The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction.
• Taxation and Work.
• Chapter I.: Occupations. Distribution of Products.
• Chapter II.: Taxation Measured By Work.
• Chapter III.: Taxation Measured In Money.
• Chapter IV.: Principal Sources of Revenue.
• Chapter V.: How the Tariff Should Be Reformed.
• Chapter VI.: Taxation Which the Government Does Not Receive.
• Chapter VII.: British Tariff Reform.
• Chapter VIII.: Beggarly Compensation of United States Officials.
• Chapter IX.: What Is Protection?
• Chapter X.: Occupations That Cannot Be Protected By Duties On Imports.
• Chapter XI.: Method of Tariff Reform.
• Chapter XII.: Protection By Exemption From Taxation.
• Chapter XIII.: Free Trade the Objective Point.
• Chapter XIV.: Attempted Definition of the Principle of Protection By Senators Sherman, Hoar, and Aldrich.
• Chapter XV.: Hamilton’s Policy.
• Chapter XVI.: Tariff Protection Does Not Raise Wages.
• Chapter XVII.: Protection Promotes War; Free Trade Promotes Peace.
• Chapter XVIII.: Does Tariff Protection Promote Liberty?
• Chapter XIX.: Progressive Reduction of Duties.
• Chapter XX.: Cost of a High Tariff.
• Chapter XXI.: Development By Free Commerce.
• Chapter XXII.: High Wages and Low Cost.
• Chapter XXIII.: The Use of Machinery By Nations.
• Chapter XXIV.: The Waste of Armies.
• Chapter XXV.: Senator Morrill’s Report On Canada Received. Food and Wages.
• Chapter XXVI.: In the Matter of Silver, Bi-metallism, and Free Coinage.
• Chapter XXVII.: Volume of Trade.
• Chapter XXVIII.: Taxation By Bad Money.
• Chapter XXIX.: How to Maintain Silver Equal to Gold.
• Chapter XXX.: The Issue Joined.
• Chapter XXXI.: Personal Observations—conclusion.

CHAPTER XXII.

High Wages and Low Cost.

It has been suggested to me that while basing my arguments upon the theory that in all arts to which modern science and invention have been or may be applied, the highest rates of wages are derived where the natural conditions of production are most favorable, and where, on that account, any given product is made at the least cost, I have not yet proved that the theory is sustained by the facts.

It is held that this proposition is an apparent paradox, and that I have treated it as an elementary truth, which will not, however, be readily accepted without further demonstration. I have therefore devoted to this subject an article supplementary to those which I had intended to form this series.

This proposition is not an a priori theory or hypothesis, it is, in mathematical terms, a theorem; in economic speech, it is a statement of a principle; in practice, it is a rule governing the actions of men when not interfered with by statute law. It is the only proposition on which the application of machinery to production can be justified. If science, when applied to production, takes away the work by which men and women have previously gained the means of living, without providing other and better types or kinds of occupation; if mechanism does not assure a larger product and better wages,—then the machine-breakers would be justified. In that case the only rule of progress would be the continuance of handwork, without the mechanical appliances by means of which a few skilled working people or operatives do that which formerly required the continuous and arduous work of great numbers. It may be held that higher wages, both in money and in what money will buy, follow as a consequence from the lower cost of production, which is brought about by the application of invention and skill to the useful arts; or, in other words, that high wages are not merely the complement or correlative of the low cost of production, but are a consequence or necessary result of such low cost.

A great deal of the mis-legislation which has done so much injury in the world would have been saved, had the true source of wages been developed at an earlier date. The conception of a wage fund, or sum of capital accumulated as an antecedent from which wages might be paid in the process of production, led of necessity to the conclusion that the rate of wages would be determined by the number of persons among whom such given and necessarily limited amount of capital should be distributed. Hence the apparent antagonism between capital and labor.

The writer has not had time for any exhaustive study of works upon political economy; he has been obliged to develop his own conceptions, first, through observation of the facts governing industry, subsequently by referring to the books of reference in order to determine in what measure the previous theories of the economists might prove to be consistent with the facts. Having reached the conclusion, at a very early period in his own observations, that all profits, wages, earnings, rents, interest, taxes, and stealings were derived from the joint product of capital and labor, and that wages were not derived from a division of capital previously set apart as a wage fund, he found the first conception of this development of a theory of wages, in any complete or logical manner, in the works of the late Prof. J. E. Cairnes; it has subsequently been very exhaustively treated by Dr. Francis A. Walker. It may now be held to have displaced the former theory of the wage fund in all progressive economic thought. Dealing with wages from this point of view the facts are, or appear to be, as follows. The tendency of industrial progress is manifold:

1st. In all arts which are above mere handicraft or mere manual labor, less capital is required—using the word capital as that part of the previous product which is put to reproductive use—in ratio to a given product, in just the measure that the capital invested in tools, implements, and machinery becomes more effective.

