Labor and industry


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—— La.koof av\ck * - -

THE SOCIAL QUESTION—III

LABOR AND INDUSTRY
By

Dom Virgil Michel, O.S.B., Ph.D.
St. John’s Abbey, Collegeville, Minn.

1935

Wanderer Printing Co.

St. Paul, Minn.





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All Rights Reserved

Imprimi potest: £« Alcuin Deutsch, O.S.B., Abbot

Nihil obstat: Alexius Hoffmann, O.S.B., Cens. Dep.

Imprimatur .* £« Joseph F. Busch, Bishop of St. Cloud

May 16, 1935



THE SOCIAL QUESTION

Series Three

LABOR AND INDUSTRY
By

Dorn Virgil Michel, O.S.B., Ph.D

.

St. Johns Abbey , Collegeville, Minn.

OUR SUNDAY VISITOR LIBRARY

HUNTINGTON, INDIANA

1935

Wanderer Printing Company—St. Paul, Minnesota



CO N T E N T S

Page

1. Labor as a Title to Ownership 5

2. Labor and the Right to Own 9

3. Economic Value and Human Labor 13

4. Productive Factors of Ecnomic Value.. 17

5. Relations Between Productive Factors.. 21

6. Distribution of Industrial Profits 25

7. Theory of Causes and Effects 29

8. Causes and Industrial Factors 33

9. Brain and Brawn in Industry 37

10. The Machine in Modern Industry 42



L Labor as a Title to Ownership

THERE is no doubt that many writers in
modern times have said very little about labor
as a title to ownership. This is also true of

writers on ethics that have followed the general
tradition of thought of the past centuries. Other

titles, such as occupation, prescription, heredity,

and the like, received much more consideration
than that of human labor. If the latter was
treated at all, it was usually granted a minor or
secondary role as a title to ownership.

Is labor really only a secondary title to own-
ership of properties? Karl Marx took the bull
by the horns when he turried things quite
around. He opposed traditional thought by
claiming that labor is the sole title of just own-
ership. By labor, Marx meant only the labor
of the wage earner of modern industry. He said
that all the economic or the exchange value of

industrial products is due to such labor. But ac-
cording to the “iron law of wages” the laborers
get only a minimum wage at all times and con-
sequently only a part of the economic value

that their labor has produced. The value that is
over and above what is covered by this minimum
wage Marx called “surplus value.” Now, this
“surplus value” in modern industry, he says,
goes into the pockets of the capitalists whereas

5



it belongs rightfully only to the laborers. There-

in lies, for him, one of the gross injustices of

our present capitalistic system.

In his famous 'Tabor Encyclical” Pope Leo
XIII said that the results of labor shall belong
to the laborer as the effect follows its cause. The
words might almost be said to have a Marxian
ring in them. The Pope of the laboring man
and the prophet of Communism—do they say
and mean the same thing?

We shall here use the term labor in a wider
sense than that used by Marx. Any discussion
of principles will end in failure if the field of

discussion is narrowed too much beforehand.
By labor we shall for the present mean any ex-
penditure of human energy that produces any-
thing of increased value to men. Labor in this

sense will include not only the use of muscular

strength but also the use of directive thought.

Since we are dealing with rational men, we
cannot separate the two types of human energy.
True human labor, no matter how much muscu-
lar energy it requires, is also thought-directed.

If the guiding thought is absent, the expenditure

of energy becomes haphazard, and does not tend,
except by accident, towards the production of
values. We are not now concerned with the
question of whether the human factors of brain
and brawn are separable. Our point of emphasis
is that productive human labor always contains
both factors, brain and brawn together, and

6



that it is false to restrict the term to one of them
alone.

The problem arising out of human labor is
in many ways a modern one. Yet it confronted
the mind of man for ages, and Christian thought
long ago worked out a principle that is funda-
mental to it and that has been accepted in theory
all down the centuries of Christian civilization.
The principle has at all times found expression
and application in regard to the title of owner-
ship that was referred to in the end of our last
article, that of industrial accession.

It cannot but be interesting to note that the

principle seems to be one of common acceptance
in law. It is stated very clearly in Webster's New
International

,

which should be, if anything, a

mirror of accepted ways of thought. One can
only wonder how this common acceptance of
a principle can be so glaringly ignored in mod-
ern industrial life.

Webster's gives the legal meaning of "acces-
sion" as follows: "That mode of acquiring
property by which the owner of a corporeal
substance becomes the owner of an addition by
growth, increase, or labor. In general, additions

or improvements made by one person or by the
forces of nature to the property of another be-

long to the owner of the property. It occurs in
case of gradual increase. . . . Where, however,
the thing worked upon is changed to something
of a different species, as grapes to wine, grain

to beer, etc., the worker becomes the owner,

7



provided he was not a willful trespasser or did
not know the materials belonged to another.
The laborer also becomes the owner in some
cases where the value of the property is so in-
creased that a different rule would be unjust,
as where pig iron is made into watch springs,
or a picture is painted on another's canvas, the
laborer being liable for the value of the other's

materials."

Here we have a clear statement of the tradi-
tional Christian view. Both labor and raw mate-
rial are factors in the finished product of in-

creased value. Apart from conditions of fraud,
and the like, Christian philosophers agree that
the product must be divided among the factors
as follows:

1 ) If the value of the product is due mainly

to the labor, then the product belongs to the

laborer but he must pay the owner for the ma-
terial.

2) If the value of the product is due mainly

to the original material the product belongs to

the owner of the latter but he must pay the
laborer for his work.

