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<^7/.

The Bargain Theory
of Wages

A Critical Development Lorn the Historic
Theories, together with an Examination of
certain Wages Factors : the MobiHty of
Labor, Trade Unionism, and the Methods
of Industrial Remuneration

John Davidson, M.A, D. Phil. (Edin.)

Professor of Political Economy in the University of
New Brunswick

New York and London
G. P. Putnam's Sons

^t Unichcrbocker |re8s
1898

PIL

13G202

"AWL'-lOt-i

G. P. PUTNAM'S SONS
Entered at Stationers' Hall, London

Ube "fcnkfccrboclicr prc60, mew tfork

*i!ii^

■"iW^'

PREFACE.

SOMETHING like an apology seems due from a
writer who ventures to add an essay on the
Wages Question to the already enormous number
of essays and treatises on that well-worn subject ;
but the writer has found the lack, for the purposes
of teaching advanced students, of such a book as
he has endeavored to prepare. There is no treatise
presenting in a fairly compact form the problems
of wages which it seems desirable to bring before
the attention of such students. The systematic
treatises and text-books in economics necessarily
give but scant treatment to the problem of the
evolution of the theory of wages; and the mon-
ographs on the wages question are, in general, too
polemical and one-sided to be suited even for ad-
vanced class work.

The present essay is the outcome of the attempts
of the writer, during five years, to analyze the wages
question, historically as well as theoretically. He
began with the theory presented by the late Presi-
dent Walker in his Wages Question^ but was soon
forced to give as a supplement an exposition of the

jii

Preface.

history of wages theory ; and gradually came to find
that the theories were not mutually antagonistic but,
in a sense, complementary. A study of the Aus-
trian theory of value showed him how it was possible
to reconcile these divergent theories ; and The Bar-
gain Theory of Wages is the result.

The comparative absence of references is in part
due to the fact that quotations, etc., were inserted
in his lecture notes during vacation study, and that
he had no opportunity at the time of writing to
verify them. He has, therefore, judged it best to
omit such references as he could not verify. The
woes of a scholar in exile he had better keep to him-
self; but the inadequacy of the historical parts of
the essay, of which the writer is fully conscious, may
be partly excused in one who is some four hundred
miles from any library even half as good as his own.

My obligation to Prof. Taussig's Wages and Capi-
tal in the chapter on the Wages Fund, and generally
to Mr. Cannan's Production and Distribution, and to
Dr. Smart's Studies in Economics^ is great and obvi-
ous; and I owe many obligations which it is not
possible so definitely to acknowledge. Acknowledg-
ment is due to the courtesy of many correspondents,
personally unknown, who have taken much trouble
in obtaining information for me ; and in particular
to Mr. Ochiltree Macdonald and the Hon. Robert
Drummond of Nova Scotia ; to Mr. Stavart of St.
John's, Newfoundland ; to Miss Jean Davidson of
Edinburgh ; to Prof. Nicholson, who read the essay
in manuscript and by many helpful suggestions en-

Preface. \

abled mc to correct some of the disadvantages of
isolation ; to my colleague, Prof. Stockley, for assist-
ance in preparing the manuscript for the press; and
to my wife, who drafted the diagrams and assisted
in the preparation of the index.

The University of New Hrunswick,

Frcdericton, N. B., December, iSgy.

CONTENTS.

CHAPTKR I.

The Subsistence Theory .

CHAPTER II.

The Wages-Fund Theory .

CHAPTER III.

The Productivity-of-Lauor 'I'hkory

CHAPTER IV.

The Bargain Theory of Wages

• • •

CHAPTER V.
The Mobility of Labor

* • • •

CHAPTER VI.
The Mobility of Labor (Continued) .

CHAPTER VH.
Trade-Unions as a Wages Factor

CHAPTER Vni.

The Methods of Industrial Remuneration
AS A Wages Factor

• • • •

PAGE
I

127

174

199

254

281

THE BARGAIN THEORY
OF WAGES.

CHAPTER I.

THE SUBSISTENCE THEORY.

THE great historical theories of wages correspond
in their order and in their character with the
stages in the development of labor from the disap-
pearance of slavery and serfdom to the rise of real
freedom. Although legal slavery and serfdom had
disappeared in England centuries before the Indus-
trial Revolution, there was still sufficient survival of
its spirit to incline men towards a view of wages
which is true, in its full extent, only of slave labor.
Down to the beginning of the present century there
were legal restrictions on the movement of laborers
from one parish to another ; and colliers in Scotland
were even then transferred with the pits in which
they labored. The general conditions of dependence
were such that the economic effects did not differ

The Bargain Theory of Wages.

very much from the actual effects of legal slavery.
The effect of the Industrial Revolution was gradually
to change all this. The number of hired laborers
increased every year; and the pressure of competi-
tion qualified the supremacy of the employer. His
domination of the industrial world became merely a
predominance. The power of the employer was still
indeed very great, and he was able to dictate al-
most any terms he pleased to those who depended
on him for employment; but the development of
Trade Unionism and the growth of the political
power of the working classes brought a greater
change. The legal restrictions on the movements
of the laborer had disappeared, and the progress
towards democracy gave the laborer strength to
treat with his employer as with an equal and not
with a superior. The centre of political gravity had
shifted, and, despite belated attempts at feudal and
despotic government, the balance of economic power
was with the emplovces rather than with the em-
ployers; and labor became the predominant partner.
The working classes had been the first to learn the
secret of open combination, and from them the em-
ployers have learned, or are learning it. The tacit
combinations of employers to keep down wages, to
which Adam Smith referred, had broken down
before the stress of competition of master with
master; and when competition wrs discovered to be
suicidal, the employers openly associated and com-
bined, to meet the combinations of the working
classes and to make their own power effective. They

]V(T£-cs Theories Correspond to Labor Conditions. 3

quickly recovered from the unnecessary panic into
which the development of Trade Unionism had
thrown them, and quickly recovered much of their
lost ground. The condition of industry to-day is
one of opposing combinations of masters and men ;
and an armed peace as the result of negotiations.

The development of the theories of wages corre-
sponds, in a certain measure, with the evolution of
industrial freedom. The theories, it is true, follow
the development of the social phenomena afar off;
and we must not strain the parallelism. The earliest
theory is the doctrine that wages are determined by
the cost of the subsistence of the laborers; and it is
obviously based on a real or assumed analogy be-
tween wage labor and slave labor. It assumes the
absolute supremacy of tlie employer, though his
supremacy is created by the self-imposed degradation
of the employees under the tyranny of the sexual
instinct. The change in the position of the em-
ployer from domination to mere predominance is
followed by the development of the Wages-Fund
Theory, in which the measure of the wages is the
intention of the capitalist employer. A certain
measure of freedom is, in this theory, accorded to
the laborer. He can, at least, raise his wages by
exercising self-restraint and restricting his numbers;
but the employer is sti'l the dominant factor in the
wages problem. The Wages-Fund Theory gave
place to the Productivity Theory, in which the deter-
mination of wages is apparently regarded as almost
entirely within the laborer's own power. Wages are

The Bargain Theory of Wages.

paid according to the efficiency of the laborer, and
the employer has almost nothing to do with the
wages question but to pay the wages. The earlier
positions are reversed. The laborer becomes the
residual owner of the product — for production has
become, explicitly, the co-operation of capital with
labor. This theory, however, the acceptance of
which dates from the year of Mill's recantation
of the Wages-Fund Theory, under the influence of
his growing interest in the growing power of Trade
Unionism, greatly exaggerates the independence of
the laborer's position. It takes no account of the
combinations of employers, tacit or avowed ; and
the influence of such combinations in the determina-
tion of wages cannot be ignored. The theory of
wages, consequently, is tending to change to a form
in which the supremacy of no one party in the wages
transaction is assumed. Neither the employer, as
in the earlier theories, nor the emlpoyee, as in the
latest, can be regarded as the sole determiner of
wages. The employer is not a donor, nor is the
employee the owner and dictator of wages. Em-
ployer and employed are opposed to each other
as bargainers in a market where, through various
causes, their forces are about equal. Wages are to
be regarded as determined in the way in which all
bargains are concluded — partly, by the estimate
which each party to the bargain has formed of the
value of the subject of the bargain, and, partly, by
the comparative strength and knowledge of the
bargainers in bargaining. All the earlier theories

The Plan of the Essay.

attempt to establish one determining principle of
wages according as they recognize the supremacy
of the employer or the supremacy of the laborer.
This theory, based on the phenomena of organiza-
tion of employers and employed in combinations
of approximately equal strength, puts forward two
determining principles, or, more accurately, asserts
that the wages of labor will be determined between
two estimates as limits.

The object of this chapter, and of the two suc-
ceeding, is to establish, by means of a critical ex-
amination of the earlier theories, the theory of wages
as a bargain ; and the result will, it is hoped, demon-
strate, in the fourth chapter, that this eclectic theory
embodies all that is of permanent value in the earlier
theories. The doctrines of the prevailing philosophy
have convinced all men that no great movement can
be entirely wrong; and assuredly no great theory
can be utterly rejected. We shall find that the sub-
sistence theory provides one determining principle
and the productivity theory another; but, instead
of choosing one or the other, and claiming half
the truth as the whole truth, we shall find that
the subsistence theory gives us the seller's estimate
of what he has to sell, and the productivity theory
the buyer's estimate of what he enters the market to
buy; and that the Wages-Fund Theory, in one of
its propositions, states the force which determines
where, between those limits, actual wages are de-
termined, and, moreover, gives the outlines of the
complete theory.

nn^

./-... --L-^w fjbja-.

The Bargain Theory of Wages.

The first important and scientific theory of wages
is that the reward of labor is determined by the
cost of subsistence of the laborers. This theory has
been called by various names — the Theory of Nat-
ural Wages, the Ricardian Theory, the Iron Law of
Wages, the Standard-of-Comfort Theory, and the
Doctrine of a Li/ing Wage; but no one of these
labels is quite satisfactory. In adopting the title of
the Subsistence Theory, we adopt a title which is
explanatory of the common element in all the phases
of the theory, and yet does not gratuitously invite
criticism, as the Iron Law of Wages does, for in-
stance.

The Subsistence Theory has gone through some-
what remarkable variations; but the change has
been rather in the sentiments of the advocates than
in the substance of the theory. The earliest writers
and, on the whole, Ricardo himself, to say nothing
of the socialists who claim to be Ricardo's true seed,
have interpreted the law very pessimistically. The
socialists have denounced the iron law as the crying
evil and iniquity of our present social system ; but
the modern advocates of the theory seem to regard
the law as opening a door of hope for labor. The
change is not in the substance of the doctrine. Even
Ricardo, at times, as we might show, regarded the
cost of subsistence as a variable minimum, not neces-
sarily coincident with the cost of physical life. His
passing admissions have been taken up and amplified
by the modern adherents of the theory till the theory
itself seems transformed. Yet Mr. Gunton, the

The Variations in the Subsistence Theory,

most ardent, as he is the most scientific, of the opti-
mists, does not claim that wages should vary with
every, the slightest, variation of the standard. The
theory has changed its sky but not its nature. The
difference between the early and the later ''crms of
the theory is due to the generally changed attitude
towards labor questions. Ricardo, writing ai a time
when the first and most lasting impression made
by Malthus was one of the most important facts in
the world of economic theory, was pessimistic and
regarded wages as tending naturally to fall as low as
possible. Mr. Gunton, and the self-constituted
spokesmen of the modern labor movement, writing
after half a century's progress of the working classes
and steady rise of wages, regatfl the standard of
subsistence as a method of raising wages. But the
essence of the theory is in both cases the same.
The value of labor is determined from the side of
labor alone. The sole determinant is the cost of the
commodities on which the laborer subsists ; whether
this cost be regarded as determined by the rapacity
of the capitalist (as the socialists say), by the tyranny
of the sexual instinct, or by the firmness with which
the working classes maintain their customary or as-
sumed mode of life. The force which operates to
make the cost of subsistence the standard of wages
differs according to the standpoint of the theorist;
but, in all cases whatever, the substance of the
theory is the same.

Adam Smith, and his successors, treated the
theory of distribution as if it were only a branch of

The Bargain Theory of Wages.

Hi,

the theory of production. In wages as wages they
had little interest. The chapter in the Wealth of
Nations dealing with wages is the first of four chap-
ters discussing the component parts of price. Wages
were thus regarded mainly as an element in the cost
of production ; and it was natural that, when the
reward of labor was, for the moment, considered in
itself, the general point of view should be retained
and the discussion of wages become a discussion of
the component parts of the cost of production of
labor. His treatment of wages is fruitful of sugges-
tions; and germs and illustrations of all the later
theories may be found within the narrow limits of
that one chapter; but the natural development was
in the direction of a theory of wages which finds the
explanation in the cost of production of labor.

No one has ventured to advance a naturalistic in-
terpretation of the cost of production of labor. The
phrase has always been interpreted in terms of the
cost of the commodities necessary for maintaining
life. The cost of production of a machine — and
labor, from this point of view, is only a more costly
because a more complex machine — is, firstly, the
cost of the fuel and the other requisites of its opera-
tion, and, secondly, the reserve set aside against de-
preciation for renewing or replacing the machine
when it is worn out. These two items in the case
of labor are the cost of maintaining the laborer in
working condition, and the cost of rearing new sup-
plies of labor to take the place of the old when, in
the course of nature, that is worn out or superan-

Wages as aft Element of Cost.

nuated. But the analogy from machinery seems to
lead us too far. The reserve set aside for replacing
and renewing a machine remains in the possession of
the owner; but the new supplies of labor, for the
provision of which allowance, according to the
theory, must be made, are not the property of the
employer except under the conditions of slavery.
The criticism, therefore, raised against the theory
on this point is not without justification. The
analogy is pressed too far to the neglect of the obvi-
ous fact of the difference between persons and things.
The difference is essential. There is no necessity
that an employer should have such a tender regard
for the interests of employers of the next generation
as to make him pay higher wages to maintain the
supply of labor and replace the labor which is worn
out. Most employers are content that there should
be profit in their time, and quite willing to be as
Irish as Sir Boyle Roche in their disregard of pos-
terity. If the early economists had interpreted the
law in the same way as the socialists, who have
forcibly entered into their labors, the objection that
the theory was inconsistent would be perfectly
sound. The cost of rearing and educating a family
cannot strictly be included within a minimum of
subsistence. If this item is included in the cost of
production of labor, we cannot rightly speak of a
minimum of subsistence. But for the early econo-
mists it was not the rapacity of the employer but
the strength of the principle of population which
made the cost of subsistence the measure of wages ;

The Bargain Theory of Wages.

and tlic principle of population, not unnaturally,
admits the inclusion, within the minimum, of an
amount sufficient to j^revent the race of laborers
from bccomin<jf extinct.

There can be no manner of doubt that, in the long
run, waijjes are sufficient to cover both the cost of
maintaining the laborer and the cost of rearing the
new supplies. If industry is to contiiiue, and in-
dustry does continue, both items of the cost must
be met, and both items, therefore, are met. Wages
arc sufficient to cover the cost of production, but
arc they more than sufficient ? Is there a surplus
accruing to labor as a whole, over and above the
amount necessary to cover the cost ? The question
is often rendered more difficult of answer because of
a failure to make an obvious distinction. We are in
the habit of estimating wages simply in gross,
whereas rent and interest are net returns. The
absolute necessity that the capital expended in pro-
duction should be replaced is at all times asserted ;
and, over and above the capital sum replaced, it has
generally been recognized that a payment should be
made for the use of the capital, or (as we may say
without prejudice) as the reward of abstinence. The
returns of capital, however, are not estimated as a
gross, but purely as a net return. Interest is the
return to capital, and that is not said to be 103 or
1 10, but three or ten per cent. Over and above the
capital sum a further payment is made. Rent is
also a purely net return. The natural properties
of the soil remain practically intact; and the land-

i" )'fi

Wages a Gross Return.

owner's share is regarded, not as his land returned
to his keeping in its original condition pkis the rent
he receives for its use, but simply as the rent which
he obtains. In the case of wages, the treatment is
different. Wages are treated as if they were a net
return comparable in some way with the three or
the ten per cent, of interest. No distinction is
made, as in the case of capital, between the refund-
ing of the energy expended and the payment for the
use of that energy. Both are lumped together, and
the only attempt made to distinguish them is in the
theory and practice of taxation when a minimum is
exempted. Yet the laborer, as we may say, by con-
venient analogy, has invested his capital fund in pro-
duction just as really as the capitalist has his ; and
there is the same necessity that this expenditure
should be refunded, if production is to be economi-
cal. This expenditure is the energy spent in labor
and includes more than mere physical exertion.
The energy expended varies in kind as well as in
degree; and the energy refunded must be an exact
equivalent of what is expended. The energy ex-
pended by an artisan in a higher skilled trade re-
quiring a large amount of attention, or the nervous
energy expended by a common school teacher, are
different in kind as well as in degree from that ex-
pended by a common day laborer; and the amount
refunf' ,d must vary accordingly. The return to
labor must, at least, be such as will enable each
worker to start his work on the morrow in the same
condition as he started the previous day or the pre-

The Bargain Theory of Wages.

vioiis week. The standard of his efficiency must be
maintained. It is true that, just as capital may be
so invested that it not only docs not receive a net
return in the shape of interest but may itself not be
refunded, labor may be so employed, by itself or in
the service of another, that the reward of labor is
not sufficient to replace the energy expended. In
this case the result is the degradation of labor. On
the whole, and in the long run, the wages of labor
are sufficient to refund the energy expended, but are
they ever more than sufficient ? Does labor, like
capital, obtain a surplus, or a net return ? Labor
has the same right as capital has (if we may speak
of right in either case) to demand a surplus return,
over and above the refunding of the energy ex-
pended; and, if labor does not receive a net return,
corresponding to interest, it must be because there
is something special in the conditions of labor which
prevents this result.

The advocates of the subsistence theory have
generally contended that labor must and does obtain
a return sufficient to refund the energy expended ;
but they have not always gone on to ask whether
labor receives anything over and above.* Interest,
according to the popular view, is necessary because,
without it, capital would not be saved and invested
in sufificient quantity to maintain industrial efificiency.
Is labor entitled to demand a similar net return, or

* Adam Smith's suggestive analysis of the standard of subsistence
(see note, p. 23) was not taken up until the theory was being tried, to
be found wanting.

Is There a Net Return to Labor ?

are there forces at work which enable the employers
directly, and society indirectly, to disregard this de-
mand of labor ? Now labor involves disutility as
fully and as certainly as saving involves abstinence
and self-denial. The laborer has, it is true, less to
^ain and more to lose by refusing to work, than the
capitalist has in not abstaining from consuming his
wealth. The laborer is dependent for his life on his
working; but the capitalist need only not practise
self-denial. However, since labor involves disutility,
simply to replace the energy the laborer has ex-
pended will not always be sufficient. The laborer is
not a machine, but a human being actuated by indi-
vidual and personal motives and feelings; and he is
little likely to spend himself simply that his expenses
may be refunded. Individuals may be so inclined ;
but the great mass of men value themselves more
highly. If there is not a net return in cases where
the disutility of labor, from whatever cause, is great,
the laborer will content himself with the expenditure
of but little of his energy. In order to obtain the
best results, it will always be found necessary that
something more than the maintenance of the status
quo ante should be assured. There are those who
must save and those who cannot help saving, and
for them the net return to capital need not be
high; but a certain rate of interest has been
found to be necessary to call out that amount of
abstinence from the immediate utilities in consump-
tion as will enable industry to be carried on and ex-
tended. So although all laborers (or nearly all)

TJic Bar^i^ain Tlicory of Wages,

must labor to continue living, a net return to labor
is necessary to get the best industrial results from
the laborer.

The early advocates, at least, of the subsistence
theory declare, in effect, that a net return to labor
is unnecessary and, in the long run, improbable.
The glory of going on and still to be, is, in their
view, a sufficient incentive to overcome the disutility
of labor. The necessity of living provides a strong
enough incentive. The laborer must live and to
live must be prepared to sacrifice his comfort. He
has no reserve on which to subsist ; and the stern
necessities of d 'ly life compel him to work for that
which is just sufficient to enable him to subsist.
Should he, by the benevolence of his employer, or
through the force of public opinion, or from acci-
dent, obtain a higher reward than is necessary to
enable him to subsist, he will either labor less, or he
will indulge himself in such a way as eventually to
bringdown his enhanced wages to an amount which
simply enables him to continue. Among semi-
civilized and indolent races, work will cease when
enough has been earned to provide subsistence;
among civilized people, the effect of a surplus over
the cost of subsistence will be to increase competi-
tion till wages fall to the subsistence limit. The
wages of going on may be very much higher in one
country than in another. The intensity of labor
differs in different countries; and consequently a
greater or less amount is required to replace the
energy expended. Wages must, in the long run,

Labor of Varying Intensity,

«5

be sufficient to cover the expenditure, but, in the
lonj; run, they need not be more than sufficient ; for
the necessity of making a living is a force strong
enough to counterbalance the disutility of labor.

The gradual change in the subsistence theory of
wages was due, in part, to the fuller recognition of
the fact that labor is of varying degrees of intensity
and hence involves a greater or less expenditure of
energy. Ricardo and the early exponents seemed
to regard all labor as being of one quality and hence
as involving the expenditure of equal amounts of
energy. Wages, therefore, were taken to be the
equivalent which was necessary to replace this
energy. The actual variations of wages w^erc ex-
plained by means of the distinction between market
wages and natural wages. Except in a theoretical
case, wages were determined by the amount of com-
modities necessary to sustain the life of the laborer;
and this amount was not considered as varying from
individual to individual, but as determined abso-
lutely by constant physiological conditions. The
theory, at this stage, takes practically no account of
the fact that the expenditure of energy is not always
an expenditure of bodily force. Yet there is no
common term which will enable us to compare the
energy severally expended say by a school teacher, a
newspaper compositor, and a dock laborer. Each
may be correspondingly equipped for, and efficient
in, his work; and at the end of a day's labor each
may be correspondingly worn out. To enable them
to begin the morrow's work with their former effi-

The Bargain Theory of Wages.

ciency, each requires a different kind of treatment
and recuperation. The minimum of subsistence
which will effect this result is so different in each
case that to use the term physical minimum, as
applying indifferently to all three, is to darken
counsel by words without knowledge. The laborer
will probably require more food than the other two.
The workingman is a better customer to the grocer
than a professional or semi-professional man with
twice the salary of the workingman. Yet the fact
that a teacher eats less, but is more fastidious about
what he eats, affords us no warrant for declaring
that the greater part of his expenditure could be
dispensed with because his physical minimum, esti-
mated in pounds avoirdupois, is less than the physi-
cal minimum of a dock laborer. So, even if we take
the standard of subsistence as a physical minimum
including no surplus, we must yet admit that the
physical minimum will vary according to the nature
of the occupation. The only real measure the^e can
be of a minimum of subsistence is the amount of the
necessaries, comforts, and luxuries of life which is
necessary to enable each worker to begin each day's
labor with his energy restored. The physical mini-
mum in other words must be relative to the industry
in which the laborer is engaged and be suflficient to
maintain the existing standard of efficiency. But a
physical minimum, interpreted in this way, is far too
variable to afTord a foundation for a law of wages ;
and it was natural, especially in view of the promi-
nence of Malthus's doctrine, that the minimum

Principle of Population in Wages Theory. ly

should be interpreted physriologically rather than
industrially. A physiological minimum does, and
an industrial minimum does not, provide that ele-
ment of certainty and stability which is necessary in
the determinant of wages.

Ricardo's logical mind discerned that it was im-
possible to base a scientific law of wages upon a
varying foundation. There must be some power
behind the law to determine wages in accordance
with it. Without this power, the law can have but
little scientific importance. The power which brings
the law into operation Ricardo and his contempo-
raries and successors found in the principle of popu-
lation. Mr. Conner is somewhat indignant that
Ricardo should habitually be misrepresented as
putting forward a fixed and invariable standard;
and passages might be quoted, such as Chapter V.,
p. 74, of the Principles (Conner's edition), in which
Ricardo somewhat despondingly remarks that the
natural price of labor is " not absolutely fixed and
constant." But Ricardo was too logical, and also
too much under the domination of the Malthusian
idea, to lay much stress on the exceptions he allows.
It was necessary for scientific exactness that the
standard should be fixed, and the principle of popu-
lation at once suggested itself as the power which
made the law operative. The pressure of popula-
tion against the limits of subsistence is due to the
strongest force in human nature, and, although
Malthus, in the later editions, ceases to be a Malthu-
sian, the popular impression of his doctrine remained

^•mi^^m

T/ic Bargain TJicory of Wage .

firm that no institution or custom was strong enough
to stand long as a bulwark opposed to the principle
of population. The dread of over-population (which,
in the strictest Malthusian sense, however, is an im-
possibility) made every economist tremble for the
safety of any institution which did so oppose itself.
Consequently, to Ricardo and his successors, the
possibility of any standard of comfort higher than
the physiological minimum was only theoretical.
Yet, as the industrial conditions became more
favorable to labor, wealth increasing faster than
population, economists came to have that better
understanding of the doctrine of population to
w^iich Malthus himself had come, and the idea of a
standard of comfort, a conception more closely in
accordance with the facts, replaced the physiological
minimum as the determinant of wages. Unfortu-
nately, the farther we depart from the pliysiological
minimum and the more elastic the standard is al-
lowed to become, the less satisfactory does the
standard of subsistence become as the basis of a
scientific theory. Ricardo had, on the whole, an
invariable standard, because wages cannot fall below
a physiological minimum and remain below if in-
dustry is to continue. The elastic standard of
comfort cannot be used with the same effect, unless
we can demonstrate that the standard of comfort is
so supported by custom and so entrenched behind
all the moral abhorrence which men can muster
against a lower order of living, that it is practically
impossible to force men to accept any other.

Industry Subject to Fluctuations.

The fact that on less than represents a standard
of comfort a man may, for a time, support life, is the
source of danger. If industry were always pro-
gressive, or even permanently in a stationary state,
a standard of comfort might possess stability ; but
modern industry is subject to periodical fluctua-
tions; and, during depressions, large numbers, and
a comparatively large proportion of the working
classes, are out of employment and may therefore
be faced with the alternative of starvation or the
acceptance of a wage lower than will permit the
maintenance of the standard of comfort. Is not
the life more than meat, and the body than raiment ?
they may urge, unanswerably, to their protesting
habits and prejudices. It * hard to understand how
any prejudice in favor ot a particular manner of
living can withstand such an appeal, and, under
modern industrial conditions, such an appeal has
often to be made. It is waste of words to speak of
a stable standard of comfort when ten per cent., and
more, of the working classes may be out of work;
and yet, without stability, the existence of a standard
of comfort has little bearing on the problem of
the determination of wages. It is to a conscious-
ness of the tende.icy of irregularity of employ-
ment to lower the standard of livincr that the
modern demand for fixing the living wage is due.
The standard of a Hvinir waiijc is not fixed far in
advance of what the members of the working classes
can conceive. It is, on the contrary, determined as
the ordinary standard of comfort at which, in pros-

The Bargain Theory of Wages,

pcrous times, the working classes live. It has been
objected, and objected rightly, that to establish such
a standard wage must have the effect of reducing
employment and throwing the less efficient out of
work; but it is answered that, for the best interests
of the working classes as a whole, total lack of em-
ployment for some is better than irregularity of em-
ployment and wage for all. While all are subject
to the irregularity due to the fluctuations in trade,
the class standard can neither be high nor stable.
The object of a policy of a living wage is to avoid
the degradation of the whole class by throwing the
burden on the less fortunate individuals, justifying
the policy in the old way that it is expedient that
one man should die for the people and that the
whole nation perish not. The same notion is behind
the plans, such as Mr. Charles Booth's, for the organ-
ization of dock labor. The rationale of these propo-
sals is that the standard of the working classes is so
far from being permanent enough to determine
wages, that we must practically determine wages to
prevent the standard from being set aside. Before
the standard of comfort can act as the determinant of
wages it must possess stability. Without stability,
it is without the power to govern wages. Ricardo
and the early economists were aware of the scientific
necessity of having a fixed standard, and, for this
reason, accepted the standard of a physiological
minimum, arguing, in spite of their theoretical ad-
missions, as if wages were down to the minimum.
Below a physiological minimum wages cannot long

Subsistence Theory and Industrial Conditions. 2 1

remain, and this was their point of absolute cer-
tainty.

During the first half-century after tiie beginnings
of the factory system the outstanding features of in-
dustrial and social life were such as permitted the
economist, with the assistance of his theoretical ex-
ceptions, to hold unquestioned this doctrine of
natural wages. In England, wages were very low,
although they probably were not quite down to the
physiological rr ' "imum. Any divergence between
actual wages ana the cost of subsistence in this narrow
sense was obscured by the fact that wages and the
price of grain generally fluctuated together. The
doctrine received strong corroboration from the
paradox of poor relief and the apparent impossibility
of remedying the defects of the poor laws. Allow-
ances were made by the parish to the poor, and the
condition of the poor remained the same. The net
result of the parish allowances was to assist the em-
ployer by paying for him part of the wages which
he would, under other conditions, have had to pay
out of his own pocket. As the allowance from the
parish increased, wages decreased ; and the problem
baffled the best minds of the con munity till they
were forced to abolish the old system of poor relief
altogether. This paradoxical phenomenon could be
best explained by the subsistence theory of wages,
and it is hard to see what other explanation can be
offered. In the unprotected condition of the work-
ing classes in the early days of the factory system
the subsistence theory of wages undoubtedly offers

T/ic Bargain Theory of Wages.

■■•' .- !i

a full explanation of the facts, and, wherever the
same hopeless condition ex'ists as existed in Eng-
land at the beL;innin<^ of this century, the subsistence
theory will afford the best explanation of the deter-
mination of wa^^es. In such a case it will be found
to be as true as it was then, that every charitable
allowance made in aid of waives will serve to admit
of lower wa<^es bein<^ paid. There is so much glib
talk of the pro<^ress of civilization, and of the pro<^ress
of the working classes, that we are apt to forget that
there is a large section in every community for
whom there has jjeen no amelioration. Socially and
industriidly the ** white slave " victim of the sweater
is in the same position as those workers who were in
receipt of poor law relief at the beginning of the
century. The poor relief system has been im-
mensely improved, and it is no longer to the em-
ployer of labor that the State grants aid from the
rates; but the economic sense of the community has
not yet been educated to see that a frequent effect
of the half-crown dole to the poor struggling widow
is to enable her to accept lower wages, and possibly
to drive down the wages of others who receive no
half-crowns. Against indiscriminate charity every
one of us is prepared to take up his parable, but
what of discriminating charity ? Discrimination is
good, but if the light that is in us be darkness!

In consequence of the rise of wages during the last
half-century, the theory cannot now be maintained
in its original somewhat naive form. The wages of
the majority of the working classes are considerably

Chan'^i'd Industrial Conditions.

above the physiciil miiiinium and, in consequence,
much of the orii^inal ari^ument and counter-ar<^ument
lias lost its force, altiiou<^h still often put forward.
Naturally a good deal of evidence is of an ex post
fdcto character. This evidence would be fully ad-
missible, if care were first taken to show in virtue
of what necessity the standard of comfort does de-
termine wages; but this care has not always been
taken. Wacres are higher, therefore the standard
must have been higher, is a type of the style of
argument, and, in spite of Adam Smith's common-
sense comment that '* it is not because one man
keeps a coach while his neighbor walks n-foot that
the one is rich and the other poor; but because the
one is rich he keeps a coach, and because the other
is poor he walks a-foot," ''' i\ propter hoc is asserted

* Wealth of Nations, p. 31. The ol)jections to the tloctrine
were set forth by Adam Smith almost before the doctrine had been
clearly formulated. The o])jections r.re raised to the early form of
the theory and have not the same force against the standard of com-
fort. The advocates no longer insist on the necessary correspondence
between wages and prices, and with one exception Adam Smith's
objections are variations of the contention that wages and prices vary
independently of each other. The exception is that, in agriculture at
least, summer wages are higher than winter wages, although the cost
of living is less in summer than in winter. This objection cannot be
met by admitting that wages do not respond to sudden changes in the
cost of living, for the occasion, in this instance, is recurrent. If win-
ter wages are lower than summer wages it is evident that the cost of
living cannot be the sole determinant of wages. Winter wages are
lower than summer wages in all trades that depend completely on the
seasons, and may be lower in other trades on account of increased
competition. Winter wages are generally lower in Canada than sum-
mer wages, and the working day is not always shorter. The drivers

The Bargain Theory of Wages.

while it is still doubtful whether q.vqxv 2i post hoc \%
justified.

There are many industrial facts which bear out
the contention of the theory and make, at least, a
priuia facie case, on its behalf. We have, in the
first place, the well-established fact that wages are
highest where the cost of living is highest. City
wages are generally higher than country wages, and
although this may be in part due to the greater
efficiency of town labor, the correspondence between
the cost of living and wages is too extensive and
too marked to be merely accidental ; and the corre-
spondence appears not only when we compare town
and country, but also when we compare different

on the street railway in Quebec City are paid seven dollars in summer
and five dollars a week in winter, and in spite of the shorter working
day the manager admitted that the hands " earned their money harder
in winter than in summer." The cost of living in Canada on account
of the climate must be at least one third higher in winter than in
summer. Canadian Labor Commission, Quebec Evidence, p. 820;
see also New IJrunswick Evidence, p. 479, where it is stated that
one dollar a day is paid in winter and a dollar and a quarter in
summer.

" (,). Why are the wages lower in winter than they are in summer?
A. Simply because we can get the men to work cheaper in the
winter. . . .

'* Q. Do they work the same amount of time ? A. Yes.

" Q. Then the only reason is that the supply is greater than the
demand? A. Yes ; that is all. Men are glad to work for a dollar a
day in winter, and prefer to work for us at that rate of wages than go
to work in the woods."

The Canadian winter recurs with a certain regularity, but wages
have not been adjusted to meet the increased cost of living, although
the more provident of the working classes endeavor to adjust their
expenditure.

' l,i

Evidence in Support of Subsistence Theory. 25

sections of the country. Thus, in the United States,
wages are higher in the towns than in the country,
but they are also higher in the West than in the
East. In the latter case, the higher cost of living
seems to be related to the higher wages as cause to
effect. The annual average earnings for the whole
of the United States is $447.44, but the earnings in
the Western States are far above the average, reach-
ing in Wyoming $806, and in Colorado $685.'^ The
following is a comparative statement of wages in
town and country (165 towns of more than 20,000
inhabitants) :

MEN. WOMEN. CHH-DREN.

Town average $567 $391 $159

U.S. " 498 276 141

Country " 401 239 120

The figures in this table show also that, on the
average, the wages of women are lower than the
wages of men. The reasons why this is so have
been abundantly discussed and a practical agreement
has been reached, viz., that one cause why the wages
of women are less is that they demand less, and that
they demand less because they can live on less. It
may be that the women of the upper classes insist
on a higher standard of comfort than the men of
that class do ; but the women who earn wages do
not belong to the upper classes and for many reasons

* Dr. Carroll Wright, from whose Industrial Evolution of the
United States, p. 199, these figures are taken, says that the figures
for Wyoming and Colorado are drawn from too narrow a basis to b?
(juite representative,

The Btirsj^aiH Theory of Wages.

liave fewer requirements than the men of their class.
In the first place, they do not require so much food
to nourish them ; and when wages are so low that
the cost of the bare necessaries of food absorbs the
larj^er part of the waL,^es, women's wa<^es may be at
least one fourth lower than men's. The fact that
they can live on less makes it possible for them to
accept less and yet remain as efficient as they were,
while male labor would be degraded. In the second
place, a woman's standard includes more of those
utilities which cannot be reduced to a money meas-
ure. The wages of female skilled labor and female
unskilled labor do not differ so much as the wages
of male skilled and male unskilled labor — the reason
being that the female skilled trades arc considered
more genteel and are, therefore, over-crowded. A
girl employed, say as a bookbinder, will rather sub-
mit to a reduction of wages than consent to mix with
the lower social class of workers who are employed
in making match boxes. Her social prejudices
weaken the resistance she can offer to any attempt
to reduce wages, and, consequently, we find that
the wages of female workers never depart much from
the average. The relatively high wages of the less
skilled trades are due in part also to the higher real
requirements of these workers. Women of the
lower class who seek employment arc, as a rule, en-
tirely dependent on what they earn ; and they must
therefore earn as much as will cover the cost of living.
The wages of female workers in a more skilled trade
cire used, to considerable extent, simply for dress and

!'>/

ii'.

Women s Wages.

pocket money — a part, sometimes the ^rreater part,
of their support beiny obtained gratuitously at home.
Consequently, their standard of livin«^ h.is not suffi-
cient stability to enable it to resist atten>)ts to lower
waives. In the third place, a woman's standard of
subsistence is frequently only a personal standard.
It is iiulividual rather than social because she has
only herself to support out of her waj^es. A man's
standard of subsistence includes the support of his
dependents. There are, it is true, a lar<^e number
of women, widows with families of young children,
and others who have to do more than merely sui)i)ort
themselves; but these form only a minority of the
working women while the men who have dependents
are in the majority. Men are thus bound to offer
effective resistance to any attempt to lower wages.
Family afTection is a strong force safeguarding the
standard, and where it is operative helps to maintain
wages at a higher level. It has the greatest effect in
maintaining the standard when the family is almost
entirely dependent on the w^agcs of the breadwinner.
Where part of the responsibility is removed from
his shoulders, because the dependent members of
the family contribute something to the family purse,
his power of maintaining a high w\age is proportion-
ately less. The higher wages are not so much re-
quired and, consequently, are less likely to be
obtained, because less from the breadwinner will
serve to maintain the family standard of comfort.
It is curious how closely family earnings approxi-
mate to an average. It is possibly becoming less

The Bargain Theory of Wages,

'■ if.

true that the family is the wage-earning unit ; but
where the head of the house is not the sole wage-
earner, his wages are proportionately less. The
annual earnings of the factory hands are lower than
the annual earnings of the worker in the building
trades which demand an approximately equivalent
efficiency ; and the explanation is, that of the de-
pendents of the former, 1.25 per family are con-
tributing to the family funds, while .25 only of the
dependents of the latter are engaged in gainful occu-
pations. The wife and some of the children of the
factory hand accompany him to the factory, the
wife of the carpenter or the bricklayer remains at
home and the children continue at a school until
they are older.*

These facts are capable of receiving a two-fold
interpretation. The man who follows alternative
trades may earn as little at the two as he could by
efificient practice of either one; but the reason he
offers for his conduct is that it is the only way to
make a living; and the man who sends his wife to
the mill, and takes his children aaay from school at
an early age, will generally justify his action on the
ground that this is the only way in which he can
make both ends meet. That there is a causal effect
between the standard of life which a man keeps be-
fore him and the wages paid to him is a fact beyond
dispute; but which is the cause and which the effect
is, by no means, always clear. The one standard
probably acts and reacts on the other. And the

* See Gunton's Wealth and Progress^ p. 171.

ii I'

r? t

Practical Motive of Modrrn Subsistence Theories. 29

determination of the direction of the causal relation
has not been rendered easier by the chan<;e which
happier industrial conditions have brought in the
theory. The operation of the new poor law destroyed
tlie old economic paradox; and the growth of
wealth and the rise of wages made it impossible to
assert the subsistence theory in its early pessimistic
form. The theoretical exceptions, which Ricardo
had admitted, were brought out from the back-
ground and made much of. The expansion of
English enterprise and industry made English econ-
omists aware of the varying conditions of labor in
different countries and the wider experience seemed
to suggest that the higher the standard of living the
higher the wages. The centre of interest in eco-
nomic questions was gradually changing from wealth
to welfare, and the growth of democracy brought
into prominence the practical problem of the best
method of raising wages. The welfare of the greater
part of the nation depended on the amount of the
necessaries, comforts, and luxuries of life they could
command with their wages, and the practical prob-
lem of raising wages was of more interest than
the scientific problem of the law of wages. The
first conclusion to which a comparison of interna-
tional standards of life and comfort and international
wages led, was, that since the higher the standard
the higher the wages, the best method of raising
wages was first to raise the standard. The standard
of living or subsistence which, under Ricardo's as-
sumption that wages must fall, had provided the

t ' ^'1

The Bargain Theory of Wages,

socialists with their most powerful criticisms of ex-
isting institutions, becomes in the hands of the
most hopeful of modern labor advocates a lever fcr
raising wages. If wages depend on the height of
the standard, the practical conclusion is to endeavor
to create new wants and new aspirations, in the con-
fident hope that, when these are felt and adopted,
wages will rise in proportion. The working classes
thus seem to have their future in their own hands.
It is no longer an iron law under which they live,
but a law which their own voices have proclaimed,
their own wishes can amend. This is the key-note
of the policy of the ethico-socialist reformers of the
day, who declare, if we may take Mr. Keir Hardie
as their spokesman : " Wages are determined by the
standard of living. If you improve the condition of
the men you make a higher wage necessary."

The theory has, therefore, become more grateful
to our modern sentiments, but, unfortunately, at the
same time, in the process of transformation, has lost
almost entirely what of scientific value it had. The
truth of the theory, in its early form, depended on
the fact that there was a limit below m h'cn wpgcs
could not fall and industry continue. ri^in.i .han
this limit they might be temporarily : lower it was
impossible for them to be. Ricardo was not in-
clined to lay stress on the causes which raised
market wages above natural wages, and never
dreamt of an application of the theory to prove that
market wages also were directly determined by
variations in the standard. This is really what the

The Weakness of the Modern Form.

modern advocates attempt to show regarding
(Ricardo's) market wages. They still maintain that
the standard of life determines the minimum below
which wages cannot fall, but they reject altogether
the assumption that wages tend to fall. Indeed,
they seem to make the contrary assumption that
wages have freedom to move only in one direction —
upwards; and that each step of progress is irreversi-
ble. When, by raising the standard of life, a new
minimum has been created, it is asserted that this
new minimum has all the determining power on
wages which the original physiological or industrial
minimum could have. The raising of the standard
of living is a practical method of raising wages only
if the new minimum thus created has all the perma-
nence and stability of the old. The new minimum is
not based on any physical necessity, or, as yet, on any
industrial necessity; but it must become at once so
firmly entrenched behind the customs and habits of
men that it can offer a very serious resistance to any
attempt to reduce wages below the amount which
would permit life according to the new standard.
The new minimum must at once attach to itself all
the determining power of the old ; but it can do so
only by creating habits and dispositions as strong
and tenacious as the habits and dispositions which
have been outgrown. The creation of new wants
and aspirations, so strong that they have all the
force of entrenched habits, although there is as yet
no means of satisfying these wants and aspirations,
is not to be accomplished in a week or a year. We

IS-

The Bargain Theory of Wages.

: X

i i

K f

« I

1 I

■I

may, of course, fix wages, as Mr. Kcir Hardie de-
sires, by legislation, at the living wage of three
pounds per week, and trust that the increased op-
portunities which the higher wages afford will enable
the wage-earners to form a new habit of life in which
new and higher wants and aspirations have a proper
place; but that is legislation, not wages theory. On
the contrary, it is an explicit contradiction of the
subsistence theory, which requires that higher wages
shall follow, and be caused by, the higher standard
of living. With the advisability of such legislation
we are not concerned, except in so far as the pro-
posal illustrates the difficulties into which the more
hopeful form of the subsistence theory leads us.
We have to reconcile a doctrine which professes to
show a method of raising wages with a theory which
declares that there is a minimum below which wages
cannot fall.

It is obvious that the reconciliation cannot be
affected by supposing the universal and immediate
adoption by the whole of the working classes of the
proposed additions to the standard of living. Such
a supposition would be contradicted both by history
and by moral theory. Wholesale conversions do
not usually involve any serious change of heart.
The masses are never elevated at once, but by the old
and familiar way of making giants and leaving it to
them to elevate the mass. New wants and aspira-
tions will at first be felt by but a few — too few to
bring any serious influence to bear on the labor
market. Consequently, if the creation of new wants

i i

Mr. Guntons Version.

and aspirations is to be a practical method for rais-
ing wages, it must be supposed to effect the purpose
in some indirect way : for directly and obviously the
effect of new wants must at first be infinitesimal.

Mr. Gunton has endeavored to restore the subsis-
tence theory to the rank of a scientific explanation
of wages. It was rapidly becoming a mere pious
opinion and it was necessary to restore the necessity
and determining power which the theory had in its
earliest stages, in some way consistent with the prac-
tical aim which had come to be associated with the
theory. The evidence which car be given in favor
of the theory is not conclusive till it has been
demonstrated that the standard of life can determine
wages: until this has been shown, the concomitant
variation of wages and standards does not yield the
desired conclusion. Mr. Gunton faces his difficulty
boldly and declares that " the chief determining in-
fluence in the general rate of wages in any country,
class, or industry is the standard of living of the
most expensive families furnishing a necessary part
of the supply of labor in that country, class, or in-
dustry ": or, as he says, more briefly, later on the
same page, " the minimum amount upon which the
most expensive laborers will consent to live deter-
mines the general rate of wages in that class."*
We may translate this into a newer terminology,
and say that the wages of labor are determined by
the marginal supply price of labor. Mr. Gunton,
however, seems to have been misled by analogy.

* Gunton's Wealth and Progress, p. 8g.

The Bargain Theory of Wages.

I I'

The marginal supply price of any commodity is the
price at which the most expensive portion of the
commodity can be sold. Mr. Gunton, applying this
conception to labor, claims that the marginal laborer
is the laborer with the highest standard of living.
He may be so, but not necessarily. The marginal
laborer is the laborer who is on the margin of not
being employed ; and whether he shall be employed
or not depends on whether his employer thinks it
worth while, considering the price of the commodi-
ties which he will be engaged in producing, to em-
ploy him. It is not a matter of indifference to an
employer which laborer is the marginal laborer. In
slack times, it is the inefficient workman who is the
first to be dismissed and the efficient workman who
is surest of his place. This is because the employer
has formed his own personal estimate of what the
man is worth — an estimate which is not final and
may be modified by the attitude which the laborer
chooses to take. An efficient workman who has
rendered himself obnoxious by agitation and com-
plaints has, from the employer's point of view, so
much the less efficiency. In the main, however, it
is an estimate of efficiency that determines who is
the marginal laborer. As a general rule, the lower a
man's standard of living the less his efficiency, and
the higher his standard the better is he at his work.
The laborer with a high standard of living is thus
not the marginal laborer whose earnings determine
the general rate of wages. The real marginal laborer
is he who " adds to the total produce a net value

The Manrinal Laborer,

just equal to his own wages," * and is thus, under
the actual conditions of industry, the least efficient
workman employed. Accordingly because the least
efficient workman is also, generally, the workman
with the lowest standard of living, if the standard
of living of the most expensive laborer is to be
taken as the determinant of wages, the standard
must be that of the least efficient, not of the most
efficient. Mr. Gunton adduces in support of his
contention the fact the native workman in Amer-
ica, who has the higher American standard of
living, can barely do as much as make both ends
meet ; while the immigrants, with a lower standard,
can, on the same wages, save money and accumu-
late property. " What the most expensive por-
tion of a given class must receive the balance
may and will receive, "f In this way the law is
given determining power and to the great body of
labor becomes beneficent. All those whose standard
falls short of the highest can, according to their
ideas, live on their wages in comparative affluence,
while only a select few feel the pinch of circum-
stances. " There is nothing," he continues, J: " in
the nature of this law to prevent .lie rate of wages
from rising to five thousand dollars as well as to five
hundred dollars a year." And the fact that there
is nothing in the law to prevent or to show that
such a rise under any known conditions is impos-
sible, shows the law to be comparatively meaning-

* Marshall, Principles of Economics, p. 567.
f Gunton's Wealth and Progress p. 89.

X Ibid.^ p. 90,

TJic Bargain Theory of Wages.

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less. The total national dividend out of which the
expenses not of the working classes only, but of the
whole of society must be met is not sufficient,
divided share and share alike, to give such an aver-
age wage. No doubt from an increased product,
and out of a larger national dividend, a larger abso-
lute, if not also a larger relative share, may go to
labor; and a higher standard of living among the
working classes will no doubt result in an increase
of efficiency and indirectly, through consumption,
make it possible to pay high wages ; but the increase
arising in this way will not be very great. The in-
crease of the product of industry which has taken
place within the last forty years has been due, per-
haps, more to the increased use of capital in manu-
facturing than to an increase in the efficienc'' of
labor; and there is no reason whatever foi .up-
posing that there will be in the future a greater pro-
portional increase of efficiency than there has been
in the past. At any rate a rise of the average wage
to five thousand dollars a year can be rendered pos-
sible only by an enormous increase of efficiency:
directly, the standard of living alone, however
powerful as a determinant of wages, is quite in-
capable of raising average wages to even the fifth of
that sum. The optimism of this practical form of
the theory is so extreme that it, in effect, denies
that there is any labor question at all. The prob-
lems of distribution arise only because the national
dividend is limited in amount. Mr. Gunton not
only ignores the existence of other claimants for a

The Demand for Labor.

share of the dividend, but assumes that the dividend
itself is large enough to make it possible for the
working classes to raise their demands indefinitely
and have them met. It is true that if the efficiency
of industry is increased by a rise in the standard of
living a larger average wage may be paid ; but, in
thus arguing, we have abandoned the original theory
of wages and adopted in its place a modified form
of the later theory which makes the productivity of
labor the measure of wages.

A more serious defect in Mr. Gunton's theory is
that, in order to obtain that permanence in the
standard to make it the final determinant of wages,
he entirely ignores the demand for labor. He
writes as if he had adopted without qualification
the trade-union and working-class fallacy of the
Lump of Work, which is, that there is a certain
amount of work to be done which will be done no
matter what the cost. Demand, as Mill pointed
out, though he forgot his own distinction when he
wrote on wages, is always relation to price ; and if
labor has a supply price it has also a demand price.
The existence of a demand price must very seriously
affect the ability of the working classes to determine
wages according to their wishes, if the demand
were fixed and invariable, the permanence of the
standard of life could be assumed and the higher
standard would, as Mr. Gunton claims, determine
the wages for all. In an open market all labor of
the same degree of efficiency will be paid at the one
rate. If the demand is sufficient, and will remain

!■!

7//t 'gain TJicory of Wages.