2d. As the capital becomes more effective, and in some cases more automatic, it can be operated by persons of a lower grade in their general intelligence than it could before. Such persons can be trained to special aptitude in the use of machines in given directions, so as to bring about a constantly increasing product, while those of greater capacity are enabled to take up higher or less arduous occupation.

3d. With this increasing product at lessening cost, consumption is increased and a wider market is opened.

4th. As that wider market is developed, while prices may be diminished, the margin above the cost of such larger production—that is to say, above that which will suffice to remunerate both capital and labor—becomes larger, even though it be a lessening proportion of each unit of product.

5th. With this increase of product ensues a larger and larger excess over and above the immediate necessities of the mass of the people for mere provision for shelter, food, and clothing. This excess constitutes that which is set aside or saved as capital to be applied to further production.

6th. As this excess becomes greater and greater in ratio to the absolute need for mere shelter, food, and clothing, competition arises among those who possess it to apply it to further productive use; then with this steadily increasing competition of capital with capital there comes a tendency of profits to a minimum.

7th. On the other hand, there also arises a careful selection of that particular place where the natural resources or surroundings are most favorable, and there also arises a competition among capitalists to secure the services of the most effective workmen and to induce them to migrate to that point where the best conditions are to be found for any given product and where they may earn the highest wages.

8th. This kind of competition tends to enable the workman to attain higher and higher wages in other arts and thus to yield to the workman an increasing share of an increased product.

In this sequence of events we find a rule that differs slightly from that laid down by Carey and Bastiat about which there was great contention as to who might claim to have first stated it. That rule was this—quoting by memory: “in proportion to the increase of capital, the share of product falling to the capitalist may be augmented absolutely but it will be diminished relatively, while the share falling to the workman will be increased both absolutely and relatively.” This proposition may rightly be amended so that it may be stated: “in proportion to the increasing effectiveness of capital these results, i.e. a lesser margin of profit and higher wages, will follow, without regard to the money value of such capital which would ordinarily be comprehended under the term increase.”

In order to avoid all confusion by reference to estimates in terms of money, one may state this rule in the following form: in proportion to the application of science, invention, and skilled labor to the arts of production the product will be increased, the share falling to the owner of the capital will be relatively diminished in ratio to the joint product, but the share falling to the skilled workman will be augmented both absolutely and also relalatively to the joint product.

As I have previously stated, my observation led me to remark the tendency of profits and interest to become a lessening share in every art which has been consistent with a natural or normal development in this country—that is to say, consistent with a development that has not been unduly forced by tariff legislation. It has been observed that by far the greater proportion of the occupations of the people of this country have been developed without any substantial interference from State or national laws changing the direction either of capital or of labor. More than ninety per cent. of the work of the people of this country is directed by the nature of things to that occupation which is freely chosen.

Therefore, in attempting to observe and record the facts governing these classes of occupations which are only taxed and not artificially promoted by duties on imports, one may first deal with such branches of agriculture and the arts that are listed as manufacturing arts which must be conducted at home both for the home and foreign markets.

Dealing then with wheat as a typical product of this kind, we first observe that in proportion to the application of agricultural machinery to this crop the tendency was developed to change in a considerable measure the place of production. This tendency did not wholly do away with wheat production at the former centres in the States of New York and Pennsylvania, In those two States, while the product has increased even in recent years as a crop planted in rotation with others, yet it has not increased proportionately with the demand and with the increasing supply. Wheat production has established itself on prairies upon wide areas of land in the Northwest, California, and elsewhere, at a great distance from the chief market, but where machinery can be most effectively used and where the natural resources have proved to be so great as to enable the wheat-grower to apply the maximum of the most effective capital with the minimum of the most skilful labor. The result has been to overcome the disadvantage of distance and to produce wheat at the highest rates of wages paid in that art anywhere in the world—yet at the lowest cost of production.

The accounts which I have received from one great farm in California were so incredible that I could not believe them until I had verified the statements of my correspondent at every point. In the year 1890 the product of three thousand acres of land in California, which had been under cultivation many years without any sign of exhaustion, was 54,000 bushels, at a labor cost of less than four cents a bushel. The result of the labor of one man for three hundred days, or what is the equivalent of one year’s work, one hundred and fifty days’ labor of two men during the planting and harvest season, was over 15,000 bushels of wheat per man for three hundred days’ work.