Modern industrial production is immensely
complex. Does the above fundamental principle
of labor still apply or must Christian tradition
change its view? Because of the complexity of

the problem today, we can hope to come to
some kind of answer only gradually. We shall
try to proceed step by step.

8



2. Labor and the Right to Own

The duty to work is based in part on the
need to work for a livelihood. At all events,
where men have not the bare necessaries of life,
it is an absolute duty of theirs to set to work in
order to acquire what they need for the support
of their lives and those of their dependents. The
natural instruments by which man can attain for
himself the necessaries of life are his own per-
sonal energies, his mental and physical powers.

Human labor is man's ordinary means of sup-
port; it supports life through the results it

achieves. Only through these results, the prod-
ucts of labor, can it function at all as a means
of support. Hence the results of such labor nat-
urally belong to the individual that performs

the work.

The conclusion is strengthened by a further
examination of the nature of human personality.
Man's energies and abilities need exercise, not
only for the support of his life, but also for the
proper development of his life and his personal-
ity—to prevent stagnation of body and mind.
Human activity, or the exercise of human ener-
gies, is growth, perfection of the human per-
son. It is the personality that is naturally ex-

pressing itself in the work, or putting itself into
the work, and human work is a fuller realiza-

9



tion of human personality. When the energies
of man achieve economic values, then something
of the man has been used up in the production
of the result, something of the man has gone
into the economic product—not only physical
energy but also a subtle mental quality.

Whenever human energy produces something,
that thing is by nature intimately connected
with the person who expended the energy. It is
in part an extension of his personality. The
product of the work therefore naturally belongs
to the person or persons who expended their
energies upon it. It is an outgrowth of the liv-
ing persons. This follows from the very nature
of human labor as an exercise of living personal
energies. In principle this is universally acknowl-

edged. And it furnished the basis for the tradi-
tional views on industrial accession expressed in
the preceding article.

Labor thus appears to be not merely one title
among others to ownership, but the fundamen-
tal natural title thereto. It is the one title that

links up material goods in a personal way with
an owner. It can properly be called an intrinsic

title to ownership over against all the others,

which are by comparison extrinsic. All the other
titles, in fact, seem to get their true value from
the primary title of labor. The one exception
might be that of inheritance, which, however,
rests on the very natural bond existing between
father and son and on the duty of parents to
care for their children. Even here the ownership

10



that is transferred to the heirs was originally-
acquired by someone in connection with the ex-
penditure of human energies.

Occupation, even, needs some exercise of hu-
man energy, or at least the full intent to exercise
energy on the thing occupied, before it becomes
a convincing title to ownership. Mere occupa-
tion without labor, or without intent of labor,

cannot be defended as a valid title to ownership

on any considerations of nature. Occupation is
made certain in fact by actual labor expended
on whatever is occupied; only such labor, it
would seem, puts the final seal of validity on it.

To what extent can labor be considered a
valid title to ownership? Only to the extent of
providing the necessaries of life? From above
considerations it must be evident that labor's
title to ownership is not limited in that way.

First of all, man needs more than the bare
necessaries of life, and every man has a full right
also to enough goods to fulfil the secondary
needs of a decent and comfortable living for
himself and his dependents. Hence he has also
the full right to acquire these by his labor.

Moreover, the duty to work is not limited to
providing the necessaries of life. Man has the
moral duty to unfold his activities and to de-
velop himself. Hence he has the corresponding
right to do so, and the right to all he really
produces thereby. The only limit set to this right
is the one that is set to all rights—the moral
law. All exercise of rights must remain within

11



the aims and bounds of general moral law under
pain of ceasing to be legitimate.

Labor's title to ownership, as developed in

these paragraphs, has taken no account of the
great complexity of the industrial situation in

our own day. The complexity arises chiefly out
of the fact that the different factors entering into

industrial production are varied and numerous,
and that the factor of human labor itself is
multiple and complex. The product of the mod-
ern factory is the product of a complicated sys-

tem of factors, both human and physical, all of
which contribute their share to the combined
enterprise, and all of which play their part in
the creation of the economic values of the prod-

uct.

In actual practice, the factor of human labor,
both brain and brawn, has been pushed into the
background by the customary viewpoint that
both wages and salaries are agreed upon in free
contracts between employers and employees. To-
day the ordinary laborer works on materials
not owned by himself and with tools that are
not his own—a condition that repeats itself
endlessly in any large industry because of the
different specialized actions that combine to
manufacture a single product. Can a discussion
of fundamentals shed any light on the confusion
of ideas resulting from the complexity of the
modern industrial enterprise?

12



3. Economic Value and Human Labor

In a former series on the Social Question, we
discussed at length the fundamental principle

underlying all right conception of ownership,

viz., that the goods of earth have the purpose

of serving the needs and interests of man. Just

insofar as any goods can serve human needs and
interests they have value for man. The term
value here means nothing but serviceability of
any kind.

The term economic value when applied to
goods is restricted to a special type of serviceable

goods. It refers to such goods-value as can be

had only through economic activity of some
kind, to value that can be had only through ex-

change of some kind, through exchange for other
goods, for money, or for work. When goods
can be had for the asking or the taking, they

have no economic value, no matter how service-
able they are for man. Thus the air, despite its
great necessity for man, can be had freely and
so has no economic value. Nor has water when
it is abundant and accessible. In some countries
water is so scarce that it is sold in small quanti-

ties on streets and railway stations; it then has
economic value. Should the air ever become
equally scarce, there is no doubt that it would
become economically very valuable. Hence a

13



prime characteristic of the economic value of

goods is their relative scarcity or inaccessibility.

