual workers are enabled to apply themselves to the production of certain kinds of goods, securing others by trade. Division of labor and exchange are counterparts and mutually determine each other. On Robinson Crusoe’s island there could be no division of labor. Division of labor depends on the extent of the market, and in turn widens its limits. The number of articles that any one would care to produce at one time and place depends on the opportunity to exchange them. Those two aspects of industry thus are inseparable in thought and practice. The worker finds division of labor existing as a social institution and, according as he adapts himself to it wisely or foolishly, it increases more or less his efficiency. Division of labor necessitates variety of regular occupations, and the practice of special trades and professions. Specialization is the individual aspect of division of labor. It is doing one comparatively limited kind of task with the purpose of becoming more expert in it. The term division of labor, however, suggests more broadly the situation where two or more persons are specializing and are trading directly or indirectly with each other.

§ 10. Individual and territorial division. Division of labor may be between individuals in the same community or between those in different territories and nations. In division of labor between occupations, each worker applies himself to the production of some product or group of products and secures other goods by trade. When a number of workers in a locality engage in the fabrication of one kind of product to trade with persons in another community, it is territorial division of labor. This trade may be between persons living in different localities in the same country (called localization of industry) or between the citizens of two nations, in foreign trade. Division of labor usually begins in some natural differences, of soil, climate, mineral and forest resources, or water-power (see Chapter 6, section 11, on origin of markets). Whatever its origin it leads to individual specialization which becomes fixed by habit and training. To the original natural advantage are thus added the advantages of a larger and regular labor-supply, of nearness to related and tributary industries, and of the greater chance to use waste products, and frequently the economics of large-scale production (see below, Chapter 31). The natural advantages in another district must be large to enable it to start successfully against these acquired economies, and territorial division of labor thus tends to continue for long periods when once established.

§ 11. Advantages of specialization. There is a tradition that an ingenious lecturer in one of our universities was accustomed to give to his class eighty reasons why division of labor was of advantage. It is none too many, as every reason for the modern, as contrasted with the primitive, organization of industry should be included. Apart from natural differences in localities, most of these relate to specialization. Specialization increases efficiency by: (a) saving time; (b) saving tools and materials; (c) improving quality; (d) increasing skill; (e) increasing knowledge; (f) stimulating invention; (g) encouraging enterprise; (h) economizing talent. The headings just given may serve to suggest the leading phases of this subject.

(a) Specialization saves time by making unnecessary the physical change of place for the worker, the frequent shifting of tools, and the mental readjustment required for the undertaking of a new task.

(b) Specialization saves tools, for either each kind of work must be most ineffectively done, or there must be provided for each worker a complete set of tools which thus will be used rarely and will rust out rather than wear out. If a few tools are thoroly used, they yield a larger income and require less care and repairs in proportion to their uses. In fact, this fuller economic use of machinery and plant where a large product is turned out at one place, is a prime factor in the advantages of large production (a subject to be treated elsewhere, Chapter 31, much more fully than is here possible).

(c) By specialization is made possible a quality of goods never to be secured by the less skilled efforts of the Jack-of-all-trades.

(d) Specialization develops skill, as repetition of the same task trains the muscles, forms a mental habit, and gives swiftness and deftness of touch.

(e) The specialist is able to give much longer time to education and training for his lifework, and he continues to grow in knowledge of his materials and of the best processes, and he gains a power of delicate observation and facility in meeting new difficulties that are impossible when attention is divided among a number of tasks.

(f) By dividing and simplifying processes, specialization stimulates invention. The most complex machines have been developed gradually by combinations and adaptations of simple tools, and the more a process is subdivided, the greater is the chance of hitting upon a device to repeat mechanically the few simple movements.

(g) Specialization increases the motives of emulation and enterprise, by making it possible for each man to see better what is needed and to make a more exact comparison of results.

(h) It economizes talent by giving to each the highest task of which he is capable, while fitting the less efficient workers into the minor places made possible by subdivision. In an American wagon-factory, a one-armed man operating a machine was able to turn out as large a product and earn as high wages as any other employee. The same advantages of specialization are found with modifying conditions in educational and professional lines. The marvelous progress of science in recent years has been made possible by each student and investigator doing a few things and doing them well.

§ 12. Best adjustment of talents and occupations. Most young people give slight reflection to the choice of an occupation. The world is filled with industrial misfits, “round men in square holes,” good carpenters spoiled to make poor doctors. The individual worker, to attain his highest economic efficiency, must select from the occupations made possible by division of labor the one for which his talents are best fitted. It so often happens that the natural aptitude of the youth is the thing last or, in any event, least considered. Unreasoning imitation, family traditions, parental wishes, class pride, social prejudice, childish whim, are often decisive of the life career. Some occupations have so few chances of advancement that they are called the “blind alley trades,” yet to start in them is so easy that they attract the unthinking youth, especially those with impoverished parents. Happily in some cases, before too late, the man “finds himself,” but too often the poverty of the family and the obstacles to education preclude the exercise of intelligent choice.

Since the beginning of the century some serious efforts have been made to meet this difficulty by what is called vocational guidance. In some of the German schools in recent years the children’s aptitudes have been carefully studied, and definite advice has been given. Bureaus of vocational guidance are maintained now in some American cities. With more careful studies of the strength, health, qualities of sight, hearing, touch, natural aptitudes and tastes, one of the greatest of social and economic services will be in this way performed.

It is of importance to society as well as to the individual that talent should be discovered in time, that tasks should be fitted to aptitudes, that each member of society should attain to his highest efficiency. The approach to this ideal—made possible by popular education, the decline of caste, the spread of genuine democracy, the progress of social justice—will increase not only the workers’ efficiency, but society’s abiding welfare.

CHAPTER 18

THE VALUE OF LABOR AND THE CHOICE OF OCCUPATIONS

§ 1. Services of labor comparable with uses of wealth. In the last two chapters we have sought to suggest in some measure the variety of human talents and the various conditions under which human labor is exerted for economic purposes. The aim of this and the succeeding chapter is to make clear the manner in which the various kinds of labor are evaluated (the value-problem), and how they are sold in the market (the price-problem of wages). Fortunately, we have already, in the theories of usance and of rent, all that is essential and fundamental to theories of labor-value and of wages. Man’s services and wealth’s uses move in parallel lines and are of parallel nature in contributing to the securing of income. Human actions directed toward some desired end constitute a usance of human beings; they are valuable services just as the work of domestic animals, the uses of tools, and the motions of machinery are valuable uses of wealth. These valuable services, partly rendered directly to persons and partly embodied in goods, constitute labor-incomes, comparable to the usance of wealth, the wealth-incomes. (See also Chapter 19, section 12.) The free laborer sells his services (separable uses) just as the owner of a more or less durative agent sells its usance, without selling the use-bearer. Our task, therefore, now is not to formulate a theory essentially different from the general theory of value and of price, but merely to show how labor exemplifies the general principles of value and of price, and particularly those of usance and rent, already set forth; noting any circumstances surrounding the process that are somewhat peculiar to the case of labor.

We know that value is the expression of a certain choice among goods, and price expresses a ratio of exchange that is arrived at among a number of buyers and sellers whose choices embody demand and supply. Let us look first at the more subjective aspects of the problem; that is, the value which labor as an agent for gratifying desires has to the human being who possesses the labor-power.