! ■•

lli

under all conditions sufficient to carry off the sup-
ply, the rate of wages will be determined by the
supply price of the most expensive portion. But
what happens if the demand is not fixed and, under
given conditions, is not sufficient to carry off all the
supply ? The first effect is a trial of strength be-
tween the standard and the tendency of wages to
fall. The laborers with the highest standard, ac-
cording to Mr. Gunton, being the marginal laborers,
will be the first to go. If the}^ are willing to accept
a lower wage which, ex hypothesi, is too low to cover
their expenses, they have the same chance of em-
ployment as the others. If they obstinately hold
by their standard they may find themselves out of
work; and, though it is labor that is bought and
sold, the laborer must live by the price of labor.
There is a great strength in the position of any bar-
gainer who stands out for a price ; and, other things
being equal, he is likely to obtain the price he de-
sires. But in the case of labor other things are
not equal; and the only force on whose operation
the laborer can depend to make good his demand is
the difficulty the buyer of labor has in finding a sub-
stitute which will serve his purpose equally well.
No man can claim to be indispensable, and the in-
convenience there is in finding a substitute for an
unwilling workman is never very great. The mar-
ginal laborer must, therefore, when the demand for
labor falls off, either lower his demands or be con-
tent to stand aside ; for, by Mr. Gunton's hypothesis,
the marginal laborers are few in number, and noth-

The Necessities of the Laborer.

ing has been said about efficiency. If the standard
for which a struggle is being made has been adopted
by thousands, and if each laborer of the thousands
is resolutely steadfast in demanding a wage which
will enable him to live up to the standard, a proposal
to reduce wages may be successfully resisted, be-
cause the trouble and inconvenience of finding sub-
stitutes for so many is very great. This is probably
one reason why it has been possible to maintain the
American standard of living in spite of the compe-
tition of low-class immigrant labor. "'^'

The solution of the difficulty, however, is not far
to seek. The marginal laborer is not necessarily
the laborer with the highest standard of living.
Experience, on the contrary, shows that the mar-
ginal laborer is almost invariably the laborer with a
low standard. The employer takes into account
when he buys labor the efficiency of what he buys ;
and thus there is a demand price as well as a sup-
ply price. The standard of living is therefore not
the sole determinant of wages. In the absence
of a fixed demand for labor, the standard of the
laborer is not stable and permanent enough to make
it impossible for wages to fall below what will admit
of this standard. The force on which the laborer
must rely to obtain what he demands is not the
strength of his desires, his wants, or his habits, but
the inevitable inconvenience to the employer in re-
placing him. If the standard has been widely
adopted, and is strenuously maintained, the incon-

*See the chapter on the Migration of Labor,

n :

ii i

T/w Bargain Theory of Wages,

vcnicncc may be so great as to counterbalance the
possible gain to the employer from a deduction of
wages. The standard of living is thus not a mini-
mum below which wages cannot in any event fall,
but a conception which each laborer has formed of
his own merits or of what his labor is worth and by
which he is prepared to stand. If need be he will
accept less, as a merchant may sell his goods for less
than cost to avoid a greater loss; but the laborer
will be as anxious as the merchant to avoid this con-
tingency, lie can accept less temporarily, because
he can support physical life on less ; but the more
firmly he is attached to his standard the greater the
resistance he will oppose to any attempt to force
wages below it. He is not invariably successful in
his opposition, as the strike returns show. He is
apparently, however, almost as often successful as
unsuccessful. The peculiar position of the laborer
probably renders it more difficult for him than for
other vendors to enforce his estimate of what he
sells. In many cases the seller of a commodity may
withdraw part of the supply, as the Dutch planters
destroyed the spices; but the laborer has not the
same freedom. It is generally asserted that every
laborer must work and must work immediately ; and
that consequently he is dependent for enforcing
his estimate of what he sells on the effect which
the prospect of inconvenience has on the mind of
his employer. How far the assertion is correct we
shall inquire in next chapter; for this is one of the
cardinal propositions of the Wagf^s-Fund Theory.

CHAPTER II.

THE WAdKS-FUND THEORY.

IT is hardly possible to draw a rigid line of distinc-
tion between the Subsistence Theory and the
Wages-Fund Theory ; for the two theories are not
mutually exclusive, and indeed, sometimes, are held
by the same writer. The distinction is to a large ex-
tent a matter of the relative emphasis laid by the par-
ticular writer on the separate terms of Ricardo's con-
trast between market and natural wages. Natural
wages, he had described as being such as would
maintain the race of laborers, and such as would be
paid in a stationary society. Market wages, on the
other hand, may, in an improving society, for an in-
definite period, be constantly above the natural rate;
and society during the first half of this century was
distinctly improving.* Ricardo had developed, with
proper emphasis and with the proper theoretical ex-
ceptions, the theory of wages which explained the
industrial situation down to his own period ; and it

* The improvement was not continuous, nor was it so marked in
some departments as in others, but, nevertheless, the characteristic of
the half-century was progress.

' 1

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77/^ Bargain Theory of Wages,

was to be expected that when industrial conditions
changed for tiie better the theory of wages would
also become less pessimistic. After the close of the
war period it was seen that wealth was increasing
faster than population; and Ricardo's theoretical
case was consequently everywhere actually realized.
Market wages, therefore, rather than natural wages
was the subject of discussion and investigation, and
the theory of wages which was gradually formulated
by economists between Ricardo and J. S. Mill was
explicitly a theory of market wages. The doctrine
of natural wages was not rejected. It still formed a
gloomy background. Natural wages were the mini-
mum to which the incontinence of the working
classes might reduce wages; but it was not consid-
ered necessary to discuss the minimum in the course
of the treatment of market wages, any more than a
publicist would consider it necessary to interpolate
a reference to physical force in a treatise on repre-
sentative government. An exaggerated Malthusian-
ism made it possible to maintain the older theory
while discussing the new.

It might, in a sense, have been possible even
without the assistance of the Malthusian doctrine to
maintain both theories; for each attacks a different
part of the Wages Question. Wages may be con-
sidered from two points of view — as the share of the
product or income of society which is ultim, *:ely
allotted to labor, or as the amount of the commoai-
ties ready for consumption which the individual
laborer is able to obtain. The problems of wages, and

General Wages and Wages per Head. 43

wages per head, arc quite distinct. The first involves
a discussion of general wages which may result in a
discussion of average wages, and the second a discus-
sion and description of the causes why A's wages arc
such and such, and more or less than B's. The
Wages-Fund Theory discusses the problem of gen-
eral wages fully, but adds little or nothing to the
discussion of particular wages. It is a theory re-
garding the source, ultimate or derivative, from
which wages are paid, rather than a theory explain-
ing the actual differences of wages received. The
Wages-Fund Theorists do incidentally, and some-
times in lengthy chapters, discuss the causes of the
difference of wages; but the treatment they give to
the problem is avowedly supplementary. The sub-
sistence theory, on the other hand, is, in the main,
a theory of particular wages. While the minimum
was interpreted strictly as a physical minimum, the
early theory may be regarded as dealing both with
particular and with general wages. The same cause
which determined general wages also determined
— accidents and theoretical exceptions apart — the
wages which each man received. With every change
in the direction of the recognition of the stand-
ard of life as elastic, the subsistence theory became
more and more a theory of particular wages; and
the general problem was neglected. The problem
of the determination of the particular wages is un-
doubtedly the more interesting of the two, but it
is barren of scientific results. The causes of the
differences of wages are so various that an investiga-

The Bargain Theory of Wages.

v,\

m I

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1^ \

: I

tion of them will not readily yield any law of more
than temporary and local significance. The diver-
sion of the attention of economists from particular
to general wages, though it .lade political economy
abstract and " dismal," was a real gain to economic
theory. When the growing prosperity of the nation
caused the abandonment of the notion that the
standard of life was fixed and permanent, the scien-
tific value of the early theory went out of it ; and it
became, as was said above, merely a theory of par-
ticular wages. The Wages-Fund Theory took up
the scientific problem and devoted itself mainly to
a discussion of the source from which wages are
paid and of the laws which govern the amount of
the wages fund. It makes no contribution which
is worth serious consideration to the discussion of
particular wages. It gives us merely an arithmetical
average which has no practical bearing, and a general
enunciation that particular wages can only rise or fall
at the expense of other wages. Mill, indeed, does
give a supplementary chapter (in which he follows
Adam Smith very closely) to a discussion of the
cav :;es of differences in wages, but the causes he finds
at work do not find their ultimate explanation in the
Wages-Fund Theory. The problem of general wages
is the only one of scientific importance and it is highly
desirable that the two problems should be kept
distinct; but it is not desirable that the solutions
of the separate problems should have no connec-
tion the one with the other. The particular causes
of the differences in wages should be shown to

Wages-Fujid Theory and Particular Wages. 45

be cases under the law of general wages and not
treated as if they were independent laws of wages.
The Wages-Fund Theory has no place for these
particular laws; and it treats them as if they
were supplementary laws brought in to explain
what the Wages-Fund Theory cannot be made to
explain. The Wages-Fund Theory was undoubt-
edly thought to explain particular wages. It was
constantly, in its popular version (or perversion),
used as an argument against trade-unions, for in-
stance, and the possible influence of trade-unions on
particular wages; and Mill himself, when he pro-
poses to discuss facts in apparent contradiction with
the theory, virtually makes the claim that the gen-
eral law of wages does include and explain the par-
ticular causes of the actual variations in wages. But
his explanations are either unconvincing, if consistent
with his general theory, or inconsistent with the
theory if convincing.

The Subsistence Theory and the Wages-Fund
Theory are, however, as we saw, not mutually ex-
clusive, and the latter theory was developed too
closely under the influence of the Malthusian doc-
trine ever to be placed in opposition to the earlier
theory. Ricardo had defined capital as " that part
of the wealth of a country which is employed in pro-
duction, and consists of food, clothing, tools, raw
material, machinery, etc., necessary to give effect to
labor"*; and, since the most obvious way in
which capital is " necessary to give effect to labor "

* Ricardo, Principles, p. 72.

-if.

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77/r Bargai?i Theory of Wages.

lies in supplying the laborer with the means of living
during the extended process of production, Ricardo,
to whose analytic mind the less essential was the
practically non-existent, naturally came to resolve
all capital into food. Thence it was but a step,
and, under the influence of Malthus, an easy step,
to the position that wages depended at any moment
on the proportion of the amount of food or capital
to the number of laborers in the community; and
this is the essential doctrine of the Wages-Fund
Theory. The progress of the working classes had
taken away from the subsistence theory that ele-
ment of necessity and permanence which it ap-
peared to possess in the notion of a physical mini-
mum; and Ricardo's definition and use of the term
capital seemed to give back again the element of
necessity which had been lost. The older form of
the theory had relied on the absoluteness of the
principle of population; but, with admission of a
moral check, no permanent obstacle to an indefinite
rise of wages seemed to remain. But, when Ricardo
accepted unquestioned the assumption made by
Adam Smith that wages were paid out of capital,
and practically limited capital to the food necessary
to give effect to labor, a new and inexorable limit
and obstacle could be placed to the rise of wages.
The intention of the capitalist, who had the right
to do what he liked with his own, rather than the
continence of the working classes, became the real
determining force. Thus again the law of wages
was made to depend on a force strong enough to

The Wages-Fund Theory.

bring it into operation as a determinant of wages;
and the discarded physical minimum could be rele-
gated to the background as a theoretical minimum.
The intention of the capitalist laid down a practical
and a necessary maximum beyond which wages
could not rise. The Wages-Fund Theory which
was thus established is the second scientific theory ;
because it recognizes that a law of wages must be
more than the pious opinion of an economist.

The Wages- Fund Theory is a theory of supply
and demand, and naturally discusses the supply of
labor, and the demand for labor, and the force
which brings about an equilibrium between, or equa-
tion of supply and demand. The theory may be
conveniently formulated in three propositions deal-
ing with these three subjects.

The first proposition dealing with the supply of
labor may be thus stated : There is a determinate
number of laborers, at any given time, who must
work independently of the rate of wages, /. e.,
whether the rate be high or low. Taken without
the limitations generally stated by the Theorists,
there is a very large measure of truth in this propo-
sition. The compulsion of necessity drives men to
labor. " Many workmen could not subsist a week,
few could subsist a month, and scarce any a year,
without employment'^;" and the same necessity
lies upon autonomous laborers as upon hired labor-
ers, although the degree of compulsion to imme-
diate work may not be so great. The Wages-Fund

* IVealth of Nations, p. 28.

.J!iJ»il-.

HMSSH

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T/ie Bargain TJicory of Wages.

W \

Theory, however, qualifies the importance of this
proposition by expressly excluding from considera-
tion all but those who work for hire. The determi-
nate number of those who must work includes those
only who work for hire. Autonomous producers
and those who render immediate services are not in-
cluded in the number. Adam Smith had expressly
excluded the latter class, and Ricardo followed his
example, probably without reflecting on the extent
of the class excluded. The \Vages-F\ind Theorists,
in spite of their probably wider historical knowledge,
followed Ricardo. The essence of the argument
they based on this proposition is that, since the
number of laborers obviously cannot be immediately
increased, and, owing to the compulsion which lies
on all laborers to work to live, is not subject to
diminution, the supply of labor may, therefore, at
any given time, be taken as fixed. But the boun-
daries between those classes cannot be regarded as
permanently fixed. Under normal conditions, when
demand and supply are adjusted to each other in
each of the three classes, there may be little irregu-
lar transfer; but when industry fluctuates, the trans-
fer from the one class to the other may be great.
There is no inherent difficulty in the way of this
transfer as there is in the case of the mobility of
labor between trades. A man may still work at his
trade whether he works at the bidding of another or
on his own account. A shoemaker is still a shoe-
maker whether he works in his own stall or in an
employer's workshop. Peasant proprietors are not

Is the Supply of Labor Dctvrniinatc ? 49

the only autonomous producers. There are still
large numbers of jobbing artisans, especially in the
smaller towns; and many of these are found now
working for themselves, and now at the bidding of
another.* When wages are high they may enter
the class of hired laborers; when wages are low,
they may work for their own behoof; or, vice versa,
according to the disposition and temperament of the
individual. The class of laborers, moreover, who
render immediate services, is not, in the present day,
absolutely distinct from the class of hired laborers.
In Adam Smith's day the feudal spirit was not quite
extinct; and every nobleman had a large number of
retainers to support his dignity. These retainers
were, in every sense, unproductive, and could not
on occasion seek employment as hired laborers.
Servants, however, in the present day are generally
engaged for economic purposes ; and many of them
are quite capable of finding employment as hired la-
borers. Instead of employing a gardener or a coach-
man by the year, one may hire him by the day or
the week ; and the gardener may employ the rest of
his time working for hire in a nursery, or market
garden, or on his own behoof; and the gardener is
the type of a comparatively large class. The wages
of domestic servants have risen, in consequence of
the attraction of female labor to the factories ; while

!'■

* The development of iiulustry on a large scale has been accom-
panied by an increasing transfer of laborers from the autonomous to
the hired class : but this movement has been so regular and so long
continued that it may be considered normal.

The Bargain Theory of Wages.

t;.

depression of trade drives many from the industrial
to the service class at least for the time being. The
prolonged business depression in the United States
following the panic of 1893 has diverted a large por-
tion of the new supplies of labor from business to
the professions ; and in one profession at least — uni-
versity teachers — salaries are falling in consequence.
The prospect of certainty has, for the time being,
more than offset the attractions of the chances of
success.

Thus, though it were true that the number of
those who must work is determinate, it does not
follow that the number of those who must work for
hire is determinate. But the number of those who
seem committed to labor is not altogether determi-
nate. There seems to be a margin of labor (not
necessarily a large margin) which works or not ac-
cording to the inducement. We do not refer to
the out-of-work members of a trade-union, for the
Theorist will rightly point out that the number of
laborers is only nominally smaller^ if those who work
support those who do not work. But if, and in so
far as, those who are out of work are supported, not
by the trade-union funds but by public or private
charity, the burden of their support is borne by the
community at large, and probably mainly by those
members of the community who are not included
within the class of hired laborers. The numbers of
men in receipt of poor relief vary considerably ; and
these fluctuations show that the first proposition of
the Wages-Fund Theory requires some qualification.

.■J

The Supply of Labor.

The Theory, however, claims to be primarily a
theory of the demand for labor. " The causes gov-
erning the supply of labor may be taken as suffi-
ciently elucidated. Our business is with the causes
governing demand — governing the amount of wealth
applied to the direct purchase of labor, or, as we
may equally well express it, governing the Wages-
Fund. ' ' * The causes governing the supply of labor
are set forth in the doctrine of population and, on
the whole, we are asked to consider the supply of
labor which must work as given independently of
the demand.

The supply of labor is regarded as determinate,
because laborers must work and cannot stand out for
their price ; but it does not necessarily follow that,
because all laborers must work to live, their objec-
tion to work for lower wages than they have been
accustomed to, can have no effect on the price of
labor. This inference, however, is drawn by all the
exponents of the theory. Mill, indeed, does recog-
nize briefly, in passing, in his chapter on profits, that
the advance of wages is regulated by the productive
power of labor. The motive which the capitalist
has in advancing wages is not philanthropic but
economic ; and his advances are governed by the
anticipated surplus of the product over the advances
he must make to labor. Profit, therefore, depends
on the productiveness of labor; and the laborer is
therefore not a merely passive factor in the wages-
bargain. The laborer must work, but it is the em-

♦ Cairnes, Leading Principles, p. i6l.

T/ic Bargain Theory of Wages.

1 >

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ployer's interest that he should work. Therefore
the objection to a large number of laborers to sub-
mit to a reduction of wages has an undoubted in-
fluence on the employer's intentions. To reduce
wages in spite of the objections of the laborers is
indeed always possible ; but it is not always profit-
able; and an employer may, owing to these objec-
tions, continue to pay higher wages than he might
otherwise succeed in forcing his employees to accept.
The reason is that, as Mill himself has pointed out,
the mental and moral qualities of the laborer affect
the productiveness of his labor; and hope and con-
tentment are two of the most important of these
qualities. " The wages of labor are the encourage-
ment of industry, which like every other human
quality improves in proportion to the encourage-
ment it receives. . . . When wages are high,
accordingly, we shall always find the workmen more
active, diligent, and expeditious than when they are
low." * To ignore his objections may make a work-
man discontented, and a discontented workman is
seldom as efficient as he might be. But the fact of
the ultimate regulation of wages by the surplus
which the employer hopes to realize was not con-
sistently recognized cither by Mill or by any other
Theorist. The Wages-Fund Theory is, therefore,
entirely a theory of the demand for labor — the sup-
ply being regarded as fixed and the laborer merely
as the recipient of wages.

* Wealth of N'ationSy p. 34. For a further discussion of this
question see the chapter on Trade-Unionism.

Capital and Wages.

The first proposition has not bcLMi seriously, or
intelligently, called in question, but the second has
provoked endless discussion and criticism. It em-
bodies the central doctrine of the Theory, and may
be stated thus: In any country, at any given time,
there is a determinate amount of capital uncon-
ditionally destined to the payment of labor; and
this is called, for shortness, the Wages Fund.

The basis of this proposition is the assumption
made by Adam Smith, and adopted, unquestioned,
from him by all economists for a hundred years, that
wages are paid out of capital. This is, perhaps, not
the best way of expressing the important phenome-
non to which attention is called, that the hired
laborer receives not an immediate but a derivative
share of the product of industry. Adam Smith
evidently did not think that the assumption required
either explanation or justification ; and, although
both he and the chief of his successors pointed out
the reason, in the organization of industry, why this
should be so, they did not develop the reason so far
as to show conclusively the necessity of the assump-
tion. The process of production is spread over a
long period of time and the main function of capital
is to permit this extended process. We need not
attempt to determine whether or not it is a law, or
merely an observed fact of modern industry, that
the progress of industry should mean the expansion
of the period between the time when the first steps
of production are taken and the time when the com-
modity is finally in the hands of the consumer.

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TIte Bargain Theory of Wages.

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Ever since economists combined to reject the physio-
cratic distinction between productive and unproduc-
tive labor, more or less adequate recognition has
been given, in theory, to tne fact of long-period
production. It does not require now even an effort
of the economic imagination to realize how little
of the labor of to-day has been engaged in produc-
ing what will be ready for use to-morrow. A com-
modity is not finally completed until the retailer
has put into it the utility of being where it is
wanted, and it is in the hands of the consumer.
Only a comparatively small number of laborers are
employed in giving the final touches to a com-
modity, and usually the completed product of one
industry is the raw material of another. Whether
it takes one year or five years or ten years to bring
a commodity from its earliest stages to the hands of
the consumer is not a matter of much moment : the
essential point is that, in every case, it does take a
long time. The length of the period is, in part,
concealed from us by the fact that under no circum-
stances is a commodity brought thus far by one
worker or group of workers alone. Each worker,
or group of workers, disposes of the product to the
workers of the next stage ; and so far as they are
concerned, the process of production is complete.
But the final product is the product of successive
stages ; although, for the sake of brevity (ignoring the
subsequent services of the transporter, the merchant,
and the retailer), we generally speak of the last pro-
ducer in the series as the maker of the commodities.

Real I Vagcs and the National Dividend. 5 5

The importai-KTC of this fact of the theory of wages
is that, at any time, only a small proportion of the
agents of industry can be engaged in turning out
commodities which are immediately consumable.
Since real wages consists of commodities ready for
immediate consumption, wages must be paid out of
the stock of consumable commodities and paid by
those who own the stock. The great majority of
wage-earners, then, cannot be paid out of the im-
mediate product of their own labor because the goods
they are engaged in advancing one stage towards
completion are not in a condition to satisfy imme-
diately any human want whatsoever. The real
wages they receive must come out of the stock of
completed commodities which has been called the
national dividend. There is no other source from
which wages can be paid.

Whether wages are paid out of capital is the ques-
tion whether goods ready for the consumer are or
are not capital. Ricardo had defined capital in such
a way as practically to limit it to the food necessary to
give effect to labor; and, with or without a conscious
ellipsis, his definition was adopted by most econo-
mists. Food is the typical consumption commodity,
and wages are therefore paid out of capital. The
almost exclusive attention of economists down to
the time of Mill to the problems of production had
made it possible for them to regard wages simply
as a means to further production. Mill did declare
that all wealth is consumed; but the emphasis he
laid on this proposition did not enable him always

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T/ic Bargain TJicory of Wages.

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and consistently to rcco^jnize that consumption is
an end in itself. Waj^es, /. c, real wa^^es, arc not
paid for the purpose of enabling production to be
carried on ; and the laborer never regards his wages
in the light of an investment. Wages are an end;
and it is of no consequence immediately to the
wage-earner that they arc also a starting-point in a
new economic cycle. It does not seem desirable,
therefore, to include food and other consumable
commodities within the content of the term capital.
Capital is more appropriately confined to what Pro-
fessor Taussig has called "inchoate" wealth or
goods on the way towards completion for the satis-
faction of human wants. Wages, and all the other
distributed shares, are paid out of the income rather
than out of the capital of the community; although
it is to be kept in mind that the income of the com-
munity consists in that portion of the inchoate
wealth which has just been advanced to the final
stage. The wages of present labor will not, in gen-
eral, be paid out of the product of present labor.
The reward of labor is paid out of the product of
past labor ; and the labor expended to-day may serve
to remunerate labor a year or five years hence. The
present reward of present labor consists of consump-
tion goods which have been preparing for use during
many years.

The source of wages is the stock or the fund of
such consumption goods; and those who are in
possession of this stock are the real dispensers of
wages. The laborer is certainly not the owner ; and

The Oivncrship of the Waii^cs Fund.

his employer seldom is. The present necessities of
the laborer compel him to exchange the value of
his share in a certain amount of capital or inchoate
wealth for commodities which will satisfy his imme-
diate wants. If his necessities would allow him to
wait until the wealth he has helped to create matures
into, or is carried out into, commodities in a condi-
tion to satisfy human wants, he mi^ht be able to
exchange his share in the product for a larger
amount of commodities that will satisfy his indi-
vidual wants. But they will not allow him to wait.
So he discounts the value of his present contribution
to the income of five or ten years hence and receives
in return actually consumable commodities which it
may be five or ten years since he had helped to ad-
vance one stage towards consumption.

The employer, when he disposes of the output of
his factory, is in practically the same position : he,
too, discounts the value of his contribution to future
income and he does so under the pressure of the
same necessity of realizing now on what would ac-
crue to him in the future. His necessity is not so
immediate; nor does he always feel compelled to
make a bargain for the output with someone, before
he begins to produce. The laborer not only sells
his share of the ultimate product at one stage earlier
than the employer sells his, but he is not in a posi-
tion to take any risks. He cannot even wait, so
great and so immediate are his necessities, until he
has made his contribution before he disposes of its
result. The employer, as a rule, can wait and the

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77^^ Bargain Theory of Wages.

buyer of the output of the employer's industry takes
less risk and can afford to give better terms. The
employer from this point of view is simply a middle-
man or, if you like, a broker or private banker who
discounts values which are too uncertain for the
regular banker to touch. He takes the extra risk
of the laborer's contribution not being what it is ex-
pected to be, and consequently he must charge a
proportionately higher rate of discount. Owing to
the lengthened process of production the laborer in
order to live is compelled to have recourse to his
broker; and when the laborer is not economically
subject to the employer he is, under his actual con-
ditions, the gainer by the transaction. He is not
in a position to take risks, and therefore gains by
obtaining a sum down instead of the somewhat
doubtful value which he might obtain after waiting.
Theoretically, the laborer, who is not paid till the
end of the season or till the product is marketed,
ought to be in a better position than the man who
is compelled to make his employer take the risks ;
but practically he is not ; for, in such cases, the la-
borer, being, as a rule, economically subject to his
employer, is compelled, like a man in his necessities
having recourse to a usurer, to accept whatever terms
the employer may make.

Whether wages are paid out of capital or not is
largely a question of the definition of capital; and,
in the sense in which we have taken that term,
they are not paid out of capital. On the contrary,
if a paradoxical use of language may be permitted

Capital and Wages.

for a moment, the laborer, instead of being sup-
ported out of capital, parts with capital (" inchoate
wealth "), actual or to be created, in order to obtain
an income of commodities in a form ready to satisfy
human wants. His wages are paid out of the in-
come of society. This fact is concealed from us by
the intervention of money payments. The laborer
receives a money wage directly at the hand of his
employer and, although the distinction between
money wages and real wages is always made, it is
not always adhered to. Because the laborer re-
ceives his money wages from his immediate em-
ployer, it is generally taken for granted that he is
paid out of the funds of his employer; and if we
confine our attention to money wages — a matter
of little importance for the theory of wages — the
fact is as represented. From an individual point of
view, the payment made by an employer to his em-
ployees is a final transaction, but, from a social
point of view, it is only a step towards the final
transaction. In the payment of real wages the em-
ployer may be only an intermediary or agent : the
real payer of wages is the owner of the stock of
consumption goods.

The proposition that wages are paid out of capi-
tal is, perhaps, not the best way of expressing the
dependence of the laborer on his employer; and, in
consequence of the inadequate expression, in the
Wages-Fund Theory this dependence is somewhat
exaggerated. Mill, who has given us the standard
exposition of the theory, defines capital by reference

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The Bargain Theory of Wages.

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to the intentions of the owner of capital ; and this
definition, combined with the natural habit of re-
garding the payment of money wages as a final
transaction, leads to the characteristic and central
doctrine of the Wages-Fund Theory, that the money
resources which the employer has set aside for the
payment of wages is a determinate amount. With
the version of the theory that finds in it only a state-
ment of the wages problem we need not trouble.
We can find our own statement of the problem.
The Wages-Fund Theory stands or falls according
to the answer to the question whether the wages
fund is predeterminate and fixed. That the fund is
determinate ex post facto needs no long demonstra-
tion : so the popular and unmodified version of the
theory is the only version we need consider.

According to this version, an employer, looking
to the resources at his command and to the nature
of the productive process in which he is engaged,
makes up his mind that so much and no more it will
be profitable for him to spend in hiring "labor — in
much the same way as a householder, looking to
the size of his income and the domestic necessities
of his household, decides whether to engage one
or two or three domestic servants. Whatever the
hesitation when the critical question is propounded,
there can be no doubt that it was generally assumed
that not only no more but no less than this prede-
termined amount would or could be spent in hiring
labor. This definite amount was earmarked for a
definite purpose; and — an important feature often

,,,.?

Is the Wages Fund Predetermined f

overlooked by the critics of the Theory — since the
regulation of industry was in the hands of the capi-
talist, no change could occur which might induce
him to alter his intention. Under changed conditions
his intentions would be different ; but, in the normal
course of industry, his intentions determined, and
were not determined by, the condition of industry.
It wa^ an easy matter for critics who accepted the
individual limited standpoint of the Wages-Fund
Theory and treated only money wages, to demon-
strate, as soon as suspicion of the validity of the
Theory had been aroused, that the wages fund was
neither predetermined nor fixed, that employers did
not pay wages from a royal desire to carry out their
intentions, but from the more sordid desire of se-
curing for themselves the surplus of the product
over the advances made, that although wages might
be advanced temporarily by the employer, the ad-
vances were measured by the anticipated price to be
realized for the product, and, finally, that the im-
portant factor to be considered was not the intention
of the capitalist, but the efficiency of the laborer.
On all of these points the critics of the Theory had
an easy but a barren victory. They had an easy
victory, because they could show that the capitalist
never acted as he did out of sheer indifference, or to
exhibit his strength, but from an economic motive.
They had a barren victory, because they confined
their attention mainly to money wages — as no doubt
they felt justified in doing, in criticising a theory
which confined itself, in the main, to money wages.

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7i^^ Bar gam Theory of Wages.

The criticism was perfect, but its results were purely
negative. It is easy to show that the money which
an employer is prepared to spend in wages is neither
fixed nor predetermined. Theorists neglected alto-
gether, as Mr. McLeod, among others, has pointed
out, the influence of credit in swelling the resources
of the employer; and when this influence is taken
into account the Wages Fund cannot be regarded
as fixed. It is not predetermined because industry
is not stationary, and not governed exclusively by
the intentions of the employers. Industry is con-
stantly fluctuating and since the employer never
acts qua employer without an adequate economic
motive the intentions of the employer will change
with every change in the prospects of industry.

But all this valid criticism is beside the question,
which is one of real wages. The source from which
wages must be paid is the stock of consumable,
commodities, which is indeed continuously being
exhausted as the commodities are used for the
satisfaction of human wants, but also continually
replenished from the volume of commodities near-
ing completion. This stoc : is, none the less, for any
given period a fairly definite amount. Production
is spread over a long period, and no demand, how-
ever urgent, can indefinitely increase the amount of
all commodities. The process of production may,
under pressure of increased demand and higher
prices, be somewhat shortened ; and since many of
the agents and much of the material of production
can be used in more directions than one, particular

The True Wages Fund Fixed.

kinds of commodities may be produced in vastly in-
creased amounts ; yet the total effect on the real in-
come of society, /'. r., on the stock of consumption
goods, is not very great. The income of society,
at any given moment, may be taken as an approxi-
mately fixed amount ; and, interpreted in this sense,
the W^ages Fund may be regarded as a proportion
of a fi 1 amount. It is true that on this account
the position of the wage-earners is no worse than
the position of the receivers of rent and interest.
These, too, are paid out of a fixed amount.

The original Wages-Fund Theory asserted that
the amount of wealth which goes to labor is deter-
mined by the employer; and even in the modified
interpretation of the Wages Fund the statement
remains substantially true, if we extend the applica-
tion of the term capitalist employer. The stock of
consumable commodities belongs absolutely to its
owners, whoever they may be. All claims on it by
those engaged in its production have been brought
out. The laborer has long since bartered his share of
the final and completed product for necessaries of life,
it may be, before the process of production was near-
ing completion. The employer has sold out his
rights that he might meet his obligations and con-
tinue his business; and the product belongs finally
and completely to its owner. The class of owners
need not necessarily be, as it is under modern in-
dustrial conditions, limited in number; but whether
the class be large or small, the completed product
belongs to it to do what it likes with its own, to

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T/ie Bargain T/l ory of Wages.

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consume it, to hoard it, or to waste it. If, however,
any member of the class choose to postpone the
use of part of the share of this income of consumable
commodities which has, in the economic course, been
assigned to him, he leaves so much more of the
stock for other owners or non-owners to use. The
end of the process has been reached, and consuma-
ble goods must be consumed or wasted. If he does
not consume these commodities himself, he leaves
them for some other to consume; and if, from any
cause, he prefers to postpone his consumption, there
are others ready and willing to step into his place.
No man, however, if we omit the case of charity, is
willing to postpone immediate satisfaction, except
in return for a proportionally greater satisfaction in
the future ; and the only way in which a man can
postpone his immediate satisfaction, and secure a
greater amount of satisfaction in the future, is by
exchanging a certain amount of completed wealth
or income for an amount of inchoate wealth or capi-
tal which, when carried to completion, will repay
him for the sacrifice involved in the postponement
of present satisfaction. If he is so minded he will
always, owing to the conditions of production, find
many willing to exchange inchoate, or less than in-
choate, wealth for present income of consumption
goods. Now, although in the aggregate the savings
of the working classes seem enormous, these, yet,
form a very small fraction of the total savings of
society, and, under the present cond :)ns of unequal
distribution of wealth in society, must look for

■Y'!.

The Amount of the Wages Fund.

saving only from those whose object, in common
parlance, is to make money. The members of the
employing class alone, taking this term in a wide
sense to include bankers and investors, are able and
willing, to any appreciable extent, to postpone en-
joyment and buy capital or inchoate wealth with in-
come. The laborers, on the other hand, as we saw,
are willing, indeed, are forced by the necessities of
life, to exchange capital for income, because other-
wise they would be unable to command the com-
modities which will satisfy their present wants. The
laborer has long ago parted with his share of present
income under pressure of necessity, and he must
now purchase a share in the present income by part-
ing with his claims on a yet distant product. Con-
sequently the price which he is likely to receive for
his claims is the amount of their consumption of the
actually finished commodities which the owners are
willing to postpone. The measure of the Wages
Fund is thus set by the degree of the willingness of
the owners of consumable commodities to postpone
their consumption. This fact is not clearly enunci-
ated in the proposition of the Theory that the inten-
tion of the capitalist determines the Wages Fund ;
because, owing to the present unequal distribution
of wealth and those facts of life set forth in the law
of diminishing utility, the primary owners of the in-
come of society could not possibly consume the
whole of it. The greater part of this income con-
sists of commodities which can satisfy only the ele-
mentary physical wants; and, since the present

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T/ic Bargain Theory of Wages.

owners arc few in number, they must postpone part
of their consumption and would do so whether they
received a " reward for their abstinence " or not.
The socialists have poked rather laborious fun at
the author of this famous phrase and have justly
pointed out that, in the present distribution of
wealth, the postponement of present consumption
is a necessity, not a virtue. The capitalist, or, as
we had better call him, the final owner, is almost as
much bound to buy future income as the laborer is
to buy present income. Still, since the laborer has
no primary share in this present income, the amount
of it which laborers can receive as w^ages is strictly
determined by the amount of present consumption
that the owners, under whatever conditions, are will-
ing to postpone.

We are now in a position to discuss the bearing
of consumption on the wages question. It is often
asserted, in defiance of Mill and the classical econo-
mists, that a demand for commodities is a demand
for labor, and a practical corollary is sometimes
added that the payment of high wages to the work-
ing classes results in the general prosperity of in-
dustry. In the main the answer of the classical
economists was correct ; although they did not, per-
haps, develop all that was implied in their answer,
that a demand for commodities could only change
the direction of industry, because demand and sup-
ply are but the two sides of the one shield. A
change of the direction of industry, however, has
more than the merely formal consequences which

"A Demand for Commodities'*

alone they seemed to recognize. An increased de-
mand for the commodities consumed by the working
classes, in consequence of higher wages being paid,
will change the direction of industry to more profit-
able channels. A certain portion of the increment
may be spent on working-class luxuries of food and
drink, but the greater part will be wisely expended,
especially if the rise in wages is of some duration.
The result will be, since the working classes form
the great majority of the nation, and their wages
allow them to satisfy only the elementary and uni-
versal wants, that production, owing to the increased
demand, will be conducted on a more economical
basis. The limit to the division of labor is the area
and extent of the market ; and where fashion and
caprice rule, division of labor cannot be carried very
far. A working-class demand is not subject to
fashion and caprice, individual preferences being
offset, owing to the area of the market ; and, conse-
quently, new and more economical processes may be
commenced in the assurance of a steady market.
Therefore, when a change in the demand arises from
higher wages paid to the working classes, there may
be a great gain to society as a whole. Except in
this case, however, a demand for commodities is not
a demand for labor. A demand for commodities,
taking commodities in the sense of goods ready for
consumption, implies a large consumption of real
income by its immediate owners; and, as we have
seen, the amount which is paid in wages depends on
the extent to which the final owners of the real in-

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The Bargain Theory of Wages,

come of society arc prepared to postpone consump-
tion. If the increased demand of a section of the
owners of this real income induce another section of
the owners to postpone more of their own consump-
tion than they would otherwise have postponed, the
net result may be an increased demand for labor;
but then the increased demand for labor arises from
the greater willingness to postpone consumption.
More of the real income of society, not less, is
offered in exchange for the labor which will create
those forms of consumption goods which are most
in demand. But if the increased demand for com-
modities be universal, if, that is, there is less willing-
ness on the whole on the part of the owners of real
income to postpone consumption, the result will be
not an increase in the demand for labor but a diminu-
tion of the demand. Since the laborers who own
practically none of this real income must be sup-
ported out of this income they will have to offer
their share in the future income of society at a
greater discount, and the result will be a lower rate
of wages. That this result never occurs is due to
two facts: (i) that owing to the law of diminishing
utility the owners of real income — made up, as it is,
largely of goods capable of satisfying only the most
elementary wants — cannot possibly consume the
whole of it, and (2) that, in one large section of the
owners, the instinct for postponement (with a view
to making money) is much stronger than the instinct
which would lead them to consume the whole of
their share of this income. The owners of the real

Luxurious Expenditure and Wages.

income are rouglily divisible into two classes, the
spenders and the savers; and an increased demand
from the spenders (if that be possible for them with-
out selling part of their right to a share in the future
income of society) creates often so much the more
inducement to the savers to postpone their con-
sumption. We can thus see clearly how far the
luxurious expenditure of the rich does and does not
benefit the working classes. In so far as it induces
the other section of the owners of income to post-
pone a larger amount of their consumption it will
benefit the working classes : in so far as it means a
net diminution of the amount of postponement and
a net increase of the immediate consumption of in-
come by the immediate owners such expenditure
materially injures the working classes. On the
other hand, an increase of wages which leads to a
steadier and wider demand for that class of goods
in the production of which the law of increasing
returns is operative may induce the saving section
to save more and thus increase the amount they
are willing to expend in the purchase of the in-
choate wealth which belongs or will belong to the
laborer.

The third proposition is to the effect that this
Wages Fund is distributed amongst the laborers
solely by means of competition and the rate of wages
depends on the proportion between capital and popu-
lation — both these terms being theoretically under-
stood as elliptical expressions. We need not attempt
to show that however completely wages are deter-

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The Bargain Theory of Wages.

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mined in the present day by competition, historically
law and customs have been more important in the
determination of wages. Mad the attention of
Ricardo and of Mill been directed to the history of
labor they would probably have been ready enough
to admit the existence of other determining forces
than competition ; but they would probably have
continued to treat the wages question as they did.
They would have contended that we can be practi-
cally interested only in the (to them) undoubted
tendency of economic progress to bring about that
condition of competition their theory postulated.
The stage of law and custom was, they considered,
an imperfect development : the stage of competi-
tion, though, perhaps, not realized completely any-
where, was the end towards which things were
moving. On the other hand, we need not attempt
to discuss whether competition is realized in actual
circumstances, how far it ought to be realized, or
how far it is merely a transitional stage between
custom and combination.

What we do require to discuss is the ultimate as-
sumption that lies behind this third proposition that
labor is a commodity subject, when it is bought and
sold, to all the laws which govern the sale of other
commodities. The Wages-Fund Theory not only
treats labor as a commodity, but, if we may take
Mill's exposition as our standard, as the commodity.
The value of labor, according to Mill, is always a
market value, and the fluctuations of this market
value are not checked, as the fluctuations in the

Labor as a Commodity,

7«

value of most commodities arc, by the cost of pro-
duction. Wlicn a commodity is of such a nature as
to " admit of indefinite multiplication," * the fluctu-
ations of its market value from its cost of production
are within very narrow limits; but so far as the
" exceptional case " of " commodities not suscepti-
ble of being multiplied at pleasure " the fluctuations
of the market value are in no wise restricted. " The
principle of the exception stretches wider and em-
braces more cases than might at first be supposed."
" Finally," he continues, " there are commodities of
which, though capable of being increased or dimin-
ished to a great, and even to an unlimited, extent, the
value never depends on anything but demand and
supply. This is the case in particular with labor." f
Labor, then, is a commodity subject, in an ex-
ceptional degree, to the law of demand and sup-
ply. Like the commodities exchanged in Interna-
tional Trade, where industrial competition does not
enter, it is one of the simplest cases of value. The

* Principles, Book III., c. 2, p. 272,

f Professor Marshall points out that Mill, under the influence of
his social sympathies, separated the theory of distribution from the
theory of exchange and, owing to the remarkably short time in which
the Principles were written, failed to co-ordinate the different parts
of his general theory. Certainly, in the second book, wages are said
to be determined by the proportion between capital and population —
the demand and the supply of the Wages-Fund Theory ; but, in the
third book, he substitutes equation for proportion and shows that
demand is not independent of but dependent on supply, being simply
the quantity demanded at a given price. The consistency or the
inconsistency, however, of Mill's theories and expressions is not our
object,

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The Bargain Theory of Wages.

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supply of labor is not determined by competition,
but by an extraneous force, the principle of popula-
tion ; and the supply is on the market and must be
disposed of regardless of sacrifice. The demand
being determined by the intentions of the employers
may also be regarded as fixed ; and the price of
labor, therefore, depends, simply and unreservedly,
on the proportion between supply and demand.
The value of labor, therefore, differs from the values
of other commodities in not being subject to steady-
ing influence of the cost of production.*

The value of labor is certainly not determined as
other values are; but it is not therefore determined
more simply. On the contrary, it is a more com-
plicated case of value. Factors which have been
eliminated from the determination of the value of
other commodities are still present in the determina-
tion of the value of labor. Commodities, probably
all commodities but labor, are placed on the market,
where the value is determined mainly by demand.
The seller may come to the market with a definite
idea of what he regards to be the proper supply
price of the commodity he offers for sale, and may

* In a sense, it was necessary for the cost of production theory of
value that labor, at least, as one of the ultimate elements in the cost,
should have a value directly determined, so that it might prove
acceptable as one cf the determinants of the permanent value of the
comnif lities. The cost of production can be regarded as ^ final
analysis of value only if the respective elements of the cost are fixed
and independent values. The method of making labor a fixed and
independent value by regarding it as determined by the equation of
supply and demand does not gommend itself.

I ill

Has Labor a Supply Price ?

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withhold a portion of the supply because the price
he can obtain is lower than his supply price ; but it
is the demand which determines whether he shall
withhold or not. Generally speaking, and for most
commodities, the seller is forced to accept the price
fixed by demand. The commodity may be perish-
able and, in that case, it must be sold regardless of
cost. In every case competition has cut the margin
of profit so close that it is a question whether the
seller can afford to stand out of his money by re-
fusing to sell. The Theorists, strong in the sense
of their first proposition, insist that the laborer is
also in the condition of having a commodity to sell
which his necessities will not allow him to withhold
from the market. He must sell; for his goods are
peculiarly perishable. Hence it might be argued
that the supply price of labor is, so far as its effect
on the market price goes, practically non-existent ;
and the market price will be determined from the
side of supply alone at such a figure as will carry off
the whole of the supply. But the cabc is not so
simple as it is thus made to appear. The supply
price of the commodity has little effect on the
market price ; simply because it is only a question
of relative profit whether the commodity is sold or
not. The seller may desire a higher price, but his
necessity of meeting his obligations may compel
him to place his whole supply on the market. The
only reason that he can have for witnholding part,
or the whole, of his supply, is the question of rela-
tive profitableness. The higher price which he

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The Bargain Theory of Wages.

hopes to obtain may more than make up for the im-
mediate loss incurred by refusing to sell. There is,
as a rule, no other reason why he should withhold.
He has no personal attachments to the commodity
to induce him to withhold it. To withhold it is to
incur extra expense and extra risk, an allowance for
which must be deducted from the higher price to
be afterwards realized before the net profit appears.
Accordingly, since the margin of profit is generally
cut very close by competition, the supply will be
seldom withheld and the demand price will be the
market price. The laborer, however, is in an entirely
different position. His labor, it is true, is essen-
tially a perishable commodity which must be sold at
once, if it is to be sold at all ; and the laborer must
sell in order to live. On the other hand, he is in-
tensely interested in what he does sell. Labor in-
volves disutility ; and, moreover, when the laborer
sells his labor he must, so to speak, delivei it him-
self. The laborer incurs no expense and no risk in
withholding his labor; and, if his powers are not
always recruited in idleness, by withholding he es-
capes the sacrifice involved in labor. If it were not
that he must sell in order to live, his position in the
labor market could be exceptionally strong; and
even when he is thus compelled to sell, and sell at
once, his personal feelings, as well as his home and
place attachment, enable him to demand better
terms. Adam Smith's famous statement of the im-
mobility of labor docs not justify the conclusion
visually drawn from it.

The Disabilities of Labor.

" Such a difference in prices, which, it seems, is not
always sufficient to transport a man from one })arish to
another, would necessarily occasion so great a transpor-
tation of the most bulky commodities not only from one
parish to another, but from one end of tiie kingdom,
almost from one end of the world to the other, as would
soon reduce them more nearly to a level. After all that
has been said of the levity and inconstancy of luiman
nature, it appears evidently from experience that man is
of all sorts of luggage the most difficult to be trans-
ported."*

The usual inference is that the wages of the laborer
must suffer on account of his local attachments.
In individual cases this may be true; but, on the
whole, the general and ultimate result is not so seri-
ous as it might be. These home and place attach-
ments form a large part of ou" personality and on
them is based to a great extent our self-respect. It
is not an extravagant claim to make that the self-
respect, even of a laborer who must work, has a
strong influence on wages. If the worst come to
the worst the self-respect of the laborer would not
stand ; but the worst seldom comes to the worst.
The competition between master and man is rarely
a combat h outrance. The employer may know
that, if he tried, he could coerce the laborer into
submission ; but the known ob'^tinacy or firmness of
the laborer may prevent him from trying. The
larger the number of laborers whose self-respect is
threatened the c^reatcr the influence of this factor in

♦ Wealth of Nations, p. 31.

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The Bargain Theory of Wages.

determining the wages paid. The conflict between
capital and labor is not a personal conflict, but a
competition to determine the share of each in the
results of their common labor. The laborer obtains
a larger wage than he might be forced to accept be-
cause the motive for paying wages is not the dis-
bursement of a fund, but the making of a profit.
To compel an unwilling laborer to work for less than
he thinks he is worth means delay to begin with
(and time is money), and, in the second place, it
generally means, also, less effective work. Econo-
mists all admit that moral character enters into
efficiency ; and an unwilling laborer, working under
a supposed grievance and an outraged sense of jus-
tice, is not likely to be highly efficient. Wages are
determined from the employer's point of view by
the surplus he hopes to realize after he has repaid
to his capital account his expenditure on wages ; and
the surplus may be as large when the efficiency is
great, though the wages are high, as it is when, out
of a small product, low wages are paid.

Labor, then, if it be a commodity, is a commodity
of a peculiar kind. It is a commodity which has a
definite supply price — a price which, moreover, it
may be just as profitable for the buyer to pay. The
buyer of labor, omitting the case of service, buys to
produce, not to consume ; and he acquires no passive
instrument of an unvarying efficiency. He acquires
an instrument of production whose efficiency is de-
termined, in part, by moral considerations, an in-

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Labor as a Commodity.

strument which may be wasteful, or provident and
careful, in the use of other instruments and agencies
of production. The efficiency of passive instruments
depends on the laborer. Consequently, when labor is
bought, the purchaser takes into account the differ-
ence between labor and other commodities, and is
therefore the more willing to make moderate con-
cessions if by so doing he can remove all unwilling-
ness and sense of unfairness from the mind of the
laborer. This is the reason why a body of laborers,
who must work but yet are unwilling to accept less
than their self-respect tells them they are worth, are
not forced by their necessities to accept starvation
wages. The employer knows what he has to pur-
chase, and acts accordingly.

The value of labor, therefore, is not determined as
the value of all other commodities is ; because labor
is not a commodity in every respect similar to other
commodities. Labor is a commodity which has re-
tained a definite supply price to a much greater ex-
tent than any other commodity has ; and this supply
price, under the motives and conditions of the hiring
of labor, cannot be without effect on the resultant
market price, because, in the case considered by the
Wages-Fund Theory of hired labor, the demand
price of labor is fixed not with immediate reference
to the utility of the purchase, but to the utilities, or
the command of utilities, which labor can produce
in excess of those handed over to the laborer as his
reward.

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T/ic Bargain Theory of Wages.

The Wages-Fund Theory, accepted uncritically
for the hundred years of its growth and maturity
was in the fullness of time suddenly criticised and
rejected; and in its stead reigned the productivity
of labor theory.

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CHAPTER III.

THE PRODUCTIVITY OF LABOR THEORY.

THIS theory was developed as a criticism of the
dominant Wages-Fund Theory; and, in the
survival of references and criticisms and in the gen-
eral point of view which has been adopted on account
of a too exclusive attention to the theory criticised,
continues to bear evident marks of its polemical
origin. The Wages-Fund Theory, was, in its origin,
based on Ricardo's practical limitation of capital to
the food, etc., advanced to the laborers; but, as the
theory became more systematic, and was rounded
off for the sake of illustration, capital came, for the
purposes of the theory of wages, to be spoken of as
if it were synonymous with money; and the Wages-
Fund Theory became merely a theory of money
wages. The distinction between real wages and
money wages was duly made; but it had no further
place in the discussion. One of the earliest objec-
tions raised — and the fact that it was not raised
earlier is an evidence of the firm hold the Wages-
Fund Theory had on the minds of the men of the

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The Bargain TJieory of Wages,

generation between Ricardo and Mill — was to the
effect that the wages fund need not be absokitely
determinate and predetermined ; for the banks, by
means of cash credits, enabled an employer, when
necessary, to increase the wages fund, notwithstand-
ing his former estimate and "intention." The
reference in this criticism is obviously to money
wages; and subsequent criticism followed the same
lines. The distinction between money wages and
real wages was still drawn ; but, in the statement of
the general problem, in the solution, and in the
methods by which the solution is obtained, the sup-
porters of the new theory, whether as critics of the
old or expositors of the new, practically kept money
wages alone before their minds. For this is the
meaning of the iteration of illustrations showing
that labor is often advanced to the capitalist and
that the product in numberless instances is sold be-
fore the wages of the laborers are paid ; and the
meaning also of the total neglect of the fact that if
labor is paid out of the product it cannot be paid
out of the product of its present employment, but
out of the product of past employment. As far as
money wages is concerned, everything may be
yielded to their contentions — except the immediate
dependence of the laborer on his employer, through
whom he receives his derivative share of real income.
The wages fund, in the money sense, is not pre-
determined, is not limited ; and the share which
labor receives is not a question of the rules of arith-
metic. We may as readily admit to the critics that

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IVages-Fimd Theory and Mottcy Wages. 8 1

the motive for paying wages is the surpkis of the
product which will remain in the hands of the em-
ployer when the cycle is completed. The employer,
as we saw, is generally not the ultimate banker, but
the broker; and, if he does not anticipate good
terms when he rediscounts, neither can he offer good
terms. The difference between the rate he pays
and the rate he charges is the sole motive for making
advances at all. This, expressed in other terms
than they employ, is true and valid as a criticism of
the Wages-Fund Theory, but it does not advance us
beyond the theory. It was well, perhaps, to show
that even on its own ground the Wages-Fund
Theory may be overthrown ; but this is, after all,
only a negative contribution to knowledge. The
real problem deals with real wages ; and these are,
n..> we saw in the last chapter, evidently drawn from
a practically fixed and predetermined fund ; and, as a
solution of the real problem, the productivity theory
is simply an ignoratio clcnchi.

But we must follow the example of the founders
of this theory in their criticism of the Wages-Fund
Theory, and discuss the new theory on its own
grounds before we can proceed to the statement of
a theory which better explains the facts of modern
industrial life, and offers a more hopeful solution
and answer to the wages question.