The element of scarcity having *>een men-
tioned, we shall not concern ourselves further
with it. Nor are we concerned with the market
price of objects, the conventional measure of

economic value in terms of money. The practical
question of a just price is a further question

that can arise only when goods already possess
an economic value as defined above.

The economic value of goods, then, derives
from two main factors. One is the serviceability
of the goods themselves. This depends on the
nature of the objects in question, and can be
called the objective factor or aspect of their eco-

nomic value. The other factor is a subjective
one; that is, it is rooted in human minds, in the
actual desire men have for the goods in question.
This is something over and above the objective
serviceability as such. For it may well happen
that some goods may be very serviceable for hu-
man needs or interests but that men simply do
not want that kind of goods under any circum-
stances. Despite their serviceability, such goods

would have no economic value. Again goods
may have been desired by men out of mere
curiosity or idle vanity, although they can serve

no real need or interest of man. Such goods may
attain even a very high economic value. The
last two instances indicate what an important
part fad or fashion may play in determining
the economic value of goods. They also indicate

14



what a prominent part modern advertising has
sometimes played in artificially creating human
desire and demand for certain kinds of goods.

When the subjective factor is purely the result
of a passing fad, it cannot contribute to social

stability, or to continued economic activity, such

as is necessary for the common well-being of
mankind. The latter depends on a more perma-
nent and reliable scale of economic values, which

must be based in more permanent human needs
and interests. Such values will obtain only when
goods possess qualities that are fitted naturally

to serve these more permanent needs and inter-

ests. In other words, permanent economic values

ultimately depend on objective qualities found
in goods themselves. While the subjective ele-
ment of economic value cannot be ignored or
considered irrelevant, it is in the proper order of

things that the subjective factor be dependent

on and based in the objective qualities of goods.
The objective factor of economic value is the
basic one in the economic life of man; we may
call this the objective economic value of goods.

This objective value of goods is therefore the
actual aptness or fitness of an object to satisfy

human needs. It rests in the fact that an object
is adapted to serve man just because the object
is what it is—because it is in itself fit for ful-
filling certain purposes in human life. Whence
do objects attain this fitness and the consequent
economic value?

15



The objective economic value of things comes
from two sources: nature and human labor. It
is only in rare instances that nature is the ex-

clusive source of economic value; e.g fruits or

other edible plants that grow wild, medicinal
herbs, and the like. Even these must be plucked
by man and partaken of at the right time. If
such action of man can be called labor, then it
can be truly said that the two factors of nature
and labor always combine to produce goods of
economic value.

However the proportionate contribution of
the two factors is anything but definitely deter-
mined or identical for all cases. On the contrary,
the proportionate contribution of each of the

two factors varies for almost every kind of arti-
cle. Coal, for instance, is immediately service-

able to man the moment it is extracted from
the ground and brought to the surface of the
earth. Granite on the other hand must be sub-
jected to considerable human labor before the
rough block is turned into a foundation stone
or a pillar or a monument. In fact the rough
block of granite has value only insofar as it is

a possible object for the expenditure of much
labor towards its transformation into an object

of definite form and purpose. In modern indus-
trial manufacture there is considerable labor (hu-

man and mechanical) expended before the final
product of economic value is attained.

16



4. Productive Factors of Economic Value

LABOR may be called economically produc-
tive whenever it transforms goods from a less
useful state or condition to one that is more
useful. Productive labor then would include
not only farming and mining, but also the

transportation of goods from a place of greater
abundance to a place of lesser abundance, where

because of their scarcity the goods would have
more exchange value than in the place in which
they abound. Naturally they can also fulfill

their purpose of serving the needs of men better
in the new place.
The activities of mining and of farming are

still relatively simple in comparison with the

prime productive activity of man today, that of
industrial manufacture. The activity of trans-
portation of goods, too, is simple in compari-

son with manufacturing, although it has re-
ceived its increased importance today from the
manner in which manufacturing industries are
concentrated in select centers from which they
serve an unlimited market area. It is modern
industry, in fact, which dominates the entire
economic or social situation of our day, even as
it has dominated our civilization ever since the
beginning of the so-called industrial revolution.

Industrial activity was much more simple be-
fore that time. Any process of manufacture in

17



olden days entailed the three factors that are

still indispensable today: Brain, brawn, and
capital. But these three factors were then ordi-
narily combined in one and the same man, or in
a very small group of men whose relations to
each other were of the nature of members of
the same family or household. The cabinet
maker of those times used his own capital in
buying tools and raw materials. He did his own
planning from beginning to end, and realized
his plans through his own skill and energy. At
most he delegated some of the rougher work to
apprentices while continuing to direct their ef-

forts in person.

With the development of the industrial revo-
lution the home process of manufacture (mak-
ing by hand) was gradually transformed to the
gigantic process of machine production. The
homelike atmosphere of the workshop gave place
to the rigid organization of the modern indus-
trial plant. The workshop itself yielded to the
huge factory in which individual men are me-
chanical non-entities. The skilled artisan of old,
who was a sort of jack-of-all trades within the
limits of his profession, disappeared under pres-

sure of the technical division of labor. By reason
of the latter each individual laborer now per-
forms but an infinitesimal part of the entire

manufacturing process.

The modern industrial plant is a most com-
plex organization. While it is still true that the
different productive factors can be subsumed un-

18



der the three headings of brain, brawn, and
capital, such a simple statement does not do ade-
quate justice to the real state of affairs.