§ 2. Limitations of the labor-supply. The fundamental condition of all valuation is limitation of supply relative to the desires; so it is in the case of the valuation of labor. We have no difficulty in recognizing that some qualities of labor are scarce. There are some acts that are more difficult than others and some which few men can perform at all. Most women will confess that they cannot warble as Patti could, most men will admit that they have not the mercantile ability of John Wanamaker. There are not enough great surgeons with magic deftness of hand. There are not enough great medical specialists, men of marvelous insight, who do not guess and blunder, whose diagnosis is swift and sure. The man of mediocre capacity recognizes even through the fog of his self-esteem that there is a reason for the high value of rare services such as these. The proverb, “There ’s always room at the top,” is both a cheering and a pathetic truth. In every branch of human effort there is a never-ending lack of that higher qualification and training required for the best results.

But it is not so easy to see that the commonest services have value only because, at any particular time and place, they are scarce. Compared with the possible desires there are many things to be done if there were to be had at a low enough cost (or price) labor efficient to do them. It is, alas, true that there may be a temporary maladjustment of industry, when either in a particular factory, or in a particular locality, or more generally at a time of industrial depression, there is a superfluity of human labor. This is the acute problem of unemployment. There is at all times a superfluity of human agents of certain kinds. Children are often eager to help, and grieve when they are told that they are “more bother than they are worth.” Many of the ignorant, the insane, the feeble-minded, the vicious, drunken, and debauched, numbering unhappily many millions, can give to the world only negative uses, more properly called disservices. This is the chronic problem of the unemployable. But services of normal men are nearly always in demand, and the higher services are so rare that they are in great demand; except for temporary maladjustments in industry in our complex exchanging economy, labor of every kind is scarce, relative to the objects of desire which it might aid in procuring. Man’s desires have no bounds, his powers are limited. No community has regularly at its command an absolute surplus of labor services (tho there are temporary maladjustments).1 Either through lack of ability or lack of skill and endurance and willingness to work, the people in a community altogether are unable to do enough work to satiate all the desires to which labor could minister.2 Men’s strength and endurance fail after a few hours of exertion, and the desire to rest overcomes, at the end of each day’s labor, the desire for other goods which continuance of labor could secure. If labor were available in unlimited amounts, it would afford an unlimited supply of ultimate services (so far as they are dependent on labor) and the value of these services would sink to zero. Some existing limitation of labor, therefore, is essential to its value.

§ 3. The direction of labor guided by the value of its results. The labor available at any time and place can be turned to securing, improving, and multiplying the amount of any one, or of many different kinds of goods, or it may be distributed among them in any chosen proportion. Thus in a very real sense labor is a potential supply of goods. Within the limits set by materials to work upon and by the indirect agents to work with, the direction of the labor of one period determines the kinds and amounts of the goods of the next period—moment, month, or year. A savage tribe finds game plentiful and kills it; then turns to dressing skins to making canoes or gathering and making flint arrow-heads. At a time of famine the whole tribe gives all its energies to the search for food. In civilized lands men desire in turn the services of the baker, the blacksmith, the paper hanger, the piano tuner, and the dentist. Some of the services yield directly psychic income, and some are embodied in material goods which yield a psychic income. These various ultimate services and incomes have different values from period to period. These values serve as a guide in the application of each kind of labor, which is turned now in this direction, now in that, to render the most valuable ultimate service for which it is fitted. Particular kinds of labor-services therefore differ in desirability at any moment, and tho in a general way these differences persist in large measure, yet they vary constantly in some measure with changing circumstances. These facts explain the constant shifting, and attempts at shifting, of laborers from one occupation to another (as discussed more fully below in section 9 and in Chapter 19, section 3 and section 8).

§ 4. Value of labor to the isolated laborer. Let us now consider the problem of labor-valuation as it might present itself to an isolated laborer, such as Robinson Crusoe on his island. He would have at his disposal a limited fund of material resources, tools, weapons, metal, etc., and a limited fund (let us call it) of labor-services, viz., his own. If he had much more wealth (canoes, house, stock of food, etc.) and were able to work many times harder, he would from the outset be able to gratify his desires much more abundantly. As it is, he is under the necessity of choosing the particular way in which his efforts should be expended. A day’s labor spent in one direction may give a much more valuable result than if spent in another. Crusoe’s first task was to secure the valuable supplies on the wrecked vessel. (See Chapter 2.) Until this was done it would have been folly to begin to build a hut or to till the soil. In this work of salvage the various tasks were performed in a certain order determined by this principle: each hour’s labor is to be applied where its result promises to have the most value. Next he turns his efforts toward his garden, or his domestic animals, or toward building a house or a canoe. At a certain season of the year a day’s labor would be worth far more in the garden than at carpentry.

We perceive thus that, even in the case of the isolated laborer, his labor has no predetermined value which can be transferred to, or put into, its material products; rather the various products have an anticipated, expected value, which serves as a guide in apportioning the labor. Labor has value attributed to it according to the value of its products, now higher and again lower than usual. An hour’s labor even of the same man does not of necessity have the same value in different tasks at the same moment, or in the same task at different times and under different conditions. Much less should we expect the labor of different men to be of equal value when numbers of men meet and trade in a market.

Moreover, labor is applied according to expectation-valuations (a present valuation of the future desirability), and these expectations may be mistaken, being either too large or too small. Some undertakings turn out well, some ill. The weather may be more or less favorable, the insect pest be especially troublesome, while many other turns of good luck or bad luck may give results far out of line with the expectation-valuations which guided the application of labor. Therefore, the products have value not because a certain quantity of labor has been put into them, but rather a certain kind and duration of labor has been put into them because of the expectation that the products will have a certain value.

The play-element and the pleasure-in-work-element likewise enter into the valuation of material products, by increasing the supply of some as compared with others. If Crusoe liked caring for animals better than he liked to dig and plant, he would spend more time with his flocks and less time in his garden than if he liked both kinds of work equally well. He would more or less unconsciously choose his work differently than if he were merely weighing meat against vegetables as kinds of food. He is choosing psychic income rather than mere physical objects, and therefore the value of the objects is still further out of line with the time-amounts of labor put upon the material goods.

In view of these facts it is clear that the values of products of equal periods of one’s own labor (i.e., the part attributable to labor) have very unequal values to the isolated laborer.

§ 5. Rewards and sacrifices incident to occupations. Even those men who are equally fitted for several occupations have many motives besides the material result to choose one calling rather than another. Many of these motives result from differences in purely personal qualities of temperament and habit (we are not considering now differences in ability). One man enjoys being out-of-doors or likes physical exercise, another prefers a sedentary occupation, one delights in esthetic surroundings, another prefers to work with machinery more than do most other men. (See above, section 4, on Crusoe’s choice of the work he liked.) But besides these differences from man to man there are differences inherent in the occupations, which make them more or less attractive to most men apart from the evident labor income that they yield. The material products obtained from labor (or the wages received, see next chapter) are far from representing the net total of desirability of that occupation as a whole.

If now there are two or more occupations that are equally open to men of a certain grade of ability, but that are unequal in attractiveness, the more attractive will be chosen by more men. Therefore in that occupation the supply of labor will be greater, the services more abundant, and the value attributable to the labor must be less than in the other occupation. Thus it often happens that material labor-incomes evidently are unequal in two or more trades calling for the same natural ability; or again two laborers of very unequal ability are getting equal material labor-incomes—indeed the higher income may even go to the less capable man.

A little study of actual conditions usually suffices to clear away our first impression of irrationality in such cases. “Man does not live by bread alone,” neither does one choose his work in life with regard solely to material rewards. The total attractiveness of occupations (as judged by the laborer) depends in part on certain elements of psychic income, plus or minus, on certain costs or deductions which must be taken into account in one trade more than another, and on certain long-time or ultimate advantages or disadvantages attached to the pursuit of particular occupations.