In the first chapter we found, in the perplexities
which surround the relation between wages and the
standard of living, the difficulty of determining by
the method of concomitant variations the direction

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The Bargain Theory of Wages,

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of the causal relation; and the same (Hfficulty meets
us a<;ain on the threshold of the third theory. There
the difficulty was to decide between X\\q. pro and the
con, between the theory and its critics : here the dif^-
culty is to decide between two rival theories each en-
titled apparently to call itself the productivity theory.
Hi^h wa^es and large output are causally connected.
This much has been established beyond possibility
of doubt. Statisticians have proved the connection
by facts and figures drawn from all countries and all
industries and under the most diverse conditions.
Historical and contemporaneous records have been
drawn upon so liberally that sometimes we can
hardly see the wood for the trees. But which is
cause and which effect has not been so clearly proved.
Whether is high wages the cause of the large output
or the large output the cause of high wages ? This
is not clear; for we have two rival theories each
appealing to the arbitration of the same facts, and
some writers varying from the one theory to the
other, without recognizing the essential difference
between them. The one theory maintains that high
wages precede and give rise to an increased product
which, in time, provides the justification of the
higher wages. The other is the converse of the
first, and asserts that high wages are paid where the
efficiency of labor is great, and are paid only because
the efficiency is great. Since the rival theories ap-
peal to the same facts, the divergence between them
appears more clearly in the practical conclusions
than in the theoretical statements. The exponents

Two Versions of the Productivity Tiicory. 83

of the first arc, generally, to be found among those
who desire State or municipal interference on behalf
of labor; and their appeal is to history to justify
what they admit to be a leap in the dark. They
are distinguished, at present, by their advocacy of a
shorter working day or of profit-sharing and other
schemes to improve the relations between employers
and employed. The supporters of the second ver-
sion are the most ardent promoters of industrial and
technical education and other direct and indirect
methods of increasing efficiency ; because they as-
sume that, since wages are paid out of the product,
competition will transfer to the working classes the
whole of the increase of the product due to increased
efficiency.

The first, which is probably the version of the
theory most generally adopted, on a first analysis,
seems to be little more than a less simple and naive
form of the subsistence theory. The proposition on
which it rests is that higher wages can be paid be-
cause the greater efficiency which results from the
higher wages will serve to recoup the employer. It
is admitted, in all but terms, that the advance of
wages is a leap in the dark, but a leap experience
shows to be more than mere rashness. The higher
wages, the argument runs, will enable the laborer to
eat better food and wear better clothing and live
generally under more favorable conditions. So sure
are the supporters of this version of the theory that
there is a very close and definite relation between
better living and better work that they have neither

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The Bargain Theory of Wages.

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scrupled nor hesitated to indulge in a good deal of
miscellaneous condemnation of those short-sighted
employers who cannot, or will not, read the lessons
of history.

Yet the very facts which they adduce in support
of their contention seem to afford some sort of justi-
fication for the " short-sighted " employer. An
employer may recognize fully that, in the long run,
higher wages might not be a bad investment, and
yet be unable and unwilling to make the experiment.
The laborer sells his labor, but he remains his own
master ; and, when his contract has expired, may take
himself off when he pleases. We do not hear so
much nowadays of Jcshurun waxing fat; but the
danger of the sequel may reasonably enough impress
the mind of a cautious employer. He pays better
wages and, after a time, the laborer is able to do,
and probably does, better work ; but before the em-
ployer has been fully recouped for his advantages
the laborer may take himself off. It is true that
there is not very much reason why he should change
his employer ; but 'the chances and changes of life
are infinite. The experience of other employers and
of other countries and the evidence from industrial
history, then, may render the successful issue of the
experiment very probable ; but they do not guaran-
tee the individual employer against risk. Therefore,
although it may be admitted that, where wages are
very low, the return to the investment may come so
quickly that the risk is very small, it does not follow
that, when wages are not extremely low, the result

The Leap in the Dark,

will be so immediate and so favorable. Similarly,
although the experience of England in the working
of the Factory Acts and the shortening of the hours
of labor may justify experiments in Germany and in
the United States, it does not, and cannot, prove
that the next experiment in England in the same
direction will be a success. There is some limit to
a profitable reduction of hours as there is to an eco-
nomical intensification of labor; and it may be, as a
witness before the Canadian Labor Commission put
it, that a further reduction " might be the last straw
which sometimes breaks the camel's back." *

The opinion cf the witness as to the particular
limit may, or may not, be correct, but there is no
doubt that there is a limit. The larger the number
and the greater the extent of the earlier experiments,
the more uncertain will be the issue of the next one.
The statistics quoted show that there is some good

* Canadian Labor Commission, Ontario Evidence, p. 744. Mr.
Tuckett (tobacco manufacturer, Hamilton). Witness had reduced
the hours in his factory from ten to nine without making any reduc-
tion of wages or finding any reduction in the product.

" Q. Having found the nine-hour movement profitable and satis-
factory, could you not reduce it still more with the same result? A.
It might be the last straw which sometimes breaks the camel's back.

'* Q. You think that nine hours is a fair limit? A. I think so;
from what I have seen and heard I think it has proven to be about
the limit.

" Q. You have not tried any other? A. Of course, I am only
speaking of what I have read in the papers of the United States. I
find that the jumping into the eight hours has caused a great deal of
trouble ; it is going too far the other way. There is always a happy
medium."

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The Bargain Theory of Wages,

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ground for hesitation. When wages are arbitrarily
raised, or vhen hours are reduced, the output does
not always increase proportionally ; and unless the
efificiency of the laborer increases at once, and pro-
portionally to the rise in his wages, or unless, in
spite of the reduction of the hours, the output is at
least maintained, then the profits of the employer
suffer. However willing the employer may be to
wait to recoup himself, the conditions of competition
may not permit him so to wait. If he is carrying on
business on a borrowed capital and has to meet obli-
gations from day to day, the margin is probably
already cut too close to allow him to lock up part of
his resources in the hope of a somewhat uncertain re-
imbursement. If, moreover, in the market he has
to meet competitors who are not making any experi-
ment and not incurring any loss, even for the time
being, it may be impossible for him to maintain his
ground, and thus a temporary loss may turn out to
be final and irretrievable. The English manufacturer
fears the competition of the foreigner, and the New
England manufacturer the competition of the new
mills in the Southern States ; and they declare that
in face of this competition they cannot safely lock
up part of their resources. If a manufacturer hesi-
tate to add one other element of uncertainty to
business, he is at any rate not open to the charge
of being short-sighted. An employer, strong in his
resources, strong in the hold which he has on his
customers, and strong also, perhaps, in the attach-
ment of his men to his service, may be able to make

Fluctuations of Wages and Output.

such experiments; and in this case, as in many
others, as Professor Walker has shown,* it is the in-
competent employer who is the worst enemy of the
working classes.

The higher the wages, and the higher the standard
of comfort, the more uncertain does it become that
the standard of efficiency will rise with every rise
of wages, however slight, and rise correspondingly.
Brentano, however, takes the position that they do.
In his Hours y Wages, and Production, he claims that,
in the years 1872, '73, '74, production increased
and then diminished as wages rose and fell :

" According to the official records, the year of the
great rise in wages in the largest state mines, 1872, was
followed by a considerable increase in the average out-
put of the workmen. . . . Another official investi-
gation, entitled * Contribution to the Statistics of the
Dortmund Mining District,' by a mining official named
Hiltrop, showed in fact that, in the above-named mining
district, the general fall of wages in 1874 was accom-
panied by a diminution of production." f

The figures undoubtedly show that the output
increased ; and we know that there was a rise in
wages (the figures of variations in wages are not
given, in this instance, for comparison); but we
have still to settle which was cause and which effect.
The fluctuations of wages in these years followed

* Walker, Political Economy, Part IV. , cliap. iv.

f Brentano, Hours, Wages, and Production, pp. 11, 12,

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The Bargain Theory of Wages,

each other quickly. Higher wages can lead to in-
c I eased efificicncy only if they are spent in such a
way as to improve the physical condition of the
workers; and the tradition of the extravagant ex-
penditure of the working classes during these years
— feeding their bull-dog pups on cream, as the Mid-
lothian miners were said to do — shows that the higher
wages were not necessarily so spent. A sudden in-
crease of wages, unfortunately, frequently means an
increase of dissipation. Chancellors of the Exchequer
have, on occasion, lamented with somewhat chas-
tened sorrow the increase of the revenue from ex-
cise during years of prosperity ; which means that
the increased wages are not being spent in a manner
which will increase efficiency.

The causal connection, in this instance, is almost
surely from production to wages. Prices rose and
the mine-owners and other employers, naturally de-
siring to take full advantage of the rise, endeavored
to increase their output. The employees were
aware that prices were rising and demanded their
share; and the employers, rather than face labor
troubles at such a time, yielded the demand, being
willing to sacrifice a part of the increased profit
rather than lose the whole.

Brentano's argument is evidently based on the
assumption, which we cannot admit, that the laborer
at all times works up to his efficiency, and that an
increase of his output must be due to an increase of
his efficiency. But the laborer does not, as a rule,
do his best; and his output might be largely in.

Output and the Standard of Efficiency. 89

creased without any change in the standard of
efificiency. If we take the actual output as a measure
of efificiency, we are stating a merely identical propo-
sition when we assert that the increased output is
due to a rise in the standard of efficiency. An in-
crease of wages can cause a rise of efficiency only if
each laborer is doing his best ; and the trade-union
and general working-class objection to the man who
works his hardest, which Mr. Schloss describes,*
shows us that we cannot measure efficiency merely
by output. An increase of the output might occur,
even without a rise in wages and a consequent im-
provement of the standard of living, if, in some way
or other, by a change of the method of remuneration,
as in profit-sharing, for instance, the laborer could
be induced to work up to his efficiency. There may
be other methods, but the surest method of inducing
a man to the best that in him lies, is to offer him
the prospect of higher wages. This is what actually
happened in the early seventies. The mine-owners
paid higher wages and got more work out of their
laborers ; but the miners did not spend the increase
in making themselves more efficient, and so it came
about that, when depression occurred, and the mine-
owners no longer offered the inducement to extra
exertion, the miners fell back into their old habits
and came just as much short of their efficiency out-
put as before. Had they, by wise expenditure of
the higher wages, made themselves more efficient,
the output would not have fallen back to its former

♦ Schloss, Th( Methods of Industrial Remuneration^

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The Bargain Theory of Wages.

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level, even supposing their old slovenly habit of not
doing their best, without special inducement, had
reasserted itself. Their best then would have been
so much better. A more " plentiful subsistence "
will no doubt increase the output, but it is not the
only nor an immediate method of increasing it.
" The wages of labor are the encouragement of in-
dustry," and high wages operate directly to make a
man come up to his standard of efficiency. If the high
wages continue, and are wisely expended, indirectly
they may also help to raise the standard ; but since
the standard of comfort can be raised only gradually
and slowly, and efficiency can only be slowly changed
as the result of a more plentiful subsistence, the in-
direct effect cannot be anything like so apparent, or
so immediate, as Brentano asserts it to be.

But, even under the assumption that an increase
of the output can be only due to an increase of
efficiency, the comparative statistics on which so
much reliance is placed to prove that higher wages
increase efficiency, do not bear out the conclusion.
What should be proved is that, for every rise in
wages, there is a corresponding increase in the out-
put : what is proved is that every rise of wages is
accompanied by an increased output. We can best
make clear the hiatus in the proof by taking the
comparative tables and expressing them as variations
from a common index number. Take, for instance,
the tables quoted by Brentano comparing wages and
output in the textile industries at different periods
and in different countries.

Variations of Output and Wages.

COMPARISON OF WAGKS AND OUTPUT OF COTTON
SPINNERS, ENGLAND.*

PERIOD.

AVERAC.E PRODUCT
I'ER WORKER.

1844-46 100

1859-61 133

1880-82 200

AVERAGE
WAGES.

.. 100

.. II-^

.. 154

COMPARISON OF WAGES AND OUTPUT OF COTTON
WEAVERS, ENGLAND.*

PERIOD.

AVERAGE
PRODUCT.

1844-46 100 . . .

1859-61 192 . . .

1880-8 1 243 . . .

AVERAGE
WAGES.

. . 100

.. 125

INTERNATIONAL COMPARISON OF WAGES AND OUT-

PUT IN WEAVING.*

COUNTRY.

OUTPUT.

WEEKLY

WAGES.

Germany 100 100

England 153.6 139.5

INTERNATIONAL COMPARISON OF WAGES AND OUT-
PUT IN COAL MINING, f

ANNUAI
COUNTRY. OUTPUT. ,., . " "

WAGES,

United States, 1880 100 100

Pennsylvania, 1880 148 103

North Staffordshire, 1884 84 77

Saarbrlick Collieries 68 69

Dortmund Collieries 74 68

The general arguments in favor of shorter hours
are open to similar objections. There is the same
hiatus in the proof that shorter hours mean larger

*Brentano, op. cit., pp. 62, 68.

t Schoenhof, Economy of High Wages, p. 209.

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T/ie Bargain Theory of Wages,

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production. Wc arc concerned only with that part
of the agitation for a shorter working day which
claims that wages need not be reduced correspond-
ingly. If the working classes will submit to a re-
duction of wages corresponding to the reduction of '
hours the problem becomes entirely different and has
nothing to do with the theory that a higher standard
of living, whether made possible by higher wages or
by greater leisure, is the cause of greater efificiency.
The figures do not bear out the contention that be-
cause greater leisure means greater efficiency an em-
ployer may safely continue to pay the same wages
per week afte * he has reduced the hours of labor.
In the long run this may be the result, but there
will be immediate loss to the employer, which he
may not be able to afford. The change is an ex-
periment and an experiment has never a certain
issue. The argument demands a closer connection
between mere physical strength and efficiency than
actually exists. The difference between a working
week of sixty and a week of fifty-eight does not give
so much more time for rest and recreation, does
not imply so greatly diminished a demand on the
energy of the worker that we can look for him to
make up from this source alone the wages of the
two hours he has sacrificed. He may work harder
in order to still earn his old weekly wages ; but that
is not the meaning of the assertion that the shorter
hours have made it possible for him, for the first
time, to work harder. In the long run we may ad-
mit that the contention may be borne out by the

Tfie Leap in the Dark.

facts ; but the theory implies that it is borne out in
the short run ; and in so doing it tries to prove too
much. The reduction of hours where the worl<ing
day has not previously been excessive, without a
corresponding reduction of the daily or the weekly
wages, is an industrial experiment which the issue
may or may not justify. It may be that the em-
ployer is as a rule over-cautious in making the experi-
ment,* but it ought to be admitted that he is being
asked to make an experiment.

♦ This general argument against shortening the hours of labor
which an individual employer may justifiably use is frequently sup-
plemented by the declaration that where machinery is largely em-
ployed the efficiency of the laborer has no effect on the product. This
argument finds emphatic and enlightened expression in an article on
P'actory Legislation in the United States in Bulletin of the National
Association of Wool A/anufacttirers {Se\ncmheT, 1895). "A given
amount of machinery, no matter how perfect, cannot be so speeded as
to turn out a product in fifty-eight hours, equal to that of the same
machinery running sixty hours just over the border line. ... It is,
therefore, true that the difference of two hours a week between Massa-
chusetts and Rhode Island, assuming that wages are the same in both
States notwithstanding that difference, may be ample, in and of itself,
to make the difference between running the mill at a profit and running
it at a loss.f ... A steam engine will drive machinery at the
same rate of speed the world over. A modern spindle will make

t " As it is now, a Rhode Island mill of two thousand looms can produce twenty
thousand yards per week, or a million yards per year, more of print cloth than one
in Massachusetts, as the difference between fifty-eight and sixty hours per week "
(Boston Commercial Bulletin). This, however, is little more than an unqualified
reassertion of an old fallacy that machinery does away with skill and makes but
slight demands of the energy of the operative. This was the argument of the early
English factory-owners, and under influence of this idea the elder Sir Robert Peel
declared that the factory system had become, instead of a blessing to a nation, its
bitterest curse. The same line of argument would also dispose of the general ad-
mission the writer in the Bulletin is inclined to make, that an eleven hours' day is
more productive than a thirteen or a fourteen hours' day.

The Bargain Theory of Wages,

This first version of the producti' ity theory, which
asserts that the direction of the causal relation is
from higher waj^es to increased production, resembles
the more scientific statements of the subsistence
theory in one important particular. Both theories
recognize that it is necessary to provide some sort of
justification and assurance that the industrial experi-
ment of paying higher wages which they propose
will not lead to a disastrous issue. In the one case,
the higher wages which are in consequence of a
higher standard of life are proved to be, in the long
run, economical and therefore justifiable. Higher
wages mean an increased demand for commodities,
and the demand of the working classes is so great
and so steady that more economical processes of
production can be introduced and the total output,
therefore, increased. In the second case, the higher
wages lead directly to an increase in the efficiency
of one of the agents of production, labor, not capital

",• ■

» ,.

9000 revolutions per minute, whether located in Massachusetts or in
the Piedmont refjion of the South. A loom adjusted to 150 picks
per minute in the one section will be adjusted to the same speed in
another. No appliance of Yankee inj^enuity for rsducing labor cost,
saving materials, or expediting processes, fails of adoption everywhere
as soon as its value is proven. . . .

" It follows that in a State where ten hours is the legal day, the
production of a mill will not equal by ten per cent, the production of
a similar mill engaged upon the same class of work in a State where
eleven hours constitute a day's work, provided that the management
is equally efficient.

" This is as susceptible of proof as a problem in mathematics. It
has, in fact, been repeatedly demonstrated in the experience of New
England manufacturers " (pp. 264-266).

Second Version of the rroduetivity Theory. 95

in this instance, and consequently to a larger out-
put. In both cases the advance of wages is arbi-
trary, and in a sense accidental, but the advance
sets forces at work which in the long run provide
an ex post faeto justification for the advance. In
the long run, there is no doubt that an advance of
wa^ -^ will justify itself, economically, either in-
directly as the first theory or directly as the second
suggests: the trouble is that a failure of the coinci-
dence of the short run and the long run may prevent
the trial of the experiment altogether.

The other version of the theory has more to com-
mend it. It approaches the problem from the right
end and does not need to postulate industrial ex-
periments to prove its truth. It takes its stand on
the indisputable fact that when more is produced
the employer can afford to pay more, absolutely, if
not relatively, for labor; and asserts, or assumes,
that competition will transfer to the laborer all that
he has produced. This is the form of the produc-
tivity theory which should commend itself to the
employer, for it involves no addition of uncertainty
or risk to business, and demands no leaps in the
dark. Because of the possibility of waste of the
raw material or of carelessness in the handling of
delicate machinery, the advocates of this version are
ready to admit that it is better to pay higher wages
than to pay low, and give their consent to the doc-
trine of the economy of high wages. But they reject
the popular inference that the only way to increase
production is to raise wages. Wages may, for the

The Bargain Theory of Wages,

■I t.

! ■

time being, rise above the efficiency limit; but, in
the nature of things, such a rise must be temporary ;
and their contention is that, m the long run, the
only real and effective measures for raising wages
are those which seek to raise the standard of the
laborer's efficiency. A rise due to any other cause
is accidental : a rise of wages which follows from in-
creased efficiency will, in all probability, be a per-
manent rise because it has been granted on account
of the competition of employers among themselves.
Higher efficiency of labor gives the possibility of
greater profits, and the prospect of higher profits
means keener competition among the employers for
workmen and the consequent transfer to the workers
of the whole or the greater part of the extra profits.
Competition, however, is not so active in the inter-
ests of the workers as this version assumes, because,
in the first place, the competition of the masters
with each other for labor is offset by the competi-
tion of laborers with each other for employment,
and, in the second place, the competition of the
masters is rapidly being replaced by combination
and joint action.

Care is not always taken to distinguish whether it
is the increment of the output due to the increased
efficiency of labor, or more or less than this amount,
that is transferred to labor by competition ; and fre-
quently confusion has arisen on this account. There
are obviously other means of increasing the output
than raising the efficiency of labor, and the ques-
tion which this version seems, ex hypothesis to de-

Increased 0?(fput and Increased Wages. 97

cide in the negative is whether labor obtains any
share of the increase in the product which has arisen
from any other cause. To admit that labor does,
or can, receive a share of what it did not help to
create is to abandon, or at least to modify seriously,
the productivity theory and to substitute for a law
of wages the merely vague and general statement
that out of a larger product larger wages can be
paid. If labor permanently receives either more or
less than the amount fixed by its efificiency, we
must altogether abandon the notion that labor re-
ceives a determinate share, as by right, or adopt, in
its place, the make-shift explanation that labor's
share of the product is residual.

A close examination of the facts seems to indicate
that the one alternative or the other must be ac-
cepted. The great increase of the product, which
comparative statistics show, has not been due, in any
large degree, to an improvement in efficiency.
There has been during the last half-century a steady
increase in the average amount of capital necessary
to set a laborer at work and, at the same time, in
the amount of capital necessary to produce a product
of a given value ; or, to put the same fact more con-
cretely, an increased application of machinery in
production. The consequence is, as we might ex-
pect, that although the product of industry has in-
creased, the proportion of the product going to
labor has diminished. Absolute wages may have
increased, but relative wages have diminished. It
is what we might expect, because the amount of the

■i

M i

T/ie Bargain TJicory of Wages

capital invested has increased more rapidly than the
product. If we take the wages paid in, the amount
of capital invested in, and the total product of, the
mechanical and manufacturing industries in the
United States, in i860, as each equivalent to 100,
we find that in 1890 the capital invested would be
represented by 546 and the product by 397 and the
wages by 168.

COMPARISON OF INDUSTRY IN i860 AND 1890 IN U. S.

i860
1890

CAPITAL.
. . 100 . .
.. 546 ..

PRODUCT.
, . . 100 . .

■•■397 .

WAGES.
. . 100
.. 168

We find similar results in the development of in-
dustry in Canada, though we cannot carry the com-
parison so far back.

COMPARISON OF INDUSTRY 1881 AND 1891 IN CANADA.

1881
1891

CAPITAL.
. . 100 . .
.. 215 ..

PRODUCT.
. . . 100 . .
... 153 ..

WAGES.
. . IOC
. . 117

The following tables bring out the same results in
another way. They compare the amounts of capital
employed to produce a product valued at $100, and
the percentage of the net product, /. r., of the
product minus the raw material, that goes to labor.

UNITED STATES.

CAPITAL PER $100
OF PRODUCT.

1850,
1890.

$52.32
69.62

PERCENTAGE OF

PRODLCT GOING

TO LABOR.

Increased Output and Increased Wages. 99

CANADA.*

CAPITAL I'ER $100
OF I'ROUUCT.

1881,
I89I.

$53.07
74.36

TERCENTAGF. OF

PRODUCT (iOlNG

TO LAliOR.

457

45.7

The results support the conckision we have aheady
drawn from the comparative tables, given on p. 91,
that there is no exact parallelism between the ad-
vance of wages and the increase of the product. The
comparison shows also, however, that, in spite of the
increased proportion of capital employed, the rela-
tive share of the product going to capital has not in-
creased, and the relative share going to labor has not
diminished correspondingly. Labor has been able to
make good a claim to a large part of this increased
product. The capital necessary to produce a value
of $100 has increased thirty-three per cent, in the
industry of the United States, but the share going to
labor has been diminished by a little more than
eleven per cent. Thus the second version of the pro-
ductivity theory is inadequate. The laborer's contri-
bution to every $100 worth of product has obviously

♦ The figures for Canada, which are taken from The Statistical
Year Book of Canada, issued by the Dominion statistician, are open
to the suspicion of partisanship. The Liberal party in Canada has
always declared that the sections of the census of 1891 dealing with
industry are a partisan document, intended to prove that the National
Policy has been a great success. Canada is admittedly not industrially
as far developed as the United .States, and it can hardly be the case
that there has been a greater increase in Canada in ten years than in
the United States in forty years in the amount of capital necessary to
produce a product worth $100. The amount of capit.1l employed to
produce a product of a given value is a sure indication of the stage of
industrial development.

100 Tkc Bargain Theory of Wages.

fallen, and his share of the product has also fallen,
but has not fallen correspondingly. It is true that
the laborer's contribution to a given product does
not fall in the same degree as the amount of capital
is increased. The intelligence of the laborer is a con-
dition of the use of machinery. The laborer's lack
of skill and general intelligence is often the cause
why newer and more elaborate machinery is not in-
troduced ; and if more machinery has been intro-
duced it must have been because the higher intelli-
gence of the laborer has rendered it possible. The
increased product, therefore, which has resulted
from the greater use of machinery cannot all be
attributed to the increase in the amount of capital
employed. But the intelligence of the laborer has
not improved to an extent sufficient to account for
the fact that his share of the product has fallen by
only eleven per cent.* The contention of Mr. Mal-
loch's Labor and the Popular We/fare, " that labor
is no more productive to-day than it was a century
ago," is only an exaggeration of the important fact
that the increased productivity of industry is not
altogether due to the increased intelligence of the

working classes.

* We have no means of determining, even with approximate accu-
racy, the amount of the increased contribution of the laborer made when
machinery is employed. In one case we do know that all of the in-
crease of the product, due entirely to lal)or, is not handed over to the
laborer. This is the case of Profit Sharing. " Under the stimulus
of Profit Sharing the workers must crea'e the additional profits they
are to receive" (Professor Nicholson, Contemporary Review, 1890, p.
68) ; but they do not receive the whole of the additional profit they
create.

The Economy of High Wages.

lOI

The cause of the fact that the relative share going
to labor has not diminished proportionally with the
increase in the use of capital cannot be simply that
the total product has increased. The total product
is not so large, even after all the increase of recent
years, that any claimant, through satiety, will aban-
don part of the share he could obtain. The i eal
reason is that since an increased use of machinery is
not possible without the active co-operation of labor,
the position of the laborer has been improved. His
best efforts are necessary for the employment of this
increased capital and to call these forth the capitalist
has been compelled to offer him as an inducement a
larger share of the product than apparently he is
entitled to. The position of the capitalist has been
correspondingly weakened by this necessity. The
productivity theory, in one version or the other, has
attained general acceptance and has been embodied
in a practical formula regarding the economy in high
wages. This formula is made the basis of the en-
lightened discussion of the tariff question in opposi-
tion to those who, ignorantly, raise the cry of
" pauper labor," and of the economic discussion of
the shortening of the working day, in opposition to
those mechanical ideas of labor which regard the
laborer as a machine which must necessarily produce
twice as much in sixteen hours as in eight. The
economy of high wages is preached as a gospel of
hope for the laborer with, possibly, not a very clear
recognition of the consequence that, if the gospel is
true, a shortening of the hours of labor is not a

1 .1

m
ill

r':. !

102

T/ie Bargain Theory of Wages.

lessening of labor and an increase of wages per unit
of time may even mean a diminution of wages per
unit of effort ; and there is both surprise and indig-
nation that the doctrine should ever be, or have
been, called in question. Yet it is a comparatively
new gospel which has, within thirty years, arisen to
supplant the depressing doctrine of the economy of
low wages. We may practically date the new theory
from the early fifties, when, to the immense aston-
ishment of advocate and opponent alike, the Factory
Acts did not ruin English industry, but inspired it
with new life. The accepted doctrine, down to the
middle of the century, was of the economy of low
wages. Even those who, in deference to Adam
Smith, had accepted, without full understanding, a
more hopeful doctrine, rejected incontinently the
practical inference that a sht itening of the hours of
labor might even increase productive capacity.
McCuUoch, who had loyally followed Adam Smith
in denying that high wages encourage dissipation
and idleness, and Senior, who made the first antici-
patory steps away from the Wages-Fund Theory
to the Productivity Theory, were, at first at least,
strenuous opponents to the Factory Acts. It was
Senior whose " last hour " gave the rallying cry to
the opponents of the measure, although he, like
many of the other opponents of the Factory legis-
lation, was converted by the unexpected effects of
the Act on the textile industries.

The doctrine of the economy of low wages was a
natural, though perhaps not a necessary, inference

The Economy of Loiv Wages.

103

from the Mercantile theories of last century, as it is
from protectionist theories of to-day. It is signifi-
cant, at any rate, that the overthrow of Mercantilism
was followed by the demonstration that the inference
from it was not consistent with thr actual experience.
In 1845 the repeal of the Coin Laws marks the final
overthrow of Mercantilism, and the Ten Hours Law
of 1847 ^^"^^ such unexpected results in stimulating
industry that it was no longer possible to hold the
purely mechanical idea of labor. As the triumph of
free trade was the end of a long process of change
and conversion, so the practical demonstration by
the factory act was all that was needed to complete
that change of views which begins with Adam
Smith's enthusiastic advocacy of the doctrine that
cheap labor and low-priced labor are not necessarily
synonymous. Senior and Lord Brassey, however,
were the first to show, by means of extended illus-
trations and statistics, the fallacy of the older view.
They did not, it is true, advance the modern theory
in its unqualified form. They suggested an indiffer-
ence theory to the effect that it did not matter much
to the employer whether he paid high wages to effi-
cient men or low wages to inefficient men. " It may
be supposed," says Senior, "that the price of labor
is everywhere and at all times the same, ' ' * and Lord
Brassey declares, in the introduction to Foreign Work
and English Wages, that the cost of work as dis-

* Senior, Political Economy, p. 151. See also ibid, for quotationfi
from the evidence of McCuUoch before the Committee on Artisanfi
$ind Machinery, p. 144 et seq.

■

1 M

!■;•'

m i'

104

T/w Bargain Theory of Wages,

tinguishcd from the daily wage of the laborer is
approximately the same in all countries. The evi-
dence on which Senior and Lord Brasscy rely for
this doctrine of indifference is drawn mainly from
manual labor and their theory remains practically
true so far as manual labor is concerned. Some of
the facts and figures given by Lord Brassey do in-
deed support the more advanced doctrine of the
economy of high wages; but the increased cfticiency
which followed each extension of the Factory Acts
is the real cause of the general acceptance of the
modern doctrine. The Factory Acts had been ad-
vocated as a moral reform and justified on the
ground that welfare, not wealth, should be the great
object of government. The economic justification
of the Factory Acts probably surprised Lord
Shaftesbury as much as it confounded Senior. The
abundant economic justification of the principle of
the Acts forms a turning point in wages theory.
Since then the indifference theory has become the
economy of high wages ; and the doctrine has been
extended to cover all industry, machine industry as
well as manual labor in which machinery is not much
used. The facts and the assumptions of the theory
have been already discussed ; but it is necessary to
mention one other consideration that is of great im-
portance. The figures which are advanced in proof
and illustration compare only labor costs; and labor
cost without machinery is a different thing from
labor cost with machinery. We must include in the
real labor cost of production in machine industry the

Wag^c Cost and Labor Cost.

105

cost of the labor-saving macliine, that is, the ex-
penses of its working, and the contribution to the
sinking fund to replace the machine. Machinery
has to a large extent reduced the nominal labor cost,
but statistics are lacking to show how far the real
and complete labor cost has been reduced. If it
takes more capital in the form of machinery to set
each worker at work in one country than in another,
there may be no ground for saying that the higher
wages in the first are counterbalanced by the greater
productivity of labor. The larger output cannot be
a measure of the greater efficiency when the amount
of capital required to produce $100 of product is in-
creased. Brentano, however, regards the Report of
the German Iron Inquiry Commission (1879) ^'^ halt-
ing, because " the increased capacity of production
is not stated to be the exclusive cause of the increase
in the average output of the individual workman." *
The advocates of the economy of high wages are
not all ready to go so far as Brentano. He even de-
clares that the policy of Lancashire cotton spinners
and weavers in demanding factory legislation for
Bombay is suicidal ; because the only reasonable hope
Lancashire can have of overcoming her disability of
distance, alike from the cotton-fields and from a large
portion of her market, is in the economy of high
wages and in the greater efficiency which has resulted
in England from factory legislation. This is an ex-
treme position which is not often taken. It is gener-
ally recognized that in some countries cheaply paid

♦ brentano. Hours ^ Wages, and Production, p. 16,

;!i

< !

"'(

1 06

The Bargain Theory of Wages.

I ii

H :

•m i

labor is really cheap labor. These countries are not,
it is true, the industrially developed, and the excep-
tion might be neglected were it not that the exception
is claimed to exist within the United States. There
has of late been a good deal of discussion regarding
the removal of the textile industries to the South;
and the organs of the manufacturer allege that the
movement is away from the trade-union and factory
legislation sphere to regions where help is cheap,
really cheap as well as nominally cheap. To the
contention that the Southern help is less efficient,
they reply that it is not correspondingly less efficient
than the higher-paid Northern help.

" The other argument by which this legislation is
defended is . . . that the average factory labor in
Massachusetts and New England is more intelligent than
in other sections of the country, the South particularly,
and can accomplish more and better results in shorter
hours. As between reasonable and unreasonable hours
there is validity to this argument ; but as between fifty-
eight and sixty hours a week it has no validity whatever.
What we have just said relative to the speed of machin-
ery is a complete answer (see above, p. 93). The state-
ment about the relative intelligence and skill of New
England operatives is not seriously put forth by persons
familiar with the present status of factory labor in the
East. The bulk of that labor is foreign-born ; its aver-
age intelligence is not higher than the average intelli-
gence of similar labor in other States, nor so high as
that in many other sections of the country." *

* Bulletin of the National Association of Wool Manufacturers y
pp. 268, 269.

The Economy of Low Wages*

107

There is therefore more to be said for the indiffer-
ence theory or even for the economy of low waj^es
than is generally admitted. The economy of hi^h
wages must be relative to many conditions: to the
existing standard of comfort and the possibility of
raising it ; to the effect of a rise in the standard of
life on efficiency; to the existent skill and intelli-
gence of the workers; and to the extent to which
machinery is employed.

The extreme to which Brentano has carried the
doctrine is all the more remarkable that he has him-
self suggested the possibility of reconciling these
diverse views, whether regarded as historically suc-
cessive views, or as presently opposed opinions.
He admits that the economy of low wages is true
not only of the seventeenth- and eighteenth-century
workers whom Child and Petty and other writers
had before their minds when they wrote, and of
workers in the East, but also of laborers in the back-
ward country districts of Germany; but for all
countries and districts which have come under the
influence of competition and progressive ideas the
economy of high wages is the law. The reason for
this distinction is the difference in the attitude of
the men towards industry. The eighteenth-century
workers lived and worked under the influence of cus-
tom and tradition. This is true also of the worker
in backward countries and districts. His stand-
ard of life and his standard of efficiency are alike
determined for him. To raise his wages would have
no effect on his efficiency unless it were for the time

\ i il

|i 1:1

io8

The Bargain TJicory of 1 1 'ages.

I
1

4- 4

being to lower it. To attempt to raise the standard
of his efficiency is to attempt the impossible, l^ut
the worker of the present day is, to a very large de-
gree, influenced by the economic motive; and the
economy of high wages is the consequence. The
change from an economy of low wages to an economy
of high wages was brought about by the economic
awakening of the worker. This awakening may be
due either to migration, to new industrial conditions,
or to a change of the conditions in which the worker
lives. Brentano quotes Doctor Johnson with ap-
proval: " Established custom is not easily broken
till some great event shakes the whole system of
things and life sc ms to recommence on new princi-
ples." The influence of migration on labor we con-
sider later, but the same result may be effected in
the history of a people by industrial changes as are
effected in the history of an individual by migration
or emigration. The introduction of the factory sys-
tem made this change, first in England, and then in
America, and then on the continent of Europe. It
created competition among the producers. The old
system of autonomous production for a local market
gave little motive for exertion. When, however,
large amounts of capital were sunk in buildings and
machinery, the employer, anxious for the largest
profit, and hating to see his capital idle, drove his
workmen, with the result of the hideous excesses
which it was necessary to call in legislation to re-
move and to prevent. When one avenue was closed,
the employers sought another. They could not

The Dynamic Principle.

109

lengthen the working day, so they endeavored to
increase the intensity of working and in their anxiety
for profit offered inducements to hihor to exert itself.
Labor could be induced to do what legislation for-
bade it should be compelled and driven to do. A
powerful new motive came into existence. The
laborer could be induced to exert himself by an ap-
peal to his self-interest, and the economy of high
wages became an industrial fact.

Reference has already been made, in discussing
the two earlier theories, to the attempts made, in
various ways, to secure some necessary dynamic
principle; and throughout the whole treatment of
problems of distribution there is an evident search
for some determinant quantity by reference to which
we may determine the other shares of the product.
The distribution of the product of industry- -the
National Dividend — seems in practice so definite
and, notwithstanding strikes and kindred social (and
unsocial) phenomena, so deliberately certain that it
seems almost a foregone conclusion that there should
be some single principle discoverable, in virtue of
which this precision exists. When, however, we
set ourselves to judge between three or four actual
claimants for the product, the problem becomes
perplexing and, apparently, in principle, insoluble,
unless we can apportion to one or other, or more
than one, of the claimants a definite share as by
necessity. We, therefore, naturally look for some
given quantity or quantities which will enable us to
solve the remainder of our problem. The mathe-

1! 'I

\ B

!i .

The Bargain Theory of Wages,

P, !■

Ill

I''

III

If '■; '

matical method, however valuable it may be for
illustration and exposition, is not quite applicable,
because here we are dealing, not with rigid quanti-
ties, but with human forces. Economists in their
treatment of distribution have generally anticipated,
or adopted, the spirit and the purpose of Mill's
Logic and applied the methods of physical science
to their hivestigation of the social problems of dis-
tribution. The Method of Residues seems to lend
itself most readily to the accomplishment of this
particular purpose; and various attempts have been
made to demonstrate that some particular share in
distribution is residual, /. ^., that the product, de-
duction being made of certain fixed payments, be-
longs, by necessity and by right, to one or other of
the claimants. Physical methods are more or less
inadequate to deal with human facts and forces and
the result of their use has generally been to give
to some element an unnatural rigidity. We have
need in economics, as well as in metaphysics, of the
Kantian category of reciprocity.

The best-known, and most generally accepted,
application of the Method of Residues in economic
science is found in the classical theory of rent.
Rent is the surplus of the product remaining after
the expenses of production, that is, the wages and
the profits, have been deducted. Land on the
margin of cultivation pays no rent because it yields
no surplus, no residue after the expenses of produc-
tion have been met. There is a strong tendency, at
present, to extend the area of the conception of rent

The Residual Method,

Itl

and apply the term not only to the residue of the
total product, but also by analo;^y to any returns to
labor and capital which exceed the normal return to
such labor and capital. The validity of residual
process, in the original case of rent, depends obvi-
ously on the truth of the assumption that the re-
turns to capital and labor are fixed quantities. If
thv^se are variable — and the extension of the concep-
tion of economic rent or surplus seems to indicate that
they are variable in some degree — the perplexities
of the problem of distribution are resolved only in
name, and the residual nature of Rent is purely
formal. To Ricardo, it was an easy conclusion that
Rent was a residual share. Notwithstanding his
distinction between natural and market wages and
his concession that market wages might remain con-
stantly and for an indefinite period above the natural
rate, when he turned to the consideration of the other
shares of the product he seemed to think of natural
wages alone, which were fixed at the amount " neces-
sary to enable the laborers, one with another, to
subsist and to perpetuate their race, without either
increase or diminution." Profits, however, are not
regarded as quite so definitely determined. The
theory of profits and interest had not in Ricardo's
hands assumed the neat concise form it received
from later economists. Ricardo had failed con-
sistently to state a distinction, which he sometimes
recognized, between the gross amount of profits and
profits per cent. ; and the result was a reckless use
of the proposition that wages could rise only at the

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T/ie Bargain Theory of Wages.

expense of profits. Later writers developed more
clearly the notion of a necessary rate of profits. A
certain rate of profit was necessary to call out an
effective desire to accumulate in the requisite degree.
But we can hardly say that Ricardo put forward a
natural rate of profits as he had put forward a natural
rate of wages. Rather did he consider inconsistently
profits as also being a residual share. Wages could
rise only at the expense of profit. Consequently we
do not look to Ricardo for the standard exposition
of the Ricardian theory of rent. In his exposition,
rent was a surplus remaining over after one deter-
minate and one indeterminate share had been paid
out of the product.

The neat formula of Rent as equivalent to the
product minus the expenses of production — R =
(P — E) — was not presented by economists till the
rise of the class of simple investors, who required a
fixed rate of interest as a reward for abstinence, to
induce them to postpone immediate enjoyment to
the necessary extent, had made it possible to regard
profits, definitely and consistently, as a fixed share.
The Ricardian doctrine of fixed wages had, in the
meantime, been abandoned, but its place was taken
by the Wages-Fund Theory, which made wages as
definite and determinate as they were under Ri-
cardo's theory. Profits were thus a determinate
amount and wages were a determinate amount and
the residual nature of rent was thus neatly estab-
lished. While the Wages-Fund Theory was main-
tained, this was the current theory of distribution.

Rent as Residual.

It was based on the two assumptions that profits
tended to a minimum (fixed at the rate necessary to
call forth the requisite degree of abstinence) and the
determination of the wages fund by the intention of
the capital. The theory was not firmly established
before its stability was threatened. Mill modified
the assumption of the tendency of profits to an
equality. His " instability of unequal profits " does
not afford the same stable basis for the theory of
rent ; but the residual character was maintained
until the Wages-Fund Theory was abandoned, and
is, indeed, still maintained.

The residual nature of profits, which does not, to
the ordinary business mind, seem to require demon-
stration, has, except in Ricardo's half-hearted fash-
ion, hardly been put fo rd; but the residual
character of the reward of labor is part of the current
modern theory of distribution. Professor Walker,
after demonstrating that wages are not paid out of
a pre-accumulated fund, but out of the product, de-
clares that wages, in a very real sense, are not paid
out at all, but eire what remains over after certain
fixed charges, rents, profits, and interest, have been
met. Rent is determined by the margin of cultiva-
tion, the lands which yield no rent ; and profits and
interest are similarly and analogously determined
by the margin which just gives a return sufficient to
cover expenditure.

The development of a residual theory of wages
was a natural outcome of the attitude of economists
towards economic history. They persisted in seeing

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The Bargain Theory of Wages.

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in the past only a series of ready-made illustrations
of the theories of the present ; and when such illus-
trations were harder to find than usual, or not so
clearly illustrative of the theory in hand as might be
desired, they did not hesitate to invent a purely fic-
titious economic history and treat it as sober fact.
They always assumed that the principles which gov-
ern men's conduct at our present stage of industrial
development are but more complicated forms of the
principles which governed the primitive man; and
regarded it as at once a necessity and a virtue to
turn to the early instances to bring these principles
into clear relief. The hired laborer who receives, at
the hand of another, a derivative, not an original,
share of the product is, from this point of view, re-
garded as in the same position as the original auton-
omous producer who was the final owner of all the
fruits of his labor and exertion. Adam Smith,
although he did not in terms commit himself to this
view of history, apparently lends to it the sanction
of his authority :

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The produce of labor constitutes the natural recom-
pense or wages of labor. In that original state of things
which precedes both the appropriation of land and the
accumulation of stock the whole produce of the labor
belongs to the laborer. He has neither landlord nor
master to share with him." *

Here we have the basis of the residual theory and

* Wealth of Nations, p. 27. See Mr, Cannan's Production and
Distribution, pp. 200, 201.

Wages as Residual.

a reason for rejecting a theory of wages which finds
the measure of wages in the intention of the em-
ployer. What we have really to explain is not why
the laborer receives wages, but why th^ whole of the
product of industry does not belong to him. The
explanation is that as industry develops, the laborer
comes to require more and more the co-operation of
agents of production which are not in his possession ;
and for the help of these he is compelled to pay.
The price he pays for their co-operation must be
deducted from ^■'^e resultant product before we have
the actual, as dibtinguished from the natural, recom-
pense or wages of labor.

Adam Smith's suggestion that wages might be
regarded as the residual share of the product was not
developed by his immediate successors; but it has
been taken up and amplified as the basis of the
modern theory of wages. This revival of a neglected
doctrine is partly due to the growth of democracy
and the consequent tendency to exaggerate the in-
dependence and supremacy of the working classes in
the labor market ; but, mainly, to the recognition of
the fact that it is necessary to give determining
power to the principle of which the law of wages is
the expression. The early theorie endeavored to
do so directly. The Subsistence Theory provides
a minimum below which wages cannot fall, and the
Wages-Fund Theory treats the supply of labor and
the demand for labor as definite quantities fixed by
extraneous forces, irrespective and independent of
each other. Professor Walker approaches the prob-

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The Bargain Theory of Wages.

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lem in a more roundabout way. He was practically
debarred by his polemic against the methods of the
Wages-Fund Theory from attempting a direct solu-
tion ; and he, therefore, tried to show, not that the
share of labor was determinate, but that the other
shares taken from the given product were. Thus,
by the method of residues, the end at which the
earlier theories had aimed is reached. The share of
labor is determined and the result can be set forth
in a neat but unconvincing formula which has pro-
voked Mr. Gunton's sarcastic definition of the small
boy's catch, as all the fish in the sea minus those he
didn't catch. The value of a residual theory de-
pends on a demonstration of the strictness of the
determination of the other shares ; and this demon-
stration no one can imagine that Professor Walker
has provided. In other chapters we find him a (de-
veloped) Ricardian of the Ricardians determining
rent as a residual share, and profits as a residual
share, and interest as a residual share. So when
we find that wages also are determined as a residual
share we can hardly avoid the inference that we
are travelling in a vicious circle, not of a very great
diameter.

The Productivity Theor}'- is held by many writers
who do not adopt it in its residual character. These
writers are mainly concerned with the practical ap-
plications of the theory, in the discussion of tariff
reform, and of the reduction of the hours of labor;
and for their purposes the residual nature of the
share of the product which goes to labor is probably

Wages as Residual,

li;

better left in the background. No useful purpose,
at any rate, could be served by treating the share of
labor as residual.

Apart from the practical applications^ it was almost
inevitable that an effort should be made to show that
wages was the residual share. The final test of a
theory of wages is held to be the dynamic force of
the determining principle, and directly, the produc-
tivity theory does not provide such a principle. The
total product of industry cannot, in any intelligible
sense, provide a measure of wages because the whole
cannot be a measure of the part. That out of a
larger product larger wages can be paid and out of a
smaller product lower wages is not even a statement
of a formal truth and may be a statement that is
untrue. In the language of formal logic, a defini-
tion of wages must consist of a statement of a genus
and a difference. Where the genus is indisputably
established we still require the statement of the
difference. The theory of wages ought to state
the differentiating principle which separates the part
from the whole of which it is a part. The Produc-
tivity Theory, at the first, and in many expositions
to the very last, is merely a statement of the genus,
and omits all reference to the difference as some-
thing of comparatively little importance. While
the new theory was merely a polemic against the
Wages-Fund Theory, which was essentially a theory
of the source from which wages are paid, it was suf-
ficient to prove that wages were paid from another
source. But the wages fund was determinate and

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T/ie Bargain Theory of Wages,

predetermined, while the new source is also the
source from which Rent and Profits and Interest
are paid. The triumph of the new theory brought
prominently forward the question of the measure of
wages. The treatment of the subject at Professor
Walker's hands indicates the progress towards the
recognition of this necessity. TJie Wages Question
contains no hint of the residual character of the share
that goes to labor. Space and attention are devoted
to the criticism of the Wages-Fund Theory. In his
Political Economy, the Wages-Fund Theory, and the
polemic against it, are relegated to what is practi-
cally an appendix, while the residual nature of the
laborer's share of the product is fully set forth.

The method of residues was employed to accom-
plish indirectly what other theories had professed to
do directly; but the final result, in both cases, is
practically the same. The share of the profit which
goes to labor cannot be shown either directly or in-
directly to be a determined amount, and the de-
structive criticism to which each successive attempt
has been subjected leads us to the conclusion that
the need for absolute determination in the theory of
wages is illusory. The necessity seems to arise
from the fact that the actual shares of the product
are distinctly determinate; but it does not follow
that these shares are predetermined by action of any
one principle. Indeed, a review of the phenomena
of distribution shows us that there is no definite law,
in accordance with which just so much, and no
more, is assigned to any one of the claimants. The

The Contribution of Labor to Production. 1 19

shares are mutually determined and determining,
and the result of this process can be known only ex
post facto. There is no inherent necessity that the
share of labor should be what it is ; and it is v/hat
it is in virtue not only of the strength of labor but
also of the strength or weakness of the rival claim-
ants. We must get rid altogether of the idea that
there is an economic force which allots absolutely
any share of the product, even the smallest, to any
of the claimants. There is no absolute minimum
and no absolute maximum for any share; and the
amount at which the share is finally fixed is deter-
mined by a combination of forces.

There is something superficially attractive in the
idea on which the Productivity Theory is ultimately
based, that each factor that has been employed in
production should obtain as a return what it has
contributed; but the process of determining what
each has contributed is neither so easy nor so con-
clusive in its results as this suggestion makes it ap-
pear. Before the prrblcm of discovering the con-
tribution made by ear h factor can even be approached
we must settle what the nature of the contribution
made by each factor is. Is it a physical contribution
or an economic contribution on account of which the
return is to be made ? The physical contribution of
each factor is no doubt determinate, and might, by
analysis, be determined ; but it is obvious that the
physical contribution made to the product is neither
explanation nor justification of the actual remunera-
tion received, and cannot be treated as such unless

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T/ic Bargain Theory of Wages,

we assume that the whole system of society is a
monstrous iniquity. There are factors in the physi-
cal process of production which are necessary and
indispensable (and, as Mill reminds us, there are no
degrees of indispensability) which yet receive abso-
lutely no share, even the smallest, of the product.
The contribution to the process of production made
by what we call the free gifts of nature is as real and
as distinct and determinable as the contribution
made by labor or by capital, but no share of the
product is allotted to them ; and indeed it seems
ridiculous to speak of a share of the product in this
connection. In the degree in which any agent of
production approximates to the character of a free
gift of nature, however necessary it may be, and
may continue to be, to production, does its share in
the product decline. It may continue as important
as before, and it is even possible, as it comes more
to resemble a free gift of nature, that its physical
contribution may increase ; but its reward will dimin-
ish at least relatively. If the supply of labor should
be increased enormously we might find that many
operations, previously performed by machinery,
could be more profitably performed by hand (the
converse case is a matter of common industrial ex-
perience). The physical contribution of labor to
the product would thus be augmented; but while
the total reward of labor might be increased the
marginal reward would certainly decrease. The
accumulation of capital, again, might be so rapid
«ind so enormous that the rate of interest might fall

The Physical Contribution,

121

almost to zero ; but the application of capital in pro-
duction would increase rather than diminish. The
skill and general mental qualities necessary for suc-
cessful management might, by the spread of educa-
tion, become very common ; but managerr ^nt would
be no less indispensable and might even be employed
to a greater extent in production than it is at pres-
ent ; yet the wages of superintendence would fall
off as they have done, according to Mrs. Sidney
Webb, in the textile factories of Lancashire.
Thus, even supposing it was an easier matter than
it is to determine the physical contribution made by
each agent to the product, we are evidently not very
far advanced on our way to determine, according to
this principle of justice (which makes all the present
organization of society a monstrous injustice) what
share of the product should be allotted to each
agent.