The guiding brain of a modern business or
industrial venture is known as the entrepreneur.
He may be a single individual or a group of
men. The entrepreneur's function has been that
of managing an enterprise and assuming all the

risks of the venture. He organizes the entire es-
tablishment, coordinates all the factors that go

to make up the entire organization, employs all
the labor that is needed, whether it be that of

wage earners or of salaried employees, and deter-

mines the uses to be made of the capital that is
invested. As Webster's New International says,
the entrepreneur's "function in itself includes no

working, and no owning of capital: it consists
entirely in the establishing and maintaining of
efficient relations between the agents of pro-

duction."

The agents of production themselves we may
divide, for the sake of proper distinction, into

the human and the physical. The human
agents include all the workers who contribute
any part to the total activity of the enterprise,
no matter how specialized or minute the con-
tribution of any one man may be in itself. The
human agents include all the manual labor, both
skilled and unskilled, and the different degrees
of mental labor, foremen, department managers,

office workers, etc.

19



The physical factors or agents include the
land, the industrial plant itself, buildings with
all their equipment, machinery, etc., and what-
ever capital is needed over and above these to
set the whole enterprise agoing.

For the sake of simplicity, all the physical
factors together may be summed up under the
term capital, which can then be defined as “the
total amount of property owned by an indi-
vidual or corporation at a specified time, as dis-

tinct from the income received during a given
period” (Webster s) . The total capital of a
plant may itself be viewed in terms of money
invested, i.e., of the amount of money spent in
purchasing the land, erecting the buildings, fur-

nishing all the equipment, and for initial and
continued operating expenses.

Capital logically divides into two distinct
kinds: (1) Capital which is invested in the
enterprise by the owners who receive certificates
of ownership called stocks. The amount of stock
any individual holds in an enterprise measures
his share of ownership. (2) Capital which has
been borrowed from others. Those who loan
their money to the enterprise receive in turn in-
terest-bearing certificates, indicating the amount
the enterprise owes them, rate of interest and
time when principal plus interest is due for re-
payment to them.

20



5. Relations Between Productive
Factors

In the preceding article there was some dis-
cussion of the different factors of production;

the entrepreneur, labor, and capital. It was there
also stated that the development from earlier
manufacture to industrial production was
marked by a division of labor and a separation
of the various factors of production.

Before proceeding with a further develop-

ment of this phenomenon, it may be well to call
attention to the fact that even today several

productive factors may combine in one individ-
ual, whether he be entrepreneur or laborer. To-
day there are many workers in industry who
own some shares of stock in the company for
which they are working. They are then at one
and the same time laborers and capitalists. Yet,
even in their case the two functions of labor
and capital are rigidly kept apart as separate
factors, insofar as the laborers still get their

stipulated wage for their work and quite inde-
pendently of that also their percentage of return

as owners of stock.

In spite of the fact that employee ownership
of stock increased considerably in the twentieth

century, it remains true that the chief character-

istic of modern industry has been an increased

21



division or separation of the various productive

factors into more specialized contributory func-
tions of the whole enterprise.

In the earlier period of our industrial develop-

ment the entrepreneur still combined in himself
the functions of promoter of the industrial ven-

ture and manager of the enterprise; that is, the
functions of relating the industry to the gen-

eral market and of co-ordinating the various
factors of the industry towards a maximum ef-
ficiency of production. At the same time, the
entrepreneur was the chief if not exclusive owner
of the plant, so that he was also the main capi-
talist. His ownership was thus a very active one.

During this stage of industrial development,
however, other separations had already taken
place to an almost complete extent. In former

days the handicraftsman owned his own work-
shop and his tools. With the advent of the fac-
tory the workman was completely separated
from any control over his tools as well as his
workshop. Both plant and machinery became
the exclusive property of the owners. In relation

to his labor the workman owned nothing but
his personal energies and ability.

With this separation of labor from ownership
also came the separation of the laborer from all
voice in the management of the industry. For-
merly he was not only boss of his tools but also
his own manager. Now he became little more
than a mechanical extension of a highly or-

ganized machinery of production.

22



For some time this division of functions

showed itself chiefly in regard to the industrial
laborer. But in recent decades it has also over-
taken the entrepreneur and has made quite rigid-
ly separate factors out of his former unified

function of owner, promoter, and manager.

Today the promoter of any industrial scheme
may organize an enterprise without putting any
large amount of his own money into it. One of
his functions as organizer is the gathering of the

requisite capital by the sale of stocks and bonds.
Again, the promoter may never lift a hand in
the internal management of the industry. The
management will be in the hands of other per-
sons whom he hires for that purpose at a stipu-
lated salary.

Both promoter and manager may then con-
tinue to direct the enterprise without owning
any appreciable shares themselves, while the
owners of the shares may live miles away from
the industry and never go near it. Naturally
such owners are in no way actively engaged in
the industrial enterprise. Their ownership is
purely passive; and they are often considered
silent partners of the corporation. Legally such
passive ownership includes some directive or
managerial rights; but whenever the ownership
is widely scattered over a large number of per-
sons, it becomes quite impracticable for the own-
ers to exercise their control in any telling man-
ner.

23



Thus the separation or division of the indus-
trial factors seems to have reached its limit, be-

yond which further development in the same
direction is hardly possible. This development
went hand in hand with an ever-increasing
growth both in size and in complexity until we
have the gigantic business corporation of our

own day.
One of the consequences of this development

of industry is the increasing difficulty of center-

ing the responsibility for the entire project in

any one place. This was relatively easy when
the entrepreneur combined in himself the func-
tions of owner, promoter and manager. It was
still more easy in the earlier day when the work-
er owned his own tools and shop.