§ 6. Psychic factors in labor-incomes. (a) Occupations differ in strenuousness, or degree of exertion required, some calling for the output of muscular energy to the point of exhaustion, or requiring long hours (mills with twelve-hour shifts), or night work. For the same reward most men would prefer day work, short hours, and only moderate exertion.

(b) Occupations differ in agreeableness. Cleanliness of store, office, or shop, permitting the wearing of clean clothes is valued highly by some men and still more by young women, who therefore (among other reasons) are ready to work at clerical occupations for much lower wages than they could get in mechanical trades or in domestic service. Noise, dust, foul smells, darkness, and lack of ventilation are all things that are avoided by most workers so far as there is any opportunity to choose between these and other conditions without too great a sacrifice of other advantages. Good physical surroundings of rural life make many salaried men content with much smaller incomes than they could get in the city, whereas some laborers cannot be tempted to the country by high wages away from what they deem the greater charms of crowded city streets, the movies, and an occasional glimpse of Coney Island. Congenial companionship is to many natures the greatest need, which outweighs almost any material advantage. The moral conditions in the place of work must accord with one’s standards if the work is not to be distasteful. Likewise the suffering imposed by sickness and accidents reduces the agreeableness of an occupation.

(c) Occupations differ in degree of social esteem or disesteem attached to them, and this is to most men an important element of psychic income (positive or negative) in weighing the net rewards of various callings. The measure of social esteem attached to any occupation is no doubt the result of popular judgment as to the quality of persons who usually follow that occupation. If the ministry, some kinds of teaching, the learned professions generally, social service, banking, music, and art rank high in social esteem, it is because in the long run and on the average the public admires the kind of persons (morally and intellectually) who succeed in such work. But the judgment of an occupation becomes somewhat conventionalized, and often those who are lacking in the full measure of the qualities hope by entering the occupation to shine by reflected glory. In turn, it is in the power of any individual in our democratic society to change appreciably the estimate of an occupation in a community by his standard of achievement and of character.

The average pecuniary or material rewards of an occupation are likely to be less in proportion as it enjoys high social esteem (as compared with occupations requiring the same grade of ability). On the contrary, if the public sentiment against an occupation is strong, those who follow it are often able to get a much larger reward than they could in another calling, as for example, gamblers, a certain type of criminal lawyers, and, in some neighborhoods, saloon keepers and bartenders.

§ 7. Costs and deductions from nominal labor-incomes. (a) The difficulties of preparation for the pursuit of various occupations are very unequal (in themselves, quite apart from the differences in natural fitness as among individuals). Partly the inequality lies in the strenuousness of application required of the learner, partly in the length of time before the preparation is finished, partly in the cost incurred for support, for tools and materials, and for instruction. The greater these difficulties the greater the beginner’s discouragement from choosing this as compared with other occupations. Hence, unless there are enough other offsetting advantages, the occupation with the high cost of preparation must be more highly rewarded, or nobody would choose these occupations; in other words, the expected labor-incomes3 (in material form or as money-wages) must have a value enough higher to offset at the moment of choice the higher cost of preparation.

(b) The clearly apparent rewards of various occupations are often quite different from the real rewards, judged even in material terms (the amounts of goods received). Partly this is due to special costs required in some cases, such as providing tools (carpenters), wearing better clothes (salesmen and saleswomen), which costs are not entirely offset by social esteem; partly it is due to living in a more expensive neighborhood in one case than in another, as a condition of getting the higher income. For example, the higher wages in the Northern States as compared with the Southern, are in part offset by the need of more clothing and fuel, and by higher costs of house rents and food. In general the cost-of-living in the country districts is less than in cities, varying roughly with the size, and real wages in all these cases are much nearer equality than they appear to be. If this were not so, migration would quickly bring about a closer agreement.

§ 8. The long-time and ultimate rewards of labor. (a) Occupations differ on the average in danger to life and limb, and to health, as do also particular establishments in the same occupations, because of differences in lighting, ventilation, dust, fumes, machinery, and methods of safeguarding the workers. Quite apart from the question of agreeableness (treated above, section 6) there are differences in the expectation of income because of medical and other expenses and loss of time from accidents and sickness. This expectation of loss should be, and doubtless is to some degree, offset by a higher wage in a more hazardous occupation, to induce any individual (within the range of his possible choice) to choose it rather than a safe occupation. But it is questionable whether this difference in money-rewards comes anywhere near equaling the chance of loss and danger expressed in money-terms. The reward is definite and present, whereas the danger is distant and vaguely felt. The more needy and improvident the worker the less he can or will estimate the danger and the more relatively (because of his high rate of time-preference) will he value a slight increase in present reward.

(b) Occupations differ in regularity of employment. The short-time rewards in the seasonal trades, such as bricklaying, mason-work, etc., are usually noticeably higher than in the steady occupations that call for the same kind of ability and preparation. But the more irregular the employment the greater the loss from being out of work, and the smaller is the total annual income as compared with the income earned by the hour, day, week, or month. Much of the difference in labor-incomes in such cases is nominal rather than real.

(c) The chance of success or failure in an occupation enters into the calculations of a beginner. The greater certainty of success in one case must be to some extent offset by higher rewards in the other. This element is of course supplemented or neutralized by other considerations; for example, the small chance of success in law is to some extent offset by opportunities in politics, business, and often in social affairs. In salaried positions the greater chance of success appears in the form of opportunities of promotion. Some less provident or less able to wait take the positions that give a living income from the first, but which lead nowhere, and others take the larger, but more distant income.

In all these cases there is an adjustment of rewards through the choice of occupations. If within the range of choice open to a group of individuals there is one occupation that is less attractive than others in all excepting the material reward (or the money wage) fewer will choose that, and more will choose the more attractive occupation; the result must be a rise of the value of services in the one and a fall in the other, until an equilibrium of net advantages is attained, to those entering or free to choose between the various occupations.

§ 9. Rarity of ability limiting choice of occupations. But even if all these psychic factors be duly accounted for, it is still evident that some men obtain a larger income for their services than others do. This is true whether they consume the results of their own labor, or sell them to others, or work for other men for a wage. Moreover, some labor having the highest value is the least strenuous and performed in the midst of the pleasantest surroundings, whereas most of the labor of the least value is the most arduous, disagreeable, and dangerous to health and to life. The laborers with low incomes thus have a motive to shift to more highly rewarded occupations. Why do they not do it? The answer is that they do to the extent of their respective abilities, knowledge, strength of will, and opportunities (limited of course by habit and by valuation of psychic income). But the various laborers have limited abilities and can not change at will and, despite the unfavorable ratio, they may be compelled to continue at the same work.4 Just as fields, plows, machinery for various purposes, grade off from the best to the poorest on the margin of use or already discarded, so men differ in their powers of labor. There are high value, low value, and no-value men and services of men.5 Even were there everywhere entire political freedom, and no legal influence of caste or status hindered the mobility of labor, mobility still would be hindered by the inequality and the rarity of ability. Just as apples can not be changed to peaches or sheep to horses when there is a change in their value, so the unskilled workman can not be changed to a skilled workman quickly, if he ever can. The possibility of workers changing within any brief period to occupations necessitating different, not to say higher, training is very small indeed. The individual laborers are constantly trying to adjust themselves, to get into places where they can earn larger incomes. Some move, some emigrate, some seek practice and education. Especially the workers between the ages of fifteen and twenty-five are at the time of life to choose the callings that promise to each the highest reward. Within limits an adjustment is possible, but these limits are not wide or not quickly shifted, and the incomes of particular laborers and groups of laborers continue to be very unequal in different occupations. Such changes of occupation as are made are far from enough to bring the values of the different services and their results to a common level.