The product of industry, moreover, is not the re-
sult of the several factors, but of the combination
and co-operation of the factors. Outside of the
combination, and apart from the co-operation, of
the various factors, the product of industry would
be very small. The factors working separately, and
in isolation (and separately and in isolation some
of them could not work at all), would only be able
to turn out a product beggarly in comparison with
the share of the product they actually receive from
the results of co-operation. Capital is, at the best,
only a passive instrument of production: without
labor and opportunity it can produce nothing; and

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122

T/w Bargain Theory of Wages,

ii;

the socialists clamor, in virtue of this principle of
justice, that it should receive nothing. The earth
might yield her increase without labor and without
capital, but the amount would be very small and the
quality would soon deteriorate. Labor, the pe-
culiarly active agent in production, would indeed
produce something; but the progress of industry
has been due to an increasing co-operation of labor
and capital, and other agents of production; and
the greater the co-operation the larger the product.
We cannot, therefore, find the contribution of any
given agent by comparing the amount of the product
when it is present and the amount of the product
when it is absent and calling the difference between
them the contribution of the given factor. By this
method we should obtain some rather astonishing
results. If labor, in the absence of capital, could
produce only one half, or one third, of what is pro-
duced to-day when labor and capital co-operate,
fifty per cent, or sixty-six per cent, would, on this
method, be assignable to capital. But, on the other
hand, if labor were absent capital could produce
nothing whatsoever, and consequently one hundred
per cent, of the present product belongs to labor.
Then, if we were to reverse the process, and add to-
gether the several shares assigned to the various
factors, after this method of subtraction had been
carried out, we might find, as we pleased, either that
the product had been assigned many times over, or
that the larger part of it had not been assigned at
all. It is sufficiently obvious that we cannot deter-

The Rcouoviic Contribution.

123

mine the contribution of any factor to the product
by this indirect method of subtraction. "**■

TIic sum of the wliole matter is that we ought not
to transfer to distribution the ideas which are neces-
sary in production. The mere fact that an agent is
employed in the processes of production affords no
reason why a part of the product should be assigned
to it, as the case of the free gifts of nature is suflfi-
cient to prove. An analogy will make the point
clear. Physical laws and physical conditions must
be present before a man can be pushed over a preci-
pice; but we have no blame for the law of gravita-
tion, or for the geological forces which shaped the
formations of the district. We do not hold them
responsible, but reserve our blame for the human
agent who may, to the sum total of physical causes
and conditions, have made the smallest physical
contribution. As in the moral distribution of re-
sponsibility and blame so in the economic distribu-
tion of the product. Mere physical contribution to
the result is a matter of no importance whatever.
In the distribution of the product no share at all
will be assigned unless the factor is, so to speak,
able to make a claim and able to make its claim
good in some way or other. The claim must be
supported by a threat, and the power to carry out
the threat is the sole measure of the share which the

'". 1!

* This method has been unhesitatingly employed, with results most
irritating to the friends and champions of labor, by Mr. Malloch
throughout his brilliant essay. Labor and the Popular Welfare^ and
the futility of the method is the underlying fallacy of the book.

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124

The Bargain Theory of Wages.

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other claimants will allow to pass into the possession
of the first claimant. The threat which can be used
with effect is to withdraw the agent from the co-
operation, and if the agent were a unit the power to
make the threat good would cause the transfer to
that agent of the difference between the product
with its co-operation and the product without its
help. But no agent is a unit and, although the
agent, as a whole, is indispensable, the whole may
be so great that no particular unit of that agent can,
with any hope, claim to be indispensable. If the
agent is available in such quantity that there need be
no shadow of fear that the supply of it will not be
sufficient to meet the demand, or, in other words,
if the supply of the agent is so great that the other
agents need have no fear of being deprived of its co-
operation, no attention will be paid to the claim.
The free gifts of nature, precisely on this account,
receive no share of the profit. When there is any
means of limiting them, they are appropriated and
their claims are enforced by the threat to withdraw
the supply of that agent from co-operation with the
other agents.

There is no right inherent in any agc;it 'Vi.v Its
claims should be allowed : its claims are admitted
by the rival claimants only because they are forced
to admit them. Should they be able to make better
terms for themselves, by encouraging, so to speak,
some substitute for a particular agent of production,
that encouragement will be given. In the main, it
is true that the contribution rendered by the agent

The Law of Substitution,

125

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can be rendered by that agent alone ; but between
labor and capital there is some possibility of substi-
tution. When the wages of labor are high there is
a decided impetus, as, for instance, in the United
States, given to the introduction of labor-saving
machinery. It is cheaper to employ machinery
than labor because the claim made on behalf of the
capital embodied in it is lower than the claims made
on behalf of the labor it tends to displace. The
claims of labor will therefore be disregarded to the
extent to which they are in excess of the claims of the
capital which may replace it, and the value of labor
will be determined, not by the claims which are
made by and allowed to the marginal laborer, but
by the claims which are made by and allowed to the
marginal substitute for labor. This process of sub-
stitution has not resulted in reducing the claims
allowed to labor, though it has possibly checked
their advance, because in the long run, machinery
has not over the whole field of labor caused a dim-
inution of the demand for labor.

The claim which may be allowed to any agent of
production may be large, not because it has excep-
tional power to enforce its threat to " strike," but
because the power which the other agents have to
enforce their claims is relatively weaker. In the
contest, or competition, for the product a larger
share may go to capital because labor is disorganized
and to labor because improved communication has
made new land and natural resources available.
When the margin of the profitable application of

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126

T/ie Bargain Theory of Wages.

any agent extends, all the agents or claimants will
gain, but the agent whose conditions have changed
will gain the least by the change. Its relative re-
ward will decrease and its absolute reward will not
increase in the same proportion as the absolute re-
ward of the other agents; and the reason is that
owing to the increase of the supply the power of
making its threat good has been impaired.

The definite shares of the product which are
allotted to the various claimants are not determined
by the inherent right of one, or other, of them to a
precise amount, but by the comparative strength of
the various claimants. The shares are, therefore,
mutually determined and determining; and we may
therefore give up the search after some definite
principle, or principles, which, directly, or indirectly
by the method of residues, would predetermine the
share of any one of them ; for the position of any
claimant may improve, or become worse, without
any alteration in itself, merely by an alteration in
the relative strength of another claimant.

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CHAPTER IV.

THE BARGAIN THEORY OF WAGES.

THE mistaken quest for a principle which, singly,
shall have determining powjr has generally
led to an extreme and one-sided statement of the
principle. It has been stretched to explain all the
phenomena of wages ; and it has been an easy task
for the critics to show that it is not sufficient to
cover the whole ground. Many facts have to be
accommodated to the theory and others left com-
pletely unexplained and unexplainable. As long as
the critic confines himself to his criticism, his course
is clear and his argument unanswerable; but when,
in the triumph of his destructive criticism, he be-
comes confident enough to state his own theory, the
tables are turned, and the new, or revived, theory is
easily shown to be open, if not to similar, yet to
equally weighty objections. No theory seems strong
enough to meet the objections which are raised
against it; because no theory is adequate for the
explanation of all the facts. The reason for this
universal breakdown is that the criticism is, in the

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T/ie Bargai7t Theory of Wages.

main, merely destructive. A principle is shown to
be inadequate to account for the determination of
wages under certain circumstances and is, there-
fore, promptly rejected m toto ; and a new theory is
put forward to explain what the rejected theory
had not explained. But the new theory is generally
found to be inadequate to explain what the old had
explained.

The consequences of the doctrine of evolution
have not yet, in spite of the adoption of its phrase-
ology, been fully realized by economists, or we
should have less of this purely destructive criticism
and hasty and contradictory construction. No
theory which has obtained the approval of a large
number of investigators of industrial phenomena,
and kept it for any length of time, can be totally
devoid of foundation. It may not express the
whole truth, but it must present some sort of expla-
nation of large groups of facts, and no polemical
fervor can justify the total rejection of a theory
which presents some part of the truth of the indus-
trial situation. This destructive criticism has been
inspired by the notion that the principle must ex-
plain all the facts or none at all ; but when we get
rid of the idea of the, necessarily, absolute deter-
mining power of a single principle, the way is open
to us to recognize the measure of truth and expla-
nation contained in each of the three principal
theories that have been advanced, and to construct
a theory which shall give due place to the element
of truth which each has been shown to contain.

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The Defects of Wage Theories,

129

The errors of the theories, considered in the first
three chapters, have arisen from making a solution
of a part qf the problem do duty for the solution of
the whole'; and the remedy consists not in indis-
criminate criticism and rejection, but in giving each
theory its proper place. The subsistence theory is,
in the main, a theory of the supply price of labor — in
its earlier and later forms a theory of the necessary
supply price determined by the cost of production
(variously interpreted) — in its usual modern form,
almost, it might be said, a theory of market-supply
price or, at any rate, of the variations of the market-
supply price above the necessary supply price. It
errs, on the one hand, as a cost of production theory
is bound to err, in neglecting the question of a pos-
sible demand price, and, on the other hand, in inter-
preting the supply price of labor too narrowly. It
assumes throughout that labor is a commodity with
pretty much the same characteristics as other com-
modities which are bought and sold ; and, therefore,
except in the vaguer form of the principle as the
standard of comfort, it is forced to neglect the fact
that the supply price of labor is not determined ex-
traneously) but is largely self-determined. The sup-
ply price of labor is not determin'^d, solely, by the
amount of thie necessaries, comforts, and luxuries
which are necessary, from physiological causes or
from custom and habit, to support the laborer.
These, as we shall see later, form the principal ele-
ment in the supply price, but they do not constitute
the whole of it ; nor is any sufificient reason suggested

130

The Bargain Theory of Wages.

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ill the theory why they should form even part. The
supply price of labor is not a price determined by
forces over which the laborer has not full control :
it is simply an estimate which the laborer forms of
what he (not necessarily his work) is worth ; and

. many elements enter into it, besides food and cloth-
ing and shelter and even fccreation. The supply price
is not a minimum below which wages cannot fall,
or a maximum beyond which they cannot rise. It is

. true that wages cannot easily fall below the standard
of subsistence, interpreted in the strictest and nar-
rowest physiological sense, but, owing to the prog-
ress of the working classes, this form of the theory
has been abandoned. In any other sense, whether
industrial or optimistic, the standard of subsistence
cannot be regarded as an absolute minimum. The
degradation of labor is a melancholy fact of too fre
quent occurrence in industrial history to permit i
to accept the standard of subsistence as an insur-
mountable barrier. A man can live on less, and he
may be forced by the fluctuation of industry for the
time being to accept less, than will secure for him
that amount .of the necessaries, comforts, and
luxuries of life which he naturally thinks, or has
com£ to think, as his due. The supply price of
labor is simply an estimate by which the laborer is
prepared to stand and for which he is, if need be,
prepared to fight. But the greatest omission in the
theory is the neglect of the question of the demand
price of labor. If we could accept without qualifi-

. cation the cost of production theory of value, the

Demand Price and Supply Price.

131

omission would not be serious; for, according to
this theory, fluctuations apart, all values are deter-
mined by supply; but " cost of production " was
shorn of much of its significance by Mill, and rele-
gated to the background, where, unless when brought
forward to be definitely repudiated, it has remained.
If labor is a commodity, it has not only a sypply
price but a demand price; and the modern theory of
wages practically anticipated those theories of value
which find that value is determined by utility,
in considering only the question of the demand
price.

In the standard of subsistence theory, as well as
in the productivity of labor theory, too much stress
is laid on the alleged fact of concomitant variation.
This concomitant variation of wages with the cost
of living, on the one hand, and with the efficiency
of labor on the other, we found to be neither so in-
variable nor so close as was alleged ; and yet to be
close enough, in both instances, to justify both the
theories as approximate explanations of the facts.
In the language of formal logic, it might be safe to
conclude that the two principles were in effect not
so much contrary as subcontrary propositions. At
any rate, both of them are in a measure true if
neither is pushed to an extreme. Unfortunately
the exponents of both theories have pushed them to
extremes and, in asserting the truth of their own
principle, have imagined that they were proving the
falsity of every other. But a theory of the supply
price of labor need not be set in antagonism over

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132

The B I Theory of Wages.

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against a theory of a demand price. Both may be
true and both are necessary for a complete state-
ment. The productivity theory amounts to an un-
quahfied assertion of the demand price of labor as
the determinant of wages. It ignores, almost com-
pletely, the supply of labor because, optimistically,
it considers the question of a supply price irrelevant
and unnecessary. The demand price is necessarily
higher than the supply price ; and the motive which
the employer has in paying wages, and the beneficent
results for the laborer of the competition of master
with master, render the consideration of a possible
supply price unnecessary. The demand price is
fixed by the estimate which the employer forms of
the efficiency of labor, and, as the demand price is
higher than any possible supply price, the latter is
ignored, except in so far as the supply price of labor,
or the most important element in the supply price,
food and clothing and shelter, affect the efficiency
of the laborer. It is undoubtedly true that in pay-
ing wages the employer is influenced by his estimate
of what the laborer is worth to him, and this estimate
constitutes the demand price of labor. In the case
of labor, as in the case of all other commodities, the
demand price is generally higher than the supply
price. This arises not, as in ordinary exchange,
from the low marginal utility of that with which the
seller parts, but from the necessities of the laborer.
But, although the demand price is generally the
higher, or, to be more accurate, although the demand
estimate is generally higher^than the supply esti^

The Demand Price not Fixed.

133

mate, it does not follow that the supply price is
a negligible quantity. The demand price is not
fixed and absolute. It certainly, even under the
beneficent influence of the competition of master
with master, cannot be regarded as a minimum.
The motive for paying wages is the hope of a sur-
plus; and the lower wages can be fixed compatible
with efficiency the larger the surplus the employer
may hope to realize ; and there is, therefore, a rea-
son why the employer should seek to pay less than
he thinks the labor is worth. The supply price,
however, is a practical limit to his powers of re-
ducing wages. To reduce wages down to the
supply price and to attempt to lower them further,
will destroy the laborer's hopefulness and irritate
him into a wild sense of injustice. If the supply
price is high the enlightened employer's efforts to
reduce wages will soon be checked by the decline in
the laborer's efficiency, which depends so much on
mental and moral qualities : if the supply price be
low, the actual price of labor may be low, not
merely because the laborer is less efficient, which he
probably is, but because the employer may hope to
realize a larger surplus without killing the goose
that lays the golden eggs for him. In either case,,
the supply price of labor is of importance because it
is the employer's interest to pay as much less than
the labor is worth to him as the laborer will, readily
and without irritation, accept.

The Wages-Fund Theory, in a measure, is a rec-
onciliation of these two theories ; but the reconcili-

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134 T/if Bargixin Theory of W

'ages.

ation is premature. It presents a theory of the
demand and the supply of hibor, but treats both de-
mand and sui)ply from an impersonal and quasi-
objective standpoint. Demand and supply are fixed
by what are, so far as the theory of wages is con-
cerned, extraneous forces. Su[)ply is not relative
to price, but independent of price, and the causes of
the determination of the supply are considered out-
side the theory. The causes which determine the
demand are not so cavalierly dismissed ; but the de-
mand is regarded as a quantity and not as relative
to a price. The fundamental error of the Wages-
Fund Theory consists in treating both supply and
demand as fixed quantities. The laborer must work,
therefore the supply of labor is absolute. The em-
ployer, out of his own intention, fixes the Wages
Fund which must be expended, and, therefore, the
law of wages is the proportion between demand and
supply. But the laborer, though he must work, is
not merely passive, and the employer, like other
men, forms some estimate of the worth of what he
purchases; and, although we may speak of a propor-
tion between fixed and rigid quantities, we cannot
speak of the law of wages bcuig the proportion be-
tween the demand and supply of labor. Mill's
emendation " equation " is better, but all analogies,
even mathematical analogies, are misleading. The
supply of labor cannot be considered apart from the
fact that labor and the laborer are inseparable : ^the
demand for labor arises from the motive which the

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TJic Form of the Couiplctcd Theory. 135

of a surplus product, and is not independent of his
estimate of what the labor wliich he purchases is
worth. Waf^cs are the result of an equation, if we
must use Mill's term, of the supply estimate and
the demand estimate, and, if the equation is not
established at first, the solution of the problem is
reached, as it is reached in all other buying and
selling, by bargaining.

The Wages-Fund Theory is, in form at least, the
most adequate attempt to resolv^e the wages ques-
tion. It recognizes that there are two sides to the
equation and devotes considerable attention to the
force which establishes' the equation. This force it
calls competition. Thus it presents the form of a
complete theory; and the object of the remainder
of this chapter is to fit the material of the Subsis-
tence Theory and of the Productivity Theory to the
form of the Wages- Fund Theory.

In the last chapter, we saw in what sense the
statement that labor \?> a commodity is to be under-
stood. Even in the most advanced industrial stages, .
the buying and selling of labor continues in many
respects to exhibit the characteristics of primitive
exchange. The difficulty of securing that double
coincidence which is necessary for barter does not
appear, because labor is in steady demand ; and the
labor market, though not organized like the money
market, is not in a state of chaos. It is not because
labor is less mobile than other goods that it retains
the characteristics of primitive exchange, but because
two separate estimates of utility enter into the de-

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7%^ Bargain Theory of Wages.

termination of the ratio of exchange. In the case
of direct and primitive exchange of goods for goods,
each of the exchangers has his own estimate both of
what he wishes to obtain and of what he parts with
in order to obtain it. The primitive exchanger is
supposed to compare the rharginal utility of the two
commodities which are to be exchanged, and the
exchange takes place only when the bread or the
water or the diamonds with which one parts has a
lower marginal utility than the commodity which
one gains. But with the organization of industry
and the extended application of the principle of the
division of labor, the estimate which the exchanger
places on the commodity which he offers in exchange
becomes of less importance. He has it in superfluity
and, even when he could use in his own consump-
tion the commodity he produces, its marginal utility
must be almost as low as zero. The producer pro-
duces only to exchange and, in the actual exchange,
therefore, looks almost exclusively to the utilities
of the articles which he seeks to obtain. He may
withhold part of his output; but his object in so
doing is to obtain a larger amount of the commodity
he desires. His motive is never the affection he
has for the fruits of his own labor or the direct utili-
ties which the commodities can afford him. The
seller's personal estimate has little influence in deter-
mining whether the commodity is sold or not. /^is
minimum price is determined solely by the cosi
of production — what determines the cost of pro-
duction is not our problem — and his objection to

Labor a Personal Commodity,

137

parting with the commodity below cost docs not lie
in the fact that he can use it to better advantage —
that, even in the having it, there is more utility
than can be obtained by parting with it at a sacri-
fice. This is true, notwithstanding the fact that,
directly or indirectly, the commodity is the product
of his own labor or sacrifice ; not only because under
modern conditions this sacrifice of comfort is spread
out over a large area owing to the division of labor,
but also because it is a thing of the past. The
manufacturer who sells the output of his mills docs
indeed sell the results of his exertions and his absti-
nence; but, nevertheless, he will not withhold a
single hank of yarn or a single yard of cloth from
the market because he has exerted his powers of
mind and body, or sacrificed his immediate comfort,
in fashioning them. Rather will reflection on these
past exertions make him the more willing to sell, that
they may not go unrewarded. The exertion is over
and past; and, though future exertions may be
limited because the reward for past exertions is con-
sidered inadequate, yet past exertion has little to
do with the determination of present price. But
the less remote the exertion and the less the extent
to which the division of labor is carried in produc-
tion, the more will the seller's sense of the exertions
he has put forth and the sacrifices he has undergone,
affect his readiness to sell at any price. An artist,
in so far as he is animated by the commercial motive,
is more likely, other things being the same, to hold
his picture for an adequate price than the weaver

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T/w Barium TJicory of Wages.

his cloth. The artist has completed the whole
operation and has in his hands at one time the com-
pleted result of his exertions. The work that he
has fashioned is more to him thr 1 the yarn is to the
master spinner; thouj^h the pamter, too, will part
with the picture at what he considers an inade-
quate price rather than have it left on his hands.
The laborer, however, is still nearer to his labor
which he sells than the artist is to his picture. He
has but little interest in the product which he is
engaged in making. He has already contracted
himself out of all claim on it. What he parts with
is really not the fruits of past exertion, but the right
to use his labor. All the time that the exchange is
being effected, he is continuously conscious of his
personal interest in what he sells. Since all labor
involves disutility, we can never speak of the laborer
parting with that which has a low marginal utility
to obtain that which has a high marginal utility.
Directly the power to labor may be of little use to
the laborer, but the disutility of labor remains great.
Were the laborer able to take a purely objective view
of what he sells, the price of labor might be deter-
mined as the price of all other commodities is, almost
entirely from the side of demand; but the memory,
or the anticipation, of the disutilities of exertion is
too strong to permit him to take an impersonal
view and, consequently, he will insist more strongly
than either the manufacturer, or the artist, on ob-
taining an equivalent for the inconveniences he has
incurred or is likely to incur. All that a man hath

Labor a Unique Coiiuiiodity.

139

will he give for his life, and the laborer's necessities
may be so great that he estimates the disutilities of
labor as nothing compared with the utilities he de-
sires; yet, however highly he estimates the utilities
of the reward and however indifferent he may there-
fore be to the disutilities of labor, he will not work
unless the utilities are, at least, an equivalent in
satisfaction to the disutilities incurred.

Labor, on this account, remains a thing apart. It
has inevitably, perhaps fortunately, but certainly
inevitably, lagged behind in the process of the
simplification of exchange, which has gone so far in
the case of other commodities as practically to elimi-
nate the seller's estimate from the barjjain. From
the buyer's point of view labor has not lagged much
behind. In primitive exchange the decision to buy
or to sell depends on whether the indirect utilities,
v/hat by the Austrian economists is called the sub-
jective exchange value, exceed the direct utilities or
not. Under modern industrial conditions, the
direct utilities are of comparatively little importance
compared with the indirect. The buyer of labor
must postpone the consumption of some portion of
that share of the real income of society which has
fallen to him ; but since he buys labor, not for im-
mediate gratification, but to produce and to make
money, the utility which he sacrifices does not
weigh much with him. He fixes his attention far
more on the commodities he seeks to obtain by help
of the labor he hires than on the utilities he hands
over to the laborer in exchange ; although the direct

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140

The Bargain Theory of Wages.

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utilities are not without influence on the estimate
he forms of what the labor is worth to him.

The price of labor is determined somewhere be-
tween two estimates placed upon it — the estimate
of the employer and the estimate of the laborer.
The estimate of the laborer is the resultant of two
factors — one positive and one negative- -the utility
of the reward and the disutility of the labor; and
the estimate of the employer is on the whole de-
pendent on the indirect utilities afforded by what he
purchases, or rather by the discounted value of the
product created by the laborer's exertions. Should
the laborer place too high an estimate upon what
he offers to sell, or the employer too low an estimate
on what he wishes to buy, no exchange will be
effected; but, in general, the necessities of the
laborer and the motives of the employer prevent
any such difficulty from arising. The pressure of
the laborer's necessities is such that the reward
which the employer offers is generally sufficient to
cover the disutility of labor.

Between these two estimates the value of labor is
determined by the forces by which all exchanges are
effected. These two estimates are a maximum and
a minimum. The buyer is neither anxious nor will-
ing to offer as much as his estimate. On the con-
trary, he naturally desires to obtain what he wishes
as much as possible below his estimate of what it is
worth to him. His motive in buying labor is to
obtain the surplus of the price which the product
realizes over the advances he has to make to obtain

The Limits of Wages.

141

it ; and the smaller the advances he has to make the
greater the surplus which remains in his possession.
His estimate of what labor is worth is a maximum
beyond which he can, only with the greatest diffi-
culty, be forced to go. The difficulty arises from
the opposition which the other claimants to a share
in the product will offer to any disturbance of the
balance which has already been established. Should
he be forced to offer more than he can, consistently
with this balance of claims (including his own), he
will have to face the necessity of establishing a new
balance unless he is content to see his own share
shrink without a protest. Up to his estimate the
employer can freely offer, but the less he can force,
or induce, the laborer to accept, the larger his own
share.

The laborer, on his side, does not regard his esti-
mate as a maximum. On the contrary, even should
he be successful in extracting from the employer the
full measure of the employer's estimate, it does not
follow that he is quite satisfied. He has expended
energy which it requires food and clothing and
shelter to replace : he has occupied a position of de-
pendence and restraint, for the irksomeness of which
he insists on such a compensation in satisfaction, or
the means of satisfaction, as will make him feel his
own master during his leisure hours : he has suffered
from the monotony of work, in which he has little
immediate, and no ultimate interest, and his nature
demands variety and recreation ; but the equivalent
in satisfaction which he feels he has a right to de-

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142

T/ic Bargain Theory of Wages,

mand for these disutilities does not, as a rule, meet
all the wants in his scale. The laborer, except per-
haps in the lowest grades of society, has a great
variety of wants and will naturally seek to satisfy as
many of them as possible. Since his single source
of satisfaction is the wages he receives, he will there-
fore endeavor to get as high a price for his labor as
he can. Thus, though he enters the labor market
with a definite estimate of what he is worth, his esti-
mate is a minimum only.

The value of labor will generally be determined
neither at the one estimate nor at the other, but
somewhere between the two estimates, in a kind of
debatable ground, as it were. The practical wages
problem is the delimitation of the frontiers of the
respective territories of Capital and Labor. What
the result is of the dispute for this territory depends
on circumstances. Each strives to enfrross the
whole of the disputed territory and probably neither
could be wholly successful. The issue depends on
the relative strength of the contestants — on the weak-
ness of one as much as on the strength of the other;
and the issue cannot therefore be determined before-
hand. We have here a failure of the equation of
exchange. We can say only that wages will be de-
termined somewhere between the limits by the com-
parati ve strength and knowledge of the bargainers.
The limits are not absolutely fixed ; but, within the
undisputed and permanent frontiers, each is com-
paratively free from the danger of aggression, not
perhaps on account of a recognition of his rights

The Debatable Groimd.

within these limits but on account of the special
fierceness of the resistance to a<^L^ression. The em-
ployer will find great difficulty in forcing the laborer
to accept less than he thinks he is worth; and the
laborer will find social and economic forces of great
strength arrayed against him should he attempt to
exact more than his labor is really worth to his em-
ployer. But the distribution of the margin between
the two estimates can never be regarded as final.
A position may be occupied by labor in one year
from which, in the next, it may be forced to retire ;
and the outposts of the employer may, at times, be
thrown farther forward than they can be permanently
maintained. Should the strength of one party be
considerably greater than the strength of the other,
from whatever cause, the larger part of the debat-
able ground may pass into the hands of that party ;
and when the strength of the two parties is nearly
equal, the debatable land will be nearly equally
divided between them ; but no arrangement is final.
It is probable that, .owing to various causes, the
limits claimed by, and allowed to, labor are being
steadily pushed forward year by year; but the
laborer is probably still far from absorbing the whole
of the debatable ground because, as we shall see,
and as we have seen, though the fact was otherwise
expressed, the rise of the laborer's estimate renders,
through the greater efficiency that generally follows
higher wages, possible a rise of the employer's
estimate.

It is necessary to consider more fully the nature

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144

The Bargain Theory of Wages,

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of these two estimates between which, as limits,
actual wages are determined and to discuss the fac-
tors which strengthen or weaken the position of the
laborer, or the employer, as a bargainer. Some of
these elements and factors are of so great import-
ance that the discussion of them must be deferred,
and, in the remainder of this chapter, the less im-
portant only are considered, though the place of the
more important is indicated.

The laborer's estimate must not be taken as merely
the equivalent of his standard of subsistence, how-
ever broadly this conception may be interpreted.
The standard of subsistence is not even an adequate
objective representation of the laborer's estimate of
his labor, for this includes, both the utility of the
reward and the disutility of the labor. The utilities
afforded by the reward may, through the necessities
of the laborer's position, be so intensified that the
sum of them may the more quickly counterbalance
the, disutilities of labor. The laborer's estimate is
simply his demand that in the reward he may find a
sufficient recompense for the various discomforts
and inconveniences he incurs in working, and in
working at the bidding of another. If the disutili-
ties of labor diminish, owing to shorter hours, or
better sanitary conditions, for instance, the laborer
might be ready to accept a lower reward because the
necessary recompense need not be so great ; though
this event is hardly likely to occur. He might also,
come to estimate the utilities of the reward more
highly owing to a general intensification of his wants,

The Laborer s Estimate,

145

or, owing to the greater cheapness of consumption
goods, he may find the equation of utility and dis-
utiHty in a smaller wage. The social and indus-
trial tendency is, however, in the opposite direction.
The equation is found in a higher wage; for the dis-
utility of labor is probably increasing while, owing
to greater cheapness, the marginal utilities of the
commodities which make the reward are decreasing
and a larger amount of them is, therefore, necessary
to provide the recompense for the disutility in-
curred.

The standard of comfort represents one element
only in the disutility of labor, though that element
is, and is likely to remain, the most important ele-
ment. It corresponds, in a certain measure, with the
amount of energy expended in labor and, therefore,
affords us an objective measure of the principal con-
stituent of a somewhat shifting conception. It can-
not be taken as equivalent to the laborer's estimate
for it takes no account of the moral disutilities of
labor. We must take into account the effect of
work, and especially of work at the bidding of an-
other, on the mind and feelings of the laborer. The
feeling of dependence and the sense of the irksome-
ness of restraint and control do, indeed, make de-
mands on a man's energy, and this expenditure must
be made up ; but the equivalent of the physical en-
ergy expended would not be regarded as a sufficient
prcemiuni affectionis. The laborer's estimate, un-
doubtedly, includes this purely subjective element;
and, in one sense, the laborer's estimate is individual

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T/ic Bargain Theory of Wages.

and subjective. It is his own estimate of what he
is worth in his own eyes, not necessarily of what he
is worth to an employer. But his estimate is really
no more individual and subjective than he is him-
self.* His estimate is framed, as his opinions are
framed, after the model of the opinions of others.
If he lives among men who value themselves and
their self-respect highly, his estimate will be high.
He will not accept employment which brings social
disapprobation except for an additional compensa-
tion ; and there are some occupations in which he
will engage only under compulsion, and to which,
under no circumstances, will he allow his children to
be apprenticed and trained. What he regards as a
degrading occupation he will leave severely to those
whose self-respect is less. Consequently, it is not
in the most disgusting occupations that the highest
wages are ^'>aid ; but a butcher's assistant will receive
more than a grocer's. His estimate is framed, as we
said, on the model of the estimate which others have
formed, and, more particularly, on the estimate
which the employer has formed. If he is worth so
much to his employer, his self-respect will not allow
him to estimate himself at less. In his employer's
estimate, in so far as he knows, or thinks he knows,
what that is, he has an assurance of his merits which
his own conception alone could not give; and he
may accept the employer's estimate so implicitly

* Cp. Spinoza Ethica, part iii., prop. 57 et Schol, QtUlibet unius-
cuiusque individui affeclus ab affectu alterius tantum discrepat guan-
tum essentia unius ab essentia alterius differt.

TJic Laborer s Estimate.

147

that it never occurs to him that his subjective esti-
mate is an adopted one.

Strictly speaking, this estimate is not represented
by an amount of commodities but by that amount
of commodities which will afford an equation of
utility and disutility ; and the equation may be dis-
turbed either by intensifying or by reducing the
laborer's wants and necessities; or by increasing or
by decreasing the disutility of labor. Although,
therefore, the laborer's estimate cannot be regarded
as an absolute minimum, at any given time, or ex-
cept in a purely formal sense, it has a determining
power. The standard of subsistence, however in-
terpreted, is simply an amount of commodities and
there is no reason why the amount of commodities
a man has been in the habit of consuming should
determine his wages unless it be that the standard
of subsistence is simply a rough and ready (but in-
complete, though objective) measure of the disutility
of labor. In this sense, the standard is a determi-
nant because the disutility of labor must be coun-
terbalanced, and more than counterbalanced, by
the utilities which the reward affords. It is not a
final determinant, however, even of the minimum
wage because circumstances may alter and a new
equation be necessary. An established equation,
however, is not readily altered, and throughout all
changes certain elements remain fairly permanent.
The expenditure of physical energy is nearly con-
stant, and the standard of comfort is that amount
of utilities normally necessary to meet this constant

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148

T/tc Bargain Theory of Waf^cs.

element in the disutility of labor. The standard of
comfort is, therefore, the most important element
in the laborer's estimate and gives to that estimate
much of the resisting power which it has. The
laborer's estimate is not, except in form, a minimum
below which wages cannot fall, but it has great
power of enforcing itself. If the equation between
utility and disutility is not established, the laborer's
sense of fair play is wounded and his work will suffer.
His efficiency depends almost as much on his willing-
ness as on his physical strength and dexterity, and
the employer who tries to reduce wages in his
anxiety to increase his surplus of the product may
easily defeat his own ends. The strength of the
laborer's position depends greatly on this necessary
weakness of the employer for, though theoretically
the employer has the laborer at his mercy owing to
the necessities of living, practically he dare not push
his advantage.

The laborer's estimate is, as we said, an equation
of two factors, the disutility of labor and the utility
of the reward, both of which are subject to inde-
pendent variations — though the latter more so than
the former.

The disutility of labor is, on the whole, increasing.
Many of the disagreeable features of modern indus-
try are preventable and are likely, by an extended
application of the principles of the factory acts, to
be prevented. It is significant that the worst abuses
of modern industry, those which most surely destroy
the health and the efficiency of the worker, are most

The Disutility of Labor,

149

prevalent in those industries vvliich have lagged be-
hind in the industrial development. The modern
parallel to the iniquities of the early factory system
is found not in the factory industries but in home
industries; and this fact is so notorious that the
more advanced of labor advocates propose practi-
cally that home industry should be suppressed by
law. The improvement of sanitary conditions and
the shortening of the hours of labor effected by the
factory acts have probably diminished the disutilities
by a greater amount than they have been increased by
the speeding of machinery and the intensification of
work which have accompanied these ameliorations of
the conditions of labor; and have perhaps rendered
the speeding economically possible.* It is certainly
an open question whether the expenditure of energy
demanded from the labor in industry is increasing
or decreasing ; for over against the optimism of those
Utopists who, looking forward, see labor, by means
of short hours and varied occupations, becoming
pleasant and involving no disutility, but perhaps
even a positive utility as affording an exercise for
our powers, we must place the pessimism of J. S.
Mill, who was inclined to doubt whether machinery
had lightened human labor.

This uncertainty exists only in reference to the
positive disutilities of labor, if the paradoxical
phrase may be permitted ; for there can be no
doubt that the negative disutilities are increasing.
These arise out of the dependence of the hired

♦Nicholson, Effects of Machinery on Wages, p. 48.

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T/ic Bargain Theory of Wages.

laborer on his employer and the widespread feeling
that in workin^jat the bidding of another something
of the full stature of manhood is lost. This feeling
is a wages factor of increasing importance. The
socialists have all along denounced vehemently what
they call wage slavery ; and the ardor of the apostles
of " pure," or producer's co-operation,* is inspired
by the same idea. The idea that there is something
rather degrading in being a wage earner has been
fostered by the more zealous advocates of profit
sharing, like Mr. Sedley Taylor, who speaks of the
" moral gain to the workman in passing from the
position of a mere wage earner to that of an associate
in profits. * ' f Whatever the attitude of the working
classes towards these schemes, there can be no doubt
that the negative disutilities of labor are of great
importance in the wages question, and that with the
spread of education, in the narrower and in the wider
sense, and the growth of the political power of the
working classes, they will become of more and more
importance. The greater the self-respect of the
laborer the greater will be his estimate of the dis-
utility of labor, and the higher will the lower limit
of wages stand.

The other factor in the equation which gives the
lower limit is the utilities afforded by the reward of

* The ideal of Producer's Co-operation is "that the worker shall
be elevated to the position of partner and profit sharer instead of
being the hired machine of the capitalist and consumer." — Mr. Gray,
Secretary of the Co-operation Union, quoted by Schloss, Industrial
Remuneration, p. 202.

f Report of Industrial Remuneration Conference, p. 256.

The Utility of the Reward,

151

labor. A given amount of satisfaction may be
obtained from the satisfaction of a few wants of
great intensity or from a larger number of less in-
tensity. It is possible, therefore, that an intensifi-
cation of the elementary physical and human wants
may induce the individual to find the equation of
utility and disutility in a smaller amount of goods.
Such an intensification of the elementary wants is
of frequent occurrence, and whenever it does occur
the laborer will put forth more effort to obtain the
satisfaction than he puts forth at other times. The
skilled artisan who is compelled to take relief work
provided for the unemployed does not value himself
the less but the reward the more ; and the widowed
mother will slave for a pittance to keep her children
from starving. In comparison with their necessities
they seem to place no value upon their wo/k. On
the other hand, the farther a man is from the danger
of starvation, the less will be the marginal utility of
the reward, and the sooner will he find that the dis-
utility of working exceeds the utility of the reward,
and the higher, therefore, the wages which must be
offered to induce him to work. Moreover unto him
that hath shall be given ; and the development of
the purely human wants will increase the negative
disutilities of labor, making dependence more irk-
some and the sacrifice of leisure more ungrateful.

The individual laborer is not, necessarily, de-
pendent on his individual estimate. The lower
limit which he sets, or would set, for himself is
often superseded by an artificial lower limit set by

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152

T/ie Bargain Theory of Wages.

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the industrial condition of the community in which
he lives. In new countries, agriculture and the ex-
tractive industries set the standard of wages, and the
wages in these occupations form a minimum below
which the wages in other industries cannot fall.
This was one of the first laws of wages to be enunci-
ated, and subsequent observation has corroborated
Benjamin Franklin's statement (though not his in-
ference) that " no man who can have a piece of land
of his own, sufficient by his labor to subsist his
family in plenty, is poor enough to be a manufacturer
and work for a master."* His inference that
** while there is land enough in America for our
people, there can never be manufactures to any
amount or value," has been hotly contested by the
protectionists and was, in effect, condemned by
Adam Smith. f The competition of rival nations
in foreign trade has a similar tendency to create
such an artificial lower limit in all countries, but the
tendency is not so strong in this case because of
the greater immobility of labor. In a new country
every man thinks he knows enough to be a farmer;
and the readiness of access to the land improves the
laborer's standing not merely by reducing the sup-
ply of hired laborers but also by removing some of
the disabilities which might make the laborer, owing
to the intensity of his elementary wants, find the
equation of utility and disutility in a smaller quan-
tity of commodities. While a man " can have a

* Benjamin Franklin, JVorh, vol. iii., p. 108.
\ Wealth of Nations y bk. 4, chap, i,

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An Artificial Lower Limit.

153

piece of land of his own," the elementary v nts are
not likely to be much in evidence ; and the freedom
and independence of the farmer render the de-
pendence of the hired laborer more odious and
unwelcome. As the country fills up, the laborer
has to depend more on himself and on his own
estimate. This does not mean, as Franklin sug-
gests, that wages must fall as the nation becomes
industrial. Indeed, the effect is generally in the op-
posite direction because the development of manu-
factures creates new wants; and the creation of
new wants means that the laborer must receive
a larger amount of commodities to establish the
equation of utility and d^sutilit3^ But whether the
new natural limit is higher or lower than the old
artificial limit, the laborer has now to depend upon
himself alone.

Th 1 upper limit of wages is the employer's esti-
mate of what the laborer is worth to him ; and, since
the payment of wages is not an exercise of philan-
thropy and the employer is driven thereto by no
physical necessity, but impelled by a purely eco-
nomic motive, it is likely to be both more definite
and more absolute than the laborer's estimate. It
is more definite, because the employer is less liable
to be governed by the peculiarities of his personal
feelings and more ready to accept the guidance of
his fellows who are at least as able to make an
estimate as himself and' are more animated by the
same motive as he is. The laborer has to form
his estimate by reference to the somewhat vague

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The Bargain TJicory of Wages.

and subjective ideas of utility and disutility while
the employer can make use of the " calculation form
of utility." It is true that he has to calculate in
anticipation the price he can obtain for the fruits
of the labor he purchases, and there is thus a pos-
sibility of error in his calculations; but given the
price, he has to do little more than calculate the
efficiency of the individual laborer which he can
readily measure. The upper limit is more absolute
than the lower, because the employer has a stronger
conviction that his estimate is just and accurate;
for in this assurance, he will be able to offer a more
effective resistance to any attempt to raise wages
above this limit.

As already explained, the upper limit is regarded
by the employer as a maximum; and if, as must be
the case when labor is to be bought and sold, the
buyer's estimate is higher than the seller's, the only
reason why the employer should pay the maximum
is that he can pay it ; and this he is not likely to pay
until he is forced. But the fact that he can pay up
to the limit is an element of weakness in his position
as a bargainer; and should, at the same time, the
position of the laborer be strong, wages may be
forced nearly up to the maximum. There is no
other sufficient reason why he should pay out the
maximum wage. Competition of master with
master is not keen enough to bring about this re-
sult ; and, besides, the effect of competition is set
aside by the tacit or avowed combination of masters
to pay as low wages as is compatible with efficiency,

The Employer s Estimate.

155

and by the fact that the development of the capi-
talist regime has created a surplus of irregularly
employed labor on which much of the force of the
competition between masters for labor is dissipated.
In fact, apart from the power which the laborers
have of enforcing their demands, there is no reason
to suppose that the employer will willingly pay as
mi'.^h as he can. Rather does he endeavor to pay
as little as he may; and he respects the laborer's
estimate only because of the effect which an out-
raged sense of justice has on efficiency.

However powerful the laborer is, we may practi-
cally regard this upper limit as a final and unsur-
mountable obstacle to the rise of wages. The
employer can pay more to labor only by paying less
to the other claimants for a share of the product and
this would involve a readjustment: which is a task
he is not likely to seek to undertake. He mTiy be
forced by necessity, or by the pressure of public
opinion, to undertake it; but, since one of these
claims is his own, and all are made by men of his
own class and standing, it will requiic a very great
pressure. Labor it is natural fur him to regard as
the agent which should be sacrificed for the hi-
tegrity of the others; and it would be a reversal of
all his class and business preconceptions to think of
reducing the shares of the other claimants to increase
the share which goes to labor. The wide acceptance
of the doctrine of a living wage shows that there is
a growing belief that the wages of labor should be
regarded as a first charge on the product of industry.

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156

T/te Bargain Theory of Wages.

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and the meaning of this is that, in the opinion of
many, the employer, if necessary, should face the
difficulties of readjusting the claims.

If this readjustment cannot be effected, the suc-
cess of the laborer in raising wages above the em-
ployer's estimate would result in a restriction of
industry unless there were some way open to the
employer to neutralize its effect. There is one ob-
vious way in which he can render a demand ineffec-
tual which he is not strong enough otherwise to
resist. The law of substitution * is especially appli-
cable as between capital and labor; and the strength
of the laborer's demand may be turned aside by an
increased use of fixed capital. Machinery, at least
to a very large extent, can be made to do the same
work as labor; and labor-saving machinery is most
used where, as in America, wages are high. The
immediate result of the substitution of capital for
labor is to reduce the demand for labor, and, there-
fore, to weaken the laborer's position ; and it is the
immediate. result only which is of importance in this
connection. The law of substitution thus operates
frequently to render conce: sion to the demands of
labor unnecessary. When the law of substitution
is not operative, and there are still many industries
in which labor-saving machinery cannot be used in-
stead of labor, a successful demand for wages higher
than the employer's limit will restrict industry.
For a general readjustment of the distributed shares
will occur only when the demand for higher wages

♦ C/. Marshall, Principles of Economics, passim.

The Law of Substitution.

157

has been successful over a large area; and success in
those industries where the law of substitution is not
operative is not enough to force a general readjust-
ment. Accordingly, a demand which requires a
readjustment will be neutralized in most industries
by the law of substitution and in the others will result
in a restriction either of profits or of employment,
or Itimately of both.

It may be suggested that where the law of substi-
tution does not protect the employer, there is a cer-
tain compensation for the higher wages which will
prevent the restriction of industry. The working
classes form the great majority of consumers, and
their increased spending power may make it profit-
able to introduce improved processes of production.
But unfortunately for the employers who, debarred
by the nature of their industry from using the law of
substitution in their own defense, have been forced
to pay higher wages than they consider they can
afford, the increased demand for commodities will
probably not affect the industry which they are
engaged in before. It is in the highest skilled
trades, mainly, where artistic workmanship is re-
quired, that machinery cannot be introduced as a
substitute for human labor; and the demand of the
working classes for the product of these industries
is small and is likely, in spite of any possible in-
crease of wages, to remain small. The demand of
the working classes is for commodities produced in
those industries where the law of substitution is
operative. Accordingly, the compensation to thq

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77if Ihrrgain Theory of Wages,

unfortunate employer who has been forced to pay
hii^her wages than he can afford, is found only in
that increased general prosperity which tends to
follow from a permanent increase in the demand
for the products of any industry or group of indus-
tries. The compensation, therefore, if not highly
problematic, is at least very indirect.

We may conclude, then, that the employer's esti-
mate is practically a fixed and constant maximum.
The attempt to raise wages above this limit will
rarely be successful and, in those industries where it
may be immediately successful, rejoicings are prema-
ture. The endeavor " o'erleaps itself " and restricts
employment; and, in a short time, the employer's
estimate will be re-established more firmly than ever
as the upper limit of wages.

The employer's estimate of the value of labor is
the resultant of two factors, the amount which the
laborer can produce and the resources at the com-
mand of the employer. The first of these factors
is so obvious that the Productivity Theory was based
on the neglect of the second. The Wages-Fund
Theory undoubtedly went to an extreme in the im-
portance it attached to this second factor, but it
rightly emphasized the fact that the employer is
limited by the actual resources at his command in
the amount that he can offer for labor. By this
we mean not by the resources of any casual individ-
ual who may, rightly or wrongly, aspire to be an
employer, but by the resources o*" the marginal
employer : that is, ultimately by th< mount of the

I' I

Factors in the Employer s Estimate. 1 59

present income which the community is willing to
divert from present consumption to the buying of
labor. The Wages-Fund, in the narrower sense of
the resources immediately (including credit) at the
command of the employer, even though it be, as is
asserted, continuously replenished, is an important
fact in determining the proper limit. The Wages-
Fund is a " Zwischen-reservoir, " as Roscher has
termed it ; and although the capacity of the reser-
voir is no measure of the volume of the supply, the
situation of, and the height of the water in, the reser-
voir determine the height to which the water can
rise. The employer is the distributor of wages and,
although the amount of his resources can affect
money wages only, the question of money wages is
the most important part of the question of real wages.
The resources at the disposal of the employer in-
clude the credit he can command at the bank and
elsewhere. The monetary and banking systems of
the community are thus of immense importance to
the working classes. The volume of business peri-
odically increases ; and, if the money of the country
is inelastic and does not expand in volume when
the volume of business expands, there is a great
danger that the value of labor wall periodically de-
crease. When banking facilities are rare and the
credit system defective or undeveloped various de-
vices are adopted, generally in connection with
the method of remuneration, to supply the lack.
Wages are paid, not weekly or fortnightly, but
monthly or quarterly, or they are paid wholly or in

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part in goods or in orders on a store controlled
directly or indirectly by the employer, or in dwelling-
houses or land provided by the employer; and the
effect is, in every case, to provide a somewhat in-
efficient substitute for credit and to enable the
employer to do a larger business on his available
capital. The motive, of course, is not any desire to
raise the wages of the workmen ; but were it not
that these devices have serious indirect consequences
for the laborer, the practice, even from the laborer's
point of view, would be laudable wherever the credit
system is not developed. It is significant that in
Canada at any rate these devices fall naturally into
disuse without the necessity of legislation as the
banking system expands, and that they are practised
now only in back country districts or by employers
whose credit at the bank is not good. Unfortu-
nately, the practice is attended by so many evils
which weaken the position of the laborer that their
influence in raising wages is as nothing in compari-
son with the influence of their indirect effects in
lowering wages.*

The upper limit of wages is fixed but only for the
time being. It is not unchangeable and may rise
and fall with changes in industrial circumstances.
It may fall as well as rise, although the progress of
the working classes during the last half century has
made the idea of a lowering of the upper limit
strange and unfamiliar. The employer's estimate

* For a further discussion of this question see Chap. VIII. of this
essay.

Variations of the Employer s Estimate. i6i

will rise, in general, from two causes, viz., increased
efficiency and an improved credit system. The
conditions of a rise of efficiency are obvious and
have been in part already discussed in the earlier
chapters. The most important, as well as the most
obvious, are the spread of elementary and technical
education and the influence of high wages in im-
proving the industrial capabilities of the laborer.
Equally important, though not quite so obvious, is
the influence which the lower limit has on the upper
limit. Generally speaking, the higher the lower
limit the greater the efficiency of the laborer. The
man whose self-respect is great is likely, other things
being the same, to prove the better workman. But
this is true only in general, because a man's self-
respect is never so militant as when it is wounded,
and the attempt to violate the laborer's self-respect
will result in a lowering of efficiency.

These limits are, in the main, determined inde-
pendently of the influence of outside causes. The
laborer determines the lower limit and the employer
the upper limit, and public opinion and legislation,
which have considerable influence in determining
where between the limits actual wages shall be
fixed, have no certain and regular influence on the
limits themselves. The influence is felt mainly,
where at first we should hardly expect, in maintain-
ing the upper limit higher than it ought to be.
This occurs more frequently in the case of the
wages of management than in the wages of hired
labor. The employer, influenred by the idea of

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162

The Bargain Theory of Wages.

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what ought to be a living wage for men of his own
class and rank, frequently pays higher wages to his
managers than their work is worth. At least this is
the conclusion which follows from the remarkable
fact to which Mrs. Sidney Webb has called atten-
tion in her Co-operative J^Iovetnent : *

" By selecting officials and managers from a class
without a conventional and extravagant standard of
expenditure, they (/. ^., the " Lancashire Limiteds ")
have reduced the earnings of the brain worker to the
level of his actual wants — to the personal expenditure
needful for the full and effective use of his faculties.
The preposterous salaries given by upper class share-
holders to upper class officials — the ^^2000 to ;;^5ooo a
year have been replaced by modest incomes of ;^2oo to
;^4oo and apparently without detriment to skill or
integrity."

Between these limits the value of labor is deter-
mined by the comparative strength of the bargainers.
If the laborer is too weak to enforce his claim the
wages of labor will be nearer the lower limit : if the
laborer is a strong bargainer, near the employer's
estimate. In some cases where organization and
combination have greatly strengthened the laborer's
position, the margin of debatable territory will be
almost absorbed by labor; and this is probably the
case where a trade-union minimum wage is enforced.
The object of trade-union policy would then be to
force a general readjustment of the terms of dis-

* Beatrice Potter, The Co-operative Movement, p. 132.

71 w ruxrgaining Process.

163

tribution — a much more difficult task than that,
already accomplished, of forcing wages up to the
employer's limit because there will now be opposed
to forces of trade-unionism, not merely the objection
of the employer to a curtailment of his profits, but
also the resistance of the other participants in the
product to any readjustment which means a dimi-
nution of their shares. It is impossible to determine
whether, or how frequently, labor has been able to
absorb the margin ; for the employer's maximum is
definitely known only to the employer; and his
protestations (because they are the protestations of
an interested person) cannot be accepted except at
a liberal discount. The fluctuations in the actual
rate of wages which are frequent though not violent
seem to forbid us to assume that the margin has
been absorbed permanently by either party. The
strength of the laborer, through combination, is
very great ; but his necessities, the influence of
which he endeavors to neutralize by means of these
combinations, are also very great ; and combination
is being met by combination.

The Wages-Fund Theory, which we saw presented
the form of a reconciliation of the other two great
theories, states explicitly that actual wages are de-
termined solely by means of competition. From
the standpoint of the fuller meaning which has been
given to the limits of the Wagcs-F'und Theory, it
is obvious that competition is not the only factor
which enters into the determination of actual wages
between the limits although undoubtedly it is one

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T/tc Jtari^ain Theory of Wages.