Another consequence of the development has
been the transfer of the financial risk to one of

the segregated factors of the entire enterprise. In

the earlier days of industry it was manifestly the
entrepreneur who took the financial risk for the
enterprise; it was because of this risk that he
was considered to have a clear title to all profits.
Today the risk is considered to rest altogether
with the owners of stock, who for that reason
are given a sole right to all profit even though
they in no way contribute actively to the pro-
ductive process. This brings us to the question
of distribution of industrial profits.

24



6. Distribution of Industrial Profits

Much has been said in recent years of the mal-
distribution of wealth in our country* There are
many persons today who attribute this general
maldistribution of wealth directly to the mal-

distribution of industrial profits. Whether this
latter claim is true or not will not concern us

here. We shall not discuss the relation of indus-
trial distribution to the economic depression at

present. It is the distribution of industrial profits

as such that we are investigating.
The term profits

,

as used here, will mean the
gross profits, the total income prior to the pay-
ing off of running expenses. Whenever the term
is to be used in the narrower sense we shall use
the qualified term net profits.

Distribution of profits in modern business
enterprises is about as follows

:

1) To the laborer goes the wage agreed upon
in advance.

2) To the promoter and manager go the
salaries agreed upon in advance.

3) To the holders of bonds goes a fixed sum
as interest.

4) To the owners of the stock a fixed inter-
est and dividends or dividends only, z.e., shares
of the net profit.

5) To the land goes rent.

25



6) Another part of the income must be used
for general upkeep, replacements of worn out or
out-of-date equipment, taxes, raw materials, etc.

Insofar as land, plant and equipment, and
raw materials are originally procured from the
capital invested these factors might be included
under that category. Hence the program of dis-
tribution can be simplified by reducing it to the
three heads of workers, managers, and providers
of capital.

After all expenses for replacement, tax and
the like are paid, how is the remaining incomt
actually distributed among these different hu
man elements?

There are then wages for the common worn-
ers, salaries for the managers, interest for the

holders of the bonds, and net profits for the
owners of the stocks. The distribution of some
of the net profits in terms of bonuses, we are
here ignoring, because this is not an accepted

part of the general mechanism of distribution.
According to the latter, then, all the human
agents of production as such receive a fixed re-

turn for their labor, and the net profits go to

one group of the providers of the capital, the

owners of the stock, who are said to take all the
risk of the enterprise, but who do not raise a
finger in the actual productive activity.

This general system of the distribution of

profits has been violently attacked today. There

are two extreme positions taken by attackers.
One denies that the capitalist has a right to a

26



share of the profits and the other denies to the

laborer a share in the net profits.

Those who deny all right of return to the
capitalist argue that the human labor is the sole
source of economic values. They must practically
deny that the materials, equipment, land, etc.,

that are furnished by the capital play any role
in the production of goods. This is the stand
taken by the Marxists who consequently parade
as champions of the downtrodden workingman
who is said to be so unjustly deprived of the
surplus-value of his labor.

Those who deny to the laborers, that is, to
all the active human agents of production, all
right to a share in the net profits, do so in the
narfie of the just rights of the capitalist. In the

eyes of the latter, all human labor, whether that
of the ordinary worker or of the manager, is
merely a commodity that is to be bought or
sold like any other wares. Hence salaries and
wages are on the same level as cost of raw ma-
terials or new equipment. All of these are to
be bargained for in the open market on the
principle of getting the best in quality that is

obtainable at the lowest price.

In this view there is naturally no place for
any distribution of net profits to the human
agents any more than to those who sell the raw
materials to the company. Here again the gen-
eral argument is made that it is the owners alone
who take all the risk; hence it is they who are
entitled to all the net profits.

27



On what principle should the distribution of
profits take place? Should it be on the basis of
the law of needs or of the law of interests? The
piesent method of distribution is certainly based
on the law of interests and not of needs. The
word interest is here to be taken in the sense in
which it is used when one says:

‘

‘So-and-so

has an interest in that concern/' That is, “So-
and-so has money invested in the concern, he
owns some stock in it/' It is according to this
law that profits are distributed today.

According to the law of needs, distribution
of profits would take place, first of all, on the
basis of the primary needs of the human agents
concerned, and only after all such needs were
answered, would there be question of the fur-
ther distribution on some other basis. It is evi-
dent at a glance that this principle has been

totally ignored, if we remember what was said
in former articles of the primary and secondary
needs of men—and that, in spite of all the dis-
cussions of our time on the living family wage.

Objectively, it seems undeniable that all fac-

tors should receive their share of return in ac-

cordance with their contribution to the entire
enterprise. This is but a wider application of
the principle that the results of labor should

belong to the laborers as the effect belongs to

the cause. It is this aspect of our question that

we shall next examine.

28



7. Theory of Causes and Effects

INDUSTRIAL production is an outstanding
example of causal activity. This is so much so
that one can well say the underlying natural

philosophy of productive activity is the philoso-

phy of causes and of the relative contributions
of the different causes to the combined effect

they produce. If the present article is concerned

with fundamental notions of causality, it must
be understood that we are taking the term cause
in the traditional philosophical as well as every-

day sense of "that which occasions or effects a
result/'

Production of economic values is impossible

without the raw materials on which to work.
This is true wherever anyone manufactures a
material product. The final state of the product
moreover depends very much on the kind of
raw material with which one starts as well as
on the quality of material used. Thus for furni-
ture one needs wood or some modern substitute
for wood to start out with, and wood or its sub-
stitute having those qualities that make it apt
material for being turned into furniture. In

terms of causality, the material from which arti-
cles of economic value are made is called the
material cause of the final product.