Again, there is one branch of cotton manufacturing which one may claim to belong in the nature of things more to this country than any other: that is the making of coarse fabrics in which the material is the element of chief importance and the component material of highest cost, the labor of conversion into the fabric being the lesser. The manufacture of what used to be known as “Osnaburgs,” for clothing, long since ceased in the Northern States. It continued to be conducted as a handicraft upon the plantations of the South before the war, for the clothing of slaves, and among the people of the Southern mountains until a recent period before that section had been opened by railways. I may repeat again the analysis of this work which I made at the Atlanta Exposition in 1881. Within the same room at that Exposition were to be found representatives of the people of the Southern mountains working cotton with hand cards, spinning-wheels, and hand looms; alongside were the finest examples of modern machinery upon which a fabric was manufactured of which I picked the cotton in the field in the early morning, to be carded, spun, woven, dyed, and made up into a dress suit which I wore at a reception on the evening of the same day.

Calling to my aid an expert manufacturer of coarse yarns from the North, we timed the product of those who were working by hand, and we found that the five persons working in the Northern factory on the same fabric would produce one hundred-fold as much. The five hand-workers could convert a few pounds of cotton into eight yards of “Osnaburg” in one day, working ten hours; five operatives in a Northern factory, working in a little different proportion, were capable of producing eight hundred yards of the same fabric. Wages in the mountains at that time were said to be about twenty-five cents a day, whenever any hired labor was called for or could be paid for. As a rule, the people were independent and not interdependent, working hard to supply their own meagre wants. At twenty-five cents a day for five persons the labor cost of eight yards of cloth amounted to fifteen and a half cents per yard. In the Northern factory five persons on the same fabric, earning one dollar a day, each making eight hundred yards, reduced the cost of labor to five-eighths of a cent a yard. This is an extreme example of the application of the rule that the lower cost of production is due to the application of science and invention at the higher rates of wages: also the lower the price of the product and the greater the abundance, the more the benefit to the consumer. In this instance, the cost of the labor in the hand-made fabric would be twenty-five times the cost in the factory—the wages in the factory four times as much as in the handicraft.

In Vol. XX. of the United States Census of 1880 may be found the statistics of wages and prices more fully developed than they ever had been before in any treatise upon the subject that has ever come to my knowledge. That volume was compiled by Joseph D. Weeks of Pittsburgh, a gentleman with whom I differ profoundly in economic theory, but whose work in this census is a monument of industry and thoroughness. For what reason a similar investigation did not form a part of the census of 1890 I am not informed. An effort is now being made to secure a special appropriation for the continuation of this most important branch of investigation from 1880 to 1890 and in subsequent years. It is hoped that this appropriation may be made and that this necessary work may be done.

There are great differences in the value of the statistical data which are to be found in this volume. It may not be that all the statements can be applied in demonstrating the rule under consideration, for the reason that in respect to a great many articles of manufacture there have been changes in the type of the product, in the quality, in the style or fashion, and in many other ways; yet one who knows how to select articles for analysis from among the many upon which reports are made in this volume will find a great number of examples of the rule of higher wages and lower cost of production. Take, for instance, coarse sheeting, commonly known as standard sheeting, which has been made of the same weight and quality for more than fifty years. I have frequently cited this example. The farmers’ daughters of New England who first entered the cotton mill forty to fifty years ago, in order to improve their narrow and laborious conditions of life, worked thirteen to fourteen hours a day on machinery which was very far from being automatic, and which required a high standard of intelligence to work it at all, producing on the average in one year about five thousand yards for each operative engaged, either in carding, spinning, or weaving. Their earnings upon the average were one hundred and seventy-five dollars per year while engaged in this arduous work. The factory was low-studded, badly lighted, and ill ventilated. At the present time a class of operatives, who could not have worked upon the machinery forty to fifty years ago because it demanded more individual skill, are now engaged in the same branch of manufacture. They work ten hours a day, and in that period of labor they earn in each year over $300. The average product is thirty thousand yards for a year’s work; the capital is more effective, but has been lessened in money valuation; the labor is less arduous; the price of the goods to the consumer is much lower. Herein we have a complete example of a lessening margin of profit, an increase of product, lower prices to the consumer, and higher wages both in money and what money will buy to the working men and the working women.

Among the many examples of reduction in cost, accompanied by higher rates of wages to be found in Vol. XX., I may cite the following articles, which serve strictly useful purposes, and which must have been made throughout the period covered by the dates of uniform and good quality. In very many instances, however, the quality has been improved, while the cost has been reduced and the wages have been augmented.

Since 1880 there has been a further reduction in the cost and price of most useful products, and an advance in the rate of wages computed at ten to thirty per cent., according to the relative skill required in the work.

These examples prove the rule which is based upon an economic principle, to wit: that in proportion to the application of science and inventions to the useful arts under free conditions of trade such as prevail among the States of this Union, low prices and high wages are the necessary consequence or result of a low cost of production.

Were the conditions of trade as free with foreign countries as they are among our own States, the same rule would apply, and this country would control the commerce of the world, because the rates of wages earned here from the largest product of useful goods and wares would be the result of our low cost of production. Corollary: That country in which the rates of wages are the highest has the greatest motive for establishing Free Trade with all others, whatever the tariff system of other countries may be.