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of the most important. The competition of master
with master for labor tends to raise wages towards
the upper Hmit : the competition of laborer with
laborer for work tends to force wages down to the
lower limit ; and tlie supply and demand of labor is
of decisive importance in the determination. But
competition is not the only factor or, at the best, is
only a general name for the working of several fac-
tors the nature of which requires more explanation
than is given in the use of one general term. The
strength or weakness of the laborer's position is
only in part determined by the number of competi-
tors for work. We are not dealing with a mere
commodity whose value may be completely deter-
mined by the more or less. We must, in the case
of labor, take into account the knowledge which the
laborer has of the general conditions of supply and
demand and the presence or absence of that char-
acter and decision which would enable him to take
advantage of his knowledge, of the strength of his
own position and the weakness of his employer's.

The strength of the laborer as a bargainer depends
on his knowledge of the market. Other things be-
ing equal, knowledge is power and here the laborer
is weak. It is true that the improvement there has
been in the laborer's position during the last half
century has been, to a large extent, due to his
greater knowledge of the conditions of the labor
market. The differential advantage which the em-
ployer has always had owing to his greater knowl-
edge and his wider opportunities for obtaining

Knoivlcdgc is Poiver.

,6^

information, has been greatly reduced by the spread
of {general education, by the dissemination of indus-
trial news through the press, by the organization
and federation of labor unions, and by the opening
of industrial bureaus, State or municipal, for the
gathering in and dissemination of information re-
garding the condition of industry in different parts
of the country. The differential advantage, how-
ever, still continues in favor of the employer; for,
although at the present day a labor bureau is re-
garded as an indispensable part of the administrative
machinery of every progressive State or province,
yet, till now, the information these bureaus have
collected and published has probably been of more
service to the economist and the statistician than it
has been to the working classes. Indirectly, no
doubt, through legislation promoted in consequence
of the evidence thus presented, the interests of the
laborer have been served ; but he is still generally
either too ignorant, or too apathetic, to make much
direct use of the reports.

The laborer's ability to acquire information and
his ability to use such information as he has ac-
quired, have sometimes been restricted by methods
of industrial remuneration. The truck system,
which theoretically might have so many advantages
for the wage earner, has invariably served to hamper
his movements and to blind him to the knowledge
of the actual condition of industry. The distinction
between real wages and money wages is easy to
draw in theory, and almost impossible to draw in

i W H J..- u)La. i inL i iu -——a

t66

The Bargain Theory of Wages.

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practice; and the truck system, in all its modifica-
tions, has served to make it even harder. Profit
sharing, and other methods of deferred payment,
whatever the motive which inspires them, have the
same tendency to make it more difiicidt for the
laborer to discover where his real interest lies.

Knowledge is not power, unless there is both
ability and disposition to make use of it ; and on
this account the employer is again stronger than
the laborer. The laborer is at a disadvantage be-
cause his necessities do not allow him to make use
of the knowledge he l^-^i. He cannot often, even
if he always would, follow wherever his advantage
calls. The immobility of the laborer may be re-
garded as the crowning disability of labor. It is
true that the employer is also handicapped by the
fact that fixed and specialized capital is peculiarly
immobile; but his disadvantage is not so great nor
is it so immediate. Because the laborer must live
by his work, it is more often he who seeks the em-
ployer than the employer who has to follow after
the laborer. The immobility of specialized capital is
not a very great disadvantage because the employer
is the centre of attraction.*

Every disability under which the laborer suffers
weakens his position as a bargainer and tends to
keep --vages down near the lower limit. Apart '"rom
the special disadvantages they bring, they generally
have the effect of weakening character. Strength

* For the discussion of Mobility of Labor see the two following
chapters.

Factors in the Wages Bargain.

167

as a bargainer corresponds, in some measure, with
the strength of the economic character of the bar-
gainer. He who knows his interest and is zealous
to pursue it occupies a strong position. The effect
of many of the minor disabihties is to weaken those
quahties which would enable the laborer to take ad-
vantage of those conditions which are in his favor.
The consciousness of the immediateness of his ne-
cessities, however, prevents him from taking th(
necessary risks to turn these conditions to his ad-
vantage and the fruit that might be his, had he
the means of gathering, fails to his employer.
Character and decision are qualities in which the
employer, by his circumstances and his training, is
strong, and consequently, in the contest of strength
between the employer and the employed, the result
would generally be much in the favor of the em-
ployer were it not that the laborer, conscious of his
weakness and deficiency has, in combination sought
and found a substitute for character.

Trade-unionism or collective bargaining is a
method by which the laborer endeavors to remove
or to minimize the disabilities, notably the immedi-
ate pressure of his necessities which forbid him, in
isolation, to stand out for his price. The competi-
tion of master with master for labor is not so keen
that it is not neutralized and more than neutral-
ized by the competition of laborer with laborer for
work; and by combination the laborer tries to do
away with the suicidal competition of laborers with
each other. This is the first but not the only aim

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T/ic Bargain TJicory of Wages.

of trade-unionism. The early passive policy, if we
may so call it, results in the organization of labor;
and thi!> organized force is used to snatch advantage
from any disorganization in the ranks of the em-
ployers. So long as the employers are meeting with
slight resistance the lack of harmony in their ranks
is of small importance but this lack of harmony is
the opportunity of organized labor.

The phrase " substitute for character" does not
necessarily imply a depreciation of trade-unionism.
Trade-unionism is only one expression of the maxim
" union is strength " ; and we cannot condemn it as
arising out of weakness without at the same time
passing condemnation on the whole evolution of
society. Trade-unionism, though it does act as a
substitute for character, does not destroy character.
On the contrary, it builds character up and trade-
unionists are the most energetic and self-reliant, not
the least energetic and least self-reliant, of the work-
ing classes. The ability to combine is an evidence of
comparative strength, not of comparative weakness.

There are other external influences, such as legis-
lation and the pressure of public opinion, operating
on behalf of labor which may, without reservation,
be spoken of as substitutes for character. Whatever
their final effect on the character of the labor they
do not spring from, or imply, the possession of those
qualities which make for industrial success. On the
contrary, these influences are generally exerted in
behalf of those who, from one cause or another, are
weak and lacking in character and decision. Such

•jm^ ■nn j n iiiii rjini f

Substitutes for Character.

169

influences are not to be condemned merely because
they have not their origin in the strength of those
on behalf of whom they are exercised. If the effect
is to weaken or to prevent the development of char-
acter they ought to be condemned and repudiated ;
but we cannot decide a priori that every substitute
for character has this effect. It is true from of old
that the curse of the poor is their poverty, and the
disabilities of labor are cumulative in their effect.
Consequently, if the influence of legislation and the
pressure of public opinion can be directed to the
raising of this acquired curse, the result may be the
development of character. Legislation, undoubt-
edly, has had this effect. The position of the laborer
as a bargainer has been improved not merely by
Factory Acts and Employers' Liability Acts, but by
every measure which, positively or negatively, aims
at the amelioration of the condition of the people.
Compulsory education, the encouragement of thrift,
and measures of a like kind, strengthen the laborer's
position, because they tend to remove the disadvan-
tages under which he suffers, owing to his ignorance
and to his necessities. Such measures probably
promote rather than hinder the development of his
character and thus, in a twofold manner, strengthen
his position. Even though a measure may seem
calculated to check the developments of character
and self-reliance, it is not necessarily to be con-
demned. The evils and abuses at which it is aimed
may more completely destroy self-reliance, but the
propoi^ed remedy obviously requires reconsideration

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77/^ Bargain TJicory of Wages,

and amendment. It is a poor remedy which aims
only at removing a symptom, instead of removing
the cause of the malady. The abuses which can be
removed by legislation arise out of, and are fostered
and protected by weakness and want of character;
and if these are perpetuated by legislation, in a short
time new evils, as great and as objectionable, will
have arisen to produce the same effect as the old
abuses which have been suppressed.

There is little danger that, when public opinion is
active on the laborer's behalf, it will operate to make
the disabilities of labor permanent; for its influence
wdll be principally exercised in forms which give the
laborer confidence in his claims, and make him more
resolute in his efforts to enforce them. Public
opinion can strengthen the laborer's position because
there is something depressing in being in a minority,
and the employer is, to some extent, subject to this
common failing. Thus, even when public opinion
finds no more forcible expression than in letters to
the newspapers, its influence on the industrial situa-
tion may be considerable; and, when the mind of a
whole community is strongly impressed with the
justice of the laborers' claims, the employer will not
be able to follow up his advantages so promptly and,
at the critical moment, his hand may be stayed
through a dread of social disapprobation. Occa-
sionally, public opinion makes a decided protest
against the rapacity of the employer and expresses
its protest not nerely in words but in money con-
tributed to Eissist a picturesquely depressed class in

Public Opinion as a Wages Factor.

171

its struggle for economic freedom or higher wages.
The great dock strike in London was a success be-
cause of popular sympathy and popular contribu-
tions. The demand for the dockers' "tanner"
approved itself and public opinion was aroused
against the magnificence of the dock companies'
attitude — the attitude of the Friend of Humanity
to the Knife Grinder.

" I give thee a sixpence. I will see thee damned
f^rst."

The influence of public opinion '" has hitherto been
exerted on behalf of labor, only in a capricious and
a spasmodic way; and the merits of the case have
usually had little to do with the matter. Public
opinion is not a force on which the friends of labor
can place reliance; for it might easily be thrown into
the opposite scale whenever the convenience of the
public is threatened. The increasing humanitar-
ism or sentimentalism of the public, and the in-
creased information which all men have of the way
in which the other half lives may suggest to the
more hopeful that, in the future, public opinion will
strengthen the laborer, not merely in the dramatic
struggle of the occasional strike, but also in the
steadier contest of which a strike is but a violent
episode. There is no doubt a growing interest in

* The distinction drawn between legislation and public opinion is
not absolute. Legislation is but crystallized public opinion, and the
most beneficent pieces of labor legislation, e. g., the Factory Acts,
etc., have been carried as a result of the systematic pressure of en-
lightened public opinion.

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TIic Bargain TJicory of I \ 'ages.

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labor questions on the part of those who make or
mold public opinion. Newspapers and majrazines,
church congresses and scientific associations, show
the same tendency; and this social interest will un-
doubtedly operate more fully and more steadily than
it has done towards the end of the amelioration of
the condition of the working classes. But as yet
public opinion is, itself, in need not merely of being
roused but also of being educated. It will be edu-
cated more by the force of example than by the force
of the precept. The influence of those model em-
ployers from Leclaire to Mr. Mather, who have
endeavored in part to see labor questions from the
standpoint of the laborer himself, is already begin-
ning to have effect on public opinion ; and the in-
fluence of State and municipal authorities is being
exerted in the same direction. The example, which
is being set in many countries by the government
and by public authorities in establishing an eight
hours day, as the United States government has
done for its employees, in inserting in all contracts
a clause requiring a trade-union minimum wage to
be paid by the contractor to his employees, as the
London County Council does, or in suggesting, as
Mr. Fowler did, in 1893, when President of the Local
Government Board, in a circular to local sanitary
bodies, that public works should be executed and
public contracts given out at the season when em-
ployment is otherwise scarce — is likely to create a
sentiment which will assist the laborer, and assist
him in a manner which can involve few of the dan-

Public Opinion and the Wages Question. 173

gcroiis consequences which generally follow from
legislative interference with the course of industry.
The influence of this sentiment may involve some
injustice to employers who are not backed by the
public funds, but the laborer's necessity will cease
to be regarded as the employer's opportunity. The
ultimate result will be, through sympathy, a devel-
opment of conscience among employers, and the
creation of a disposition to pay without compulsion
all that the laborer is really worth rather than merely
what he can be forced to take. The process of ele-
vating business to the rank of a profession, through
the pressure of outside opinion, will necessarily be
slow ; but the sporadic appearance of profit sharing
schemes, in one form or other, shows that the old
individualist standpoint may be in time abandoned.

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CHAPTER V.

THE MOBILITY OF LABOR.

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NOTWITHSTANDING Adam Smith's classical
caution that " man is of all sorts of luggage
the most difficult to be transported," * the early
English economists postulated a perfect mobility of
labor; and, by a strange perversion, admitted only
as a possible and merely theoretical exception the
obvious fact of the immobility of labor through
custom and ignorance. Mobility was the method
by which competition worked to secure equality of
wages. It is probable that, for these economists,
equality of wages meant merely an arithmetical
equality, not an equality of net advantages, or a
real equality of payment according to the actual
amount of work done as measured by the result.
Even those who reject the Wages-Fund Theory
continue to be partly influenced by the artificial
simplicity of the arithmetical ideal. Prof. Walker
declares f that a difference in wages which would be

* Wealth of Nations, p. 31.

f Walker, Wages Question, p. 184.

174

•I''

The Necessity of Mobility,

175

il
if

sufficient to induce a man to cross the Atlantic is
often insufficient to send him from one part of the
kingdom to another, ignoring, inconsistently for the
time being, the fact that the northern laborer may be
more efficient than the southern, in an even greater
degree than the difference of wages indicates. He
seems to regard differences in wages as proving the
absence of mobility ; whereas mobility and competi-
tion, while they will secure the removal of accidental
differences of wages, due to local failures of the
equation of demand and supply, have no tendency
to level up the wages of inefficient workmen to the
same height as those of efficient workmen.* The
facility with which the Wages-Fund Theory assumed
an arithmetical form possibly predisposed the Theo-
rists in favor of the arithmetical ideal.

The mobility of labor is a postulate necessary to
make the Wages-Fund Theory march. As one de-
parts from it and the necessity for mobility, as a
theoretical postulate, decreases, the defects of mo-
bility, as a social and economic ideal, become more
prominent. Those customs and prejudices which
the theorists regarded merely as hindrances to the free
play of competition, come to bo regarded as social
forces of great value. Dr. Smart, the English expo-
nent of the newest theory of distribution, goes to
the opposite extreme, perhaps, when he declares:
"Physically, labor is not mobile; historically it has
never been mobile; and, ethically, it should not be

*See the tables given in chapter vi., p. 212, for evidence as to in-
fluence of mobility to level up wages and remove accidental differences.

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T/ic Bargain TJicory of Wages.

mobile. " * This terse statement is possibly too cpi-
^^rammutic to be altogether accurate; but there is a
larger measure of truth in it than in the Wages-Fund
Theory postulate of universal mobility. Histori-
cally, even the Theorist would probably admit, labor
has never been mobile ; and he might go so far as to
allow that there are great hindrances, even at present,
to the mobility of labor; but that, ethically, labor
should not be mobile is contrary to his most cherished
opinions. The change of views regarding mobility is
part of the general change of opinion regarding the
whole wages question. It is incorrect to say that at
present labor is not in any degree mobile ; because
the great characteristic of an age of transport is the in-
creasing mobility of labor; but, at the same time, as
the physical difficulties of transporting the human
" luggage " diminish, the ethical objections to mo-
bility increase. While the difficulties of transport
were great, only the more self-reliant and self-de-
pendent had the enterprise to change their habita-
tion. There was then no social danger, but great
social and individual benefit, in the migration of
labor. When, however, these difficulties of trans-
port no longer deter the weakest in character and
self-reliance from emigrating from one end of the
earth to the other, it is well that the ethical objec-
tions to mobility should be emphasized.

As industrial competition is probably only a short-
lived, and not over-beautiful, stage of transition from
custom to combination, so mobility is only a tem-

* Studies in Economics^ p. 171.

A Siibstiliitc for Mobility.

^77

porary postulate of the theory of distribution.
When the bonds of custom have been broken, and
the interests of the worker are no longer safeguarded
by tradition and public opinion, it is necessary that
the laborer should be ready to follow wherever his
economic interests calls. It is practically the only
way by which any measure of justice in distribution
can be obtained. As soon, however, as a substitute
for migration is available, all the ethical objections,
hardly silenced hitherto by the plea of necessity,
become vociferous. The combination of labor pro-
vides a substitute for mobility, not a complete
substitute removing altogether the necessity of mi-
gration, but doing away with the more objectionable
features. Mobility is no longer the only and indis-
pensable condition of justice to the wage earner.
The trade-unions in the early stages of their history
encouraged migration ; but as they have grown in
strength and become able to enforce their demands
without recourse to a strike they have modified their
policy. There is no longer the same need to facili-
tate migration because " the more perfectly a trade
is organized the less necessity is there for its mem-
bers to travel in search of work." ''^ Within the last
twenty years, trade-union policy with regard to
travelling benefits has completely changed. This is
due in part to the fact that improved communication
has levelled wages up so as to bring about some
measure of equality of net advantages ; and also in

* From evidence of Pattern Makers Association before Royal
Labor Commission (Eng.), quoted by Drage, T/ie Unemployed, p. i8.

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T'^^ Bargain Theory of Wages.

part to the fact that the same cause has universalized
trade depression when it occurs, and rendered even
emigration a futile endeavor to escape from bad
trade. The network of trade-unions covers the
land; and, as local unions have been federated into
national and international unions, while govern-
ments and municipalities have organized labor
bureaus and industrial agencies, information re-
garding work and wages has become more definite.
Instead of receiving a travelling benefit, the trade-
union out-of-work member has his fare paid to a
district where work may almost certainly be ob-
tained. The practice has become obsolete because
organization is better and the unions have definite
reports of the state of the labor market ; and be-
cause as the necessity of the policy becomes less
urgent the social and ethical objections to it become
more convincing. Some unions discarded the policy
because it fostered a roving spirit and degraded the
members: others have abandoned it because, as in
the case of the iron founders, it was made use of to
secure a free holiday. Even from the narrowest
trade-union point of view, the policy was one marked
out for abolition, so soon as it became possible to
do away with it. The object of trade-union policy,
collective bargaining, cannot be achieved unless a
union can control its own members; and the rov-
ing unsettled spirit which took possession of the
professional mendicant as Mr. Howell calls him,
rendered him less, not more amenable to union dis-
cipline. From the broader point of view, moreover,

i.i '

Ethical Objections to Mobility.

179

to which to some extent,* the older and stronger
unions have risen, viz., that the moral and intel-
lectual progress of the workers is essential even for
material success, the policy of assisted migration is
open to weighty objections. It is not that the home
and place attachments are hindrances to mobility
but that, from the point of view of good citizenship,
these hindrances should not be removed but built
up. Ubi bene ibi patria^ as a maxim of politics or
of industry, gives us neither good citizens nor good
workmen. Mobility may often be the only safe-
guard of the interests of the worker; but when, by
efficient organization, it can be superseded and the
same, or nearly the same, benefits achieved without
sending men forth, homeless wanderers from one
job to another, society is the gainer. There are still
many trades and industries where the free circulation

* " At one time tramping was systematic and general ; and it be-
came a great nuisance, for many men merely used the society as a
means for enabling them to tramp all over the country, living upon
the funds of the union. . . . This practice has greatly diminished
of late years ; ... it so degenerated as to become little better
than a kind of professional mendicity." — Howell, Conflicts of Capital
and Labor ^ pp. 141-142.

Since 1S77, "the system of travelling benefit has declined more
and more. It is discouraged by nearly all the better organized
unions throughout the country and, as a rule, rightly .0. In the
London Society of Compositors and the Scottish Typographical As-
sociation travelling relief has been abolished for several years, the
members receiving a removal grant to enalile them to proceed to an
engagement they may have obtained in any part of the United King-
dom."— /<5iV/., p. 142, n. Cp. also, Drage's TIu Unemployed, p.
18, n.

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7Vie Bargain Theory of Wages.

of labor is essential because no other method can be,
or, at any rate, has been, devised to secure the same
result. Where a trade is not organized, where the sup-
ply of workers, in the unskilled trades especially, is
liable at times to be far in excess of the demand, it is
of vital importance that every worker should be ready
to move to a place where the demand is greater. As a
social factor, combination is preferable to mobility
and, as an economic force, not less powerful. The
same results may be achieved by ei^^her method.
Organized trades have discarded their policy of en-
couraging migration : unorganized trades depend
largely on mobility for any improvement in the con-
dition of labor which they desire ; and their trust is
often justified by the results. The wages of domes-
tic servants have risen, both really and nominally, as
far, and as quickly, as the wages of any other class;
and, in their case, the rise is due entirely to their
mobility. Domestic servants are not in any way
organized, unless it be by a kind of tacit combina-
tion ; but, as a class, they possess the very highest
degree of mobility, as any housekeeper will most ve-
hemently testify. They are" found " in everything:
they have no local and few personal attachments,
except of a transitory nature, to bind them to any
particular place : the demand for servants exceeds
the supply; and, without a " character," they can
obtain a situation. The result is, that in the rise of
their wage, they exhibit the maximum advantages
of mobility; but, as a class, are coming to exhibit
the mental and moral deterioration in which exces-

Trade Mobility and Place Mobility. 1 8 1

sive mobility results. In the domestic seivant the
early English economist might find his ideal of the
free circulation of labor, but it has no beauty that
we should desire it.

The phrase, mobility of labor, covers two very
different kinds of migration which, ordinarily, have
little to do with each other. It includes the migra-
tion from one industry or occupation to another,
which we may call, trade mobility ; and migration
from one district or country to another, place mobil-
ity. The former is undoubtedly the more difficult
and, unlike the latter, is becoming increasingly more
difficult. The improved means of transport and
communication which rendered place mobility much
easier have, on the whole, as part of the great
modern movement towards specialization, helped
to make trade mobility harder, if not a practical
impossibility. It is true that there is the possibility
of exaggerating the restrictions of speciaKzation.
Prof. Marshall has shown * how general intelligence,
in nearly all industrial occupations, is rising in im-
portance as compared with specialized skill ; and, to
the extent in which this holds, increasing specializa-
tion does not necessarily imply greater permanence
of trade boundaries. Specialization in the form of
localization of industry naturally destroys migration
from district to district ; while, as we shall see later in
this chapter, place mobility has a certain tendency to
promote trade mobility where general intelligence is
more in demand than highly specialized skill. When

* Marshall's Principles of Economics, Book IV., c. g, passim.

l82

The Bargain Theory of Wages.

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specialization has proceeded so far that the market
for specialized labor is a local market, migration
from district to district is of comparatively little im-
portance, unless the worker is prepared to take the
step of changing his trade at the same time.

The early economists spoke lightly of trade mo-
bility, as if there were no real hindrances, as if, in a
word, workmen took up, or, at any rate, could take
up, a new trade every week. The assumption is
necessary for the theory, and they make it unhesi-
tatingly. Even Adam Smith, who has warned us
that man is " of all sorts of luggage the most dififi-
cult to be transported," * forgets the significance of
his own warning, and assumes that " the whole of
the advantages and disadvantages of the different
employments of labor . . . must, in the same
neighborhood, be either perfectly equal or continu-
ally tending to equality " ; although, to secure such
an equality it would be almost necessary for every
workman to be ready and able to change his trade
at a moment's notice. Few economists, except
McCuUoch, to whom it seems to have been given
to carry everything to an extreme, have gone so far.
Most have recognized, more or less explicitly, the
existence of what Cairnes called non-competing
groups within which there may be perfect mobility
but between which there is practically no migration.
Between the extremes of Adam Smith and Prof.
Cairnes the truth lies. Unless the non-competing
group is so narrow as to include only one trade,

♦ Wealth of Nations, Book I., p. 41.

Trade Mobility.

183

there is no such perfect mobility as Cairnes demands ;
while, between the groups there may be little strength
in the tendency to pass from one to another upwards,
there is always a considerable movement downwards.
So far as adult labor is concerned, trade mobility
unfortunately generally spells degradation from the
ranks of the skilled to the unskilled.* There is
always, owing to old age and infirmity and to lack
of adaptation, a movement downwards; and, as the
amount of work which can be done without any
previous training, is becoming less, the degradation
is apt to be very sudden, from skilled labor past un-
skilled labor to casual labor. We do occasionally
meet men who, in their time, have played many
parts, and yet have maintained their grade or even
risen in the scale; but, as a rule, the measure of
their total success is not such as to lead us to place
much stress on trade mobility as an agent in indus-
trial fortune. Even in America, the paradise of self-
making men, the proportion of those who rise, is
very small. A great many instances of striking suc-
cess may be enumerated, but it seems probable that
the day of the self-made man who rises from the
ranks is past.

It is more than doubtful whether trade mobility
increases the real wages of the migrant. By chang-
ing from one occupation to another he may secure
an immediate advantage ; but, to secure this advan-
tage of opportunity (for that is all it usually amounts
to), he sacrifices the whole rent of ability which he

* But see later in this chapter, p. 190,

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184

The Bargain Theory of Wages.

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might have gained from his previous training. The
changes are often, in the long run, short-sighted. It
might ahnost be laid down as a general rule, to which
of course there are particular exceptions, that when
an individual changes his trade or his country, after
he has served his apprenticeship or completed his
training, we have a tolerably certain indication, if
not of failure, yet of very moderate success in the
new calling. To seek an immediate advantage by
the sacrifice of past training leads to the goal reached
by those whose parents, or themselves, have been
unable t'^ resist the temptation offered by the high
immediate returns from odd jobs. Just as the earn-
ings of those who follow two different employments
do not exceed the earnings of those who confined
themselves to one, so men who pass readily from
one employment to another at the suggestion of the
slightest immediate advantage seldom succeed ulti-
mately in bettering their position ; for we must take
account not merely of the earnings of a week or a
year but of a working lifetime, and consider the rent
of ability which may arise after years of patient in-
dustry, in one occupation.*

n'i

* An exception must be made in case of what may be called step-
ping-stone employments. Very few of the men who enter the teach-
ing profession in America as public-school teachers have any intention
of remaining in the profession. It forms a very convenient means
for students whose funds are exhausted by the expenses of college to
earn enough to enable them to attend a professional school. It is
good for the young men that they should have an opportunity of
earning immediate high returns but is, on th? whole, very bad for thQ
Status of the profession,

The Disposable Fund of Labor,

185

Since the exposure of the Wages-Fund Theory,
few writers can be found to assume the trade mo-
bility of adult labor. Prof. Cairnes declares that,
within the non-competing groups mobility, and,
through mobility, equality of advantages, is secured
by the existence of a disposable fund of young per-
sons annually arriving at industrial age. In one
sense the energies of these young persons are at dis-
posal to be distributed among the industries which
offer the largest net advantages; but, even granting
the fullest measure of freedom of industrial choice,
it is questionable whether the fund is large enough
to produce the desired effect. The number of young
persons, annually arriving at industrial age, does not
constitute more than two and a half, or three per
cent, of the total number of workers; and, in the
best of years, the trade-union returns show that as
large a proportion of the best workers of the country
are out of work. Consequently, there is no industry,
or small group of industries, ready and able to
absorb all these new recruits to the labor army;
and, in the absence of a special opening, the proba-
bility is that the annual two or three per cent, will
be distributed over the whole industry of the
country.

It is obvious that, apart from predilections for
particular occupations, on the part of the children
(which are naturally not based on any estimate of
the net advantages of the employment), the disposi-
tion of this fund of labor depends on the knowledge
and foresight of the parents and on the sacrifices

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T/ie Bargain Theory of Wages,

they are prepared to make. The knowledge is not
always sufficient; though most parents will make
sacrifices for their children, sufficient, at least, to
place the children in as good a position at the be-
ginning as that at which they themselves stand.
P'arther tl. m this, except in special cases, the aver-
age parent is not prepared to go. Here and there,
we may find men who are endeavoring to place
their children in a better position than they them-
selves occupy. Men whose ambitions have been
thwarted often become ambitious for their children ;
but we must beware lest our admiration of the • '^cri-
fice lead us to overestimate the frequency Oi its
occurrence. It is regrettable that, owing to he
wrong development of our educational systems,
these sacrifices are generally made with a view to
secure for the children the chances of a professional
or semi-professional career. The crowded state of
the market for genteel unskilled labor shows that
knowledge and foresight on the part of the parents
are quite as essential as readiness to make sacrifices.
It is rather on account of social position than on
account of higher wages in the employment, that
sacrifices are made by the parent ; and where the in-
spiration of the hope of seeing a son " wag his heid
in a poopit " is wanting, the sacrifices made are not
very great. A great deal of the labor legislation of
the last half century was passed to prevent the sacri-
fice of the children for the temporary advantage of
the parents ; and in that legislation we have an ob-
jective and unsentimental estimate of how n^uch

Fathers and Sons

187

some parents arc prepared to do for their offspring.
In large cities probably less is done for children by
their parents than is done in the smaller towns and
in the country. In spite of the great variety of
occupations in a large city, it is often difficult to get
a boy apprenticed. Employers are able to rely on
the immigration of skilled artisans trained in the
country and are, therefore, unwilling to take the
trouble of training apprentices. The difficulty of
getting boys apprenticed makes parents yield the
more readily to what Mr. Charles Booth calls the
temptation of odd jobs. In a large city, pay is
more strictly according to the work done; and if a
boy can do the same work as a man his remuneration
will be almost as large as a man's.

The consequence of the absence of customary
wages is that the city-bred boy has abundant oppor-
tunities of earning large immediate returns for labor,
which requires little more skill than he has as his city
birthright. It is not altogether a matter of wonder
that the parents, almost disheartened by the cease-
less struggle to keep a decent roof over their heads,
should succumb to the temptation of adding such
an amount to the family earnings as will make the
difference between ceaseless worry and comparative
content ; even although, what probably they do not
realize, the boy may, in a few years, be left stranded.

Most fathers will declare, as a matter of course,
that they prefer to bring up their sons to any trade
but their own ; but, equally as a matter of course,
nine tenths of the disposable fund of labor will be

: i

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1 88

T/ie Bargain TJicory of Wages.

annually distributed according to the trade of the
fathers. Sometimes, as in country villages, the dis-
position will be accidental. A boy is apprenticed
to a plumber or a carpenter according as it happens
to be the plumber or the carpenter who requires an
apprentice. In larger places, the fact that vacancies
for apprentices are few, especially when the district
has specialized, more or less, in one kind of pro-
duction, or when the trade-union prejudice against
apprentices is strong, and the fact that a father has
exceptional opportunities of advancing his sons,
afford a motive strong enough, were the influence
of custom and habit not operative, to secure that
the son follows his father's trade. In the best
shops, indeed, those into which a father would en-
deavor to introduce his son, preference is generally
given to the sons of employees when a vacancy
occurs.*

The trade mobility of labor, whether of adults or
of young persons, has never been very great. Adults
cannot change without the sacrifice of the benefits
of past training; while children are brought up to
the trade of their parents because circumstances are
stronger than the vague wishes of the parents. Prof.
Walker asserts that till the mobility of the adult is

* The first article in the regulations of Redouly et Cie. (Ancien
Maison Leclaire), Paris, is to the effect that " the sons and nephews
of the foremen of the workshops, of the workmen and employees,
members of the noyau, are received as apprentices in preference to all
orhex^."— Canadian Blue Book, "Social Economy" (1889), p. 173.
Elsewhere, though the preference is not so clearly announced, the
practice is much the same.

Effect of Place Mobility on Trade Mobility. 1 89

secured there will be no force in the tendency for
children to be apprenticed to trades other than those
followed by their fathers. In view of the distinction
between trade mobility and place mobility, we may
modify this assertion to the forr' that till place mo-
bility has been secured for the audt worker, there
is very little opportunity of trade mobility for his
children. When the adult worker has changed his
home, especially when he has emigrated to a new
country with greater opportunities and a more open
career for talent, the chances of the children adopt-
ing a different occupation from their fathers are
greatly increased. Emigration does not always
secure to the emigrant the benefits he anticipated ;
but it rarely fails to improve the chances of his
children.

Migration, or place mobility, has a certain ten-
dency to promote the trade mobility even of adult
labor — a tendency most marked in the case of emi-
gration. Whether the migration from district to
district of the same country or from the rural coun-
ties to the cities has the same tendency, is not quite
clear. The high returns for physical strength and
for trustworthiness with both of which qualities
country-bred workers are comparatively better en-
dowed than townsmen are, offer a temptation to
rural emigrants to a large city to forsake a skilled
trade for an unskilled occupation. There are many
occupations in which these qualities rather . than
technical skill or alertness are required ; and conse-
quently we find immigrants in large numbers in these

M M

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190

77ic Bargain Theory of Wages.

occupations.* We should also expect that the gen-
erally trained labor of the provinces might, in many
cases, prove unable to maintain its position in the
highly specialized industries of i c metropolis: with
the result that a certain proportion of the emigrants
would seek employment in the relatively highly
paid unskilled occupation. Full statistics are lack-
ing on this point, and those we have hardly justify
any conclusion. The figures given in Booth's Life
and Labor of the People^ by Mr. H. Llewellyn Smith,
show that out of a thousand emigrants a slightly
smaller number of skilled artisans is found working
in skilled trades after migrating to the town. Out
of one hundred and fifty-nine skilled artisans
scheduled, four only have dropped into the ranks of
the unskilled, while six of the total five hundred
included in the table, one of whom, however, was a
boy of fifteen when he migrated from London, had
risen from the ranks of unskilled; or 2.5 per cent,
of the skilled artisans have fallen while 1.7 per cent,
of the unskilled have rijen to the ranks of skilled
labor, t

* In December, 1888, 70 per cent, of the city and the Metropolitan
Police (London) were born elsewhere than in London. — Booth's Life
and Labor of the People, vol. iii., p. 87. In one of the sub-districts
of the city of London the proportion of outsiders is as high as 46 per
cent, of the total population of the district ; and the fact is accounted
for by the nature of the occupation of the permanent portion of the
population of the city, viz., caretaking. — Ibid., p. 124.

\ Booth's Life and Labor ^ vol. iii., p. 140. Five hundred cases
were actually scheduled, but to obtain a basis for comparison one
thousand is taken (p. 140) as the standard total.

Emigration and Trade Mobility.

191

Emigration seems to promote trade mobility more
readily than migration from the rural counties to the
cities does. This is possibly due in part to the fact
that emigration is a much greater change and creates
a disposition to make further changes when occasions
offer * ; but more largely, probably, to the fact that
in the new countries, towards which international
migration is mainly directed, the division of em-
ployment is not so marked as in older industrial
communities. Consequently general intelligence is
relatively more important in a new country than
highly specialized ability; while the greater use of
automatic machinery, owing to the dearness of labor,
has reduced many occupations to the class of the un-
skilled, though nominally, they are still skilled indus-
tries. The relative disadvantage at which highly
specialized ability is placed in the colonies is so
notorious that the British Emigrants* Information
Office deliberately warns skilled artisans that the
colonies are no place for them.

" In new countries, there is not the same strong li:, *
drawn between different employments and different
branches of the same trade, as in our own. . . . The
more specialized a man has become in his work and
calling, the less fitted is he to emigrate, partly because
he is unlikely, in most cases, to find an opening in his
own specialty in the colonies, partly because he is not
suited to turn his hand to general labor." f

♦See chapter iii., pp. 107, loS.

\ Report of Emigrants' Information Office, 1888.

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III

192

77/^ Bargain Theory of IVagcs.

Adaptability, rather than highly specialized skill,
is the condition of success for an emigrant ; and the
comparative youth of the emigrants renders them
much more adaptable.

In spite of the fact that the enterprise and the
adaptability arising from youth would prepare us for
some measure of trade mobility as a result of emi-
gration, we are not quite prepared for the apparently
enormous amount of it. Children form a large pro-
portion of the total number of emigrants and are a
specially disposable fund of labor. They are not in-
cluded in the occupation returns at the port of entry ;
while in later years they are included in the numbers
of foreign-born employed in various industries. We
have, however, a more serious movement to explain
than can be thus accounted for. Many emigrants
must actually rise in the standard of labor, be-
coming at least nominally skilled laborers; for while
seventy per cent, of the immigrants at the port of
entry who have had any occupation return themselves
as laborers, more than thirty per cent, of the total
working population of the United States engaged in
mining, manufacturing, and mechanical pursuits is
foreign-born.* The foreign-born formed 14.77 ^^

* The practice now abandoned by the provincial governments in
Canada of giving assisted passages to agricultural laborers probably
made the percentage of laborers who entered somewhat greater than
it really was. Naturally accurate information is entirely wanting,
but there are several complaints from trade-unionists and others of
mechanics taking advantage of the assistance reported in the evidence
before the Canadian Labor Commission. The deception cannot have
been carried on to any great extent.

Emigration and Trade Mobility,

193

'g.
of

ice

>ve

the total population in 1890, but they are more than
thirty per cent, of the total engaged in the skilled
industries. A very large number of those who are
unskilled laborers when they arrive must within a
few years become skilled or quasi-skilled laborers.
The percentages which are given below may, in
some cases, include the unskilled labor employed in
eveiy mill and foundry; but, after every allowance
is made, the unskilled laborers of Europe become in
a short time skilled laborers in America. The im-
migrant laborer

" comes ready to take up any occupation in which it can
earn a living. I do not suppose that the French-Cana-
dians when they come to the United States enter them-
selves as cotton-mill operatives. Probably they have
never seen a cotton mill in their lives. They are only
potentially cotton-mill operatives ; but they fill up the
mills just the same. So very likely the Hungarians who
are imported to dig coal in the Hocking Valley are not
miners when they arrive." *

Although only an insignificant fraction of the im-
migrants are skilled laborers when they arrive, yet
the census returns show that thirty per cent, of the
skilled labor of the United States is of foreign birth.
In some districts the proportion is much higher. In
Minnesota it amounts to 47.5 per cent. ; in Wiscon-
sin, 48.8; in Illinois, 43.3; in Michigan, 43.4; in
Massachusetts, 35.6; in Rhode Island, 39.1 ; in New

♦ Professor Mayo-Smith's Emigration and Migration, p. 127. I
am also indebted to this book for the statistics quoted below.
13

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194

T/ie Bargain Theory of Wages,

York, 38.7; and in Connecticut, 32.4. In some
skilled industries, the proportions are considerably
in excess of the general average for the country ;
while the number of immigrants following these
occupations at the time of entering the country is
very small. In 1886 there were only twelve occu-
pations in which the number of immigrants exceed
one thousand, and in many of these industries from
a third to a half of the employees throughout the
country were of foreign birth. Thus there were in
1886:

TABLE OF OCCUPATIONS OF IMMIGRANTS AT PORT
OF ENTRY AND OF FOREIGN-BORN IN U. S.

1886. iSBo.* 1880.

TOTAL NUMBER I^ERCENTAGE OF
OCCUPATIONS. IMMIGRANTS. WORKERS WORKERS OF

FOREIGN BIRTH.

Bakers 1209 41,309 56

Blacksmiths 1420 172,726 27

Butchers 1190 76,241 38

Carpenters 3678 373,143 23

Masons 1803 102,473 35

Shoemakers 1681 194,079 36

Cigar makers 1160 56,599 44

These are minor industries ; but in the larger in-
dustries the proportions are nearly as high, while the
number of entries is smaller. Of cotton-mill opera-
tives, forty-five per cent, were of foreign birth; of
woollen-mill operatives, thirty-nine per cent. ; of
paper-mill workers, thirty-three per cent. ; of iron
and steel workers, thirtv-six per cent. : of curriers

* Compendium U. S. Census Report, 1880, table 103.

Skilled and Unskilled Labor,

195

and leather dressers, forty-five per cent. ; of en-
gineers and firemen, twenty-seven per cent. Many
of these industries, it is true, since the introduction
of machinery, have gradually been coming to have
less and less claim to the title of skilled trades ; and
it is probable that many of the immigrants become
skilled laborers only in name. Thus in 1880,* of
133,756 tailors and tailoresses, 71,571, or more than
fifty-three per cent., were of foreign birth, and the
amount of skill possessed by the victim of a sweater,
though it may be sufficient to justify the title skilled,
is, after all, not very great. Mr. Schloss gives us,
from the evidence taken by the Lords Committee
on Sweating, an instance of the evolution of an un-
skilled emigrant into a skilled workman. A witness,
Hirsch by name,

" had been an agricultural laborer in Russia and had
come to England six months prior to his appearance
before the committee. He presents himself to a coun-
tryman of his, who is himself a journeyman finisher em-
ployed by a sub-contractor. ' He gave me nothing the
first week, but he gave me food, and he gave me a shil-
ling for the second week with food.' Then Hirsch is
advanced to five a week and now he is making eight. * I
start (the evidence continues) on Sunday morning, com-
mencing at seven and work up till ten, and the other
days I start at six and work right up to ten as well, but
on Thursday I work up to twelve o'clock and on Friday
come again at six, then I work till sunset.' " f

* Compendium U. S. Census Report^ 1880, table 103.
f Schloss, Industrial Remuneration^ p. iii.

196

The Bargain Theory of Wages.

''. ' )

in:

While emigration undoubtedly tends to raise many-
workers from the ranks of the unskilled it remains
more than doubtful whether the worker is really
benefited to the extent the classification seems to
connote. The skilled trades which he adopts are
now, only in name, skilled trades; and as an un-
skilled laborer his first condition was often, not
worse, but better.

Trade mobility, then, though a necessary postu-
late of the Wages-Fund Theory, has never been a
very important factor in the determination of wages.
Adult labor seldom migrates from one industry to
another; and where it does move the results are not
altogether good. Though as a result of emigration
large numbers seem to rise in the scale of labor the
rise is often merely nominal; and the amount of
trade mobility, even under these circumstances, is
hardly sufficient to bring about the equality of net
advantages. McCulloch declares that ** the dis-
crepancies that actually obtain in the rate of wages
are all confined within certain limits — increasing it
or diminishing it only so far as may be necessary
fully to equalize the favorable or unfavorable cir-
cumstances attending any employment."* To
secure such a real equality of reward, the actual in-
fluence of the fullest measure of that trade mobility
which is so lightly postulated would have to be ex-
erted; and our examination has shown us that no
such degree of mobihty is operative. Place mo-
bility, without trade mobility, could secure only

* Principle of Political Economy {)Jl)xxx&y'^ Reprint), p. 124,

Place Mobility and Trade Mobility.

197

that within the limits of a single trade there might
be the world over a practical equality of reward :
without trade mobility inequalities of returns in
different trades might long continue even were the
volume of emigration very large.

Place mobility, though not theoretically so im-
portant, is, and always has been, of more practical
importance as a wages factor than trade mobility.
The migration of labor from ore district to another
is easier than the change from one employment to
another. The conservative influence of custom and
tradition operates against both forms of mobility;
but, since a man's occupation becomes so much
more intimately a part of himself than the locality
in which he lives, the change implied in trade mi-
gration is so much the greater than that implied
even in emigration. There are other sentiments
which color a man's life beside his trade traditions
and attachments; but these — religion, national
sentiment and local patriotism, home ties and
family attachments — are, in part, not sacrificed by
emigration; and, when they cannot be enjoyed in
the new land, the sacrifice involved is not recognized
till months after the change has been made. On
the other hand, the dangers and drawbacks of
change of occupation are immediately felt. The
dangers are so obvious that we may take it for
granted that the change will hardly ever be made
without the fairly sure prospect of material advan-
tage. Sentiment enters less, and practical advan-
tage more, into the motives which lead to change

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198

77/r Bargain Theory of Wages.

of employment ; and as the organization of industry
becomes more complex, the possibility of advan-
tageous change from one occupation to another
diminishes. The change involves the learning of a
new trade, and, during the period of learning, the
acceptance of a low rate of wages. The average
rate of wages in the new occupation may be higher
than the rate in the old ; but the wages of a learner
in the new cannot, if the trade be worth adopting,
for a long time, be much more than the earnings of
the former occupation. The advantage sought is
seldom sure enough, or large enough, to cover the
risks of the change ; and, as place mobility equalizes
the returns in a trade the world over, there will be
less inducement to a man to change his occupation
to escape a local disturbance of wages.

CHAPTER VI.

THE MOBILITY OF LABOR (Continued).

BEFORE the Industrial Revolution there was
little migration of labor: in part, because free-
dom of movement was restricted by poor laws and
other legislation; but also because there was less
necessity for it. Supply was more closely then
than now governed by demand ; production being
for a steady and a known market. The area of the
market was limited and the distinction of employer
and employed was not so definitely drawn. When,
however, the area of the market extended and ma-
chinery was introduced, trade became subject to
violent fluctuations. Demand and supply are no
longer in correspondence, and industry is alternately
inflated and depressed. The laborer is the passive
victim of this want of correspondence. He is no
longer the small master producing for the known
market, but a laborer for hire. He must live by the
reward of his labor from day to day ; and the fluctua-
tions of industry tend, on the whole, to depress
wages. The fluctuations are not offset by each

199

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2CX)

T/ic Bargain Theory of Wages.

other. The laborer's remuneration in good times
is scarcely ever sufficient to tide him safely over bad
times without recourse to the " poor man's banker,"
or to credit at the store; for in bad times, despite
the equalizing effects of machinery, there is some-
times great lack of employment in the district in
which he lives. Since the laborer must, so to speak,
deliver the labor himself, it matters little that work
is plentiful elsewhere, if the laborer remains where
his commodity is a superfluity. Consequently,
mobility is a necessity for the equation of the de-
mand and the supply of labor, or would be, were
trade fluctuations merely local. Unfortunately, as
the knowledge of industrial conditions in other dis-
tricts increases, the area of depression widens. The
same forces which have rendered migration easy
make trade depression universal. It is difficult,
now, to imagine any trade depressed in one district
and prosperous in another, as it might have been
before the Industrial Revolution. The improved
means of communication which naturally promote
the tendency of labor to migrate have equalized
industrial conditions and thus destroyed the induce-
ment. We shall see below that the volume of migra-
tion is decreasing and at the same time becoming a
regular movement. We can hardly speak of the
circulation of labor because the movement is steadily
in one direction — towards the cities.

We need not draw any rigid distinction between
the two forms of place mobility, migration and emi-
gration. The political effects are different, but, in

Migration ami Emigration.

201

essence, the economic effect is nearly the same. It
has generally been assumed that migration is a much
more extensive movement than emigration : so much
more extensive a movement that the whole orthodox
theory of foreign trade is based on the difference.
To justify the hypothesis of the economic nation in
the theory of international trade it is necessary to
assume that the mobility of labor within the nation is
practically complete ; while between the nations it is
practically non-existent. The assumption is not even
approximately accurate. The volume of migration
within the nation is not only not so great as is sup-
posed, but is shrinking; and emigration which, it is
supposed, is not sufficient in amount to bring about a
real equality in the cost of production must, in some
cases, be a more powerful industrial factor than migra-
tion. Between the Maritime provinces of Canada and
the New England States the movement is steadier
than the movement from these provinces to Ontario
and Quebec; and the city of Boston contains a
very much larger number of " provincialists " than
Quebec, Montreal, and Toronto.* It is hardly pos-

In
Il-

* The aim of a protective policy, in the language of the orthodox
theory of foreign trade, may be said to be the identification of the
economic with the political nation. The "National Policy," as it is
called in Canada, therefore included the improvement of the internal
means of communication. The table of Canadian migration below
shows that the effect of this part of the policy is not appreciable, but
without it the " N. P." would have been a greater organized injustice
than it was. The usual method was adopted of compensating one
class for the special burden placed upon it by placing another equally
heavy burden upon some other class or section of the community.

!.■

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202

77/^* /hir^di/i Tltcory of IWiji^^ts.

siblc to make ii comparison of the respective vol-
umes of migration and emigration. The census
returns of those countries in which both movements
take pkicc are not detailed enough to permit a
thorough comparison. For instance, in the English
census, the county is taken as the unit area: in the
Canadian census, the province. The unit area, in
either case, is too large. Probably the greatest
amount of migration takes place within the unit
area. The English census of i88i shows, that of
8,877,623 persons who resided elsewhere than in the
county of their birth, 4,049,918, or nearly half, were
resident in the counties bordering on their native
county; and probably at least another four millions
have migrated from one place to another within the
county of birth. The same remark holds true, to
an even greater extent, of the returns of the Cana-
dian census, where the unit is the province. Census
returns, moreover, can take no account of successive
removals by the same individual ; and ten years is
a period long enough to cover several changes. The
volume of migration must, consequently, especially

Thus Nova Scotia received, as its compensation for the manufacturing
monopoly in Ontario, the duty on foreign coal and iron. This prac-
tice has been found, in all countries, politically necessary, but is none
the less an impossible and ridiculous method of distributing the sec-
tional benefits of protection throughout the community. The task of
identifying the political and the economic nations in Canada, and
thus securing a just distribution of the gains and losses of monopoly,
is peculiarly difficult because there will always be a greater movement
between Canada and the United States than between Quebec and the
English provinces of Canada,

Volumi's Compared.

203

in the case of Canada, be much hirgcr than is set
down in the census returns.

Even when every allowance is made for the in-
completeness of the figures, total migration is not
so much greater in volume than enn'gration as to
justify the assumption of the theory of international
trade. The total number in any given year of those
who have migrated, is not the same as the volume
of migration in that year; and it is the volume of
migration that is the industrial factor.

Migration, however, is not only of less compara-
tive importance as an economic force in distribution
than is assumed, but is also a factor of decreasing,
or, at any rate, not of increasing importance.* The
volume of migration reached its maximum ten or
twenty years since ; and the opening of new lines of
communication and the lessened cost of transit have
been apparently without effect on the volume.
Within the United States the volume of migration
has not merely been stationary', but has sensibly
shrunk. This is due in part to the fact that the
colonizing period in the history of the United States

♦According to the British Census Report^ l8gi, the native
population shows stationary habits of a very decided character. In
1871, 74.04 per cent, of population were resident in native county ;
in 1881, 75.19; in 1891, 74.86.

It would appear that though emigration to foreign countries in-
creased enormously between 1881 and 1891, there was no correspond-
ing increase in the migration within the borders of England and
Wales themselves, notwithstanding the increased facilities of locomo-
tion, the extended knowledge possessed by the working classes as to
the conditions of life in parts outside their immediate localities.
English Census Report, 1891, vol. iv., p. 61.

204

The Bargain Theory of Wages.

■|!

I is

has closed, and that since the available land in the
West has been filled up the classic advice, " Go
West, young man," has lost much of its appropri-
ateness. It is, however, not merely migration from
East to West, or from State to State, that has de-
creased. There is also less movement within the
States and less movement from the rural portions of
the States to the cities. The same phenomenon is
observable, though in a less marked degree, in Eng-
land, France, and Canada, as appears from the fol-
lowing table, which is taken, so far as United
States, France, and England is concerned, from an
article by Prof. Wilcox in The Political Science
Quarterly.^

PERCENTAGE OF POPULATION RESIDENT IN UNIT
AREA OF Blirj I IN CENSUS.

ENG. AND WALES.

FRAN'CE.

.ANADA.

UNITED STATES.

Year.

Unit Area.
County.

Year.

Unit
Area.
Depart-
ment.

88.4

85.7
84.0
83.2

Year.

Unit

Area.

Province.

97-5
96.0

95.0

Year.

Unit Area.
State.

I871
1881
189I

74.04

75.19
74.86

1866
1876
18S6
1891

1871

18S1
189I

1870
t88o
1890

73.8
77.9
79.1

- j

Prof. Wilcox also gives tables * of internal migra-
tion for the two States Massachusetts and New
York, to demonstrate that not only inter-State but
also intra-State migration is declining.

♦Vol. X., No. 4.

m.i

Migj'ation Declining.

205

PERCENTAGE OF TOTAL NATIVES OF NEW YORK

RESIDENT IN

1855.

County of birth 56.0

Some other county of New York iq.9
Some other State 24.2

1865.

1875.

55.3 •

... 57.8

17.8 .

... 16.0

26.5 .

. . . 26.2

PERCENTAGE OF TOTAL NATIVES OF MASSACHU-
SETTS RESIDENT IN

1875. 1885.