The human agents of production must exer-
cise thought in the very selection of proper ma-

29



terials. This same exercise of thought must ac-
company every step of the productive process.
Nay, it must precede production as well as guide
it. To be of economic value the products of
industry must serve a definite purpose in life;
they must be such as men want and are willing
to pay for. Thus the whole industrial activity
from beginning to end must be guided by
thought: brawn directed by brain. This condi-
tion is a characteristic of all human activity. The
guiding thought exercises a most important in-
fluence on the result of the productive activity.
It is known as the final cause, i.e., causal action
as leading consciously to a definite end or goal.

In their transition from their original state
to the final product, the raw materials have un-
dergone some kind of change in their being. In
the language of the traditional philosopher a

form has been added to the matter. Sometimes
this form is little more than what we now mean
by shape, as when a rough block of marble is
turned into a pillar; but usually this added

form is more than merely a change of shape,
as in the making of caps, shoes, and the like,
out of the original cotton or animal skins. This

change of being that is made to occur in the raw
materials is called the formal cause.

The change that occurs in the raw materials
is the result of what is done to the latter. It is
the result of human action working with or
without tools. In our day the work is practically
always done with tools, usually with a complex

30



type of machine. The agent who causes the ma-
terials to be transformed into finished products

is called the efficient cause . It is the efficient

cause that draws the form out of the matter.

Ordinarily the efficient cause produces its re-

sults by means of tools or machines, commonly
called instruments. Without proper instruments
man can do very little. His great productive
ability is due to the complex instruments of
production he manipulates. Hence these are

known as instrumental causes . In ordinary hu-
man life it has always been true that the instru-
mental cause (e.g., hammer, saw) operates only
insofar as actually employed by the efficient
cause. Hence instrumental causes in their basic
nature have been little more than extensions of
the efficient cause.

How are these causes related to one another?
We have just mentioned that the instrumental
cause is an extension of the efficient cause. For
the present we shall let that over-simple state-
ment be. In regard to the four major causes,
material, formal, efficient and final, it is evident
at once that the first two enter into the inner
make-up of the product. For that reason they
are called intrinsic causes.

By contrast the other two causes are extrinsic,
insofar as they are causal influences that are out-

side the product as such; they are transitive ac-

tions that reach the material product from with-
out, that is, from the human agents in which
they have their origin.

31



The relation of the efficient and the final
causes should be obvious. Without the guidance
of mind the efficient cause would act at random
and to no purpose. It receives its value as a
productive cause by reason of its being under
the guidance of mind. In the scale of values it is
therefore the final cause that gives true value to

the efficient cause.

We now have the following general relation
between the causes. The material cause is as
such independent of the human agents of pro-
duction, i.e of the particular productive activity

in question. The formal cause is the result of the
action of the efficient cause, while the latter gets

its value from the fact that it is under the dom-
ination of the final cause.

Lowest in the scale of causality is the material
cause; it is passive rather than active, although

it contributes materially to the final product.

The formal cause is entirely the result of the
extrinsic causes. And among these the final cause
is the higher because the efficient cause receives

its value for man from its being guided by the
final cause.

Does the philosophy of causes shed any light

on the proper relation of the contributing fac-

tors of industrial production?

32



8. Causes and Industrial Factors

In any type of industrial production the four

causes discussed in the preceding article naturally

all play a role. In any evaluation of this role

the formal cause may be left out of considera-
tion, since it is itself the product of the activity

of the efficient cause on the material. There are
then left the material, efficient and final causes,
which approximate the three chief industrial
factors that we mentioned above, capital, brawn
and brain, or, in our present set-up, ownership,
labor, management.

As a factor separated from brain and brawn,
it is evident that the capital does not itself per-

form any direct causal action at all. The capital
is necessary for the plant or factory, it buys

the raw materials, the requisite equipment, and
furnishes at least the initial running expenses.

But in These operations it is not the capitalist
who is doing anything beyond consenting to the
use of his capital for this purpose. The actual
work is done by the entrepreneur and the labor-
ers. The capital is thus an indirect causal factor.
It exercises its causal function only through the
activity of the human agents who are directly
at work. It is the human agents at work and
only these really exercise any active causality.

This is true not only of the setting up of a
factory but also of its continued operation. Here

33



again capital functions only through the opera-
tion of the human agents that are directly en-
gaged in various ways in the total productive
action. This is but a further reflection of the
general nature of capital, which is itself never
an independent factor in this world of ours,
but always a derived one. Ultimately all capital
reduces in its origin to nature and human labor.
To a great extent it is always the product of
human labor, and it can itself be called pro-
ductive only indirectly. It is never productive by
itself but only through being applied to enter-

prises by human energy.

What, then, is the true role of capital in in-
dustrial production? When the capital is merely
borrowed by the company nothing of the plant
or the materials belongs to the lenders of the

capital. In that case the sums borrowed function
rather as a necessary condition than as a cause.

The lenders of such capital are entitled only to
a final return of the sum loaned plus a moderate
rate of interest. This is what actually happens
in regard to investment bonds. Is the role of

owned capital more strictly causal?

The causal function of owned capital would
seem to be twofold. It functions first of all as

material cause insofar as it confers on the capi-
talist ownership of the raw materials. Now in
the hierarchy of causes the material cause is the

lowest. Outside of exceptional cases, this causal

role is quite inferior to the others in its contri-

bution to the economic value of the product.

34



Capital ownership from this standpoint exercises
only a passive causality.