§ 10. Imputation of value to labor and to uses of wealth. Labor does not work with an equipment of free goods even on Robinson Crusoe’s island. (See section 4 above.) Crusoe had a limited stock of cleared land and of other agents, some of which were irreplaceable. His valuation of them was implied in the choice and use made by him of these various agents when used in connection with his labor. A part of the total product of an isolated worker as a matter of value-estimation or imputation is a labor-income. Tho Crusoe had no occasion to apportion exactly the two parts of his divisible income, even a Crusoe in his choices would not attribute the total value of the product to his own labor. He is valuing material agents and labor together in a given economic situation. He might perhaps think and say, “I made this,” or, “I made that,” but he would constantly and necessarily act in a way that imputed a value to scarce material agents no matter whether much or little labor had been put upon them.

Each kind of goods and each act of labor is valued in accordance with the psychic income which it helps to secure. The value of the psychic income is reflected to the agents of production. An isolated laborer, such as Crusoe, would, however, not have as definite and complete a scale of values as that which arises in an exchange economy where money serves as a common denominator of values. The independent farmer, producing on his own farm nearly everything he consumes, is able to think somewhat more clearly of his labor and his wealth as separate sources of income, for he can earn wages by working for some one else and he can let his farm for a money-rent. Moreover, he, like Crusoe, is constantly imputing, in his mode of use, a value to the farm and to his own labor. This being true, the phrase “labor produces” is always misleading, for it suggests that the whole product is the result of labor alone, whereas products result from the combined action of the uses of materials and the services of labor. The total value is reflected back and imputed to the various agents in due proportion. The phrase used should always be “labor helps to produce.”6

CHAPTER 19

PRINCIPLES OF WAGES

§ 1. The price of labor. In the last chapter have been considered the circumstances affecting the value of human services. The labor has value in the estimation of some person or persons because the labor yields a psychic income either directly or indirectly. We now turn to consider the price of labor. Just as the value of direct commodities comes to be expressed in a price in sale, and as the value of the uses of durable agents (usance) comes to have a price called rent, so the value of any labor that is capable of being sold, that is performed for another for pay, comes to bear a price called wage, or wages.

Like every price, wage involves a contractual relation more or less temporary, between two persons, the one selling and the other buying labor. The buyer is the employer and the seller is the employee, or the wageworker, or the hired man. All that has been said above of the principles of value in relation to labor, holds of course of wages, whenever the labor is being measured in a market and its value is being expressed in terms of something paid for the labor.1

§ 2. The self-directing laborer’s income from sale of products. Before considering the case of contractual wage-payment, where one man is hired by another, let us see what occurs when a number of self-directing laborers come together into trading relations with their products. In this case there is a market for goods and there are prices for goods that have been produced by the aid of labor, but there are only valuations and not prices for labor services. Such was the state of industry in early and medieval times, and in large measure these conditions still are found in modern society. Each trader would originally come to the market with a scale of valuations for all his different goods, reflecting his own unequal fitness for different tasks, and he would meet men having very different scales of valuation due to the variety and disparity of their talents. If one man can make arrows and canoes very well but is too slow to hunt, and the other is a good hunter but a poor worker in wood, there is mutual gain in division of labor and barter. (See Chapter 5, section 7.) If several traders are present so that the higgling element of isolated barter is reduced, a true market-price is found for the goods resulting from each laborer’s services. In the presence of this price the individual valuations are adjusted to the whole economic situation, are socialized in the market. (See above, Chapter 7.)

Goods exchanged in this way evidently are not valued according to the amount of labor measured by labor-hours, or by painful exertion. They are valued by the strength of desires as expressed in choice; some goods that are produced easily by little labor may have a high value, and other goods that are produced by much hard and disagreeable labor must have a low value.2

§ 3. Shifting of labor to the point of highest return to the laborer. The fisherman as he follows his vocation (as a self-directing laborer) gets an income in the form of the price of the fish he catches every day (less cost of maintaining his equipment). The value of this income is a complex of the usance attributable to the equipment, a very small amount, and of the value of his own labor. The market conditions for fish determine the value of his labor. If in the long run he earns less than he could get in another equally agreeable occupation requiring no greater equipment, to which he will and can transfer, he will leave fishing. If he does change and gets a larger labor-income this is but the reflection of the higher-priced product in the new occupation. Similarly, the gold-miner, working with simple tools in the days of placer-mining, got an income determined by the value of the gold he washed out. It was for this that he gave up his former occupation and went to the gold fields. In like manner the farmer, the cloth weaver, the furniture maker, etc., would find the occupation in which his labor would produce goods of the greatest value (differences of psychic income being allowed for).3 Thus we must conceive of a state of equilibrium where each kind of labor would be applied to the production of that kind of goods which will yield it the largest possible income, and where there is no one at the moment that can change to an occupation paying better on the whole.

In any labor market, each grade of labor may be looked upon as a potential supply of desirable things and its value is determined as if it were an actual supply. If all the various goods, psychic and material, that labor produces were spread out before men in visible form, some would be in great demand, some would exchange at a very unfavorable ratio with others. The market for goods would come to equilibrium at a point where each buyer had adjusted his supply of services in the most favorable way, had so distributed his purchasing power, as represented by his labor, so as to get those kinds and amounts of goods (including services of others) which gratify his desires in the highest possible manner.

Corresponding with this state of equilibrium on the buyers’ side, would be at the point of the theoretically correct market-price, an equilibrium on the sellers’ side. Wherever and in so far as free competition exists, there is a constant adjustment and striving toward such a state of equilibrium. Each workman is moving into the industry where he earns the highest amount possible to him; that is, the highest price which any of his fellow-men are willing to pay for the service (embodied in goods) which he can and will perform. Each man’s income is determined by the desirability of his services as bid for by the other members of his community. His value to others determines his economic place just as the specific gravity of liquids of different densities poured into a glass determines their place. In actual life various disturbing factors prevent the full realization of this condition, but the practical process by which labor is valued is that which we have been describing. Each laborer in a true market should get close to what his services “are worth” in the sense of their economic value to the purchaser.4

§ 4. Fees for temporary direct services. On the very borderline between the class of self-directing laborers and regular wage-employees is the class of laborers which is temporarily employed to do a definite service directly for others, receiving therefor a payment or fee. The barber shaves his patron, the ferryman takes the traveler across the river, the boy carries a message, the surgeon sets a broken arm. Of a like nature are the fees for services of bootblacks, messengers, porters, doctors, lawyers, etc., when there is no continuing contract of employment. Each performs a valuable service, which is sold to the beneficiary but produces no long-abiding material result, and no separable, saleable, material good. Little different is the case of custom-made production once very common, now infrequent, where the customer took his own cloth to the tailor to be made into a suit, leather to the cobbler to be made into shoes, and wheat to the miller to be ground into flour. The artisan owned his own tools, and stayed in his own shop, and was paid for the definite service of imparting new form-value to the materials. There, clearly, his earnings in the long run would be adjusted in a market for labor services.

When the buyer of labor is a merchant who supplies the materials and pays for the form-change made in the home or shop of the worker, the system of work is called domestic production, sometimes factor or commission work, sometimes, in cities, tenement-house work. This is still common in the weaving of silk in Europe, and in the manufacture of clothing in America, and in some other cases. The artisan has here less independent action, has no dealing directly with the ultimate consumer of his services, and is very near to being a piece-price wage-earner; but if he still owns his tools it is not a clear case of wage-payment. We hesitate to call any of these cases of wage-payment, tho they come very near to it. But when we come to the case of the artisan (e.g., a carpenter), even tho he may own his own tools, who works for an employer in a place chosen and controlled by the employer, we consider it a case of wage-payment. In these border cases we see very plainly how the services are valued and sold apart from the material to which they are applied.