Town of birth 48.61 51.00

Some other town in Massachusetts 30.62 29.46

Some other State 20.77 19. 54

The migration from province to province within
the Dominion of Canada seems remarkably small,
the reason being that the " exodus " to the United
States, as it has been called, is, so far as the difficul-
ties of and obstacles to movement a.e concerned,
really of the nature of a migration from the rural
parts of a country to the industrial centres. The
Canadian figures show a slight increase in the amount
of migration, but do not form a serious exception to
the general tendency ; for the period covered is that
in which the great railways have for the first time
opened up the country. The table on p. 206 shows
the number per thousand resident in each of the
four original provinces of the Dominion, in the three
census years, who were born in the various provinces
of the Dominion.

These are hardly the results we should have ex-
pected. The period covered by these statistics is a

(iff

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206

T/ie Bargain Tlicory of Wages,

period of railroad expansion ; great trunk lines have
been built and parts of the countries which had been
separated more completely than if the ocean had
rolled between have been bound together by ties of
intercourse and communication. The re( eipts from
pa.ssenger traffic have increased year by year until it
seems as if the whole population were continuously
on the move. With improved means of communi-
cation has come increased knowledc^e of the con-
ditions of industry in other districts and States; but

THE NUMBER PER THOUSAND OF NATIVE-BORN
CANADIANS RESIDENT IN THE FOUR ORIGINAL
PROVINCES AND MANITOBA ACCORDING TO THE
PROVINCE OF BIRTH.

iji:;.

M i '

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t :■

PROVINXE OF
RESIDENCE.

New Brunswick -

Nova Scotia. . . .

Quebec.

Ontario

Manitoba.

CENSUS
YEAK.

187I
1881
189I
187I

i8gi

187I

1881
189I

1871

1881
1891
1871
1881
1891

PROVINCE OF BIKTH.

O.Q
I.O
1.1
0.6

0.9

'•7

f.2

8.0

II. O

9.9
10.7
12.0

0.9

1.0

1-3

991-3
989.8

985-9

959-5, 34.3

960.2
966. 1

398.4
431^

33-8
3C-4

83.0
70.0

l-H

9.59.5

i 957-4

956.2

9-5

9.8*
9-3

q.o
8-9*1

21.1

21.2

18.4

981.4

10.9

982.2

3-9

13-0

981.6

4.0

0.8
0.9
1.0

0.6
0.6
0.9

0.8*

0.4

0.3

2-4

3-0

0.9*

1.6

2.4
2.7

0.4
0.4

7-1

6.6

17.0
12.9

3-2

2.1

0.0
0.0
0.0
0,0

0.6

375-4
459-6

0.0
0.0
0.0
0.0

o o
0.0
0.0
0.0

O.I

0.0

0.0 <

0.0

0.0 (

0.1

0.0

O.I
O.I

0.5

o.Si

»33-7
7.2

i ■■

ii i

J •

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♦ Including natives of Newfoundland.

Modern Restrictions on Mobility,

207

o
o

migration seems to have reached a maximum just
when it was being rendered easier.

The result is somewhat surprising. There is
ahnost complete freedom of movement permitted.
The laborer is no longer hampered in his movements
by laws of settlement, but may move wherever and
whenever he thinks fit. In some places old mediaeval
ideas restricting the right of migration have survived
or been revived and enforced. The conservative
reaction in Germany reveals itself in proposals to
restrict the migrations of the agricultural population.
East Prussia has been drained of a large part of its
agricultural labor; and the organs of the great land-
owners demand renewed restrictions on the pretext
that so long as free migration is permitted there can
be no adequate check to the spread of epidemics.
The modern demands for restriction, however, come
chiefly from the working classes. America for the
Americans, Canada for the Canadians, London labor
for London laborers, are cries which demand restric-
tion of migration, in fact, if not in law. It is fre-
quently little more than a sentiment ; but in demo-
cratic countries the sentiment is sometimes embodied
in legislation. In Canada, there has been, in places,
a reincarnation of mediaeval ideas regarding the
right of movement. In Fredericton and St. John,
N. B., and elsewhere, a tax of twenty dollars is
levied upon imported labor. The argument is that it
is not fair that those who reside in the city and pay
their proper share of the taxes should be exposed
to the competition of outsiders who may come in,

208

The Bargain Theory of Wages.

m
■I ' » ■

II!

1 ,v

1 f.

<l|

earn wages, and depart without ever being domiciled
in the city and subject to taxation. In the spring
of 1896, there was a dispute in St. John between
the Ship-Laborers' Union and the managers of the
Donaldson Line of steamers. The managers refused
to grant the Union demand for higher wages and
imported a trainload of men from Montreal, which
was then icebound. After partial failure of the
attempt to bring the "blacklegs" "out," the
Union threatened to have the city by-law enforced.
There was some talk of appealing to the courts
against the by-law, which, it was claimed, was a
violation of the British North America Act ; but no
further steps * were taken, and the result was a
victory for the Ship-Laborers' Union. f

The growing strength of local patriotism, combined

* Since the above was written the city by-law of St. John has been
amended, and the tax or license fee paid by non-resident labor has been
reduced to seven dollars and a half, or about a dollar more than a
laborer pays for his poll tax.

f The Contract-Labor Law in the United States is an instance of
the same tendency, although the object of this measure is to restrict
the right of immigration ; but the Corliss bill may be classed as a
measure whose object was really to restrict the right of migration.
The measure proposed to forbid dny man from earning wages in the
United States who did not reside there. It is to be hoped that the
advocates of the measure did not base their support of it upon the ac-
curacy of a petition in favor of it presented by citizens of the United
States living close to the Canadian border. The petition averred that
between two and three hundred thousand Canadians crossed the border
every morning and, after earning the higher rate of wages in the States,
crossed back again at night to their Canadian home — a number which
probably exceeds the total population of Canada living within five miles
of the border line.

TJic Causes of Decline of Migration. 209

with the increasing political power of the working
classes, has, of late years, tended to reduce the vol-
ume of migration, but hardly sufficiently to account
for the diminution exhibited in the tables given
above. The decline of migration is possibly, also,
in part due to the increasing tendency towards locali-
zation of industry. Where an industry is strictly
localized, migration offers no escape from trade de-
pression ; and, although it sometimes appears as if
an industry were localized in more districts than le,
yet, on examination, the industry is seen to be two
or three different industries included under the one
name. The localization of industry promotes the
organization of labor in trade-unions ; and we have
seen that the trade-unions, if they do not positively
discourage, certainly no longer encourage the migra-
tory tendency by travelling benefits.* In one way
the union undoubtedly does promote migration in-
directly. The standard wage is higher in the cities
than in the country, and the best workers seek the
centres of population and industry; while those who
are unable, from any cause, to earn the standard
wage in the metropolis and find it difficult, on ac-
count of the trade-union antipathy to a system of
graded wages, to obtain any employment, tend to mi-
grate to the provinces.

Again, if it be true that a larger proportion of the
working classes are aiming at owning their own
houses, this would undoubtedly tend to hinder
migration. The evidence is too fragmentary to

* Chapter V., p. 179.

I^^l

210

The Bargain Theory of Wages.

\ 1

.1? 'I

allow us to decide whether they do so aim. If they
do, we need not, as some writers and speakers, regret
the tendency.* Mobility does not, on the whole,
tend to promote good citizenship. Ownership un-
doubtedly implies greater fixity, and in so far as
every trade, and, in a special degree, localized trades,
are still subject to local variations, fixity of residence
may imply fluctuations in wages and employment.
On the other hand, when trade revives, the man on
the spot is likely to reap the immediate benefits. A
priori, we might conclude that mobility will secure
an arithmetical equality of wages and employment ;
that the wages of those who reside permanently in a
district will fluctuate more according to the state of
trade, and that their average will be higher than the
average of those who move from place to place ; and
this rt:/n<?r/ conclusion is supported by the following
comparison of the two classes of owner occupiers
and tenant occupiers in respect of wages and days
employed in the year, which is taken from the report
of the Ontario Bureau of Industries for 1889. The
comparison covers a sufficiently wide area to secure
that accidental variations do not much influence the
results. In 1888 returns were received from 576
owner occupiers resident in twenty-one towns in
different parts of the province, and in 1889, 842.
The tenants in 1888 numbered 1272, and in 1889,
1634. Another class is included in the first table,
viz., boarders, but the number, forty, is too small to

* See the reference to Bishop Fraser of Manchester, in Price's
Industrial Peace y p. 114.

Tenants and Ozvncrs.

211

admit any inference. The boarders, probably, are
found mainly in the larger towns where the average
wage is comparatively high.

COMPARATIVE TABLE OF EARNINGS AND DAYS EM-
PLOYED IN THE YEAR 1S89, FROM RETURNS MADE
BY MALE WORKERS, OVER SIXTEEN, WITH DE-
PENDENTS.

STATUS.

NUMBER OF
RETURNS.

DAYS EMPLOYED
IN YEAR.

TOTAL EARNINGS,

INCLUDINC THOSE

OF DEPENDENTS.

Owners 842 272.06 $467.67

Tenants 1634 269.34 449-33

Boarders 40 265.80 450.93

The second table, with the accompanying diagram,
is intended to show the local and temporary varia-
tions of wages and time employed, of each of the
two classes in the two years 1888 and 1889. The
average of wages and time employed therein set
dawn is the average of the two years, not of 1889
alone, as in the first table.

We find from the comparison (i) that for the
tenant occupiers there are fewer fluctuations above
or below the average cither in respect of wages or
of the number of days employed during each year:
from which we may conclude that the greater the
mobility of labor the stronger the tendency towards
an arithmetical average. We find (2) that the aver-
age wage of the owner and the average of the num-
ber of days employed are considerably higher than
the corresponding average for the occupier; from
which we may justly conclude that permanence of

if!

I it

212

The Bargain Theory of Wages.

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Levelling Up.

213

residence, which is admittedly desirable from a
social and ethical point of view, is not an economic
drawback. We may therefore dismiss the fears of
many philanthropic economists and publicists that if
the working classes own the houses they live in, they
must necessarily be in a worse position as bargainers
in the labor market.*

The real cause of the diminution in the volume of
migration, to which the social phenomena already
mentioned are only contributory causes, is that, im-
provement of the means of communication, which,
at first sight, seems to facilitate, does not really en-
courage migration. The improved means of com-
munication have levelled wages up to such an extent
that differences in wages are no longer, to a large
extent, at least, accidental, but in a measure corre-
spond with differences in efificiency and with differ-
ences in the cost of living. The decrease in the
volume of migration does not mean a slackening of
competiton. The influence of competition, on the
contrary, has outstripped the actual mobility of
labor. As between good players the game is often

-'• '"ht-n. IS., '■'■:>. some places, a conviction among the working classes
thirst x iab'i. ,» ..ho owns his house is at the same disadvantage as the
laborer who is compelled to live in a house provided and owned by
his employer, and sometimes at a worse, for a company tenant is
generally preferred when work is scarce. In a small town the laborer
may be practically at the mercy of an unscrupulous employer, and,
though the cases may be few in which such an unscrupulous use of
power is made, when such an abuse occurs a grave social crime is
committed. Cp. on this point Report of Connecticut Labor Bureau,
1885, pp. 84, 85.

i ■

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214

T/ic Bargain Theory of Wages.

decided by a show of cards, so, without recourse to
the actual step of migration, competition has levelled
wages up and removed the necessity of, and induce-
ment to, migration. The knowledge that change is
always possible has at the same time weakened the
desire for change and the economic need of mobility.
Mr. Garnier declares that, in England at least, what-
ever may be the case in Scotland, the system of
yearly hiring of agricultural laborers induces more
men to wander from master to master at the annual
hiring fairs th?,n a system of weekly contracts does.
" The weekly contracts with their cottage laborers,
strange to say, seem to promote more settled habits.
These latter men, feeling that they can leave if they
choose, elect to stay." ^ Similarly, the knowledge
that the Bank had power to suspend the Bank
Charter Act, has twice allayed a panic without the
necessity of actual suspension. Competition acts on
the minds of men; and the same results may be
achieved either by actual display of power or by the
knowledge that the power is there if need arise.
One instance must suffice. The amount of migra-
tion f between Ontario and Quebec is not very great,
and, since the majority of the migrants are resident
in a few border counties, is actually less than it
appears, yet there has been a steady levelling up of
the average wages earned in Quebec to the average
earned in Ontario. If we take the average wage in
Ontario in each of the three census years 1871, 1881,

* Gamier, Annals of the British Peasantry, p, 415.
f Cp. table, p. 206.

Migration an Economic Movement.

215

1 89 1, as, in each case, equivalent to one hundred,
the corresponding averages for Quebec are as fol-
lows * :

ONTARIO. QUEBEC.

1871 100 73

1881 100 83

189I 100 90

So, if migration is decreasing in volume, and mobil-
ity is no longer the important wages factor it has
been conceived to be, the result — competition — is
still being accomplished.

Migration arises from a more purely economic
motive than emigration. The volume of emigrants
from Europe is still swelled from year to year by
those whose motives for changing are political or
social, or, at times, even religious. The political
motive is almost entirely absent as an incentive to
migration, though social motives may induce many
to seek the large cities. There can be no doubt
that all " that makes the difference between Mile
End fair on a Saturday night, and a dark and
muddy country lane with no glimmer of light and
with nothing to do," f has something to do with the
volume of migration; but, in the main, migration is
an economic movement undertaken with a deliberate
idea of bettering the material condition. There are
elements in the movement which are not economic.

* Census of Canada, 1891, Bulletin xviii., p. 8.
f H. Llewellyn Smith, Booth's Life and Labor of the People vol,
iii., p. 75 : cp. Life in Our Villages, Chapter I,

' \

1,1

2l6

The Bargain Theory of Wages,

,' . ■ 1 I !

\'S

. I

ii I

I! 'Mil:

There is the drift of the tramps and the beggars and
the characterless to the great cities where odd jobs
and charity and oblivion may be found. The move-
ment of women is only partly due to economic
causes; and women form the majority of those who
migrate.* The general direction of the economic
movement has been the rural districts to the cities,
though there has also been a reverse movement
back to the country. The volume of the migration
from the towns to the country (not including in this
volume the great modern movement of population
towards the suburbs of the cities) cannot be great
since it is a movement of the old and the successful.
As the young and vigorous move towards the towns
where, though the cost of living is high, wages are
proportionately as high and seem higher: so the old,
who have retired from active work, move to the

* The limited number of employments open to women, and the
localization of most of these within narrow areas, have tended to in-
crease the volume of female migration. The excess of females in
textile towns is not due to an exodus of the males, but to migration
from the surrounding districts of families, the majority of the children
in which are girls. The practice of depending in part for the family
support on the supplemental earnings of the regular or casual work
of the wife and children sometimes checks migration from the districts
where there is a demand for female labor and generally promotes migra-
tion to such a district. A laborer who counts on these supplemental
earnings may not always follow his own individual economic advantage
and go where there is the greatest demand for his labor ; because in
the new locality his wife and daughters could find no employment.
On the other hand, he may move to a district where the demand for
his labor is less in order to find employment for a growing family of
daughters,

Migration to Cities an Adult Movement. 217

country to take advantage of the lower cost of
living.

The movement towards the cities is an adult move-
ment. Under modern industrial conditions the
system of apprenticeship is breaking down and no
substitute has yet been found. It has broken down,
however, only in the large cities and industrial cen-
tres. In the workshop, in the country village, the
apprentice is still faithfully taught the whole art and
craft of his trade; and he learns not a special de-
partment, but the whole trade as it could not pos-
sibly be learned in a large city, even in shops where
apprentices are taken. The demand for trained
artisans in the cities is great ; and, since in the city
workshops apprentices are no longer trained, the
demand must be met from the outside. The move-
ment to the cities is produced by ** suction from
within" rather than by" pressure from without."
It is not because trade is depressed in the country
but because the demand is so great in the town that
the number of trained workmen migrating to the
cities is so large. If the town were not recruited
from the country, industry would languish and fail.
The conditions of town life are so debilitating that
were it not that the city population is being contin-
uously invigorated by the infusion of fresh country
blood the cities would soon become industrially in-
effective. The economic debt v/hich the cities owe
to the rural districts is incalculable. They receive
the flower 'of the industrial army. The great pro-
portion of the migrants to the city are between the

'"■■'■■ \

i !
1J>

2l8

The Bargain Theory of Wages.

i !

;!;<

y i

ages of fifteen and thirty.'^' London receives such a
number of migrants between these ages that the
percentage of her population between these Hmits is
much higher than the corresponding percentage for
the whole country. The migrants are, as might be
expected, markedly successful. The poverty in the
various districts of London is almost in an inverse
ratio to the proportion of provincials resident in the
district. Where the dark colors are laid down in
Booth's map of London poverty, there is resident
only a very small percentage of immigrants from the
country. The reason is that the migrants are picked
men, and in competition with city-bred labor, can
easily secure the best positions. The percentage of
failures amongst them is surprisingly small.

Mr. Ravenstein has put forward a law of the move-
ment which he calls the law of migration by stages.
He found that, according to the English census
returns, the amount of migration ,vas, roughly,
inversely as the distance of the migrants from their
counties of birth; and, from this fact, he drew the
conclusion that, in spite of the great attractions of
large cities, the set of migration is rarely directly
and immediately to them. The migrant seems to
approach gradually, resting by the way to make surer
of his footing, and, as it were, to hesitate before

* It is significant that eighty-three per cent, of the failures occur
among those who left their homes after reaching the age of twenty-
five. Both for the migrant and the emigrant twenty- five seems to be
the limit age for which success is possible. After that year the in-
dividual seems to lose the energy and the adaptability which arq
essential.

Migration by Stages.

219

making the plunge. Many never reach the destina-
tion, but remain at some of the intermediate stages.
Short-distance migration is much more frequent than
long-distance migration. Mr. Llewellyn Smith*
has ingeniously illustrated and supplemented Mr.
Ravenstein's theory by dividing England and Wales
into a series of rings of counties, in a roughly semi-
circular arrangement round London, to show how,
the greater the distance, the smaller the number of
migrants to London. The results are given in the
following table:

RING.

AVERAGE DISTANCE
FROM LONDON.

1 23.8 miles

2 52.5 "

3 -^^-9 "

4 .0 "

5 175.7 '*

6 236.9 "

NUMBER OF PERSONS PER lOOO

OF POPULATION OF EACH

RING LIVING IN LONDON.

166.0

I2I.4

61.2

32.0

l6.2t

24.9

As a further illustration of Mr. Ravenstein's law,
Mr. Smith shows that the average age of the migrants
from the more distant rings is higher than the aver-
age age of those who come from the home counties.
If long-distance migration takes place by stages it is
obvious that the age of the long-di.stance migrant
will be somewhat above the average age of the
migrants when he reaches London.

I' ii^
I. ■

* Booth, op. cit., vol. iii., p. 67 ; see also ibid,., p. 126.
f The figures here show the disturbing influence of the attraction
of the manufacturing centres of Lancashire and Yorkshire.

220

The Bargain Theory of Wages.

RING.

■ \

il:

In i'f

1 1 •! -

s .,

I';.

PERCENTAGE OF MIGRANTS
UNDER TWENTY.

DISTANCE.

I
2
3

4
5
6.

22.4
18.1

16.8

15.4
19. 1

15.9

DITTO OVER
TWENTY.

. . 77-6 23.8

... 81.9 52.5

. .. 83.2 90.9

. .. 84.6 126.0

• .. 80.9* 175.9

... 84.1 236.9

The law of migration by stages must be slightly
modified to take account of facilities of access and
travel. There is a larger proportional fnovement
from Scotland to London than from Scotland to
Birmingham or Leeds. London seems much nearer
than Birmingham and its attraction is much more
actual. In general, where there is communication
by water there will be a relatively greater migration. f

The exodus from the Maritime provinces of Canada
has most of the characteristics of a migration. The
emigrants go to a country where their own language
is spoken and the same customs are observed ; and
the direction of the movement is towards the large
cities. In this case the law of migration by stages
is again partially set aside on account of facilities of
access. The migration is not to the State of Maine,

* The figures here show the disturbing influence of the attraction
of the manufacturing centres of Lancashire and Yorkshire.

f The greater proportion {i. e., of migrants to London), consider-
ing distance, is that shown by Devonshire, Somerset, Dorset, and
Cornwall, which collectively send 24.7 per cent, of their migrants
into London. Here the geographical situation, giving, practically,
only one degree of freedom of movement to the migrant, is doubtless
a gre.it operative cause. In general, it will be found that a dispropor-
tionate amount of migration takes place to London from counties
with a seaboard. Booth, op. cit., vol. iii., p. 72.

Distribution of Canadian Immigrants. 221

which geographically lies nearest to the Maritime
provinces, but to the State of Massachusetts. In
the State of Maine are found 52,076 Canadians; in
the State of Massachusetts 207,601.

The distribution of Canadians in the United States
is as follows :

North Atlantic division 490,229

South Atlantic division 5.412

North Central division 401,660

South Central division 8,153

Western division 75.484

United States 980,938

The migration to three of those divisions is too
small to be governed by any discoverable law except
the law of health-seeking. Fully one fifth of the
Canadians in the South Atlantic division are resident
in Florida ; and more than a third of those resident
in the South Central division have sought Texas to
prolong their days. In the Western division 26,028
have fled to California frorr the rigors of the Cana-
dian winter. The details of the other two divisions,
according to States, give rather contradictory re-
sults. The attraction to the North Atlantic division
is towards the industrial and manufacturing States,
which are as different as possible from the Maritime
provinces of New Brunswick, Nova Scotia, and
Prince Edward Island. New York and Massachu-
setts together absorb three fifths of the total migra-
tion. In the North Central division, on the other
hand, the attraction is mainly, if we except Illinois,
in which is Chicago, and Ohio, to States where the
main employment is in agriculture or lumbering;

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77/^ Bargain TJicory of Wages.

and in neither case do the nearest States to the Cana-
dian centres of population absorb anything hke the
share they should, if the law of migration by stages
were unconditionally true. Michigan, it is true, is
immediately contiguous at one point with the prov-
ince of Ontario; but 30,466, out of a total 181,416
Canadians, have travelled across the breadth of On-
tario from Quebec to reach the lumber woods of
Michigan. The fact, however, that Ohio absorbs
more than three times as many Canadians as Indi-
ana; that Wisconsin has twice as many, and Minne-
sota two and one half times as many as Iowa; that
North Dakota has two and one half times as many
as South Dakota, and as many as Nebraska and
Kansas taken together; while, in the Western divi-
sion, in spite of equal facilities of access by sea from
British Columbia, Washington has attracted three
times as many as Oregon, which lies directly to the
south of it, seems to give some support to Mr.
Ravenstein's law.

NORTH ATLANTIC DIVISION.

Maine 52,076

New Hampshire 46,321

Vermont 25,004

Massachusetts 207,601

Rhode Island 27,934

Connecticut 21,231

New York 93.193

New Jersey 4,698

Pennsylvania 12,171

Total 490,229

NORTH CENTRAL DIVISION.

Ohio 16,575

Indiana 4,954

Illinois 39.525

Michigan 181,416

Wisconsin 33,163

Minnesota 43, 580

Iowa 17,465

Missouri 8,525

North Dakota 23,045

South Dakota 9,493

Nebraska 12,105

Kansas 11,874

Total 401,660

Temporary Migration.

223

1,660

In addition to tlic migration already discussed,
there is a kind which does not appear in the census
tables; because the migrant does not seek a domi-
cile in the district into which he moves. His sojourn
there is for the season ; and, at the end of the season,
he returns to his old home. This kind of migration
represents the maximum of economic mobility. The
individual sometimes travels very far afield in search
of employment. Some trades are subject to periodi-
cal migrations and labor circulates freely between
different parts of the country. The seasons in which
trade is brisk are sometimes different in different
parts of the country. There is, for instance, a cir-
culation of boot- and shoemakers between London
and provincial towns such as Leicester and Norwich ;
there being, at the same time, a fairly steady move-
ment of labor in various parts of England following
the transfer of industry away from the sphere of
trade-union influence. It is but seldom, however,
that the seasonal variations of industry lead to con-
siderable migration, except in the case of agriculture
and trades dependent on the seasons. The Irish
harvesters who come in large numbers across the
Channel to meet the increased demand for agricul-
tural labor at harvest time may be taken as a typical
instance. In 1890, according to the annual return
of the Registrar-General for Ireland, in the month
of June, 14,081 persons left their homes to seek
employment as agricultural laborers elsewhere. Of
these seasonal migrants 84.4 per cent, sought work
in England, 12.2 per cent, in Scotland, and 4.4 per

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224

T/ic Bargain Theory of Wages.

cent, in Irchmd, mainly in Lcinstcr, in the counties
around Dublin. The migrants form a fairly large
percentage of the total male adult population,
amounting in County Mayo to 15.3 of the total
adult male population of the county. The same
migratory tendency during harvest season is observ-
able in Germany, where there is a movement of
agricultural laborers out of, and into, the eastern
provinces of the kingdom of Prussia. In 1892,
96,894 laborers left the four eastern provinces. East
Prussia, West Prussia, Silesia, and Posen, and moved
westward in search of work, to return to their homes
at the end of the season; while in the same year
nearly twenty thousand immigrants from Russia and
Galicia sought temporary employment in these four
provinces. From some countries, the volume of
temporary emigration is almost as large as the vol-
ume of the real and permanent. In 1892, from
Italy, 107,025 emigrated in search of work, for the
most part, in the spring of the year, to various
European countries, chiefly to France, Austria,
Switzerland, and Germany. The majority of the mi-
grants naturally come from the frontier provinces,
and in the case of Udine and Belluno, more than
seven per cent, of the whole population seek work
in other European countries every year.* There is a
similar movement across the Canadian frontier into
the United States. The seasonal industry of lum-
bering, which can be followed in the winter only,

* Mayo-Smith, Statistics and Sociology, pp. 318, 330; cf, Bren-
\AVi.o^% Hours y Wages ^ and Production, pp. 41, 42.

1' ! ;

Temporary Migration,

225

causes an annual migration from the cultivated por-
tions of the country to the woods and in the spring
back again. When the lumberman does not follow
the alternate trades of farming and lumbering, he
has his summer at his own disposal. Too often,
though not so often as in former years, the summer
is spent in loafing; but, of late, with the improved
means of communication and increased knowledge
of industrial opportunities, there has sprung up a
habit of sojourning iti the United States during the
summer, where employment is obtained mainly as
bricklayers and bricklayers* laborers. The seasons fit
into each other. The frost and snow which throw the
bricklayers out of employment render possible the
work in the woods. It is perhaps commoner for the
summer to be spent in Canada on the farm, and the
winter in the New England mills and factories; and
a great part of objection raised to Canadian labor is
due to this practice of the French Canadian.

The Canadian and United States trade-unions
make common cause against the trans-Atlantic mi-
grant who crosses to work in Montreal and New York
during the season and returns for the winter to Scot-
land and England, where, in the milder climate, work
can generally be carried on throughout the winter.
Masons and bricklayers are said to be the chief
offenders; but, in spite of cheap fares and quick
transit, the c -^mpetition of such migrants cannot be
very serious. *t is alleged in Canada that these men
come in at the opening of the year, and not having

to face the rigors and the lack of employment char-
ts

III]

226

The Bargain Theory of Wages.

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acteristic of the Canadian winter, can afford to work
for lower wages than the Canadian workman. In
Canada work is scarce in winter, and generally paid
at a lower rate ; and in many trades is impossible.
Consequently, an artisan must make up by the higher
wages in the summer for the slack times and higher
cost of living in the winter.

It is hardly necessary to take advantage of human
weakness before numbers running into millions, to
have the importance of emigration recognized. "With
whatever deductions the figures require to be taken,
on account of the impossibility of forming an esti-
mate of the net or real emigration, there is no deny-
ing the importance of the movement they exhibit.
Less striking, perhaps, but no less profound in its
consequences, and, in reality, no less imposing in its
silent magnitude than the barbanun invasions which
overthrew the Roman Empire, the tide of emigra-
tion has set steadily from the old world to the new
for nearly a hundred years, and shows no signs of
diminishing in force. Since the beginning of the
century, in every year, hundreds of thousands of the
strength and manhood of every State in Europe
have abjured the old allegiance, have broken the old
ties and the old associations and set themselves reso-
lutely to new conditions in a distant part of the
world. Many have gone among strangers, who were
yet kinsfolk, speaking the same language and in-
heriting the same political traditions; but to the
great majority emigration has meant the profound
change of home and language and customs. The

.'mi i

Loss and Gain.

227

results of this movement are incalculable. New
continents have been opened up, that larger popula-
tions might be supported at home; new markets
have been established, that industry might be more
economically conducted ; new wealth has been cre-
ated ; new resources developed ; new nations called
into being.

The nations of the old world have given of their
abundance that the nations of the new might be
built up ; but we cannot estimate the greatness or
the value of the gift by the rough-and-ready method
of regarding every emigrant as an irretrievable loss
and e\'^ery immigrant as a great gain. The popula-
tion of the British Isles would not have been in ex-
cess of fifty millions if the fifteen millions who have
left her shores had remained within her sea-girt
borders. It would have been no larger than it is at
present, and it is possible it might have been a
great deal less. Whatever may be the case un-
der more ideal conditions of land tenure (and Dr.
Geffchen * shows that emigration from the various
provinces of Germany bears a distinctly inverse rela-
tion to the average size of the holding), at present
the British Isles could not produce food for thirty-
eight millions without serious economic loss and in-
dustrial derangement. A much larger proportion of

* Schonberg's Handbuch, ii., Auf. iii., p. 1063. Die Ursaclien
liegen teils in der Ertrags.fahigkeit des Bodens, noch mehr aber in
dessen Verteilung ; Ostpreussen ist durchschnittlich nicht sehr frucht-
bar und hat doch wenig Auswanderun^, Mechlenburg ist fruchtbar
und hat starke Auswanderung, in ersterem ist mehr Bodenverteilung,
in letzterem herrschen die Latifundien,

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228

TJic Bargain Theory of Wages.

\ %

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the population would require to devote itself to the
production of food, and England's economic position
as an industrial and manufacturing nation could not
be maintained. Her extreme industrial specializa-
tion has been possible because the opening up and
settling of virgin continents have given her a cheaper
supply of food than she could have obtained from
her own soil ; and have, at the same time, widened
the market for the products of her mills and fac-
tor* cs. The area of the world's market has been
extended by the movement ; and productive capacity
has been increased to a proportional extent. The
emigrants departed only to make room for a corre-
sponding number of workers. As we saw in Chapter
v., a large number of the emigrants have risen at
least nominally in the ranks of labor; and, so far as
this rise from the ranks of the unskilled has been
real, there has been a great gain to the productive
capabilities of the world. The great volume of emi-
gration has permitted a more economical use of the
world's resources; and to this extent emigration has
been fruitful of gain. It cannot be said that the
gain has been distributed in proportion to the con-
tributions made. The emigrants themselves in the
new country have naturally engrossed a greater part
of it ; but what of gain there has been for the coun-
tries of origin has not been distributed according
to the contributions made to the volume of emi-
gration. Nations have shared in it which have
contributed nothing. The trade of France with
the United States has grown during the last sev-

Measure of Loss and Gain.

229

enty years as steadily as the trade of Germany:
yet France has sent none of her children beyond
the seas, while Germany has given more than six
millions. The exports of the United Kingdom to
the United States have risen from rather less than
four millions sterling in 1820 to more than thirty-
two millions in 1890; and the increase docs not
seem to be as great as might be expected in return
for a contribution of eight or nine millions of people ;
especially, when we remember that the total British
export trade has increased, in the same period, in
almost the same ratio, from thirty-six millions to
two hundred and sixty-three. We cannot say how
great an increased resultant of trade we might have
looked for; and, consequently, we have no means
of measuring absolutely the loss and gain by emigra-
tion. France has undoubtedly gained because she
has in the beginning lost little, and her gains are
therefore net gains. Germany has lost as much
as any nation because all her citizens have emigrated
to foreign countries. The United Kingdom has not
lost so much proportionally; because, though the
great majority of her emigrants have gone to coun-
tries independent of their native land, a certain pro-
portion have settled in the British colonies and have
maintained closer ties with the mother country than
have those who settled in the United States. This
gives us one relative means of estimating the loss
and gain of emigration. Each colonist buys British
produce to the amount of one hundred and sixty-
eight shillings, while the emigrant to the United

. f

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230

T/ie Bargain Theory of Wages.

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States buys only forty-seven shillings' worth — a
difference of one hundred and twenty-one shillings
per head. We need not attempt to determine how
far trade follows the flag; but it is obvious that if
the eight or nine millions who have left the British
Isles for the United States had gone to the British
colonies, British export trade would have been larger
by thirty or forty millions per annum, or, making
allowance for an earlier and completer industrial de-
velopment of the colonies consequent upon the larger
emigration, by at least twenty millions. Even to
the colonies Englishmen go out, as the Corcyrans
did of old, " on a footing of equality with, not of
slavery to, those that remained behind," and since
the colonial trade was freed from all preferences to
English goods, we have no guarantee that, as colo-
nists, they buy all that a corresponding number at
home would have bought. It is only a relative
means of estimating the loss by emigration. J. S.
Mill declares that " there needs be no hesitation in
affirming that colonization, in the present state of
the world, is the best affair of business in which the
capital of an old and wealthy country can engage " * ;
but the main result of emigration, at any rate, for
most European nations seems to be the creation and
fostering of industrial and commercial rivals. Ger-
many has all along suffered more or less from the
competition of the United States as a food producer
and as a competitor for the English market. Eng-
lish agricultural interests have likewise suffered;
and we seem to be at the beginning of a period of

* Principles of Political Economy {^OT^. ed.), p. 586,

K^ 1 <

The Gain to the Receiving Country, 231

industrial competition between England and the
United States. As Adam Smith says, in another
connection, "the inconveniences" of emigration
" every country has engrossed to itself completely.
The advantages ... it has been obliged to
share with many other countries." *

On the other hand the addition to the population
in the receiving countries cannot be regarded as pure
gain. The population of the United States has
during the emigration period been augmented by
fifteen millions of immigrants; but the rate of in-
crease of the population has remained stationary
during the period or actually fallen. It may seem
too much to say that the population of the United
States would have been as large as, or larger than,
it is to-day, had there been no immigration; but it
is undoubtedly true that immigration has checked
what would otherwise have been the natural rate of
increase. The fact is clearly brought out in the
following table :

:fe

PERCENTAGE OF INCREASE IN

YEAR.

POPULATION.

INCREASE

IMMIGRA-
TION IN

DECADE.

IN DECADE.

DECADE,

Total.

By Immi-
gration.

Natural.

1840

17,069,453

4,203,433

599.125

32.67

4.66

28.01

1850

23,191,876

6,122,423

1,713,251

35-87

10.04

25.83

i860

31,443,321

8,251,445

2,579,580

35-58

11.12

24.46

1870

38,558,371

7,115,050

2,278,425

22.63

7-25

15-38

1880

50,155,783

11,597,412

2,812,191

30.08

7-29

22.79

1890

62,622,250

12,466,467

5,246,613

24.86

10.46

14.40

♦ Wealth of Nations (Nicholson's ed.), p. 260,

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232

T/ie Bargain Theory of Wages,

Moreover, the countries of Europe have not always
completed their contributions. They may give the
labor; but without the opportunities for employing
the laboi the gift may be a burden ; and the oppor-
tunities are limited by the wealth and capital of the
country. In the United States, in 1890, the average
amount of wealth per inhabitant exceeded one thou-
sand dollars; and the average amount of wealth
brought in by the immigrant certainly does not
amount to one hundred dollars. We may not ac-
cept in its full extent the proposition that indus-
try is limited by capital; and yet we must admit
that in modern industry capital is indispensable. In
1890 the capital invested in the United States in
mechanical and manufacturing industries alone
amounted to $6,525,156,486, or rather more than
one hundred dollars per head of the population, or
$1384 per employee. To the fund of capital the
immi[' 'ant can add little or nothing; and, conse-
quently, to the degree in which the Wages-Fund
Theory is true, immigration may prove a hardship to
the receiving nation.

These, however, are only general considerations
which might help us to decide whether emigration
and immigration is a loss or gain ; but they afford
no means of estimating how much the gain or the
loss actually is. Various methods * have been em-
ployed to obtain an approximate measure of the
amount. The one generally employed consists in

* For a full discussion of th^se methods see Mayo-Smith, Emigra-
tion^ c, 6,

The Gain not to be Accurately Measured. 233

forming some rough estimate of the cost of rearing
and training a child till he arrives at industrial years,
and then taking this amount as the measure of the
loss to the country of origin and the gain to the
country which receives him. To this amount is
generally added the average amount of money in
the shape of gold or drafts which the immigrant
brings with him. Another and more elaborate
method estimates the laborer's chances of life,
according to the accepted standards, and then, after
deducting from his total earnings, during the period
he has still to live, the cost of maintaining him
during that period, regards the surplus as the loss
by each emigrant and the gain by each immigrant.
These calculations and results are exceedingly inter-
esting, and throw some light on the question of the
balance of trade between nations, but do not go far
to give us an accurate measure of loss and gain by
emigration and immigration. They err in attempt-
ing to measure accurately what cannot be accurately
measured ; and are also open to the serious objection
that they suppose labor to have some definite pre-
determined value apart from the opportunities it may
be afforded of creating wealth. That it is a loss to a
nation, however, to train up its children to manhood
and then have to begin the process anew, when the
strength and manhood of the nation seek a career
in a foreign land, is a fact which cannot be disputed.
The world, as a whole, may be a gainer by the pro-
cess, but to the individual country of origin the pro-
cess is not only a loss, but a disheartening loss. The

■ !

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234

T/ic Bargain Theory of Wages.

majority of the emigrants,* more than sixty percent,
of them, arc adult males in the prime of their physi-
cal strength, and the drain is on the effective indus-
trial population of a nation.

The grand totals of emigration and immigration
have led many to adopt, somewhat unnecessarily,
an alarmist tone. There is no country in danger of
being depopulated on account of emigration and no
country where the quantity rather than the quality
affords real cause for alarm. Here and there there
may be districts from which immigration has taken
away all the energy and left nothing but stagnation
and depression behind. In the Maritime provinces
of Canada there are districts which have suffered
very severel.- more severely than the aggregates of
the census reports at first indicate; but there, as
elsewhere, over a large area, emigration can do little
more than keep the population stationary and seldom
carries out anything like the natural excess of births
over deaths. As the volume of immigration is seldom
distributed equally over the whole area of the receiv-
ing country, so it is rarely ever drawn in equal pro-
portions from the districts of the country of origin.
Particular districts may experience an actual decrease
in population, but, as the following table, taken
partly from Schonberg's HandbucJi, and partly from
Mayo-Smith's Statistics and Sociology^ shows, there
is little danger of a country being depopulated :

♦ See Fawcett's Political Economy, p. 602 (sixth ed).

Natural Increase of Population.

235

COUNTRY.

United Kingdom

(Jermany ,

Italy ,

France

Switzerland ....

Sweden ,

Norway

Denmark ,

EXCESS OF BIRTHS OVER

DEATHS I'KR lOOO

INHABITANTS.

[EMIGRATION I'ER lOOO IN-

IHAIUTANIS TO COUNTRIES

OUTSIDE EURUl'E.

1885.

12.3
II-5

6.4
II. 8
14.9
II. 7

1888.

IT. 9

12.9
9.8
I . T

7.8

13.8

1892.

10.54

17.0

10.14

0.5

8.7

9.1

TI.9

10. 1

1885.

i838.

1892.

3-7

7-5

5-51

2 , 2

2.0

2.23

2.7

6.8

3-53

0.1

0.6

0.14

2.3

2.8

2.64

4.0

9-7

6.87

7.2

II. 2

H.53

2.1

4.0

4.76

•1 '

■; i

From this tabic it i.s apparent that emigration is
greatest in proportion from those countries where
the natural excess of births over deaths is highest,
and where the population increases but slowly, the
volume of emigration is least. From France, from
which there is practically no emigration, the excess
of births over deaths is barely sufficient to keep the
population stationary. The Maritime provinces of
Canada present the somewhat unusual phenomenon
of a lartre excess of births over deaths and a .station-
ary population ; and the phenomenon is accounted
for by emigration to the United States. Unfortu-
nately, no systematic records of the movements of
population are kept; and, since 1885, the United
States has ceased even to pretend to keep account
of the immigration from British North America. In
the census year 1891 the excess of births over deaths
was for New Brunswick, 14.34 per thousand; for
Prince Edward, 13. 19 per thousand ; for Nova Scotia,

III

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{■\%

236

T/ii^ Bargain Theory of Wages.

10.84 per thousand. This large excess is removed
by emigration ; for the population of Nova Scotia
increased in the decade 1881-91 only 2.23 percent.;
Prince Edward Island increased .17; and the popu-
lation of New Brunswick has remained absolutely
stationary.

The forces which have led to emigration have
changed from generation to generation ; but the
only really efficient cause has been the economic.
It is true that the economic motive began to operate
only from the beginning of the present century.
Early emigration was due to political or religious
causes; but the volume of emigration never swelled
to any dimensions till the economic motive began
to operate.

In 175 1, when the population of the American
colonies, according to Bancroft, was more than
eleven hundred thousand, Benjamin Franklin * esti-
mated that the number of emigrants from whom
this population was descended, did not amount to
more than eighty thousand, of whom twenty thou-
sand had arrived before 1640. Practically, we may
say, that emigration from Europe did not begin till
after the downfall of Napoleon had released Europe
from the fears of immediate war and permitted the
governments of Europe to slacken their hold upon
their subjects. From 1820, the movement of the
nations begins. Men sought no longer an Eldorado
where even the poorest might grow rich without
effort, or a retreat where they might worship God

* Works^ vol. ii., p. 319.

Emigration an Economic Movement, 237

according to the dictates of conscience; but a land
of opportunity. The political motive has not been
entirely absent during the present century, though
it has usually been an economic motive under a
political guise. The excessive drain from Italy
during the last decade is unmistakably due to the
tremendous and increasing burden of taxation. The
desire to escape the blood tax of compulsory military
service has swelled the volume of emigration from
Germany. Even in 1872 and 1873, when the con-
ditions of the laboring classes were " fast ungesund
giinstige," * more than ten thousand injunctions
were, each year, taken out against intending emi-
grants on the ground that they had not served in
the army ; and as the burdens of militarism are in-
creased, and grounds in mercy for exemption are re-
stricted, larger numbers will annually seek to escape
from the burden which already presses with crush-
ing weight upon the manhood of Europe. The
desire to escape from the burden of taxation is,
however, only an economic motive slightly disguised.
Pure political motives operate rather to restrict than
to increase the volume, although the hereditary hate
of the Irish for England still sustains a movement
of which bad agrarian conditions have been the chief
cause.

When we examine the statistics of emigration and
immigration we discover that there have been cycles
in the movement which correspond in a certain
measure with the cycles in industry and commerce.

* Schonberg's Handbuch, ii., p. 1063.

t 1

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r;-;i

238 The Bargain Theory of Wages.

The fluctuation in the volume of emigration is obvi-
ously an effect of the variations of industry ; but the
way in which the state of industry reacts on the
volume of emigration is not very clear. There has
been a good deal of discussion on the point whether
emigration increases because of good times or of
bad times. It is argued, on the one hand, though
somewhat a priori, that the volume of emigration
will be largest when industry is in the most flourish-
ing condition, because only at such times are the
working classes able to meet the necessary expenses.
Prince Bismarck argued, in the Reichstag, on June
8, 1885, that emigration increased during periods of
prosperity, and even went so far as to take the posi-
tion, from which he afterwards receded somewhat,
that it was the only cause of the increase. Emigra-
tion, however, as Dr. Geffchen * argues conclusively
.0 the contrary, is not greatest from the most pros-
perous districts of Germany, but from the least pros-
perous. On the other hand, it is argued equally a
priori that men leave their native country only
under pressure of bad times. But those who are
out of work have not the means; and, as a rule,
those who have the means are not in a mood to
make so great an experiment. The following com-
parative table of out-of-work and emigration statis-
tics shows what relation has actually held in England
between emigration and the state of trade. The
out-of-work returns are taken from Mr. Burnett's
Board of Trade Report.

♦ Schonberg's Handbuch, ii., p. 1060.

: ■!

The Causes of Emigration,

239

YEAR.

1886

1887
1888
l8Sy
1890
1 89 1
l8y2

1893
1894

1895

PERCENTAGE
OUT OF
WORK.

10. 1
8.6
4.4

1.8
2.6

4-45

7.33

7.9
7.0

5.8

NET EMIGRATION OF

TERCENTAGE OF

BRITISH AND IRISH EMIGRATION

SUltJKCTS. TO POPULATION.
.... 152,882 0.41

196,012 0.53

185,795 0.50

150,725 0.40

108,646 0.29

115,470 0.30

112,262 0.29

106,695 0.27

37,721 0.09

75.763 0.19

.ly

'he
tt's

These figures prove nothing very conchisively re-
garding the cause of emigration. The volume of
emigration is practically equal in the best year and
the worst year, in 1889 and in 1886. The volume
of emigration is greatest when the state of trade is
neither very good nor very bad. The period taken
for comparison is too short to justify any sweeping
conclusion. If any conclusion at all is justified, it
is that the years of reviving trade after a period of
depression are marked by an increase of emigration.
The memories of bad times have not yet faded, and
the first use many seem to make of more regular
work and higher wages is to scrape together enough
to leave the country.

When we turn to the figures of immigration into
the United States, we find that the volume of migra-
tion has fluctuated to a very large extent, and that
it has perfectly definite maxivia and minima which
correspond with the course of trade and industry.
When we look closely into the fluctuations, we see
them coincide very nearly with the changes in the

"1 1

:»40

The Bargain Theory of Wages.

prosperity of the country which receives the immi-
grant : the concomitant variation proves that the
connection between immi<^ration and prosperity is
very close, but whether the connection is of cause or
of effect or of mutual determination does not clearly
appear. I have compared in the following diagram
the fluctuations in trade and in immigration, and with
that purpose have selected as the best index of the
relative prosperity of a new country like the United
States the number of new miles of railroad opened
each year since 1845. This is only one indication
out of many, and might easily be supplemented by
others, such as the earnings of the railroads, the
bankruptcies in each year, the total exports and im-
ports, the exports and imports of bullion ; but the
index selected is perhaps as clear as any other, and,
in the case of the United States, which down to the
last decade was still in process of expansion, is prob-
ably better adapted to show the fluctuations which
have taken place in the business of the community.
While there are still large areas to be opened up,
advancing prosperity will always be marked by
schemes for new railways : when trade is depressed
and new enterprises arc avoided fewer miles will be
constructed. In the diagram the number of immi-
grants is shown in the left margin in thousands (fifty
thousand to the half-inch); and the number of new-
miles of railroad constructed each year is shown in
the right margin (one thousand to the half-inch).
An examination of the diagram will give a clearer
idea of the correspondence than many tables of

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The Diagram.

241

figures. The comparison has only been carried back
to 1845, on account of the necessities of the scale
and of clearness. The diagram also exhibits an
analysis of the main curve of immigration into its
chief constituent elements, the German and the
British, which latter again is analyzed in the curve
of Irish immigration. The intention at first was to
trace on the same diagram the fluctuations of Ger-
man and British trade and industry ; but the remark-
able and unexpected closeness of the correspondence
between the prosperity of the United States and the
voluipe of immigration has rendered this unneces-
sary. The maxima and minima of the two curves
practically coincide. The only variation of any im-
portance occurred between 1845 ^^^ 1850, when the
volume of immigration was large from the effect of
the Irish famine. There are two explanations of
this remarkable concomitant variation — one that the
immigration is the cause of the expansion of trade
and industry, the other that it is the effect of such
expansion. The former is not often put forward as
an explanation, and in this instance may be set aside,
because the maxima and minium of trade and in-
dustry as indicated by the railroad expansion occur
one or two years earlier than the corresponding
maxima and minima of immigration. The increase
or decrease in the amount of immigration is thus
governed by the state of trade in the United States.
Mr. Llewellyn Smith uses a phrase to describe the
cause of migration from the provinces to London

; an explanation of the

may adopt

. i J1'

^^i

; ' »

242

i i;;

I'' a"
V I- '

": (I '. ' 1

\\yi

1,1,'

l;:v,

II! j ,

i .

T/ie Bargain Theory of Wages.

amount of immigration. It is, he says, due not to
pressure from without but to suction from within.
The expansion of trade and industry creates a de-
mand for labor (and for labor of such a kind) as can
best be supplied from the outside. Immigrants come
in response to the invitation of industry and come
to do work, as we shall see later, which the native
American is unwilling to do. The state of the
country of origin has little to do with determining
the volume of emigration. Commercial depressions
are experienced at the same time in the United King-
dom and in America, and emigration offers small
chance of escape. From Italy and the southern
countries of Europe the volume of emigration is
almost entirely determined by the state of trade in
the United States. A large proportion of these
immigrants are assisted by remittances from the
friends who have pieceded them to America; and
the amount of such remittances naturally decreases
when trade is bad in America. Germany occupies
the middle position. It is not so readily subject to
commercial depressions and on the other hand
German emigrants are not so dependent as Italians
on remittances from America. We should expect,
therefore, that the variations in the volume of Ger-
man emigration would correspond less closely with
the changes in industry in the United States; and
this result is discernible. There was a large increase
after 1853 ^^ consequence of the bad times and
scarcity in Germany ; but since then the two curves
have moved together.

The Industrial Quality of the Euiigrants. 243

The comparative tabic of excess of births over
deaths and of emigration on page 235, disposed of
the alarmist idea that continued emigration would
result in depopulation. The fear that the industrial
capacity of a nation may be fatally weakened will
also give way if we consider the industrial character
of the emigrants. No nation is really giving of its
best. It gives at the most only a certain proportion
of its unskilled labor and sends out but few of its
artisans and factory hands to carry to new lands the
secrets of traditional skill. In 1891, according to
the gross estimate, 189,756 adults of British origin of
whom 112,256 were males, left the United King-
dom. The adult males were classified according to
occupation as follows:

Agricultural laborers 14,797

Unskilled laborers and miners 36,251

Occupation not stated 26,663

Mechanics and skilled laborers 9»7I7

Farmers and graziers 3,704

Clerks and shopkeepers 4,773

Professional men 11,467

Miscellaneous 4,614

So that if we include among the unskilled — as we
may reasonably — those whose occupations are not
stated, of 112,256 adult males, more than 70,000, or
about sixty-three per cent., were unskilled laborers.
From other countries, the proportion of unskilled
laborers is still larger. From the point of view of
production there is no cause for alarm ; but, from
the point of view of the wages question, there is,

\ a,

\ !'

i^(i'.!

Ill''

I- I

244

T/w Bargain Theory of Wages.

also, unfortunately, little reason for regarding emi-
gration as a means of lessening the competition for
work. As the table on page 239 shows, the relief to
the labor market is hardly ever given when it is
most wanted. When ten per cent, of the working
population of the country are out of work the emi-
gration of less than one per cent, of the population
or about two per cent, of the working population
can hardly have much effect. Emigration, it is
true, carries out a considerable proportion of the
lower classes of labor.

Nothing, probably, would benefit the working
classes more than the removal of the competition of
the casually employed and semi-vicious class,* but
the strenuous objections which the United States
and the colonies raise against the practice of assist-
ing paupers and criminals has effectively checked the
tendency to relieve the country of the useless and
the burdensome members of the community. The
number actually turned back from New York is not
large (in 1896, only 2799 out of 343,267, and of those
sent back 'j'jG were refused admission under the con-
tract-labor law), but the deterrent effect must be
great. The shipping agents are made unwilling to
accept such passengers and therefore look more
carefully into the conditions of each case. Volun-
tary agencies may continue to send children, and
those who, though not criminal, are not exactly de-
sirable settlers ; but the relief to the poor-rates must
be inconsiderable and the relief to the competition

* Booth, Life and Labor, vol. i., p. 162.