Owned capital also functions as instrumental
cause, since it confers ownership of the instru-

ments of production. But again, the instrumen-
tal cause is idle except insofar as it is set into

action by the efficient cause. The causal activity
of the mechanical instruments of production is

always a derived activity, or an extended one.

This is especially true in the simple case of hand
tools. It is also true in part even in the case of

the most complicated and most efficient labor-
saving machinery. Machinery must always in
last analysis be set a-going and tended and cared
for by human agents. When something goes
wrong a machine cannot readjust or rebuild it-
self.

The only direct causal factors of production
are the human agents. They and they alone
play the role of efficient and final cause in the

industrial production of economic values. They
alone, therefore, contribute directly to the crea-

tion of these values. And all the other causal
factors are derivative or indirect; they contribute

causally only through their subordinate relation

to the efficient and final causes.

We are now ready to view the contributions
of the factors as to their share in the distribu-

tion of the resultant value. We are here viewing
the problem exclusively from the standpoint
of the causal relation of the various factors.

35



As material cause capital should get a moder-
ate and set return for the value of the raw ma-
terials and the use of the instruments. The effi-
cient and final causes, the human agents, should
get their stipulated wage and salary as the case
may be. If there are profits over and above, then
from the standpoint of causal contribution, these
profits should certainly go to the human agents
who alone are the direct causes of the economic
value of the product, and to no other causal
factors. Only thus do we realize the principle
that the product belongs to the laborer as the

effect does to the cause, or, the returns go to the

productive factors in proportion to their causal

contribution to the whole product.

In the present system the profits all go to the

passive owners, who may also get a salary as
active managers or workers. And the reason as-
signed for this is that the capitalists take all the

financial risk. This naturally leads to further
questions. Should not the workers also assume
financial risk? Yet how can they do so in our
present industrial system? Yet, again, is our

present financial system itself what it should
be, so that we can use it as a point of departure?

We can only proceed gradually in our dis-
cussion, and it will be some time before we can
grapple with this all-important aspect of the

social question.

36



9. Brain and Brawn in Industry

In the previous article on the causal status
of the factors of industrial production, no at-
tempt was made to separate the factors corre-
sponding to the efficient and final causes, the
factors of brain and brawn. The two factors
are distinct in abstract thought, but are they

also in concrete cases? That is, in any actual
case of industrial organization can we divide
the human agents into those who do all brain
work and use no muscular energy, on the one
hand, and those, on the other, who use only
muscular energy and do no thinking at all?

When the question is put so baldly, it is evi-
dent that we cannot. In the pre-industrial work-
shop the two factors were intimately combined.
Since the industrial revolution the trend has

been towards the ever greater separation of all

factors concerned, towards the ever greater divi-

sion of labor. Today it is true that if we range
all the human agents of an industrial plant in a
graded series, we may have on one end those
who do only brain work, and on the other end
those whose work is quite purely mechanical and
physical. But these two extremes by no means
include all the human agents. Most of the man-
ual workers must also use their minds in some
degree at least.

37



We therefore find pure brawn, as it were,
only at the lowest end of the scale. Here are

the workers who in endless repetition perform
some single operation in connection with a ma-
chine which was set in definite motion by others
and which dictates to the worker the pace of

his monotonously dull repetition of specialized

action. Here the manual laborer functions with-

out a hitch only if he becomes purely mechani-

cal. He dare not think for himself at all, for
that may throw him out of gear with the mech-
anism of which he is a part; he may not lapse
into mechanical unconsciousness for any length

of time, for he would soon cease to function in
conjunction with the machinery. Here brawn
is separated from brain to the utmost extent

possible in active human beings. Here alone we
have a separation of functions that is as com-

plete as in the case of passive capitalism or ab-

sentee ownership.

Efficient and final causes, brain and brawn
will always remain distinct in their functions;

thought as such is never use of muscular energy,

and use of muscles is never as such an act of
thinking or mental guidance. However, outside

of the above extreme case, the two functions
are always actually united in all the human
agents; there is only a difference in the pro-

portion in which the two functions are com-
bined in any one person into two aspects of a
single operation.

38



With a slight modification arising out of the
extreme cases, it would be correct to say that
all the human agents in any productive indus-
try, laborers as well as managers, are the effi-

cient cause of the product. The activity of both
worker and manager is that of a free personality;

it is in either case a direct contribution to the

total productive action; in each case something

of the person, of his own life's energy, is put
into the resulting product. That is why we
stated before that all the human agents, as effi-
cient causes, should share in the profits, and
that their sharing in profits should prevail over

all other factors. No other conclusion can be
arrived at, when we view the whole matter
from the standpoint of causality.

Within the series of human agents, again,
those stand highest whose action is more im-
portant for the proper functioning of the entire

productive enterprise, who contribute the most
indispensable element to its efficient operation.

From this standpoint those whose contribution
contains more of the element that is characteris-
tic of human nature, viz., rational mind, should
have a right to a larger share of benefit out of

the enterprise. The higher the contribution of a
person in terms of final causality is, or the more
creative, the less easily is he replaceable by other
persons; the lower a person's contribution is, or

the more mechanical, the more easily is he re-
placeable by others. Hence the former ranks
higher in the scale of contributory factors than

39



the latter. Hence, too, capital ranks lowest, be-

cause the personal element is entirely eliminated.

The capital as such functions exactly the same
no matter who the owner or what his personal
abilities.