§ 5. The continued wage contract for personal services. In ordinary domestic service the laborer is employed for a longer or shorter time to give a series of services, some personal and direct, and others more or less indirect. The wealthy man does not hire a coachman each time he wishes to take a ride, but having summed up the advantages of a coachman’s services, he buys them by the month or the year. The price is determined in the market for coachmen of the needed ability, qualities ranging from stupid to bright, from weak to strong, and from drunk to sober. Instead of buying flowers from day to day, a wealthy man hires a gardener to cultivate them in a conservatory. The average market-price of flowers influences the wages paid to the gardener, his wages being but the sum of the values (or of his imputed part in the values) of flowers, well-kept lawn, and garden products. Of a like nature are the services of cooks, waiters, tutors, musicians, and teachers in private employment, etc. Between two and three million persons are employed in this way in America. According to the conditions of each household and of the general market, the one or the other mode of buying these services and products is the more advantageous to the consumer. The wages of gardeners in private employ must be in pretty close agreement with the wages of those working in commercial gardening, and with the labor-incomes of the simpler self-employing gardeners.

§ 6. Price of labor employed on products to sell. The payment of the laborer to produce goods for exchange is the most common modern case of wages. The relation of wages to the value of the product is in this case more complex, for the employer is directing the labor to meeting the desires of others, not his own desires. It is by rightly anticipating the desires of prospective customers for the product, and successfully exchanging or selling it, that the employer is enabled to recover the amounts paid to laborers. When industry becomes complex, the connection between the wages and the price ultimately realized in the product may be broken for a time, but rarely for a very long time. Because of miscalculations, labor is sometimes employed on things that prove to be quite valueless, and on other things that have a much greater value than was expected. When months or years intervene before the price of the labor is realized in the sale of the product, the employer must forecast the outcome as best he can, and employ labor only when the wages promise to be recovered. These are complicating facts, but in any logical view they do not falsify the principle that wages are but the commuted, or reflected price of the product (i.e., of that portion of the product which under market conditions, is reflected to the labor).5

Let us recall again that labor is only one of the elements entering into the product. (See last chapter, section 10.) Each agent in industry, whether it be a plow, a horse, or a man, is valued in connection with other agents, never apart or isolated. It is not the total service that any one of them performs that can be got at; all that can be got at is the value attributed to the marginal unit of supply, that is to every unit of like quality in the whole economic situation. Each agent is considered in combination with other things at a given moment under existing conditions. Within limits labor may be substituted for the other elements, fewer machines being used and more laborers, or vice versa. It is said that the price of mules at the Pennsylvania mines is affected by immigration, for a mule and a man may for some purposes be substituted. No more will be given for any labor than the employer expects it to add to the value of the product. The employer is constantly testing the value of each kind of labor in his own establishment with the value of other agents of production.6 In any state of the labor market the wages of any labor or class of labor tend to conform to the value of the services to the employer, and the value to the employer is determined by the price which the ultimate consumers will pay for the product.7

§ 7. Various grades of labor and rates of wages. Every grade and kind of ability has its rate of wages. The term general rate of wages can be used only of a certain grade of labor and of the rate for the average worker. Also it is sometimes convenient to speak in a broad but inexact way of “a general rate of wages,” when comparing different countries and periods. When it is said that the rate of wages is higher in America than in England, in England than in France, in France than in India, the comparison is between men of the same occupation in the different countries; e.g., the unskilled laborer or the mechanic gets more here than the same grade of laborer gets in England. There is, however, no such a thing as a general rate of wages for all laborers and for all industries any more than there is a general rate of land-rent for all acres of land. In any one kind of factory all grades of ability are required, from the pattern maker and the engineer, down to the roustabout in the yard. The industries of manufacturing, commerce, and education alike require the coöperation of bookkeepers, janitors, carpenters, and superintendents. The wages of different grades of ability within the same industry differ more markedly than do the wages of particular classes of workers in different industries. For example, a bookkeeper of a certain grade of skill gets about the same whether employed in a factory, a store, or a railroad office.

When wages are paid in the form of money it becomes important to distinguish between real and nominal wages. Nominal wages are expressed in money, and real wages in amount of uses and services the money will buy. In comparing the wages of different classes in the same country, or of the same class in different countries, or of the same class at different periods of time, real and nominal wages show very different situations and changes. In determining the net advantages of various occupations men must include, as we have seen, many intangible elements. (See Chapter 18.) But in the term real wages nothing more is included than the quantity of useful goods (cloth, food, etc.), and of rentable uses which can be bought at current prices with the money wages. This is an imperfect but often very enlightening comparison.8

§ 8. Doctrine of non-competing classes. Whatever be the methods of remuneration and the scales of wages prevailing in the various industries and localities, the laborers make their choices among the various occupations and places of work open to them. They move from factory to factory, from trade to trade, from town to town, from state to state, from one country to another, seeking each to better his fortune or to maintain it unimpaired. The worker is striving to get for his labor the maximum, all things considered, (as set forth in Chapter 18, section 9) as the employer is usually striving to get the needed service at the lowest price. When this is so, the conditions of a two-sided market are present and a price for each laborer’s services results.

The variety in human talents and the many difficulties and motives which hinder the change from one occupation to another (set forth in Chapters 16 to 18, also section 3 above) result in a large measure of immobility, or lack of interchangeability as between different kinds of labor. This limited power of adjustment not only fixes the individual in a trade his life long, but it marks off whole groups from each other through hereditary, social, and geographical barriers. This has been put into the form of a doctrine of non-competing classes of labor, a brief statement of which may help us to see the problem of relative wages of various laborers as one of the mutual valuations of services. It is, however, but a restatement of the ideas already presented here.

Workers may be thought of at any period as grouped in classes, not only as to different occupations (such as carpentry, typesetting, etc.) but as to grades of ability in performing the various tasks. Each class has its value determined by the market conditions, as for the time a separate object of value having a comparatively fixed supply, and not a part of a homogeneous mass of services. Within any period, greater or less changes in the value of the products of one class of labor may occur, and be reflected in a higher or lower value of the labor. Only in a small degree, and exceptionally, can an adult worker make any considerable change in the character and grade of his work. Only in a small degree can or do young workers enter into classes of occupations that are higher, more skilled, than those of their fathers. Partly they are prevented by lack of natural ability and partly by ignorance of opportunities, and partly by the difficulties and expense of training and preparation. The change of any one worker from a lower group to a higher affects the value of the services of both groups by reducing the supply of labor in the low-paid and increasing the supply in the higher paid occupation. Yet such changes as are made always have fallen far short of leveling the value of services in all industries and undoubtedly always must do so.