Emigration and the Labor Market. 245

in the labor market still less. The general effect of
emigration on the labor market and on the wages
question either for good or evil cannot be very great.
The relief afforded is not great enough, nor is it
given at the right time, to be of much advantage.
Indirectly, emigration, by extending the market and
rendering possible economies in production may
benefit the laboring classes. The export trade of a
country will increase with the volume of emigration
and there will be a larger dividend to distribute
among the owners of the different factors of pro-
duction. Emigration may also enable those of the
working classes who remain behind to obtain food
and other necessaries of life at a lower labor cost.

The effect of immigration on the wages question
requires more serious consideration ; because, on
this point, discussion has not been confined to
vague generalities. Definite assertions are made
regarding the effect on wages and in many countries
a definite policy of restriction has been adopted. It
is alleged that immigration unnaturally increases
competition in the labor market and increases above
all unfair competition of underpaid labor. If this
be the result of immigration, the mobility of labor
has its darker side ; for it not only tends to level the
wages up but also, it seems, to level wages down.

The contention that immigration tends to reduce
wages, in its usual form, is based on an unqualified
acceptance of the Subsistence Theory of wages ; and
the answers to the contention are generally little
more than unqualified assertions of the Productivity

I ?

246

The Bargain Theory of Wages.

'. i

ifi.

fcj

ii if,

Theory. If wages are determined solely by the
standard of comfort which the lowest class of com-
peting^ labor has adopted, then the constantly re-
newed competition of foreign labor with a low
standard of life must, as constant dripping wears
away a stone, wear away the resistance which the
working classes can oppose to the lowering of the
standard. If the gates of the country were thrown
open but once in a generation to the crowd of half-
fed, half-clothed foreigners, there might be some
chance of successfully resisting the tendency to
lower the standard, by bringing all the influences of
a higher civilization to bear on the incoming horde ;
but, when the occasion recurs every year, and each
spring brings a new horde, and the effort of re-
sistance has to be continuously kept up, the work will
never be done. The higher standard might resist a
few long attacks ; but persistent attacks will wear
out the energy and patience of the defenders, and
reduce them to a sullen acquiescence in a lower
standard of life. On the other hand, if we accept
the easy optimism of the productivity theory, there
is no wages problem to be faced. We may encour-
age immigration, as much as we please; for the
newcomer will not, simply because he cannot, dis-
place the old hand. The newcomer will be paid
according to the work he is able to do. If his efifi-
ciency be as high as the standard efificiency of the
trade, he will be paid the standard wage, no matter
what his manner of life may be. Pauper labor is
pauper labor because it is inefificient ; and it will re-

Imviigration and Wages.

247

re-

main inefficient probably under the new industrial
conditions; but it cannot by competition reduce
the higher wages of more efficient labor. The an-
swer to the contention that immigration may preju-
dicially affect the position of labor practically consists
in the invention of a new style of economic harmo-
nies by means of which we may prove that fears are
groundless, for no possible evil can possibly exist.

A question of fact, however, cannot be disposed
of in such an airy way. Even if investigation show
that immigration docs not really reduce wages, there
is at least some ground for the widespread opinion
that it has this tendency. In some industries, nota-
bly the textile industries of New England, a fall in
wages has coincided with an influx of cheap foreign
labor into the district and the industries; and the
trade-unions have undoubtedly ground for their
support of the contract-labor law because foreign
labor has certainly been frequently imported to
enable the employer to resist the demands of the
union.

In the first place, immigration, although it has
sadly deteriorated in quality in the last decades (and
the competition of the lowest grades is always deadly,
as Mr. Booth has pointed out) can hardly lower
wages because of the actual increase in the number
of competitors. The volume of immigration, great
though it is, and composed three fourths of able-
bodied men in the prime of life, bears only a small
proportion to the actual body of labor — small at
least, when we take into account that every industry

!- !

248

TJic Bargain TJicory of Wages.

3.?-

in a new country is subject to the law of increasing
returns. Though the average annual immigration
has increased enormously since i860, the amount of
capital invested in industry and the total produce of
indus y have increased much more rapidly. In-
duh.. / has developed so quickly that it has been
able to absorb all the immigration : in part the rapid
development has been due to the great volume of
immigration. As the West fills up, the power of
absorption, on the part of the United States at least,
will probably decrease ; and then the problem set by
immigration will become more actual. As things
are, at times during the last decade it has seemed as
if the United States had already absorbed to satura-
tion point. The filling up of the West will have one
important consequence. So long as there is good
land available in the quantity desired the returns
to agricultural labor will govern city wages, but,
as the country fills up, the wages of tiic city, mak-
ing allowance for the higher efficiency of city labor,
will come to be standard for the country. Even
now, the great majority of the immigrants do not
go West, but remain at the port of entry, or herd
in a few of the larger cities where chance has placed
tneiii and circumstances have developed a suitable
milieu for them. In these cities their competition
may serve to lower wages for their class of work,
and indirectly to lower wages not only in the cities
but all over the country, provided that the old sup-
ply of labor is maintained in that class.

The old supply, however, is not being maintained,

11! !:'

The Displacing of Native Laborers. 249

It is a well-established fact that the native workmen
are being displaced but only by being forced up
higher in the scale. In the same way, as the com-
petition of women is displacing male workers, not
by degrading them but by forcing them to seek
employment in the higher occupations which the
progress of science is constantly opening up, the
competition of immigrant labor has, in some cases,
forced American labor into new channels of activity.
It might even be more correct to say that the open-
ing of the new channels for American labor has
created the vacuum which foreign immigration has
flowed in to fill. It has been, on a vaster scale, a
case of suction from within, rather than pressure
from without. The great increase of immigration,
in the early eighties, came to meet the demands of
a period of railroad expansion. The immigrant
labor performed a task which there was no labor in
America to perform. The native American has, in
his time, performed as great a task. He has cleared
and settled the land; but he is by nature an indi-
vidualist, and has never shown any disposition to
labor in gangs. American labor was more profitably
and more congenially employed ; and when the de-
mand occurred foreign labor was practically invited
in. The great volume of immigration was due more
to American necessities than to European poverty
and oppres<r'on. That there have been individual and
local hardships to native labor in America during
the process cannot be denied ; but these hardships
are such as lollow every economic change.

\ 3

250

The Bargain Theory of Wages.

i i' 1

fi;

\'^ It'

*!"',

X ■ i

I '

The whole contention for restriction of immigrants
has been based on the tacit assumption that for-
eigners prefer to accept lower wages. Few men,
when they argue, arc so clear-sighted as the Toronto
mechanic who declared, in his evidence before the
Canadian Labor Commission, that" men never fight
for lower wages, but try all they can to get higher
wages." * Immigrants may be willing, daring their
short apprenticeship to the new conditions to accept
less than the standard rate of wages; but they are
" exceptions when they stick to that tendency right
through." t It must be surprising to the supporters
of the standard-of-comfort theory to see how very
soon the newcomers rise to their privileges, and re-
gard high wages as their necessary and just reward.
Mr. Gould proves in his pamphlet TJie Social Con-
dition of Labor that the foreigner is not long in rising
to the native-wage standard. Foreign workmen of
British or German origin, instead of underselling
the native workmen, actually receive, on the whole,
higher wages, partly because, in the displacing pro-
cess which made room for the foreigner, only the
less intelligent native workers had been left. An
influx of foreign workmen may indicate a lower
standard of efficiency, but is rarely the cause of the
lowering of the standard. The influx of the French
Canadian? into the New England mills and factories
occurred about the same time as a fall in wages of
the native workers; but, though the popular con-

* Canadian Labor Commission, " Ontario Evidence," p. 2,
\Ibid., p. 367.

I I

■, !

The Wages of Foreign-Born Laboi'crs, 251

Tr
Ihe
Ich
ies
of
in-

clusion is not unnatural, it may be that the more
intelHgent of the textile workers had been displaced
upwards, and that those who remained behind were
worth only the lower wages they received. What
is true of the workmen of British or German origin
is true, though in a less marked degree, of even the
degraded " Dagoes," Poles, and Bohemians. Even
these immigrants show very little tendency to people
down to their squalor. Their standard of life may
not be very much higher than when they landed;
but their savings bank account is. The great eco-
nomic objection which can be taken to this class of
immigrant is not that they reduce wages by their
low standard, but that they save too much and spend
too little.''^ The objection has especial force when,
as in the case of the Italian and French-Canadian
immigrants, the object of the saving is to acquire
some small property in the native land and return
thither, as soon as possible, to genteel affluence.
It is not that they are not good workmen, or that
they lower the wages of others through their squalid
mode of life ; but that they are not good citizens,
nor ever can be, so long as they cherish the hope of
leaving the country when their savings are large
enough. When the immigrant comes with the in-
tention of settling, his standard of life soon rises.
The elevation is effected in a comparatively simple
way. The family ceases to be the wage-earning
unit ; and with the continual presence of the mother
in the home, a family lif" in the sense in which it

♦Connecticut Bureau of Libor Statistics, Report, 1885, p. 60.

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252

77/^ Bargain Theory of Wages.

could not exist before begins. Except in those
cases, such as the French Canadian and the ItaHan,
where there is a dehberate intention to return as
soon as possible to the native country to enjoy a
cleared patrimony, the female members of the im-
migrant family seldom continue long to go out to
work to eke out the earnings of the head of the
house. No consequences in industrial life seem
surer than the fact^ that when a man can rely
on the supplemental earnings of his wife and chil-
dren his own wages are low. In many cases, the
family must be taken as the wage-earning unit;
and with this as the ground of comparison it does
not appear that wages in Germany are so very
much lower than wages in America. The difference
is certainly not so great as the difference between
the wages of the German and the wages of the
American workman. When the German workman
becomes an American immigrant the family earnings
remain at nearly the same amount ; but the amount
is no longer made up by petty contributions from
all the members of the family. The head of the
family now contributes the whole amount, for, in-
fluenced by the example of the country, he has in
great measure ceased to send his wife out to the
workshop.

The contention that the immigration of hordes of
men with low standards of living must eventually
reduce wages is based on Ricardo's assumption that
wages must fall, which, in its turn, is based on the
Malthusian doctrine that men will necessarily pe pie

The Standard of Living,

253

down to their standard of comfort. On the con
trary, however, the margin for saving which even the
most degraded, and least desirable from a political
pomt of view, possess, shows that the Malthusian
assumption is not directly and unconditionally true
If we give up the Malthusian doctrine behind Ri*
cardo s assumption, the contention that the low
standard of living among the immigrants must
lower wages for native labor loses much of its force
bo long as the immigrants do not people down to
their standard, the lowness of the standard may be
a social evil of the first magnitude; but it does not
reduce the wages, and consequently cannot reduce
the standard of the native workman.

lift

CHAPTER VII.

TRADE-UNIONS AS A WAGES FACTOR.

I i,

MS.

' i

;('::

THE Austrian school, in their efforts to establish
the theory of distribution that the value of
labor is reflected back from the value of the con-
sumption goods it is employed in making, have
overlooked one important factor in the determina-
tion of wages. It is not only overlooked but, by
critical implication, rejected by Dr. Smart in his
recent Studies in Economics. This rejection is the
more remarkable that it not only prevents them
from recognizing one of the most potent facts in
modern industrial life, and, thus, gives an air of un-
reality to their whole theory, but also is inconsistent
with their own theory. The doctrine of a living
wage they rej";ct because it seems to give labor a
predetermined value; yet on the grounds of their
own theory, the standard of a living wage remains
one of the most important determinants of wages.

On page 6i, of the Introduction to the Theory of
Value, by Dr. Smart, immediately following the
enunciation of the law that price is determined some-

254

|-;

TJie Lazv of the Marginal Pair,

255

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where between the subjective valuations of the last
buyer and the last seller, who together are pictu-
resquely called " the Marginal Pair," there stands
this paragraph :

" But in the business world itself there is one great
simplification of the law of the marginal pair. In mod-
ern industry ])roducers do not make for themselves, but
for the market, and the amount of their own products
which they could use in their own consumption is insig-
nificant. Consequently it may almost be said that such
goods have no subjective value for the sellers, and we
lose one whole side of our valuations . . . practically,
then our law takes this form : Price is determined by
the valuation of the Marginal Buyer." *

It may be true, as Dr. Smart contends, that the
value of labor is simply a case of the general law of
value, and therefore entirely dependent on utility,
having, therefore, " no predetermined value "; but
it does not follow therefrom that the wages problem
is a simple or simplified case of the general law.
Labor would get its " value entirely from what it
produces, "f only under the condition that labor is a
good of precisely the same character as all other
production goods having" no subjective value for
the sellers." The very existence of the modern
labor question is proof enough that labor is no. sub-
ject to this great simplification of the law of the
Marginal Pair. The employer, the marginal buyer

* Smart, Introduction to the Theory of Fa/ue, p. 61.
f/dtJ., p. 79.

256

The Bargain TJicory of Wages.

H n

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I i

in this case, has not the only word to say in the de-
termination of the price of labor. The seller claims
vehemently that he must be consulted and the trade-
union movement is an effort to give force to his
claim. The valuation of the buyer, which is, in
effect, the estimate which the employer makes of
the eflficicncy of the labor, is only one of the deter-
minants of wages. Labor, in spite of sentimental
objections, is undoubtedly a commodity which is
bought and sold. It serves no useful purpose to
speak of selling the fruits of labor. Labor is a com-
modity subject to market conditions; but it is not
therefore true that labor is a commodity resembling
in all essential respects every other commodity in
the market.

Labor differs from most, if not all, other com-
modities in retaining, even under modern industrial
conditions, its subjective value to the seller. We
cannot separate the labor and the laborer. It is
labor that is bought and sold but, with the labor,
goes the laborer. Therefore instead of a great
simplification we have a great complication. The
subjective valuation placed upon labor is not en-
tirely derived from what it produces or from that
which is obtained in exchange for its product. The
direct utility to the laborer of that which he sells
may not be very great. Modern agrarian con-
ditions deny to the great majority of laborers the
possibility of being able to consume what they pro-
duce. The peasant proprietor, or even the modern
farmer, may produce all that he consumes and pro-

Labor not a Simple Case of Value.

25;

duce little besides what he does consume; but, to
the great majority of laborers it is a physical im[)os-
sibility for them to consume more than an infinitesi-
mal fraction of what they produce. It does not,
however, involve any unjustifiable stretch of lan-
guage to say that, since labor and the laborer cannot
be separated in fact, labor has a very definite sub-
jective value put upon it, and with this estimate
upon it, enters the market. Even if permission be
not given to say that labor retains its subjective
valuation, under modern industrial conditions, yet,
without fear of contradiction, we may say that labor,
involving disutility, demands a return of sufficiently
great utility, at least to counterbalance the disutility
incurred ; which, if it be not precisely the same as a
direct subjective estimate, is, in practice precisely
equivalent to it.

The law of the value of labor is the law of general
value without the great simplification ; and the price
of labor will lie somewhere between the subjective
estimates of the buyer and the subjective estimates
of the seller. The estimate of the buyer of labor,
/. €., the employer of labor, will form the upper
limit : the estimate of the seller will form the lower
limit. Between these limits, the value of labor, or
the wages of the laborer, will be determined ; and
the result will depend on the comparative strength
of the bargainers. That the seller is often at a great
disadvantage because he must sell, while the buyer
need not buy, does not disprove the statement.
This hard fact is one of the forces which go to de-

■ I

258

Tlic Bargain TJicory of Wages,

|t;r

III

tcrmine what the subjective estimate may be; and
one of the forces which determine where between
the limits the actual price of the laborer shall lie.
The upper limit will be determined by the employer's
estimate of the efficiency of labor working in co-
operation with machinery and other instruments of
capital. The lower limit cannot be a physical mini-
mum, as Dr. Smart argues in his study of the liv-
ing wage,"^" or even a fixed limit. The subjective
estimate placed on labor by the laborer is essentially
individual and is not so greatly affected as the sub-
jective estimate on other commodities is, by the
social estimate placed on it. Labor is an individual
exertion ; and the estimate which each man places
on his labor depends upon the irksomeness of labor
to himself; and the degree of irksomeness will
hardly ever be the same for two different laborers or
even for the same laborer on two different days.
The lower limit of wages is not an absolute limit.
Any circumstance which intensifies the necessities
of the laborer, every hostage given to fortune, tends
to lower the minimum. The lower limit is, after all
is said, an opinion the laborer has of his needs and
his merits, which for the time being he is prepared
to stand by, and for which, if need be, he is pre-
pared to fight. It may be a physical niinimum or it
may be a standard of comfort; but in neither case
is it a fixed limit. Necessity of competition may
compel him to lower his estimate and accept a lower
price for his labor. The laborer, as Thornton in-

* Smart, StuiHt's in Economics, chap. i.

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ill

The Limits of Wages.

259

sistcd, cannot stand out for his price. He must live
by his hibor; and the body is more than raiment.

So lon<^ as wealth is increasing twice as fast as
population, and the total product increases more
quickly than the share of it paid to the laborer, there
is not much danger that the general body of laborers
will be called upon to fight to maintain their sub-
jective estimate. Wages have risen, and are likely
to continue rising. The subjective estimate of the
laborer has risen with the risr: of wages: his standard
of comfort is higher, and his standard of subsistence
is higher. Whether the rise in the standard would
be maintained through a long period of depression
cannot be determined a priori ; and it will be well if
we are never called on to draw a conclusion a pos-
teriori. It is not necessary that the limits should
be fixed and absolute. For the time being and
under the ordinary pressure of circumstances, these
limits have the same effect as if they were immov-
able. With contingencies we cannot wisely deal.
Between those two limits the value of labor will be
determined by the comparative necessities of the
bargainers and by the comparative knowledge and
skill in bargaining which each party brings to bear.
If we represent the upper limit by I2x, and the
lower limit by qx, the law of value declares that the
value of labor will lie between 9X and I2x: whether
wages are lox or iix depends on the comparative
strength of the bargainers.

Theoretically, any force which operates on the
value of labor may tend either to raise or to lower

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wages; and in practice, in individual cases, wages
may fall as well as rise. Practically, however, the
long steady advance of both nominal and real wages
has so accustomed us to consider only the more
hopeful side of the wages question that we reject as
merely theoretical any discussion of falling wages.
Wages, according to the view set forth above, may
rise in throe ways, viz., by increasing the seller's
valuation, by increasing the buyer's valuation, or by
improving the position of the laborer as a bargainer.
To put the same statement symbolically, we may
say that wages may rise if 9X is raised to lox, I2x
remaining stationary; or 9X remaining stationary,
if I2X increases to 13X; or again, the limits remain-
ing the same, if the laborer's position is so much
improved that, in the " higgling " of the market, he
can obtain better terms, iix, say, instead of lox.
\Vc may treat each of these methods separately,
tliough, as a matter of fact, they react on each other
and seem to change simultaneously. We can hardly
improve the position of the laborer as a bargainer
without at the same time, or previously, raising his
estimate of what his work is worth to him : nor can
we raise the lower limit without sticngthening the
laborer in his bargaining. The upper limit is less
subject to reciprocal influences. It is the employer's
estimate, and is less likely to change than the lower
limit. Wages can hardly rise above the employer's
estimate based on the efficiency of the labor. What
he pays is, naturally, no perfect guide to what he
might pay if necessary, but the upper limit, though

VariatioNS in the Limits.

261

necessarily to the worker an unknown quantity, is
none the less a very determinate quantity. There
is no necessity upon the employer to allow this limit
to be passed as there may be on the employee to
accept less than the lower estimate. Yet there is a
tendency for the limits to move together, to advance
together or to fall back together, like the two ends
of a piston rod. They keep their distance because
an increased subjective estimate by the laborer of
the worth of his labor makes him a more effic'ent
workman ; and whether he is or is not paid accord-
ing to his efficiency it is economically possible for
him to demand the higher wage without bringing
industry to a standstill.

The laborer can only by increasing his efficiency
raise the upper limit of wages; and practically the
working classes as a whole have been content to try
to raise wages by raising the lower limit below which
it is difficult for wages to fall, or by improving their
position as bargainers. These methods fortunately
tend to make the laborer more efficient and thus in-
directly raise the upper limit of wages ; but they do so
indirectly. Every social and moral force, every law
and custom, every measure of education and mental
improvement which tends to increase the laborer's
dignity and self-respect, every change in his environ-
ment and in the public opinion regarding his mode
of life and work, every improvement in the sani-
tary conditions of workshop or dwelling-place which
tends to make a more human life a possibility will
act in the direction of raising his estimate of his

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262

T/ic Bargain Theory of Wages..

work, because raising his estimate of himself. To
increase the laborer's self-respect is one of the surest
ways of raising his wages; and this, apart from the
effect which increased sclf-rospect will have on effi-
ciency. On the other hand, an increased efficiency
of labor tends to raise the upper limit. Increased
technical skill and improved general education
render it possible to employ new and in .proved
machinery and to adopt processes of manufacture
which a lower level of general education had made
it uneconomical to emplt \ From the resulting
increased product the employer is able, though not
necessarily disposed, to hand over a larger share to
labor; and can hand over a larger share without
economic danger to industry. There does not seem
very much ground for the position taken by many
modern writers on wages, that remuneration is
strictly proportioned to efficiency if, at any rate,
this be taken to mean that wages and efficiency are
almost convertible terms. That the employer can
pay higher wages is no economic reason why he
should pay them ; and there is often very little rea-
son to believe that he does pay them. It is true
that both wages and efficiency have increased
during the last half century but we cannot take the
one as the measure of the other. Indeed, when we
consider that the amount of capital employed has
increased much faster than the amount of the prod-
uct, and that wages have increased in a higher ratio
than either, it is evident that efficiency and wages
do not necessarily correspond. What we can say

The Reciprocal Influence of the Limits. 263

is, that out of the increased product the employer
may and can pay a larger absolute, if not a larger
relative share to labor.

The most hopeful feature of the industrial ^tua-
tion is that "these two methods of increasing wages
react on each other. Increased wages, and still
more increased leisure, not only help to promote
a higher degree of self-respect and of human dig-
nity but also to raise the standard of efificiency. It
would be impossible to measure, even had we the
aid of definite statistics, how far a better man is a
better workman ; but it is none the less true, though
we cannot measure, that whatever tends to raise the
workers self-respect, whatever increases his frugality
and sobriety, whatever quickens his intelligence and
enlightens his moral sense, has a direct and immedi-
ate effect in raising his efficiency. To raise the
seller's valuation of what he has to sell is one very
sure, though indirect, way of raising the buyer's
estimate of what he wishes to buy ; and any increase
of wages obtained as a result of the moral elevation
of the workingman, is doubly secured to him against
reversal.

Trade-unionism has as yet done little to raise the
ftandard of efficiency directly ; although it is possible
by means of encouragement to technical education
that much might be effected. So far the effect of
many trade-union regulations and of the notion,
which Mr. Schloss calls the theory of the Lump of
Work, that inspires those regulations has rather been
to discourage any tendency towards increased effi-

264

The Bargain Theory of Wages.

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If.

ill.

cicncy. While the idea persists that the man who
does his best is a traitor to the cause of labor, trade-
unions will do little directly to make it possible to
raise the upper limit of wages. Indirectly, however,
trade-unionism has done much to raise the standard
of work. Not only has it insisted that each member
of the union shall earn the standard wage, but, as
Prof. Marshall points out,* by quickening the intel-
ligence, by elevating the dignity of labor and pro-
moting, in Parliament and elsewhere, measures
which increase the self-respect of the laborer, it has
undoubtedly contributed to an improvement of the
quality of the work done. It is, however, only in
this indirect way, that trade-unionism has been able
to raise the upper limit of wages. By its influence,
the lower limit may rise from 9X to (say) lox, and,
indirectly, the upper limit way have a tendency to
rise to 13X; but the influence is neither so great nor
so unique as to justify the claims of enthusiastic
unionists or a separate treatment of the trade-unions
as a factor in the labor market. Its influence in
raising the self-respect of the labor is not much
more important than the influence of the temperance
movement, or the extension of the franchise; and
there can be no doubt that a higher standard of
popular education does much more to increase in-
dustrial efficiency than all the multiplicity of trade-
unions and working-class associations.

It is in connection with the third method of rais-
ing wages that trade-unionism chiefly merits treat-

* Economics 0/ Industry, bk. vi., cxiii.

Trade Unionism and Wages Bargaining. 265

ment as a powerful factor in the Wages Problem.
The influence of the unions has been generally
directed rather to making the best use of what at
present exists than to altering the status quo. Their
influence is most readily discernible in the endeavor
to improve the laborer's position as a bargainer.
Except in the case of the subjective disutilities of
labor which arise from the material conditions in
which the laborer works, trade-unionism has rarely
attempted the more difficult task of raising the limits
of wages. The result is too remote and can hardly
be foreseen. The steps to be taken to make qx,
iqx, or to raise i2xto 13X, do not readily commend
themselves to the average member of the union as
something for which he ought to make sacrifices.
The unions, as we shall see, must appeal to the
fighting instinct in their members to maintain disci-
pline ; and the desirability of legitimately raising the
limits within which wages are determined has nevei*
been a matter of contention. The unions have con-
fined themselves to the more obvious task of striving
to secure that as large a portion of the difference
between the two limits as possible should come
to the wage earner. The distribution of this differ-
ence depended not on the strength of the limits
to resist attack, but on strength of the bargainer p
and the object of trade-union policy has been to
strengthen the laborer as a bargainer in the labor
market.

The laborer, bargaining in his own strength, is
subject to serious disabilities. Usually he has no

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266

The Bargain Tlicory of Wages,

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reserve fund to enable him to " stand out, as all
other sellers do, for his price." *

" A landlord," says Adam Smith, " a farmer, a master
manufacturer, or merchant, though they did not employ
a single workman, could generally live a year or two
upon the stock which they have already accjuired.
Many workmen could not subsist a week, few could
subsist a month, and scarcely any a year without em-
ployment In the long run the workman may be as
necessary to his master as his master is to him, but the
necessity is not so immediate." f

It is the immediacy of the necessity which makes
all the difference in the bargaining. The laborer
must sell to-day : the employer need not buy till to-
morrow. To the master it is only a question of
profits : to the laborer it is a question of life. Trade-
unions, with their out-of-work funds, enable the
laborer to stand out for his price, as other sellers
do. They practically endow the laborer with a re-
serve ; and thus enable him to bargain with the em-
ployer on more equal terms. This is one great
disability they remove, in part at least ; but it is not
the greatest to which the laborer is subject. The
individual laborer is not simply set over against the
employer. He must sue for work as one of a
crowd. When two men run after one boss, said
Cobden, wages fall; and the first clause is more
often realized than the second of his much quoted

* Thornton, On Labor ^ bk. ii., c. i.
\ Wealth of Nations, p. 28,

The Disabilities of the Laborers.

267

dictum. The laborer may be endowed with a re-
serve, and may stand out for his price, as other
sellers do ; but the competition for employment may
be so great that his place is filled while he stands
out. No individual workman is indispensable.
" In the long run," to repeat the sentence from
Adam Smith, " the workman may be as necessary
to his master, as his master is to him ; but the neces-
sity is not so immediate." Labor is indeed indis-
pensable, but no individual is. II n y a pas d' homme
ntfcessaire, Matthew Arnold (as he tells us), was fond
of quoting to the most complacent people ; and the
lower we go in the ranks of industry, the truer the
doctrine is. This is the reason why strikes among
unskilled laborers are so rarely successful. Unskilled
labor may be necessary and indispensable ; but no
unskilled laborer ever is. His place can be too
easily filled and his services as readily rendered by
another. The object of trade-union policy, through
all the maze of conflicting and obscure regulation-,
has been to give to each individual worker some-
thing of the indispensability of labor as a whole.
Had the unions power as they have ambition they
might rule the industrial world. That their policy
has not effected more than it has is due partly to the
small proportion of the workers included within their
numbers, and partly to certain natural limitations
to their power. They could not succeed in engross-
ing the whoij of the product of industry because the
master is, in present industrial conditions, as neces-
sary to the laborer as labot is indispensable to the

Li,l,uapii

268

The Bargain Theory of Wages.

master. A large measure of success in their policy
would probably result in a diminution of the de-
mand for labor owing to the conversion of circulat-
ing into fixed capital and the adoption of labor-saving
machinery. There is small risk of their policy be-
coming dangerously successful. The natural limita-
ti jns to the policy quickly check any excess of
zeal.

The province of trade-union action is the strength-
ening of the position of the laborer as a bargainer,
the enabling him, in particular, to resist that pressure
of circumstances of which employers might be ready
to take advantage. In the useful p' 'ase given us
by Mr. Sidney Webb, the essence of trade-unionism
is " collective bargaining." More or less uncon-
sciously, all the regulations of the union have this
in view ; and most of the customs and prejudices of
the trade-union world are inspired by this idea.
The solidarity of labor for which they strive is only
a means to collective bargaining; and, with this in
view, they strenuously oppose many reforms which
would probably secure great, though temporary ad-
vantages for at least a large number of workers.
They oppose any scheme, however enticing or
philanthropic, which would have as one of its re-
sults the separation of the individual workman from
his fellow workers. They will not allow grading of
workers according to ability, although the demon-
strated result is to make it increasingly difficult for
older men to obtain any work when they no longer
have the physical strength to earn the trade-union

Collective Bargaining.

269

minimum.'' They object, with the success of the
avowed policy of the South Metropolitan Gas Com-
pany before their eyes, to any, and every, scheme
of profit sharing: such schemes, however profitable
they may prove to the individual workmen, having,
as their result, if not as their motive, the detaching
of a section of workers from their fellows. They
are, with some exceptions, opposed to piece work,
because it offers a standing temptation to the indi-
vidual to set the pace of work too fast for his weaker
or less skilled fellow workers. As a body, they will
not hear of measures which allow contracting out ;
because of the inevitable effect on the solidarity of
labor. Their aim is to compel the employers to deal
with their men collectively. The history of the
growth of their power is simply the history of the
giowing public and legal recognition of their right
to represent the collective interests of their members.
From first to last, this object has been kept in view ;
and the object is as important in the present day as
ever it was. Divide and govern has ever been the
policy of the master. To treat with each individual
as an individual pnd to ignore the trade-union which
claimed to represent him, has always been the prac-
tice; now it is also the avowed policy. Masters*

associations have been formed to

fight

the trade-

* The Halifax (Nova Scotia) Shipwrights and Caulkers Association
allow men over sixty to work in the trade for what they please. If
an individual, however, chooses to remain in the society after he has
reached sixty years he is subject to the usual penalty if he accepts less
than the Union pay, $2.50 a day. Royal Commission (Canada) on
the Relations of Capital and Labor, Nova Scotia Evidence, p. 108.

270

The Bargain Theory of Wages.

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unions with their own weapons. The employers
maintain, exclusively for their own purposes, as they
avow, Associations of Free Laborers, so called, al-
thou^Mi the government and management are car-
ried on by, and for the interest of, persons who are
not members. These associations are designed to
permit the masters to treat with all workmen as in-
dividuals, in contempt of the unions.

The trade-unions have not, so far, been very suc-
cessful in carrying out their policy. After nearly
three quarters of a century of agitation, the English
unions secured a modified recognition of their posi-
tion. The right to combine was admitted, and legal
protection against their own officers was accorded ;
but little else has been gained. Public opinion,
occasionally and spasmodically, allows the right of
the unions to treat for the men. Here and there, a
more enlightened employer has recognized that it is
better to deal with a strong union than with indi-
vidual workmen ; but as yet the unions Have not
won any legal locus standi as the representatives of
their members. It is still held in law that there is
a separate contract between the employer and each
of his employees. The union may order a strike;
but before the strike begins each individual employee
must give separate notice of the termination of his
individual contract. The union is not competent to
give legal notice for its members; and a collective
strike may legally take place only after individual no-
tice has been given. To obtain this legal position, as
the representatives of the members, the trade-union

his
to
:ive
no-
, as
ion

The Membership of the Unions.

271

leaders arc still striving;; and until this recognition
is obtained, collective bargaining will not become,
even between the limits, a complete determinant of
wages.

The reason why this legal recognition has not been
obtained is that the trad«"-unionists do not, in many-
trades, form a large prop. rtion of the workers.*
There is a natural hesitation in committing to a
fractional proportion the regulation of the whole of
industry. It is not, however, necessary for the
practical success of the policy of collective bargain-
ing that the whole of labor should be included within
the unions; and hitherto the union policy has been
more successful than tlie membership seems to have
warranted. This is possibly due in part to the fact
that the membership has been made up from the
best workmen in the trades, who might, in any case,
have obtained the rise of wages which they disinter-
estedly attribute to the union policy; and, partly,
also, to the fact that the full strength of trades-
unionism is not, at most times, adequately repre-
sented by numbers. The membership varies a great
deal according to the necessities of the industrial
world. In times of peace and prosperity, the
membership will hardly maintain itself at fighting
strength. In times of threatening it receives large
accessions. There seems to be a kind of nucleus
of the labor army continually under arms while the

* According to Mr. Frederick Wicks {Nineteenth Century, 1891)
about II per cent, of the working males over twenty in the United
Kingdom are enrolled in the unions.

272

The Bargain Theory of Wages.

\\.

large part of its fighting strength is in reserve and
does not rem.iin with the colors. This reserve is
not so eiffective as the stalwarts who remain all the
time under arras but it has its effect in maintaining
a large degree of s> idarity and in giving greater
authority to the demands made by the standing
army. The knowledge that danger brings out the
reserve checks aggression which apparent numerical
weakness invites.

At the same time, this habit of irregular service is
almost necessarily fatal to discipline, and shuts out
the hope of complete success. Effective collective
bargaining depends even more on discipline and
cohesion than on numbers. The unions are, there-
fore, faced with a twofold difficulty, and, conse-
quently, a twofold task. They . cannot hope to
obtain recognition from employers as the represen-
tatives of the employees, while they fail to retain
their hold on their own members. The very possi-
bility that an agreement with the union may be
repudiated by the vorkers outside the councils of
the union is sufficient to prevent any important
agreements from ever being made. Until the unions
secure the adhesion of their own lukewarm sympa-
thizers and the implicit acceptance of the collective
decisions by every member, whether consulted or
not, they will gain only a grudging, or, at most,
a sentimental recognition from a few employers.
Their main task, as it is the chief obstacle in the way
of success, is to make their internal discipline more
perfect and to strengthen their hold on their own

Discipline the Problem for Trades-Unions. 273

ore
iwn

members. The difficulty is greater in peace than
in war. While a strike is impending and during its
continuance a union has little difficulty in control-
ling its own members. During peace it is harder to
convince unenlightened members that the benefits
of concerted action and collective bargaining out-
weigh the sacrifices which must be made to obtain
these benefits. Caprice and lukewarmness alike tend
to reduce the membership when nothing calls forth
the spirit of class antagonism. Consequently, it is
not merely as a remedy against the masters, but also
as a remedy against the indifference of their own
members and the lack of habits of discipline, that
newly formed unions find themselves compelled to
carry on a militant policy and engage in strikes. In
older unions, among whose members the habit of
obedience has been formed, there is not the same
necessity for a perpetually militant policy. Their
proved strength has not only won them the respect
of the employers but has also secured co' esion in
their own ranks.

The difficulty of securing this cohesion arises
from the fact that the only power which a union
can exercise over its members is a moral power.
It depends on their willingness to make pres-
ent sacrifices for future benefits. Even where
habit has reinforced the original moral motive the
control of the members during times of peace is a
serioi's question. Many of their rules and regula-
tions are more honored in the breach than in the

observance; and most unions have been compelled
18

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77/i' Bargain Theory of Wages.

t':\-

to reinforce their authority by more mechanical
methods than an appeal to principle or future self-
interest. With the exception of the militant new
unions, nearly every association exercises the func-
tion of a benefit society, and by means of deferred
payment endeavors to retain control of its members.
The means which they object to the employer us-
ing in order to attach the men to his service they
themselves employ in order to maintain the solid-
arity of labor. These benefit funds were originally
established purely as benefit funds, but now they
are made to serve a double purpose. It may seem
strange that members of a voluntary association
founded to secure the interests of its own members
should be so difficult to manage ; and some have not
hesitated to write strongly of trade-union tyranny.
It is asserted that coercion of some sort must be
used to induce those members to join who are so
hard to retain and so difficult to manage. Surely,
however, the divergence between collective and in-
dividual interests is no uncommon political phenom-
enon. Every day collective decisions are being made
by men who know that personally they will not abide
by these decisions. Everyone who has liv<.'d in a
prohibition town knows men, saloon keepers even,
who, having voted for " no license," not only wink
at the violation of the law but often violate it them-
selves. It is a weakness by no means confined
to the working classes that their immediate inter-
ests weigh heavier with them than their collec-
tive decisions. How easy a matter is it to induce

The Obstacles in the tvay of Die inline. 275

-n,
ink
km-
led
[er-
lec-
jce

the shopkeepers in one district to stick by an early-
closing agreement ? Has not the ring or the cor-
ner developed under pressure of the same difficulty
into the combine and the trust ? Many an ardent
advocate of high protection has, without much hesi-
tation, done a little smuggling on his own account;
with less justification, too, for his inconsistency,
than the trade-unionist has for his, who, after voting
for a general strike goes back to work while his fel-
lows remain out, or, after a long experience of being
out of work, undersells his fellow-workers, although
he has previously acquiesced, at least, in the prin-
ciple of the trade-union minimum wage. It is not
trade-union tyranny which lays down these regula-
tions but human nature which necessitates them.
For the laborer must live by his own labor; and
when there are added the necessities of his wife and
children, it is small wonder that he is sometimes false
to his unionist principles. Without injustice to the
sex, when we remember how much more to a woman
is the economy of her own household than the collec-
tive interests of labor can ever be, we may say that
the women are a most potent cause why trade-union
policy is not more successful. When, in a long spell
of forced idleness on the part of the breadwinner,
article after article of furniture disappears from the
home, to buy the children bread, it is natural that
the wife should urge her husband to sacrifice what
is to her only a half intelligible principle. Women
live more in the concrete than men, and have less
power of realizing an abstract principle. Conse-

I \

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276

yV/f Bargain Theory of Wages.

qucntly, the influence of the women must be
counted as, on the whole, one of the influences
hostile to the success of trade-unionism. Their in-
fluence reinforces the individual interests which it is
the policy of the union to subordinate. However
much sympathy leaders of the union may have with
the individual's position they must set their faces
against any pursuit of self-interest which might
weaken his allegiance to union principles. It is
because trade-unionists believe that the interests of
the individual worker are best guarded and main-
tained by concerted action that the policy of collec-
tive bargaining has been adopted; and collective
bargaining is not tyranny but democratic principle.

The difficulty of maintaining cohesion and disci-
pline is the great natural limitation on the action of
trades-unions in raising wages. It is a permanent
limitation because it arises from the inher2nt im-
perfections of human nature and will remain until
man is perfectly socialized in his motives as well as
in his outward actions. It arises not so much from
the small proportion of workers included within the
unions as from the conflict of individual and collec-
tive interests; a conflict which, in the nature of
things, is probably inevitable. The diflficulty may,
it is true, by means of out-of-work funds and strike
benefits, be met and partially overcome ; but, while
the necessity for trade-unions continues, this diffi-
culty v/ill confront them in carrying out their policy.

The proportion of the actual workers included
within the union becomes of more pressing import-

The Cardinal Maxim of Trade- Union Policy. 277

ancc when the wisdom of any particular application
of the principle is under consideratioi The utmost
that the fullest application of the principle could
achieve for the laborer is that the actual value of
labor should be determined as nearly as possible to
I2X, the upper limit. Trade-union action would be
suicidal if it demanded more of the product in wages
than the industry can economically afford. It may
try to secure that the whole of the debatable ground
is secured for labor; but it is practical wisdom to
recognize that the whole of this ground can never
be secured at a stroke. Fcstina Icnte must be the
motto of the union leader unless success is to be im-
mediately reversed ; and advance can be made only
by stages.

The weakness of the position of the employer as
a bargainer in the labor market is that delay means
loss of profits. He can, it is true, support himself
out of the stock which he has already acquired ; but
he is never willing to do so if he can avoid it. The
greater the amount of capital involved in his busi-
ness, the greater the loss arising from delay in pro-
cess of production. The employer may therefore
be willing to grant a demand which is only trifling
in itself to avoid a greater loss by delay. If the de-
mand is put forward in such a way that it alarms him
with the prospect of further demands to be made,
he may decide to resist before the opposing forces
are flushed with success. So it is the cardinal
maxim of wise trade-union policy never to make
extravagant demands, or to ask more than the em-

s«;:s i ■

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278

The Bargain Theory of Wages.

ploycr will grant rather than face the loss from re-
fusing. If he does refuse, there is certain loss to
him — not, perhaps, the great loss of having all his
capital made idle, but certainly the loss which arises
from the necessity of making a change in his staff of
workers and in getting them trained to his methods.
Never to press for a larger gain than is covered by
the difficulty of replacing the body of present em-
ployees by outside labor," * is the maxim of a wise
policy. It is a wise policy not only because it is
likely to be successful, but also because it does not
expose the laborer to any unnecessary risks. The
laborer must live by his labor; and if by grasping at
a greater gain he sacrifices the employment he has,
his condition is both hard and ridiculous. What
demand the cost of replacing the present staff by
outside labor may admit, depends on the supply of
labor, the strength of the union, and the nature of
the work. If a large proportion of the workers
is included within the union they may press for a
larger gain because the difficulty of replacing the
body of the present workers may be so great that
the employer must either submit to the demand or,
refusing, submit to have his works closed down. In
the skilled trades, where a considerable proportion
of the workers is included within the union, a de-
mand, within the proper limits, will generally be
granted unless it happens, as it may very probably,
that the strength of the workers has already secured
for them all the difference between the two esti-

* Hobson, Problems of Poverty, p. 116.

The Effect of Trade-Unions on Wages. 279

mates. In the case of unskilled workers, demands
must be very much more moderate, because the cost
of replacing is so much less.

The advocates of trade-unions claim that the
greater part of the rise of wages during the last half
century has been due to their influence. Certainly
the rise of wages and the growth and progress of
trade-unionism have proceeded /d-rZ/^j'jJw. The ex-
amination we have made of the influence of collective
bargaining shows thnt the claim must be modified.
Had the standard of efficiency not risen steadily,
there would have been no steady rise of wages, un-
less, indeed, we are to suppose that the difference
between the two limits, at the beginning of the
period, was enormous: which we have no ground
for supposing. Indirectly, as we saw, trade-union-
ism has promoted efficiency and, indirectly, has
thus raised the upper limit of wages. Directly,
however, the method of collective bargaining can
secure only that the value of labor is determined
nearer the upper limit than the lower; and, had
there been no rise in the standard of efficiency,
there would, very quickly, have been a limit to the
rise of wages.

When we regard the policy of trade-unionism re-
garding wages as being directed towards the collec-
tive interests of the workers the balance sheet of a
strike becomes of secondary importance. To the
individual striker, the result may be a great loss : to
the whole body of workers it may be a great gain.
We can no more estimate the wisdom of a strike

28o

The Bargain Theory of Wages.

11,

from the point of view of the actural loss or gain to
the strikers, than we can estimate the results of a
battle or a campaign by the number of lives lost.*
Even a virtual defeat when the strikers, or so many
of them as can find room, go back to work, with
their demands ungranted, may result in a great gain
to the body of workers as a whole — to the body of
workers in that trade directly and in a greater meas-
ure, but also, though indirectly, to the workers in
all trades; and an advance which was refused, when
thus violently demanded, may be conceded by de-
grees when more cautiously requested — and not to
the strikers only — because the employers have
learned to respect the fighting power of their
employees.

* Marshall : Economics of Industry^ p. 391 ; see also Nicholson's
Strikes and Social Problems.

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CHAPTER VIII.

THE METHODS OF INDUSTRIAL REMUNERATION
AS A WAGES FACTOR.

MR. SCHLOSS, in his Methods of Industrial
Remuneration, has confined his investigation
to the method as distinguished from the amount of
the remuneration ; but the method is not without
bearing on the more essential question of the amount.
The system adopted may be of such a nature as
materially to affect the position of the wage earner
in the wages bargaining: his freedom may be cur-
tailed, his general character weakened, his efficiency
reduced, by one method of remuneration; while by
another his mobility and his independence may be
increased, the stronger elements in his character
allowed to develop, and the utility of the reward,
for which he is induced to serve, augmented.

The form of the wages contract which is made at
the conclusion of the bargaining has, therefore,
sufficient importance to justify separate treatment ;
even although the methods of remuneration are not
to be regarded as an independent factor in the pro-

28 1

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iv.] :

I i

282

The Bargain Theory of ]Vogi's.

cess but simply as a general condition affecting the
factors which have already at greater or less length
been discussed. This chapter is, therefore, an ex-
amination of the way in which the manner of
payment affects the mobility of the laborer, the
possibility of combination, the efficiency, the dis-
utility, etc., of labor; and may be regarded as a
supplement of or appendix to the previous chapters.

The time and the manner and the kind of re-
muneration which the laborer receives determine in
part the laborer's estimate of what the labor he ren-
ders is worth and the employer's estimate of what
the laborer's work is worth in the market; and
affect strongly the comparative strength of the bar-
gainers in the process of bargaining.

The laborer's estimate of what his labor is worth
— the lower limit of wages — is partly conditioned by
the methods of remuneration which may either in-
crease or diminish the disutility of labor, or increase
or diminish the utility of the reward. The former
is not directly or greatly affected. Indirectly, by
weakening the laborer's power of resistance, certain
forms of payment, notably truck payments, lead to
evil conditions which materially increase the dis-
utilities; and generally speaking those forms of
wages-contract which leave some element indefinite,
intensify both the positive and negative disutilities.

Profit sharing, as we have seen, has the effect
of increasing the labor expended without propor-
tionally increasing the reward ; and piece work, by
forcing the pace and paying all according to the

'Vi\':'--

Effect on the Disutility of Labor.

283

lis-
of
te,
es.
cct
or-
by

standard of the most efficient, has the same effect.*
The objections which the trades-unions raise against
the system of piece work are not based on any en-
vious grudge of a higher reward for higher efficiency,
but on the fear that the superior abiHty of a few may
be set as the standard for all. Time wages have
nearly always a quantitative reference and in the
ethical phrase are sanctioned by the dismissal of all
who fail to reach the standard. This standard tends
to be the efficiency of the best workers on piece
work ; and the consequence of enforcing this standard
would be that for a given reward a greater expendi-
ture of energy is required.

The moral disutilities of labor are generally in-
creased by those forms of wage payment where the
laborer is not left in free and complete command of
his reward. These intensify the irksomeness of labof
and the sense of dependence; and, consequently,
mean a larger output of energy and a greater gen-
eral disutility.

The influence of the methods of remuneration on
the other element which goes to make the laborer's
estimate — the utility of the reward — is more direct.
Wages are earned in order to be consumed and the
method of payment obviously affects the command
the laborer has over consumption goods. The maxi-

* Piece work has undoubtedly the effect of increasing the output of
the worker but it has hdd no influence in raising the average wage of
the piece workers above that of the time workers. The average
annual time wages in the United States is $498 — the average annual
piece wage is $500. Wright, Industrial Evolution of United States,
p. 197.

284

T/w Bargain Theory of Wages.

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mum utility is obtained by the laborer when his
wages arc paid, at short intervals, and in the legal
tender of the country. Whether he obtains an ethi-
cal maximum depends entirely upon himself and his
discretion in consumption. He certainly obtains
the fullest possible opportunity. The minimum of
utility is in general obtained when the wages are
paid in goods, or in orders at the store only, or at
long and irregular intervals. There are two cases to
discuss (i) when war^fes are paid in cash but at long
intervals or irregularly; and (2) when they are paid
in kind or in goods, whether by the week, the month,
or the season.

In the industrial centres wages are row generally
paid by the week; but in many districts where
money is scarce, or labor unorganized, and in cer-
tain employments where the natural conditions do
not favor weekly payments — e. g., railroads — wages
are still paid by the fortnight or the month. There
can hardly be any question that weekly payments
are a benefit to the laborer. On this score his own
demand may be taken as final ; and there is practical
unanimity among the working classes in regarding
weekly payments as an advantage. They arc en-
abled thus to avoid the increased prices which are
charged when credit is given ; and although, in a few
instances, it may be that the laborer, paying cash,
is unable to obtain a discount from credit prices, and
may thus be made to make up to the storekeeper for
the bad debts of his credit customers, such instances
are rare and occur chiefly in smaller towns and vil-

Effect on the Utility of the Reward. 285

lages. Evidence was taken by the Canadian Labor
Commission on this subject and the opinion of
working-class witnesses was that with weekly cash
payments they could spend their money twenty to
twenty-five per cent, better than if, in consequence
of monthly payments, they were compelled to buy
on credit. On the other hand, the employers who
still maintained the practice of monthly payments
averred that weekly payments led to extravagance
and dissipation while monthly payments encouraged
saving and enabled the worker more easily to meet
any large liability — e. g.y house rent — he might be
required to pay. To the best workmen weekly pay-
ments miglit be no great advantage, and to the dis-
sipated they would prove a great evil; but to the
average workmen they would be highly advan-
tageous.*

* On tar to EviJ., p. 875, Can. Labor Com. "The employees
would rather have their pay weekly, hcca.'se it would make them
financially more independent. We find that in a great many in-
stances (witness was District Master of the Knights of Labor) work-
men have to run monthly accounts, and that puts them entirely at
the mercy of the corner grocers. You feel under obligation to the
man ; you have to take what he has got and you cannot go anywhere
else ; you are obliged to stay there."

Nova Scotia Evidence, p. 364. " The men could live for from five
to eight dollars a month less for cash, if they had it, than they can
upon credit. . . . When you have cash the merchant will take
what you give him, whereas, if you get goods on crec'if they go into
his books at his own figures."

Ibid., p. 441. "It would give the men a much better chance to
deal for cash, and would give them a chance to buy many things
cheaper than they can do by the present system of monthly payments.
If a man comes in with country produce and you are paid weekly or

WFT

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286

7/ic Bargain Theory of Wages.

Not infrequently the payment of wages is not
made for some weeks after the time sheet has been
made up and the workmen get advances at high
rates from outsiders on this security. Sometimes
the employer pays wages in due-bills payable at
some future date; and the wage earner may either
wait or get them discounted. The rates of discount
on such due-bills are generally high not only because
the security may noJ: be good, but also because the
necessities of the worker are immediate. One wit-
ness testified before the Canadian Labor Commis-
sion * that he had been paid with bons or due-bills

fortnightly you have cash. If you have not, he goes to the store and
sells what he has, and you have to buy the same article on credit and
pay more for it."

Ibid., p. 405. " In reference to the subject of weekly payments
. . . the only difference is that the men go drunk once a week
instead of unci \ fortnight."

* Quebec Evu ice, p. 783. — We were obliged to take ' bons,' notes
to be paid ; witht. t these we might have waited a long while and
perhaps lost our money.

It was an order, a note to be changed, a promissory note : " I pro-
mise to pay in thirty days the sum of ."