Within the total series of factors that have a
right to share in the values produced, we there-
fore have two major clashes of interests. One
is between the human agents of production and
the capitalists. This clash must be decided in
favor of the humag agents. The other is be-
tween the human agents themselves. This is
much harder to decide than the former because
the decision depends on a set of criteria that are
difficult or impossible of accurate measurement;

such are, for instance, amount of energy ex-
pended, amount of intelligence coming into
play, initiative, inventiveness, technical skill,

professional ability, personal danger or risk, and
the like. It is a matter of moral certainty rather

than the certainty resulting out of exact me-
chanical measurement (physical certainty) ; and
for the closest approximation to such certainty

we must be satisfied to use Aristotle’s rule of
abiding by the best judgment of prudent men.

The present discussion is but a continuation
of that of the preceding article. Hence the same
caution obtains here as there: Our conclusions
are what they are because we have viewed the
industrial scheme purely from the angle of caus-
ality. Other cautions must also be kept in mind
before our conclusions can be made to apply in

40



the adjudgment of any concrete case. What, for
instance, if an industry does not obtain suffi-

cient profits at all to give each human agent a
living wage? Then, some would say, the par-
ticular industry should cease to exist. But what
if no other type of industry can be substituted,
so that the human agents cannot help them-
selves? Then there would indeed be something
fundamentally wrong with our whole economic
structure.

41



10 . The Machine in Modern Industry

In preceding articles we touched upon the
position of the instrumental cause in the general

scheme of causes. We spoke of it as an extension
of the efficient cause. This is evident enough for
the ordinary hand tools. But does this subor-
dinate position still hold in regard to the vast

development that has taken place in our in-

struments of production, our factory machinery?

They are the property of the capitalist, and for
that reason, in our present economic scheme,

their contribution accrues to the benefit of the

capitalistic owner.

Can we reject this view, and logically claim
that their contribution should accrue rather to

the laborers, since the machine is still but an

extension of the efficient, cause, i.e., of the hu-

man agents taking an active personal part in the
productive enterprise?

Certainly the modern machine is not a mere
extension of the man who tends it in the same
way in which a handsaw is an extension of the
carpenter. In the latter case the skill, accuracy,

etc., of the sawing are those of the carpenter

himself. In modern labor-saving machinery this
is no longer the case. A recent description of
such an instance runs as follows:

"In several industries the automatic factory

is already an actuality. For example, a paint

42



plant which formerly gave work to five hun-
dred employees has been replaced by an auto-
matic factory in which there are almost no men
—only a few engineers and repair workers.
There is also a bottle-making factory in which
only one machine tender is needed to watch each
bottle-making machine. Each machine replaces
from fifty to two hundred fifty men and boys.
Another example is a modern flour mill in Min-
neapolis, which, operated by one man, can pro-
duce as much flour in one day as eight thousand
millers using the ancient hand-tool methods”
(Rugg, The Great Technology . 1933. p. 70).

In such instances, the ordinary work of a
tender consists of little more than pressing a but-
ton or turning a switch to set agoing machinery

that will do the work of hundreds of men. It
would seem absurd to claim that the major por-
tion of the product of such a machine should

go to the tender because a machine is an exten-

sion of the person operating it. To what is the
productive efficiency of such machinery ultimate-

ly due?

Today we say in effect that it is due to the
invested capital of the absentee owner. Yet no
amount of pure capital as such can set up this
machinery, much less invent it from its simple
beginnings on. There is really no proportion be-
tween the qualities of mind and human per-
sonality that go to make up our modern ma-
chinery, and the passive capital that was used
in buying it and setting it up.

43



The more modern and efficient any piece of
machinery is, the more is it also the outcome of
a set of conditions and energies that extend over
a long period of time* Most new inventions are
improvements of previous inventions, or are
built up upon them* Literally hundreds of hu-
man agents in the course of history, some fa-
mous and the majority unheralded and un-
known, have gone into the perfecting of our
machines of today. Every invention is by itself
the result of acute personal abilities or genius

working on the accumulated social inheritance
of the race. As a reward to the inventor it is
but right that he should be given a protective

patent that is valid for a definite period of time.

But is it equally in the right order of things
for the patent rights to be bought up by some
company at the lowest possible figure for the
continued exploitation of it unto the personal

profit of the absentee owner?

The immediate causal factors that operate in
conjunction with the machine are the capitalist

and the worker. Hence they are entitled to their

share of the values produced by the machine.
Yet a most important causal factor in machin-

ery production is what one might call the social
inheritance of the race. And since we are inves-
tigating the situation exclusively from the stand-

point of causal contributions, we must conclude
that society in general is entitled to more of a

share in the values produced by the machine
than it is getting under present conditions. This

44



conclusion lends color to the Christian view that

industrial production should not be exclusively

guided by the motive of the highest possible
profit to owners, but also by the motive of so-
cial service or the benefit of the consumers in

general.

This conclusion seems the more justifiable if
we examine what the actual relation has been
of capital to scientific inventions. As long ago
as 1911 Woodrow Wilson wrote as follows: “I
am not saying that all invention had been
stopped by the growth of trusts, but I think
it is perfectly clear that invention in many fields
has been discouraged, that inventors have been

prevented from reaping the full fruits of their
ingenuity and industry, and that mankind has
been deprived of many comforts and conveni-
ences, as well as the opportunity of buying at
lower prices. Do you know, that there is no
hospitality for invention today’

’
(quoted on pp.

151-2 of Brandeis, Other Peoples Money).
Unfortunately any attack on modern condi-

tions is often taken as a moral accusation against
the chief actors concerned. This is often very
unjust. Much that occurs is due to our accepted
and traditional economic system itself, in terms
of which we all function and live. It is there-
fore high time to examine this system in its
totality—a task we shall commence in the next
series of articles.

45



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