This doctrine may be represented schematically by a pyramid. A young man of certain ability and under certain conditions may be able to fit himself for any one of several occupations, a, b, or c in class III. After he has mastered any trade (say IIIa) he may be able to advance (to class II) but in most cases he would find it each year increasingly difficult to do so. It is however easier to change on the same plane than to move upward, and it is usually still easier to go downward than to change on the same plane. In the extreme cases the value of the labor of any two non-competing classes is fixed as if each class occupied a separate island, and could not change occupations, but could only exchange products at the ratio resulting from the reciprocal bidding of the traders. (See Chapter 7, section 3.) The masses of the workers in any two countries of different resources and density of population, such for example as the United States and Italy or China, are to a certain degree in non-competing classes. If immigration is unrestricted by law, all that keeps wages from becoming identical for like classes of workers (as carpenters, painters, etc.) in the two countries is the difficulty of migration.9

§ 9. Basis of the personal bargaining power in the wage-contract. We arrived at the explanation that the price of labor bought by an employer must be related to and depend on the value of the services bought. Wages, just as the prices of commodities, depend on the values in the minds of the various traders, and these values in turn are the reflection of consumers’ choice. But the personal element of bargaining between man and man seems to obscure our view of the motives determining wages much more than of the motives determining commodity prices. If the fisher and the miner bring their products to the general market, the question uppermost is the price the product shall bring, and their laborincomes are easily seen to be the price of the material products (less certain costs and allowance for equipment) (see above, section 3). But if an employer hires a number of workmen, and the labor of each becomes merged and lost to view in a complex product, what part of this undivided product is, on value-principles, imputable to the labor? If we lose hold of a guiding principle of value, there is danger that we shall see only the superficial fact of the personal bargain between employer and workman. Sometimes the personal power of the employer looms so large that he is thought to “pay whatever he pleases,” sometimes wages seem to depend on the whim of labor leaders, sometimes on the monopolistic power of organized labor. This way of viewing the problem has even been dignified with the name of “the bargain theory of wages.” Such a view overlooks the logical cause of value, and the network of impersonal forces which enwraps and binds the personal bargain. What makes the employer “please” to pay as much as he does; what is there in the economic situation that at one time gives to the labor leader bargaining power to get an advance of wages, and at another time does not? These are questions whose answers help us to go deeper into the explanation of wages.

The truth seems to be that while wages paid by an employer result from a bargain, this in turn rests on the same causes of value as does the bargain for material agents (commodity prices, rents, as also interest rates), that is, on the direct or indirect effect of labor in the gratifying of desires. When the employer is producing goods to sell he is acting as a middleman between the employee and the ultimate consumers whose desires combine to impart value to the labor used. The greater the demand for labor services and the more limited the group of laborers that can render these services, the greater is the bargaining power, and vice versa. Bargaining power is simply the power to bring about a true equilibrium price inherent in the economic situation.

§ 10. Friction in the adjustment of wages. The conformity of actual wages to the true equilibrium price under any given market conditions is never complete. Actual wages may be said, in somewhat indefinite phrase, to have “a tendency to conform,” to an abstract competitive price, meaning that the most fundamental forces are always working to that end. These forces, however, are counteracted by many other influences, some slight and temporary, and others strong and long continued. We do not here refer to such things as monopolistic power of organization which, however artificial it may seem, is a part of the economic situation for the time and determines the market-price. We refer to other conditions, such as the following.

The wage received by any particular employee may be higher or lower than those of other workers and than the true market-price as a result of favoritism, due to friendship, relationship, or bribery, in private employ, in corporations, or in government service.

As a whole, the prices of labor have more inertia and more momentum than do prices of material commodities. As the prices of the commodities that labor helps to produce go up or down, wages follow more slowly. This is true of wages whether the change is in the general scale of prices (see the standard of deferred payments in Vol. II) or in the price of the particular class of goods. Habits of thought count for more in wages than in most other prices. Caste and custom are great influences making for inertia of wages. The laborer thinks of his labor as worth so much, and in general is slow to ask more, and is loath to take less than he has been getting. Combinations of workers may hasten the rise and retard the fall of the prevailing scale of wages. The adjustment of labor-supply to commodity prices is in large part brought about, therefore, when prices of products rise, by taking on less capable workers at the same wages, and by working more regularly and for more hours; and when prices fall, by throwing the less efficient workers out of employment, and by working fewer hours. In contrast with wages, profits are quickly adjusted to price changes, going up quickly when prices of products rise, and going down, often for a time to a minus quantity, when prices fall. (See later under profits and enterprise.)

§ 11. Uniqueness of separate services. In many cases the individual employee can not get higher wages because of his immobility. He (or she) has a home, and must live at home, and tho he may have greatly improved in efficiency in the particular position, may not be able to accept positions open elsewhere at much higher salaries. He can not sell his labor in an open market. Many positions of confidence and trust are such that it requires years of experience to gain efficiency, yet that experience and efficiency pertain to that particular job, and can not be in large part transferred elsewhere. In such situations the employer may be able to retain this person, under existing market conditions, for less than he would have to pay to get some one else to fill the position satisfactorily.

On the other hand an employer often is forced to pay a higher wage to hold an employee than on general price conditions is warranted, in order to hold the services that have become particularly valuable to his business. In many cases, too, old employees are retained after they could be replaced by more efficient men at the same or lower salaries. Services are well-nigh the least standardized of all saleable things, and in countless cases both the laborer and his job have more or less the character of uniqueness; that is, there is no other job exactly like this one and no other laborer exactly suited for that particular work. These are facts which must neither be overlooked nor exaggerated to the point of obscuring the general conformity of wages to market conditions.

§ 12. Labor-incomes and wealth-incomes. The fundamental principles of value and price apply fully to labor, as we have said. (See above, Chapter 18, section 1.) But the sale of the services of human beings is marked by important conditions—moral, political, social, and consequently also economic—which distinguish it from the ordinary sale of material wealth. The distinction between men and things is from all these standpoints both of theoretical and of practical importance. It will not do to say: “The law of wages? Labor is a commodity, that ’s all.” Taking one point of view, and seeing only the value element common to all economic agents, we may be tempted to merge all in one category, and to say that men also are a form of wealth.10 In a democratic society where there is no chattel slavery and each worker must be deemed to be a free political agent, this distinction between men and things is largely what gives political economy any significance. In the social applications of economics, wealth is always but a means to an end, whereas man is both a means (as laborer) and the end itself (human welfare).

Men and wealth, the two great classes of economic agents, are severally and in combination the sole source of all economic incomes. The corresponding classes of incomes are labor-incomes and wealth-incomes.11 The former of these makes a greater aggregate amount, made up, however, of many incomes, nearly all small. The great majority of the people of any country live mostly on labor-incomes, their own or from members of their family. This is true even if all the psychic incomes of personal service for one’s self and family be overlooked, and only the more material forms of income, such as are ordinarily regarded in income statistics (material products and money wages) be reckoned. At the same time there is no family so destitute that a part of its psychic income is not obtained from the usufructs of durable wealth (uses of clothing, cooking utensils, furniture), and there are millions whose labor-income in the form of goods and money is supplemented to a considerable degree by incomes from some wealth or claim upon other men. There are the agricultural workers, some of them land owners or partly land owners, and nearly all of them to some extent tool owners. There are many city dwellers owning their stores and manufacturing establishments in whole or in part, and many more owning houses; there are in America nearly nine million depositors in savings banks (many persons and families being duplicated). Millions of other persons hold, through mortgages, bonds and shares, claims on real estate, small businesses, or on corporations (later treated more fully under “capital”). There are the accumulated funds of insurance companies, fraternal orders and societies, owned collectively by members and policyholders. There are the psychic incomes shared by the masses of the people in the use of schools, museums, libraries, buildings and all other enjoyable public property. The labor income is thus in the case of individuals or families but the part of income which is due and attributable to the valuable efforts they have rendered to themselves or others. This form of income stops when the man dies or fails to perform his work; the income from wealth goes on. Thus families with equal incomes may receive them from sources of very different stability and duration.

§ 13. The wage system. A large part of the labor-incomes in society as it is at present are received in the form of wages. Indeed our present economic organization is often called “the wage system.” By this is meant: an organization of industry wherein some men, in control of the material agents, buy at their competitive price the labor of other men. The wage system implies a contract between employer and employed. The relation or bond between them is that of a wage payment, either in money or in kind. The wage system is a method of organization never found completely realized. A community made up entirely of independent small farmers, living each on his little patch of ground, could not have any essential feature of the wage system. Wherever are found considerable numbers of independent small farmers and other self-employing laborers, as is everywhere in large measure the case, the wage system does not exist in complete form.12 Some men with more or less wealth in every community are working for wages, while others are independent producers and are their own employers. Society is not sharply divided into two classes, one controlling all the material equipment, the other with only their bare labor to sell. The wage system may be spoken of as prevailing to-day not as the exclusive, but as the typical, dominant, and slowly increasing form of industrial organization, while side by side or along with it is found independent production.

§ 14. Wages and the general economic situation. Our statement of the theory of wages has now been brought to a provisional stopping point. But the reader should be aware of the limitations of our treatment. We have outlined a theory of wages assuming a certain economic situation; we have passed in review the various motives and characteristics of men which help to explain the ratio in which the various kinds of services are valued in terms of each other. While we have recognized the presence and effect of material resources and of manifold instrumental goods as being indispensable to the use of labor, we have said little of the effects that changes in their amount would have on the whole economic situation. We have, in other words, outlined only a static (or equilibrium) theory of labor-incomes, and not a dynamic theory.

But the level of the general scale of wages is a part of a general economic situation and is dependent on the relation of population to all material resources, artificial and natural, on the progress of education, of science, and of the industrial arts, and on many other factors. The foregoing theory of wages therefore is only provisional, not that it must be essentially changed, but that it must later be materially enlarged and completed. The study of the value of labor is not a thing apart from that of the value of other agents. Each succeeding chapter from this point on will supplement the foregoing treatment of labor and wages. Especially in the last part of this volume (Chapters 32-39) will be discussed the great underlying conditions on which depends the general economic situation in which and by which the level of labor-incomes is determined.

Notes

The labor-theory of value. Things go thus in the real world, however the student or the generous-minded social reformer at times may be tempted to shut his eyes to the truth, feeling that value ought to be in proportion to labor-time or to the unpleasantness of labor. There is a close correspondence, even identity, between the value of the goods and the value of the labor that produced them, but it is the value of the goods that is reflected to the labor, and not the reverse. For, if labor having a high value reflected from one product be applied to another product that has a low value, the value of that labor is in so far thrown away. As we saw, the values of goods resulting from equal labor-time of an isolated laborer are often unequal; and a fortiori the values of equal labor-times are sure to be still more unequal when the products result from the labor of different men of varied abilities and natures, trading in a community. There is therefore no unit of labor-time which can serve as a standard of the values of goods or which is embodied in equal proportions in goods of equal value. Rather, it appears that labor services are compared as to value only through the values they derive from their products. We thus speak of equal quantities of labor not as equal in time, but as equal in value, as so many dollars’ worth.

It would be unnecessary to dwell on this truth were it not for the very common illusion that labor may be taken as the standard of value, and were it not for the frequent recurrence of the fallacious idea that goods in a market embody so-called labor-units in exact proportion to their values.

This idea that the value of goods is determined and measured by the quantity of labor put into them, is the “labor-theory of value” (not to be confused with the theory of the value of labor). It assumes that there is such a thing as a common standard unit of labor, a definite quantum, measurable antecedent to the value of the products. The labor-theory of value appears in manifold disguises both in popular doctrines and in systematic treatises on economics. The error in the theory is evident, first, because various kinds of labor differ in quality (or kind) not merely in quantity (or time) and, in truth, it is only through the values of their products that the different qualities of labor can be compared (singing with wood-chopping); secondly, because the values of goods differ not only with the labor applied (even if it were all of one quality) but with the amount of complementary agents used; thirdly, because of the differences in time elapsing between the application of labor, and the ultimate valuable results of the productive process. (Of this more below, under time-value.)

Various methods of remuneration. Many methods are employed to measure the services of wage workers, the main ones being by time and by the piece. In time work (by the hour, day, week, month, or year) a general average output is assumed, and the workman must come up to that standard if he is to hold his place. In piece work, the price per piece must be enough to make possible the prevailing time wage to workers of that grade if the supply is to be maintained in that industry. The piece price method is combined with time work, and is varied in many ways by giving premiums or bonuses for larger outputs within a given period. The conveniences of the different methods of payment vary from industry to industry, and even from task to task within the same factory, so that now one, now another method is followed. In any case, however, the aim is to find some convenient unit of service for the measurement of the amount of labor to be paid for, and to give a motive for efficiency to the worker. The wages paid by the various methods of remuneration—as by time, by the piece, by premium for output—all conform in a general way to the value of the service imputed through bidders in the market.

Real wages in Europe and America. Bearing in mind the limitations mentioned in sec. 7, the results of a study made by the British Board of Trade as to the conditions of the working classes in the cities of five different countries (about the years 1908-11) are here given. The further caution must be given that only certain groups of trades were investigated, those in building, engineering, and printing; and that the cost of living was taken only for food and rent (figures of rent here given are the average for two to six room apartments). The cost of living is calculated by assuming that food cost represents half of the cost of living and rent the other half. In fact food constitutes something less than half, rent only about one fifth; but it will be observed that rents vary pretty closely in accord with money wages, and that the cost of things bought with the rest of wages, after paying for food and rent, consists very largely of the cost of labor. The figures are merely proportional (taking England as a base) and do not express any particular unit of money.

The indication is that money wages in the United States were from about two and a third times to nearly four times as high as those of other countries; but that the workingman’s cost of living was from nearly two to two and a third times as high in the United States. As a result the day’s wage in the other countries would buy from 40 to 22 per cent less than it would in the United States.

In considering these statistics it must be remembered that the wages in skilled trades (such as those here included) are higher relatively in the United States than are the wages of unskilled labor (especially in Germany) and also that far better provision had at that time been made in the continental countries of Europe than in either England or the United States for insurance against sickness, accident, old age pensions, etc.

Value versus utility of labor. Observe that all our discussion here has related to the value and not to the utility of labor. The explanation of value is found in the desires and choices of men, with all their folly and blunders of judgment. More often perhaps in the case of human services than elsewhere, value is found to be in conflict with utility, properly conceived (see ch. 3, sec. 4) and properly estimated. Many of the kinds of labor that are indispensable to the very existence of men have small value (e.g., common labor used in producing food, clothing, shelter, protection from the elements, for the rescue or preservation of human lives). The qualities needed in such work vary from man to man it is true, but they are common, found in large measure in nearly all men. Such callings require merely the physical strength that most men have, a modicum of intelligence to understand and obey orders, and the moderate degree of skill that can be acquired by brief practice. Almost every one (unless weakened by years of sedentary, non-physical occupation) can, in case of need, take up such work at once. Labor thus plentiful in relation to the demand whether it be used for useful ends (such as flowers or food) or for harmful ends (such as opium made from flowers or whisky made from corn) bears a low value.

On the other hand it is the getting out of such an occupation, not the getting into it, that requires a little more than commonplace intelligence, forethought by one’s self or by one’s parents, persistence, and other qualities. The serious lack of any one of these disqualifies for most occupations that yield large labor-incomes. Many of the services valued highly are of a sort distinctly not of utility. Some services are highly rewarded for gratifying the esthetic tastes of a few (luxurious decorations, operatic singing, epicurean tastes in food, etc.), others for pandering to the vices of the many (drinking, gambling, licentiousness). But always the value is set and the price is paid by some one or more buyers who choose such services at the higher value in preference to lower valued services having true utility for themselves and for society. Here as elsewhere it is true that forces are always at work to keep value in some measure of accord with utility in the world as a whole and in the long run.

[1 ]Formerly the productiveness of labor was said to depend upon this condition of embodiment in abiding material form. According to the view in question, the bartender mixing drinks which would be quaffed a moment later was to be called a productive laborer because his services were embodied in material form; whereas the lecturer, the singer, the teacher, and the judge were regarded as unproductive laborers because the results of their labors were not embodied in material form, but went at once into psychic income. Whether or not the service has for a moment embodied itself in material form is not of the most essential economic import. The presence of the waiter is as essential to the well-served dinner as are the polished silver and china, or as the well-cooked food. The distinction in question is not now made by most economists. But a similar distinction is inconsistently preserved by many writers who call unproductive the goods yielding direct enjoyment (houses, carriages, etc.) and call only those material agents productive (as tools, machines, etc.) whose product is embodied for a time in material form. If a distinction is to be made between productive and unproductive labor it will have to be found in the occasional contradiction between value and utility; that is, in the result of labor as regards social welfare. (See ch. 39.)

[2 ]In 1910 there were nearly 2,000,000 children of the age-group between ten and fifteen years reported as engaged in gainful occupations in the United States, most of them in agriculture. Two-thirds of the total number were boys, those occupied being one-fourth of all boys of that age-group. In the South, however (comprising the three southern geographical divisions in the census), nearly half the boys of that age-group were in gainful occupations, while in the North only one-eighth were.

[1 ]Some part of this subject has been already touched in discussing wealth and its uses, and the other parts will be more fully treated in Part VI with Population, diminishing returns, and machinery.

[* ]The diagram represents 4,367,000 children in the first grade. A very large number (more than two out of three) stay there more than a year, repeating the work. A few never get beyond this point, but all excepting about a tenth attain the fourth grade, tho some take seven or eight years to do it. Then each year several hundred thousands drop out. More than one-half of those in the eighth grade do not enter a high school (or its equivalent).

[1 ]However, it may easily happen that the laborers may be so numerous, relative to other resources, that the value of labor is lower than it might otherwise be, or than is consistent with general well-being. See on population, Part VI.

[2 ]See ch. 36, sec. 3 on “the lump of labor” notion.

[3 ]But this does not mean that, other things being equal, the difference between the labor-incomes of two occupations must exactly equal the difference in costs of preparation for the two occupations; for the costs are present or in the near future, and the larger labor-incomes are in the more or less distant future, till the end of the probable working life. Hence the problem of time-value enters. The future incomes have a smaller (discounted) value at the present. In many working-men’s families the difficulty of meeting present costs of preparation is so great that a large increase of wages or salary is insufficient to induce the beginner to make the sacrifice. (See above ch. 17, secs. 4, 12, on the importance of preparation.) The rate of time-preference in such families is extremely high. The problem here is in nature that of the active investment of capital (see Part V) and involves a large element of uncertainty. Often the expenses of industrial education are returned many fold in the form of larger labor-incomes to the individual, but in some cases the expense is “thrown away” because of the incapacity or of the moral weakness of the learner.

[4 ]Recall the disparity of talents ch. 16, sec. 12.

[5 ]Recognizing the variety and inequality of human talent, some economists have spoken of the “rent of ability” and of “producers’ rent.” It is true that the difference in the rewards of labor, like land-rent, reflects the difference in the quality of agents; but this expression (the rent of ability) is to be avoided. While possibly it is suggestive in studying some problems, it is at best only an analogy, and on the whole a misleading one, confusing the terminology of rent and wages and dimming the distinction between free workers and owned and exchangeable wealth. See note on various meanings of rent, at end of ch. 14.

[6 ]The “labor theory of value” survives from the time when the workman’s kit of tools was so small that the true labor-income of the handworker was little less than his total receipts. The tinker, the shoemaker, and the tailor, who went from house to house in the old days, thought only in the vaguest way of marking off from their incomes a part to be accounted as the yield of their little outfit of tools. Labor therefore was thought of as the chief and almost the sole cause of the value of goods produced by artisans. The error in this view grew greater and greater with the increase of modern machinery, and it persists in many fallacious notions not only in popular thought but in systematic economics.

[1 ]The wage being a tangible market-fact was first studied when economics began to be a science, and it was seen that the wage was but the reflection of a valuable service. So the term wage was extended to this value of the service which was called the “natural wage”—more often of late the “economic wage.” In this book, however, the term wages is confined to the price aspect of labor, while labor-yield (which is labor-income to some person) is the physical product or the valued service given off by an action.

[2 ]See note on The labor-theory of value at end of chapter.

[3 ]See note at end of chapter, on “Value versus utility of labor.”

[4 ]This in no wise is to be taken to assert the social desirability of low wages, or the justice of actual wages either in any particular case or in general. Some thinkers have assumed and have asserted that the competitive wage is the wage which is “theoretically correct” in an ethical sense. The process of valuation which we are describing, however, leads us to the conclusion that under competitive conditions a man gets what he “is worth” to the purchaser merely in the value sense; he gets the maximum sum possible in view of the nature of his service and of the existing conditions of demand and supply. But these conditions are more or less dependent at any given time upon various antecedent circumstances, such as the distribution of wealth, inheritance, the growth of population in the different classes of society, etc. Our present analysis, therefore, involves no ethical judgment of a competitive wage-scale one way or another. That is a question for separate consideration.

[5 ]The place of the employer as midway between laborer and consumer, is more fully treated later, under enterprise, in Part V.

[6 ]It is only in this superficial sense and as seen from the employer’s standpoint that wages may be said to be determined by productivity. It is productivity in the sense of profitableness or selling price to the employer beyond which he will not go. There is no such thing as a separate determinable physical productivity that is due to labor. Only more or less of the value of the product may, under the conditions of the market, be imputed to the various factors of production. To say therefore that wages are determined by productivity is to define in identical terms: the price of the product is determined by the price of the product.

[7 ]See note on Various methods of remuneration, at the end of chapter.

[8 ]See note on Real wages in Europe and America at end of chapter.

[9 ]This doctrine was given its name by the English economist J. E. Cairnes (Some Leading Principles of Political Economy, Newly Expounded, 1874). As presented by him the doctrine was given a very different emphasis, for he supposed it to be a rare and remarkable exception to what he believed was the general rule, that the cost-of-production regulated the price of goods,—essentially a “labor-theory of value.” We regard it merely as a helpful way of presenting a particular case of the general rule that the value of agents is derived from their products when the market is viewed as a whole.

[10 ]As has been done by many economists. Very commonly, also, men are spoken of in popular discussion as capital or as wealth—a very questionable terminology.

[11 ]See definition of labor-incomes, ch. 18, sec. 1. It is well to observe that this term has, in certain interesting and valuable rural surveys, been used in a peculiar and restricted sense, that of the amount of clear gain that a farmer may fairly attribute to his own services (after making due allowance for the usual rate of return on his total investment) in addition to the personal usance of his house, yard, and other wealth (horses, carriages, etc.) and to all the products of farm (food, fuel, etc.) that are consumed by himself and family. The term as thus understood is of course unsuitable for a more general economic application, and even in its special use, it unfortunately opens the way to some misunderstanding of the results of the surveys.

[12 ]In fact, of all those over 10 years old engaged in agriculture, forestry, and animal husbandry (in 1910, a total of about 12,700,000 persons) about one half were operating owners, one fourth were laborers on the home farm, and only one fourth were farm laborers “working out,” that is, for wages outside the family. In mercantile trade, manufacturing, transportation, and mining, the proportion of wageworkers is much larger, as will be shown in the study of enterprise later.