Q. What did you do with that note ? A. I got it changed.

Q. Did it cost you anything ? A. One dollar and the note was for
twenty.

Q. Did you change it in a bank or with somebody in connection
with your master? A. With a broker.

Q. Did your master send you there or did you go of your own ac-
cord ? A. My master told me to go there.

Q. Then the master gave you a note of twenty dollais to pay your
wages, and sent you to the broker he pointed out who paid you the
note and retained the dollar? A. Yes.

The only industry in which this practice still survives to any extent
is lumbering where a considerable interval of time must elapse between

mmmmmmm

Deferred Payment.

287

! I

which were discounted at sixty per cent. Several
Ontario witnesses stated that they had been paid in
due bills which were discounted by local shop-
keepers at fifteen, twenty-five, and even fifty per
cent. ; although some merchants in Ottawa were
said to receive them at face value.*

The manner of payment here not only restricts
the command which the laborer would otherwise
have over the necessaries of life but actually re-
duces the nominal wages paid.

Payment of wages in kind may be either produce
wages or truck wages. For the former there is
much to be said as a method of securing the real
advantages of profit sharing. Mr. Garnier advocates
it as a method of improving the condition of the
agricultural laborer. The great objection to pay-
ments in kind is that the reward is not definite
and, therefore, leaves the laborer continuously at
the discretion of his employer. The goods received
in payment may vary in quantity, quality, and
value; but in the case of produce payments, though

the performance of the work and the marketing of the product.
Should the "cut " of a small operator, or subcontractor, be held up in
the smaller streams and tributaries he is generally paid by means of a
due-bill payable next season when the lumber arrives at the market or
when his cut gets out into the main stream ; and presumably he often
pays his hands for their winter's work in the same fashion. Quebec
Evidence, p. 11 90. -

* Ontario Evidence, p. 11 88. These due-bills are not scrip regu-
larly issued but notes of hand which it is said are not always redeemed
when they fall due. Ontario Bureau of Statistics Report, i888, iv.,
p. 8. This practice has with the truck system practically disap-
peared.

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288

T/ie Bargain Theory of Wages.

,^'»

the value is not definite, the quantity always is, and
the quality is ascertainable. The variations in value,
moreover, are determined, not by the will of the
employer, but by the forces of the market. " I
would at any rate suggest," he says, " that there
should be less cash and more flour in the wages of
each Saturday night " ; and he quotes with approval
from the Journal R. A. S. E., the following
passage :

" One very obvious benefit arising to the hind from
this mode of paying in kind, besides that of having a
store of wholesome food always at command, which has
not been taxed with the profits of intermediate agents, is
the absence of all temptation which the receipt of weekly
wages, and the necessity of resorting to a town or village
to buy provisions, held out of spending in the ale-house
some part of the money which ought to provide for the
wants of the family." . . .*

In so far as produce wages are definite, the system
is advantageous to all concerned, but especially so
to the wage earner, owing to the great saving on the
profits of middlemen ; f but it is doubtful whether

* Garnier : — Annals of the British Peasantry^ p. 411. As he
points out (p. 410) the good in payments in kind was abolished by the
English Act of 1887 while the bad was practically retained. Intoxi-
cating liquors may not legally be given in payment of wages ; but the
employer may still do so by calling it a gift.

f The system of metayer farming which is practiced largely in some
of the older of the United States may be regarded either as a system
of produce rents or of produce wages. The disinclination of the de-
scendants of the original settlers to engage in farm work and their
natural exodus to the cities and the professions have rendered them

Produce Wages.

289

is he
)y the
itoxi-
it the

I some

(Tstem

lie de-

their

them

these advantages offset the disadvantages which
arise in a period when wages are falHng. Wages
which are paid, in whole or in part, in goods, are
subject to unrecognized fluctuations with the level
of prices. Thus the wages of lumbermen in Can-
ada, and domestic servants everywhere, have either
fallen, or not risen so far as at first appears, because
board is included in their pay and the prices of most
of the articles they consume have fallen, although
the increased variety and the improvement in the
quality of the board provided may restorcthebalance.
The truck system is the outstanding form of the
payment of wages in kind and is still prevalent in
many districts. It has disappeared, indeed, at all
the industrial centres and the practice is confined *^
backward districts, where banking facilities are pooi ,

unwilling or unable to continue cultivating the old homestead. Labor
is too dear to allow the farm to be cultivated entirely by hired labor ;
and it is difficult to dispose of the farm, apart from sentimental rea-
sons, on advantageous terms, sometimes on any terms. At the same
time there has been an immigration of European farmers without
capital. The system of farming by ' halves ' or ' thirds ' which has
been developed is as natural an outcome of these circumstances as the
stock and farm leases of the 15th Century were of the conditions pro-
duced by the IJlack death. The owner supplies the farm, the stock,
and sometimes even the implements, and the farmer pays 1 j half, or
two thirds, of the produce to the owner, according to the amount of
capital supplied. In the Maritime Provinces of Canada where the
same agricultural and social conditions prevail the wrA/jvr system has
not been developed owing to the absence of a foreign element in the
population accustomed to intensive farming. In New Brunswick,
however, the hay harvest is often cut and private gardens are occa-
sionally cultivated on this system. In this case we have a system of
produce wages rather than of produce rents.
»9

290

The Bargain TJicory of Wages.

iSl^

1 '

ti:

and labor unorganized and ignorant, and to those
industries which, depending on the season, involve
irregular employment and proportionally large capi-
tal. The effect of this method of industrial remuner-
ation was characterized in the report of the Canadian
Labor Commission as always amounting to a sweated
wage ; and in its worst form, as it has existed in many
places, it has resulted, as was epigrammatically said
of it in Nrwfoundland, in the laborer being not paid
in " part goods, part cash," but in " part goods,
part trash." Frequently the laborer, where this
system is in force, has received no part of his wages
in cash. By means of deferred payments and irreg-
ular employment, the worker gets involved in debt at
the company store, and then he has practically ceased
to be his own master. Those who are once in the
toils of the system are seldom able to work their way
out again ; and the more deeply they are involved,
the more subject are they to petty tyrannies at the
hands of the subordinate oflficials of their employers.
The salesmen in these stores frequently carry side
lines of goods which they practically force * upon un-
willing but helpless customers, because they control

* ' ' But there is another evil which we learn in connection with
this system. At some company stores in this county the managers,
or clerks, carry side lines of goods, usually jewelry, which they sell
to men who have employment around the works ; and in one instance,
it has been told us that a workman who had purchased a $1 5 filled-
case watch for the moderate sum of $35 . . . went and asked
for an order to get $5 in cash at the office of the mine. 'Yes,' was
the reply, ' if you give me $4 on that watch you bought from me last
month.'" — The Island Reporter {(Z^^Q Breton), Nov. ii, 1896.

I ••

^^ Part Goods, Part Trash.'*

291

the avenues of employment. The object of those
who practise the system in its most objectionable
form is to control the expenditure of their laborers
for the sake of the profits, legitimate or not, of the
retail business; and the laborer is seldom allowed to
carry away any part of his earnings in cash. In
many cases, the only way in which ready money
can be obtained is by reselling the goods obtained
at the stores; and there is a profitable business,
mainly in the hands of the saloon-keepers, of buying
from the laborers the articles they ha .. obtained at
the stores. * This is not infrequently the only
method in which the goods required can be ob-
tained, for when the goods asked for are not in
stock, the intending buyer has to do without, having
neither the cash nor the courage to seek elsewhere. f
The problem how far the payment of wages in
goods obtained at these stores curtails the utility of

led-
>ked
was
last

* A valued correspondent, Mr. C. Ochiltree McDonald, of Port
Morien, Cape Breton, who has given me much information regard-
ing the working of the truck system in Cape Breton, informs me that
there were lately auctioned off by a drink-seller at Glace Bay, C. B.,
1038 tobacco pipes, which had been taken from the miners in exchange
for drinks — the auction being the method of realizing cash on the
transaction. Frequently, in the same district, there are auctions —
sometimes several in the course of a week — of goods such as clothing
and groceries, which have been obtained at the stores and exchanged
for drink. The profits of "this business are so large that many saloon-
keepers have been attracted to the district.

f Canadian Labor Com., N'cw Brnnsrvick Evidence, p. 407. It is
by no means always the case that the company stores are inferior to
outside stores, and many of them are said to carry as large a line of
goods, and at as reasonable prices. The Hon. Robt. Drummond,
for eighteen years head of the miners' organization in Nova Scotia, in-

'tii

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K (l

292

T/ie Bargain Theory of Wages.

the reward depends, largely, though not altogether,
on the scale of prices. There is a certain exaltation
in the sense of freedom and independence which
comes from the consciousness of possessing money
in the pocket which that man does not experience
the payment of whose wages is simply a matter of
bookkeeping, no matter how reasonable the prices
in these company stores may be. A priori it might
almost be argued that the existence of a practical
monopoly will sooner or later lead to a higher scale
of prices; and the facts seem to bear out this con-
tention. I have accumulated a good deal of evidence
on this point, but the following table is more com-
prehensive than the statements of any of my corre-
spondents, and is, moreover, taken from the public

forms me that the renewed outcry against the truck system in that prov-
ince (luring the last two years has come from the storekeepers rather
than from the miners. The coal fields of Nova Scotia are now con-
trolled by the Dominion Coal Co. ; and under new management the
old objectionable features of the system have disappeared, the com-
pany stores now keeping a larger variety and selling superior goods
at lower prices than the retail shopkeepers can afford to do ; and the
result has li en an agitation on the part of the storekeepers against the
system. Mr. Drummond's contention is in part borne out by the fact
that the most emphatic denunciation of the system is contained in
the following resolutions, adopted Dec. 21, i8q6, by the Sydney, C.
B., Board of Trade, i. ^., in a small town, retail shopkeepers :

*' Whereas the Truck System of paying wages in goods is alarm-
ingly on the increase in this country,

" And, whereas the system is buying up the main avenues of wealth
among the masses of the people, paralyzing internal trade and invest-
ing the wealth produced through mining in the mining companies to
the exclusion of the general public,

"And, whereas, in addition, precedent i.i Great Britain and the
United States of North America instructs us of the pernicious infiu-

Comparative Prices.

293

the
.flu-

records of the evidence of the Canadian Labor Com-

mission

ARTICLK.

PRICE AT company's
STORE,

Flour per barrel $6.25 . . . .

I'ea " pound 0.35 ....

Sugar " " 0.09

PRICE AT OUT-
SIDE STORF.

. $5-50

. 0.22 to 30

. 0.08

Soap " " 0.07 and 8 0.05

Butter" " 0.22 to 26 0.20

Molasses per gallon 0.50 0.40

Potatoes per bbl 0.80 0.40 to 45

The witness, on oath, asserted that the articles at
the outside stores were of the same brand and of as
good quality as those sold at the company's store.*

ences of the Truck System upon the social progress of a nation ; and
upon the steady system of productive industry of all kinds,

"And, whereas we must have national forethought and refuse to
sanction the monopoly of wealth produced by any individual, or com-
pany of individuals, by the supplanting of Canadian currency by
goods for workmen,

" Be it therefore resolved, that the Board of Trade draw the atten-
tion of the Government of Nova Scotia to the grievous conditions
existing and threatening to exist in the County of Cape Breton, owing
to the disappearance of money from circulation by the Truck System,
and urge the Governor, Council, and Assembly of Nova Scotia to
enact legislation forbidding the payment of wages in goods."

However, the protests of the miners, individually, and through
their associations, are too emphatic to permit us unreservedly to
adopt Mr. Drummond's view. He claims that the evils of the sys-
tem, which were exposed in the evidence of the Canadian Labor
Commission, are things of the past ; and in the mainland of Nova
Scotia the Truck System has disappeared. Mr. Ochiltree Macdon-
ald, writing from Cape Breton, insists that the evidence taken ten
years since is perfectly true for the conditions of to-day ; that, if there
has been any change, it has been a change for the worse, not for the
better. Even regarding Cape I5reton, the truth probably lies in the
middle between these conflicting statements.

* Labor Com. Nova Scotia Evidence, p. 465, and sttNova Scotia
Evidence, passim.

I
*

t '

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294

T/ie Bargain Theory of Wages.

The principal argument urged in defense of the

practice is that, under the actual conditions of winter

industry in Canada, the stores are a necessity. The

mines in Cape Breton cannot be worked steadily the

year through because the ports are closed by the ice.

Were it not for the willingness and the ability of the

company to carry their employees through the slack

winter season there would be great hardship. The

outside shopkeepers have neither the security nor

the capital to permit them to give six or nine months

credit. During four months of the year there is

practically no employment in the mining districts

and during that period a debt will be incurred which

cannot be paid off before the summer is nearly over.

However long the credit the storekeeper can obtain

from the wholesale merchant it is not long enough

for him to wait six or nine months for payment.

TABLE* SHOWING IRREGULARITY OF EMPLOYMENT
IN MINING DISTRICT.

MINER S
NAME.

A.
B.
C.
D.
E.
F.
G.
H.
I.,

TOTAL

DAYS IN

YEAR.

173

i88
207
192

189
173
195

158

184

3
3

3
17
2
2
II
2
2

19
17

17
17

19 17

18
i8

25
26
26

25
26

25
24

21
21
21
21
21
20
18
20
18
21

H
en

26
26
26
26
26
26

19
26

24
24

25
25
25
25
23
24

H
U
O

22
23
23
23
23
23
19
23
19
23

16
14
17
17
14

17
15

14
17

It
10
IT
II
10
II

10
5
4

* Canada Labor Com. Nova Scotia Evidence^ p. 464 . from the

W-.

The Truck System and the Credit System. 295

It should be remembered, moreover, that many of
the objections to the truck system are valid also as
against the credit system which, in one form or
other, is an absolute necessity when employment is
irregular. For the laborer it is quite as hard to
work his way out of debt to a private storekeeper,
and probably more worrying because the storekeeper
has not the same security for his debt. The private
storekeeper has no means of coercion and must,
therefore, charge higher prices to cover bad debts.
The company stores, as a matter of fact, stop wages
till the debt is reduced to manageable proportions.*
The effect of the truck system of wages payment on
the utility of the reward under these circumstances
will be measured by the difference between credit
prices and company store prices, and the greater or

evidence of C. H. Rugby, Supt. of Glace Bay Mining Co. It should
be stated however that in the opinion of my correspondent Mr. Mac-
donald there would be no difficulty in supplying the wants of the
community during the slack season were the company stores closed
and supports his view by citing the fact that when the Dominion
Coal Co., purchased the mine at Port Morien (C. B.) the former
owner abandoned the stores on the rst of October while the new Com-
pany did not open the stores till the ist of May following. There was
he asserts neither want nor distress in the district that winter more than
there had been in previous winters when the stores were open — the
outside storekeepers being quite able to carry their customers when
they were no longer subject to the unfair competition of the com-
pany stores.

* The Nova Scotia Act against Truck is practically a dead letter
because it permits contracting out. Frequently the employer does
not even go to the trouble of requiring the formal order from his men
which permits him to deduct the store bill from the wages as they
are earned.

il I;

iiii^L^

2cj6

The Bari^ain Theory of Wages.

less dc'i^rcc of personal freedom which the victims of
the two systems retain. The worker's wage, when
thus paid, is not sweated by the amount of the profits
of the store ; for a large part of these profits is due to
superior trading advantages. The profits of the
stores arc without doubt very large; and one of my
correspondents affirms that the mine in his district
is run for the store profits. The Dominion Coal
Company was offered, it was said, one hundred and
fifty thousand dollars for the right to run their
stores; and however philanthropic the company
might be, men do not go into the market to pur-
chase charitable organizations. The defenders of
the system generally protest too much about the
purity of their motives. There is nothing disgrace-
ful in a company trying to add to its ordinary profits
the profits of retail shopkeeping; the disgrace lies
in the abuse of the position which the employer
occupies.

Of the two important elements which form the
lower limit of wages the methods of industrial re-
muneration has the greatest influence on the utility
of the reward. Less directly, the disutility of labor
may be increased or diminished by the method of
payment because the disutility is more than the
physical energy expended. With cash payments
the moral elements which enter into the sum of dis-
utilities are likely to be reduced to a minimum, for
the laborer in this way obtains the maximum of
personal freedom. With truck payments the dis-
utility is increased and the utility of the reward is

Effect on the Employer s Estimate. 297

decreased; but the fighting strength of the laborer
is so reduced by the system that he is able to offer
little effective resistance to the lowering of the
lower limit of wages. Practically the methods of
remuneration exercise little influence in raising, but
may exercise considerable influence in reducing,
the lower limit, thus rendering an actual lower wage
possible.

The chief elements of the upper limit — the em-
ployer's estimate — may be affected by the method
of industrial remuneration. The efficiency of the
laborer may be increased or diminished, mainly by
the effect on the moral conditions of ef^ciency ; and
the wages fund may be augmented.

The output of labor is not a mere question of
strengtl. and knowledge. Willingness and hopeful-
ness and ihe disposition to do one's best are almost
as important as physical and intellectual qualities;
and these moral qualities are peculiarly liable to be
influenced by the manner in which the wages are
paid. If the laborer is paid promptly, in full and in
cash, he is much more likely to do his best than
when his wages are curtailed by all sorts of petty
exactions and his use of them restricted by all sorts
of conditions.

Profit sharing and piece work tend, directly and
indirectly, to raise the efficiency of the individual
and, generally also, > .' all in the establishment, and
thus tend to permit a higher wage to be paid. Not
only are the expenses of management and super-
vision decreased, while there is less waste of material,

!i»

298

The Bargain Theory of Wages.

], I

li'!

«iM- ':;

but the hope of greater gains acts as a powerful in-
centive to greater exertion. Workers paid by these
methods reahze, more or less, that they arc being
treated with justice and consideration, and they are
less likely than those on time wages to be eye ser-
vants merely.

When wages are paid in cash, any feeling of resent-
ment which the conditions of labor may have caused,
generally disappears when the wages are paid, un-
less the wages are very inadequate; but when the
control of the employer continues till the last penny
earned has been expended the laborer continues to
feel his economic dependence and to feel that there
is no part of his life which he can call his own. This
naturally leads to inefificiency, because it tempts the
laborer to try to get " even " in some way. Pay-
ment of wages in truck or store orders, or at long
intervals, and then not up to date, is apt to create
a sense of irritation which materially reduces eflfi-
ciency. Under the extreme forms of the truck sys-
tem, where the laborer is convinced of the inevit-
ableness of the tyranny and the injustice, a premium
is, in effect, placed upon idleness and thriftlessness.
The laborer who owes the company a large sum
knows that work is assured to him whenever work
is going, not because he is a good workman, but be-
cause the company naturally desires to collect part
of what he owes them. It is their interest to find
him work. He believes that he has been cheated
by higher prices and thinks that his real is not half
his nominal indebtedness ; and the result is that Hq

The Wages Fund.

299

tries to ^ct even with his cmi)loycrs by cheating
them with dishonest and scamped work. Even
should he remain honest, the incentive of hope has
disappeared. The most efficient workmen are dis-
couraged by the system, for they quickly learn that
not efficiency, but indebtedness at the store, is the
best claim for work when employment is scarce.
Payment of wages in kind, tends not only to reduce
efficiency, but also to destroy those qualities which
promote efficiency and to encourage habits which
promote inefficiency.

The wages fund, the resources of the employer for
the payment of wages, is directly affected by the
methods of remuneration. The payment of wages
in cash at the end of each week requires a large
amount of capital, a larger amount than is required
by any other method of remuneration to pay the
same wages. Payment in kind means a large econ-
omy of capital and allows a larger business to be
done on a given capital. It reduces payment almost
entirely to a matter of bookkeeping, and by analogy
might be called the clearing-house system applied
to wage payments. Theoretically, it might be said
that the truck system would lead to larger wages
because the employer commands a larger capital.
The employer is able to augment his resources by
all the long credit he can command from the whole-
sale supply houses; and may be able to market a
large part of his output before these obligations
have to be met ; and not only is the capital thus
augmented, but additional profits are earned on the

300

The Bargain Theory of Wages,

if-

hi*

whole of it. This holds also of deferred payments
and of payments by the month or the season instead
of by the week. In many instances the reasons
which are offered in defense of this practice, against
which the laborer protests, when stripped of their
philanthropic and paternalist pretence, amount sim-
ply to this, that a great saving in capital is thus
secured. There is not only the saving in office ex-
penses when the pay sheets are made up at leisnre
once a month instead of once a week; there is also,
and in the case of large concerns this becomes a very
important item, the saving of the interest on the
sum paid out in wages.* When part of the pay-
ment is withheld for some weeks, as in the case of
employers who pay on the 20th of the month up to
the end of the preceding month, or when part is re-
tained in the employer's hands to the end of the
year, as, for instance, the dividends in a profit-
sharing scheme, or indefinitely — e. g., contributions
to a provident fund — the employer simply retains
part of the wages as an unsecured investment, and
practically compels his employees to subscribe to
the capital required for his business.

Wages, however, do not necessarily rise because
the resources of the employer are augmented. The
wages fund is only one factor in the determination
of the upper limit ; and the employer is under no
obligation, physical or moral, to pay out the whole
of his funds. An increased wages fund simply
means that higher wages are possible without neces-

* Ontario Bureau of Statistics, Report, 1886, iv., p. 18.

i mmiiiin i JKWI

Truck System a Rudimentary Credit Instrtimejit. 301

Luse
'he

i;ion
no

lole

|piy

:es-

sitating a readjustment of the reward of the different
economic factors in production. Moreover, this pos-
sibility may be at the actual expense of the workers
themselves. They are made to contribute to the
wages fund by exactions levied from the wages of
their past labor. They are denied the right to
spend the contract price of their labor, when and
where they choose ; and the probability of increased
compensation in the future depends on the strength
of their economic position. Those methods, how-
ever, which increase the wages fund, tend to reduce
the laborer's efficiency and to weaken his position
as a bargainer; and the possible good is generally
converted into an actual evil. The effect of the truck
system is, when the other wages factors are taken
into consideration, to depress rather than to raise
wages.

In a new country, where money is scarce and
banking facilities rare, deferred payments or pay-
ments in kind may be a practical necessity. Were
wages paid in cash they would necessarily be low ;
and under these conditions even the truck system
iji^iy be a practical benefit to the working classes.
/mIl as the country develops, there is less necessity
for making use of this primitive credit instrument
and the system is banished from the industrial cen-
tres to the districts where banking facilities are still
unprovided, and to industries dependent on the
seasons, where a long period must elapse before the
product is marketed. There is something so mean
in the practice of throwing part of the burden on

). !

V ^ 1 1

i- 1

t - H

ii ' :

»■' ' ,;•■

-:',.i

< 1 ;" i i '

) ' ■

'!;■

iLis 1

illi;. .

■ ;

302

T/ie Bargain Theory of Wages.

the laborer, that so soon as another means of dis-
tributing habilities over a longer period is devised,
every firm which has any sort of credit and some
moasure of self-respect, abandons of its own accord
the attempt to mulct the wages of its employees.
Except in the seasonal industries, it is practiced
now by the " non-profit " employers only — those
whose credit is bad and who have a hard s<-ruggle to
maintain their position. One of few surviving com-
pany stores in the province of New Brunswick, out-
side of the lumber industry, is conducted by a firm
which has already failed several times ; and this in-
stance may be taken as typical of the condition of
those firms which retain the system when banking
facilities are provided. The assistance which such
firms are able to obtain by this method enables
them longer to continue the struggle against their
more fortunate or more competent rivals. The de-
struction of the system by legislative interference
would be a death blow to such employers; though
it is not possible to agree altogether with a corre-
spondent of the Ontario Bureau of Statistics in as-
serting that the abolition of the truck system and
of deferred payments would place a premium on
large industry. It would give a certain advantage
to those who had capital enough for the business
they had undertaken.*

* The truck system, however, is both effect and cause of the scar-
city of money. During the recent agitation in Cape Breton against
the truck system it was repeatedly asserted that money is being driven
out of circulation (see the petition of the Sydney Board of Trade

[ dis-
used,
some
.ccord
Dyees.
cticed
-those
rgle to
T com-
<, out-
a firm
[his in-
tion of
ranking
;h such
enables
St their
he de-
ference
though
corre-
s in as-
m and
um on
antage
usiness

the scar-
against
Ing driven
lof Trade

Effect on the Bargaining Process,

303

It remains now to discuss the influence of the
methods of remuneration on comparative strength
of employer and employed in the wages bargain
which determines where between the limits actual
wages are fixed. The method of remuneration may
increase or decrease the mobility of labor, may affect
the capacity for combination and collective bargain-
ing, and may strengthen or weaken the general
character of the laborer.

The mobility of labor depends partly on the
knowledge the laborer has of the relative conditions
of labor in his own district and elsewhere. Causes
which prevent him from acquiring, or even render it
more difficult for him to acquire, this knowledge in-

already quoted) ; and Mr. Ochiltree Macdonald stigmatizes the ac-
quiescence of the individual in the system as a crime against honest
currency. In many districts trade is reduced almost to the primitive
form of barter to the great disadvantage of those, farmers for instance,
who have anything to sell. If these contentions are true a situation
exists in that district which can be cured by legislation only, enforcing
the payment of wages in cash without any possibility of contracting
out. A primitive and vicious credit system seems to have obtained
such a hold on the community that there is no room for the more re-
fined credit instruments provided by the banks. It required an eco-
nomic cataclysm to overthrow the truck system in Newfoundland which
had been encouraged by an unsound banking system ; and the inter-
vention of the Canadian banks after the crisis of 1894 has rendered
it easier to make the necessary departure from a system which had in-
volved the whole community in ruin.

The close connection between an inadequate banking system and
the prevalence of the truck system finds its best illustration in the
southern states of the American Union. There the truck system has
attained its fullest sway and there currency is scarcer and banking
facilities less frequent than in any other section of the country.

i»

t ■ ■ ! !

1;: , ']

' 1 )

.1-,

l-ul, .„

304

T/ic Bargahi Theory of Wages.

terfere with the mobility of labor. Money wages
are the calculation form of the reward; and when
the reward is not paid in money, it is less easy for
him to make the comparison. He may not have
the knowledge or the skill to calculate what the
wages are even in his own district. Mobility de-
pends also on freedom from restrictions; and weekly
cash payments alone give the laborer full command
of his resources and leave him free to make what
use he pleases of them. A system of deferred pay-
ments ties the laborer to the employment he has.
To change he must sacrifice the deferred pay. The
fact that the participant in a profit-sharing scheme
has no legal right to claim a share in the profits,
till the financial year is complete, restricts his move-
ments; and the benefits of a prov'dent fund can be
obtained by those only who remain permanently in
their present employment. When wages are paid
at infrequent intervals and part of the pay is re-
tained in the hands of the employer, the intention
frequently is to restrict the laborer's freedom of
movement. One firm posted a notice in its factory
that " persons leaving the service of the company
without serving the notice required shall forfeit the
arrears of pay due to them " * ; and though the action
would be illegal, and the employees might know it
to be so, the notice would doubtless have the de-
sired effect, owing to the fact that it would require
a costly suit at law to force the employer to pay.
The laborer who has arrears of pay in the hands of

* Canadian Labor Commission, Quebec Evidence p. 1301.

The Mobility of Labor.

505

his employer has given hostages to the extent of the
arrears. Frequently, even when the employer is
honest and law-abiding, he will pay a workman who
desires to leave before the monthly pay day comes
round by means of a due-bill which is cashed at a
discount. In some cases, even, a deduction is made
from his wages to pay the expenses of securing a
new workman.* The truck system involves a still
greater restriction of mobility. When a workman
has got into debt at the company store, his mobility
is practically nil till he has worked his way out;
and it is said — and it is antecedently probable — that
the company oflficials endeavor to keep him in debt
in order to retain their control over him.

Trade-unionists are constantly discussing the
methods of remuneration from their point of view.
They naturally find the ideal method in weekly cash
payments. They contend that any other system
leads to the isolation and consequent weakness of
the individual worker. They criticise, and if neces-
sary, agitate against, any method which encourages
the laborer to deal with his employer directly and
in his own strength. Piece work and profit sharing

* Canadian Labor Com., Ontario Evid(nce, p. 1190 : — " They will
charge him for the passage fee of another man to bring up (to the
woods) in his place and let him go ; and I have seen some concerns
not pay him at all. If he wants to go he goes without any payment."

It was argued before the English Labor Commission that the pay-
ment of wages to sailors at frequent intervals would increase the
danger of desertion. The present practice therefore involves, rea-
sonably enough perhaps, a restriction of the mobility of that class of

workers. Spyers : Labor Question, p. 200.
ao

3o6

The Bargain Theory of Wages.

1 i

;

; i!-

both, they consider objectionable because in this
way the laborer is tempted to be disloyal to his class
by the prospect of extra rewards for himself. Profit
sharing has indeed been explicitly advocated as a
method of weakening the power of the unions.
They do not, as has been so often asserted, object
to the higher reward of superior efficiency ; but they
dread the effect of the stimulus to individual exer-
tion on the solidarity of the working classes; and
they are rightly of the opinion that the interests of
all are best secured by union and combination. To
deferred payments and the truck system they offer
the most strenuous opposition because by these
methods the individual worker is made to feel his
dependence on his employer. Weakness and de-
pendence even more than the desire for exceptional
wages are isolating forces; and the objections of the
unions to these methods is very strong.

In spite of all that has been said by Carlyle and
others against the cash nexus, there is no reason
to doubt that it is the system which promotes the
best interests of the working classes. Paternalism
and sentimentalism have been discredited by the ex-
perience of generations. It is better that the rela-
tions between employer and employed should be on
a pure basis of contract and that no margin of in-
definiteness should remain. What is left to be
understood is generally left to be misunderstood
and interpreted against the interests of the weaker.
Weekly cash payments are best for the working
classes in almost every way. The employee remains

Effect on General Economic Character. 307

his own master when the contract period is over and
the employer has no right to interfere. Under the
truck system the laborer is under continuous super-
vision in his home as well as in the workshop ; and
one can understand why indignant opponents of the
system have denounced it as scarcely disguised
slavery. What is true of the truck system is true
also, to a less degree, of every method of remunera-
tion which keeps the laborer dependent on his em-
ployer after the contract period has expired. This
continuous supervision and subjection is not con-
ducive to the building up of strong characters; and
the most disastrous effect of these methods is to
weaken the general character of the laborer as a
wages bargainer. Trade-unionism is but a substitute
for character, and the mobility of labor is a result ;
tl. character of the laborer is what tells in the wages
bargain — the determination of where between the
limits actual wages shall be fixed.

Weekly payments, according to some who practise
other methods of remuneration, promote thriftless-
ness and dissipation and prevent the accumulation
of property; and one witness before the Canadian
Labor Commission * claimed that the only differefnce
between weekly and fortnightly payments was that
the men go drunk once a week instead of once a
fortnight. On the other hand the laborers strongly
favor weekly payments, preferring^ it may be, free-
dom to compulsory sobriety every alternate Satur-

* Nova Scotia Evidence, p. 405 ; seeialso ibia,, p, 427, and New
Brunswick Evidence,^, ^^l,

.f'

1 ^^ * i

; ;
i

4''

11 v ■

308

T/ie Bargain Theory of IVa^

day. They indignantly resent the insinuation that
they are not able to manage their own domestic
affairs and the miners of Cape Breton insist that
they are as able to spend their wages as wisely as
the workmen in Great Britain who must be paid in
cash.*

The assumption that the workman cannot manage
his own affairs weakens his character; and the effect
of the truck system, which is sometimes justified on
that ground, is to destroy all self-reliance and self-
respect and remove all motive to honesty and effi-
ciency of work. The truck sj'stem, by its injustice,
makes the worker practise, and justify, all sorts of
underhand evasions of his contract. Above all it
promotes thriftlessness and idleness. The Hon.
Robert Drummond said from his place in the Legis-
lative Council of Nova Scotia that the system was
an abomination and a premium on beggary ; and
elsewhere he declared that it had a " tendency to
foster thoughtlessness and beggary." This is the
natural effect of the truck system everywhere.
Those who run bills at the store are the favorites in
the factory and the mine. To encourage the others,
they receive the best places in the mine, and during
the slack season they are given what work there is
to be given that they may have an opportunity of
reducing their debt to the store. The industrious
and thrifty find that constantly the idle and the dis-
sipated have the preference. Those who take no
responsibility for themselves, but run up bills, know-

♦ Newspaper report of a meeting at Glace Bay, Nov. 13, 1896,

The Truck System in Neivfoiindland. 309

ing that it is the company's interest to provide them
with work, are the fortunate ones of the community;
and the whole community is demoraHzed through
their influence.

The economic crisis in Newfoundland in 1894 was
a striking instance of the complete demoralization
of a whole community under the truck system. The
system was of old standing. Nearly a hundred
years ago the governor of the island tried by an
edict to suppress it. It was not destroyed, but,
on the contrary, tightened its grasp on the busi-
ness of the country. Everyone deplored it, but no
one could give it up. It promoted dishonesty and
crime and universal distrust; but it required an eco-
nomic disaster to overthrow it. Everyone suffered
by it, the workmen most of all. He was ground
between the upper and the nether millstones — the
fickle sea and the burden of his long-standing debts.
He could hardly call himself his own, and many a
Newfoundland fisherman passed from the cradle to
the grave without ever having seen a piece of money.
No one really profited by the system, and Black
Monday, the loth of December, 1894, was the day of
salvation for the " planter" as well as the fisher-
man.

The effect of the truck system on the character of
the laborer depends altogether on the degree of
coercion employed. Where no compulsion is used,
company stores with their superior trading facilities
might prove almost as great a benefit as the co-
operative stores. It is generally claimed that the

ii '

:l:

i I

310

T/ie Bargain Theory of Wages,

workman is left free and some employers prefer to
run the stores for the benefit of the workmen. But
it is difficult to say what is and is not compulsion.
Many witnesses before the Canadian Labor Commis-
sion began by denying that there was any sort of
compulsion to deal in a company store ; and ended
by admitting that there was discrimination in favor
of those who dealt there. The prospect of an extra
profit is a sufficient incentive for the exercise of some
kind of coercion. The companies, as one man said
to me, who had experience in running these stores,
are not in it for their health, and a member of the
legislature of New Brunswick, whose firm used to
run several such stores, assured me that where com-
pulsion in some form is not exercised the stores are
seldom profitable.

Compulsion in its most brutal form is rarely
exercised anywhere now in Canada but in the
shape of discrimination it still flourishes in Cape
Breton. Freedom may be absolute in name, but it
may be little more than freedom to starve. When
a storekeeper is able to place those who are
not his customers at a disadvantage in the com-
petition for work compared with those who deal
with him he can bring a good deal of pressure to
bear. The evidence taken by the Canadian Labor
Commission affords many instances of this indirect
compulsion. Employers confessed that they did
prefer those who dealt at the store, that they did
discriminate in their favor, that unmarried men were
not so likely to find employment as married men

Methods of Industrial Remuneration,

311

with families who dealt at the store.* Pressure ex
crcised in this form is practically compulsion ; and
few arc strong enough to resist it. Circumstances
naturally determine what amount of compulsion can
be used. An obstinate man with great social or
political influence may resist successfully and receive
his wages in cash; but the greater the necessity of
the individual the more likely he is to succumb

The truck system destroys the freedom of the
laborer; and with his freedom goes his power of
resistance. He is no longer master of himself and
therefore there is less hope that in the trial of
strength which precedes the determination of the
wages bargain the victory will lean to his side.

^ot ^7 ^■'"''' ^'^'^'''''' P- 3^7 ' ^^^ Brunswick Evidence^ p.
407, et passim. • ^

FINIS.

1!^ r

ilN

fs^.

:;'-7''t

^11

1 ' ■'

i I'

It/'

iiv:

INDEX.

Autonomous producers, 48- )

Banking systems, importance of,
to labor, 159, 301, 302

Bargain, wages : comparative
strength of bargainers, 162;
strength of laborers as bar-
gainers, 164-173 ; disabilities
of labor, 166 ; trade-union-
ism as collective bargaining,
167, 264-270 ; substitutes for
character in, 168-173

Booth (Charles), on the organiza-
tion of dock labor, 20 ; Life
and Labor of the People^ rgo,
215, 219, 220, 244, 247

BrentanOy on wages and output,
87, 90, 91, 105 ; reconciliation
of economy of high wages and
economy of low, 107-109

Burnet (Mr.), out-of-work sta-
tistics, 239

Cu'^i'nes (Prof.), non-competing
gi nps, 182; disposable fund
of laoor, 185

Canadian Labor Commission :
summer and winter wages, 24 ;
shorter hours and efficiency,
85 ; effect of immigration on

wages, 250 ; trade-union mini-
mum wage, 269 ; the util-
ity of reward, 285-287 ; truck
system and retail stores, 291-
293 ; truck prices, compara-
tive, 293 ; irregularity of em-
ployment in mines, 294, 295 ;
truck system and mobility,
305 ; methods of remuneration,
effect of, on economic char-
acter, 307 ; truck system and
compulsion, 311

Canadian migration, 202, 204,
206 ; " exodus," 205 ; restric-
tions on movement, 207 ; Cor-
liss Bill, 208, note ; tenants and
owners (diagram), 210-213 ;
tendency to level wages up,
215 ; migration by stages,
220-222 ; distribution of Cana-
dian immigrants in United
States, 221, 222 ; seasonal mi-
gration, 224-226 ; loss of popu-
lation due to emigration, 235

Capital : Kicardo's definition, 45 ;
are wages paid out of? 46, 55-
69 ; function of, 53 ; as in-
choate wealth (Prof. Taussig),
56

Capitalist, intention of, the de-
termining factor in wages, 3,
60

Census Reports : United States,
194, 195 ; British, 203 ; Cana-
dian, 215

313

314

Index,

'. ;!

• I '

Charity, indiscriminate, effect of,

Claimants on the product, satis-
fied according to economic
strength, 123 ; no right to a
share of product inherent in
any, 124 ; how affected by law
of substitution, 125

Commodities, demand for, and
demand for labor, 66-69

Competition in Wages-Fund
Theory, Oy ; according to sec-
ond version of Productivity
Theory, 95

Concomitant variations, method
of, applied to wages theory,
24-28, 81

Contribution of labor to produc-
tion, not physical but eco-
nomic, 119 ; confusion of ideas
of production and distribution,
123, 126

Co-operation : of factors in pro-
duction, 121, 122 ; ideal of,
150, note

Corliss Bill, 208, note

Correspondence between labor
conditions and wage theories, 3

Cost of production of labor, 8 ;
wages as an element of, g ; of
living and wages, 24 ; wage
and labor cost, 105

Defects of the historical theoric •
of wages, 129-135

Degradation : of wage earning,
Mr. Sedley Taylor on, 150 ; of
labor and mobility, 1S3

Demand for commodities and the
demand for labor, 66-6g

Dependence of laborer on em-
ployer exaggerated in Wages-
Fund Theory, 59

Distribution of product accord-
ing to claims, not according to
contributions, 123-126

Disutility of labor, more realized
the less remote the exertion,
137 ; makes labor a personal
commodity, 13S

Domestic servants and mobility,
180 ; wages of, 289

Drage ((jcof.), trade-unions -d
mobility, 177, 179

Drummomi {Wow. Robt ) on op-
position to company stores in
Nova Scotia, 291, note ; effect
of truck system on economic
character, 308

Dynamic principle required in
Theory of Wages, 109 ; secured
directly or indirectly, 109

Economy of high wages estab-
lished by Factory Acts, 102 ;
of low wages a natural infer-
ence from Mercantilism, 103 ;
of high wages and of low
wages reconciled, 107-109

Efficiency depends on mental
and moral qualities, 52 ; higher
wages and, 82, 83 ; output as
standard of, 88 ; effect of
trades-unions, 263 ; methods
of remuneration, 296

Emigration and trade mobility,
igi-196 ; British Emigrants
Office on, 191 ; Prof. Mayo-
Smith, ig3 ; Mr. Schloss, 195 ;
Dr. Geffchen on causes of,
227, 238 ; J. S. Mill, 230 ; the
balance-sheet of emigration,
227-234 ; emigration as a na-
tional investment, 228-231 ;
effect of immigration on
natural increase of United
States, 231 ; gijin by immigra-
tion not to be accurately meas-
ured, 233 ; depopulation, 234-
236 ; British industry and emi-
gration, 239 ; United States
industry and immigration,

\r-

I .-. )

Index.

315

)ility,
jrants
|»layo-

195 ;

IS of,

the
ition,
la na-

[231 ;
on

lited
jigra-

leas-

1234-
lemi-
jtates
Ition,

239-242 ; quality of emi-
grants, 243, 244 ; emigra-
tion and the labor market,
245 ; immigration and wages,
245-253 ; displacing of native
laborers, 249 ; wages and
standard of living of immi-
grants, 250-253

Employer's estimate, economic,
153 ; includes two factors —
amount of product and re-
sources of employer, 158 ;
variations in, 161 ; when non-
economic, 161

Evolution, doctrine applied to
wages theories, 128

Exodus from Canada, 205, 220-
222, 235

Experiment, industrial, involved
in first version of productivity
theory, 83-86

Factory Acts established econ-
omy of high wages, 102 ; un-
expected economic justifica-
tion ol, 104

Family the wage-earning unit,
28, 251-252 ; Gould on, 250

Fluctuations of industry, effect
of, on the standard of comfort,

Franklin (Benj.), on artificial
lower limit of wages, 152 ;
on the population of United
States, 236

Garnier, possibility of mobility
may reduce actual mobility,
214; produce payments, 287;
English truck system, 28S, note

Geffchen (Dr.), agr.irian causes
of emigration, 227 ; causes of
German emigration, 238

Gonner, the misrepresentations
of Ricardo, 17

Gould, Social Condition of Labor,

250
Gross and net returns, 10
Gunton, subsistence theory as
method of raising wages, 7 ;
on family as wage-earning unit,
28 ; version of subsistence the-
ory. 33-40 ; on Walker's re-
sidual theory, 116

Ilardie (Keir), the standard of
living and wages, 30

Hired laborers only considered
in Wages-Fund Theory, 48

Hobson, trade-union policy, 278

Howell, trade-unions and mobil-
ity, 179

Income, national, wages paid
out of, 55 ; of society, who
disposes of it, 63

Indifference theory of wages,
Senior and Brassey on, 103

Industrial revolution, effects of,
21, 108 ; conditions and the
subsistence theory, 21 ; and
mobility, 199

Intelligence required for use of
machinery, 100

Ireland, temporary migration
from, 223 ; emigration, 237,
239 ; diagram opp. 241

Italy, temporary migration, 224 ;
causes of emigration from,
242 ; objection to immigrants
from, 251

Labor, vaiying intensities of, 15 ;
necessities of, 39 ; not a pas-
sive factor in wages bargain,
51 ; dependence of. on em-
ployer, exaggerated in Wages-
Fund Theory, 59 ; luxurious
expenditure and demand for

316

Index.

I I

ii.'i

Labor — Con tin tied.
labor, 69 ; the supply price of,
73 ; disabilities of, Adam Smith
on, 75 ; commodity with a sup-
ply price, 76 ; cost and wages
cost, 105 ; contribution of, to
production, iig-126 ; two es-
timates of utility enter into
determination of vahie, 135 ;
disutility of, and remoteness of
exertion, 137 ; disutility makes
a personal commodity, 138 ;
value of, determined between
two estimates, 140-144 ; dis-
utility of, increasing or de-
creasing? 148 ; positive and
negative disutilities of, 149 ;
importance to, of sound bank-
ing system, 159 ; disposable
fund of, 185-189 ; not a sim-
plified case of value, 72, 256,
257 ; trade-unions and disa-
bilities of labor, 265-268 ;
methods of remuneration and
disutility of, 283 ; methods of
remuneration and disabilities
of labor, 303, 307

Leclaire, 172, 188

Limits of wages, 140-142, 153-
158; the debatable ground,
140 ; to pass upper limit re-
quires distributive readjust-
ment, 153, 257, 263 ; effect of
trade-unionism on limits, 263-
265

Localization of industry, effect
on migration, 209, 223

Macdonald {Mr. C. O.), on truck
system in Cape Breton, 291 ;
truck system a crime against
honest currency, 302, note

Machinery, intelligence required
for use of, 100

Mallock, Labor and the Popular
Welfare, 100 ; application of
method of residue, 123

Malthus, influence of, on de-
velopment of Wages-Fund
Theory, 46

Marginal laborer, Gunton and
Marshall on the, 33-35

Market and natural wages, ac-
cording to Ricardo, 41

Marshall (Prof.), on marginal
laborer, 35 ; Mill's theory of
distribution, 71, note ; trade
mobility, 181 ; on strikes, 280

AlcCulloch, trade mobility and
wages, 196

Mercantilism, influence of, on
wages theory, 103

Metayer system, in United
States, 2SS, note

Method of concomitant varia-
tions, 24, 81-83 ; of residues,
109-119

Migration and emigration, vol-
umes compared, 201-203 \ *
labor factor of decreasing im-
portance, 203-215 ; British
Census Report, on, 203, note ;
Prof. Wilcox on, 204 ; Cana-
dian migration, 205, 206 ;
modern restrictions, 207 ; Cor-
liss Bill, 208, note ; causes of
decline, 209, 213-215; prop-
erty owning, effect of, on, 209-
213; possibility of, has levelled
up wages, 213 ; in Ontario and
Quebec, 215; an economic
movement, 215 ; of women,
216 ; an adult movement, 217 ;
law of migration by stages,
218-222 ; temporary and sea-
sonal, 223-226

Mill, recantation of the Wages-
Fund Theory, 4 ; treatment of
particular wages, 44 ; attitude
of, towards economic history,
70 ; regards labor as the com-
modity, 70 ; theory of distribu-
tion. Prof. Marshall on, 71,
note ; disutility of labor, 149

Minimum of subsistence, physio-
logical and industrial, 17 ; the

Index,

317

ges,
sea-

jes-

tof

ude

ory,

om-

bu-

71.

^9
rsio-

the

standard of living as minimum
wages, 40
Mobility of labor, A. Smith on,
174, 182; Dr. Smart, 175;
Prof. Cairnes, 182, 185 ; neces-
sary postulate of Wages-Fund
Theory, 177 ; trade- unions
and, 177-180; ethical objec-
tions to, Howell on, 179; trade
mobility and place mobility,
181 ; trade mobility and degra-
dation of labor, I S3 ; tendency
of place mobility to promote
trade mobility, 189-196 ; in-
fluence of Industrial Revolu-
tion on, 199, 230

Necessities of the laborer, 39,

151, 266
Net return, does labor receive ?

12-15
Nicholson, on profit-sharing, 100,

note ; on strikes, 280

Ontario: Bureau of Statistics, 210,
287, 300 ; migration from, 215

Output, and wages, Brentano on,
87 ; as the standard of effi-
ciency, 88-89, ^"<i wages,
comparative statistics of, 90,
gi ; increment of, due to labor,
q6 ; proportion going to labor
diminishing, 97-100 ; and
labor, Mr. Malloch on, 100

Ownership of the wages fund
57-64

Piece work, trade-unions and,
269 ; and disutility of labor,
282 ; piece wages in United
States, 283 ; effect on effi-
ciency, 297-299

Position of the laborer, indepen-
dence exaggerated by Produc-
tivity Theory, 4 ; Wages-Fund

Theory, 59 ; contribution to
production, 121

Potter (Miss Beatrice), on em-
ployer's estimate, 162

Product of industry due to co-
operation, 121-123

Product sharing, Mr. Gamier on,
287-289 ; metayer system in
United States and Canada,
288, note

Production an extended process,
53-55 ; contribution of labor
to, not physical but economic,
119-126

Productivity Theory and the in-
dependence of labor, 4 ; two
versions of, 81 ; the first ver-
sion involves an industrial ex-
periment, 83 ; the second ver-
sion relies on competition, 95 ;
neglects second factor in em-
ployer's estimate, 158

Profit-sharing, Prof. Nicholson
on, 100, note ; attitude of ad-
vocates to wage system, 150;
attitude of trade-unionism to-
wards, 269 ; and disutility of
labor, 282 ; effect on efficiency,
297-299

Property owning and mobility,
209-213

Protective policy, aim of, 201,
note

Public opinion as a factor in
wages bargain, 171

RavensteirC s law of migration by
stages, 218-222

Remuneration, industrial, meth-
ods of, 166, chap. viii.

Residues, method of, in economic
theory, 109-1 19 ; rent as a
residual share, 110-113 ; profits
as a residual share, 113; in
economics implies false theory
of economic history, 113; sanc-
tioned by Adam Smith, 114;

3>8

Index.

■;i I

m ■•■

wages as residual, 115 ; I'rof.
Walker on wages as residual,
115-117; Mr. Mallock's ap-
plication of, 123

Restrictions on mob'lity, 207,
20S ; Corliss Bill and contract
labor law, 208, note ; military,
238

Rictirdo, exceptions to law of
natural wages, 41 ; definition
of capital, 45; standard, Mr.
Conner e-'qilaiiis, 17 ; on rent
and profiLa as residual, 110-113

Roscher^ on Wages Fund, 159

Schloss, Methods of Industrial
Remuneration, 150,281 ; trade
mobility, 195 ; lump-of-work
fallacy, 263

Senior and the Factory Acts,
102 ; and Lord Brassey, indif-
ference theory of wages, 103

Swart (Dr.), the mobility of la-
bor, 176: on value, 254, 255

Smith (Adam), the theory of dis-
tribution, 7 ; criticism of sub-
sistence theory, 23 ; summer
and winter wages, 23 ; wages
paid out of capital, 53 ; disa-
bilities of labor, 75 ; immo-
bility of labor, 175, 182

Smith (H. Llewellyn), Booth's
Life and Labor, 190, 215, 220

Smith (Prof. Mayo-), see emigra-
tion and migration

Standard, of subsistence and the
principle of population, 18 ; of
comfort and the fluctuations of
industry, ig ; of efficiency out-
put as, 88-90

Substitution, law of, as effecting
claimants in distribution, 123,
125, 156, 158

Summer and winter wages, in
Canada, 23, note ; Adam Smith
on, 23

Supply of labor not determinate,
47-51 ; supply price of labor,
73-76

Taussig (Prof.), on capital, 56
Taylor (Sedley), the degradation

of the wage earner, 150
Trade-unionism as collective bar-
gaining, 167, 268-271; as a
substitute for character, 168 ;
fallacy of lump of work, 89,

263 ; effect on limits of wages,

264 ; mainly a method of bar-
gaining, 264 ; object of trade-
union policy, 267 ; legal locus
standi, 270; numerical strength,
271, note; the problem of dis-
cipline, 272 ; must rely mainly
on moral forces, 274 ; obstacles
in the way of discipline, 275-
277 ; cardinal maxim of policy,
277, 27S ; balance-sheet of a
strike, 279 ; its ideal method
of remuneration, 305

Truck system, 160, 289-296 ; the
sweated wage, 290 ; compara-
tive prices, 293 ; and irregu-
larity of employment, 294 ;
compared with credit system,
295 ; and wages fund, 299-303;
and mobility, 305 ; effect on
economic character, 303, 311 ;
and financial conditions, 302,
note, 309

United States, wages and the cost
of living, 25 ; share allotted to
labor, 98 ; law of substitution
in, 125 ; Benjamin Franklin on
law of wages in, 152 ; Census
Report, 194, 195; Prof. Wilcox
on immigration, 204 ; Cana-
dian immigrants into, 205, 221 ;
Corliss Bill, 208, note ; tem-
porary immignnits, 224-226 ;

Index.

319

migration and natural rate
of increase, 231 ; immigration
and waj^es, 245-253 ; piece
wages in, 2S3 ; metayer system
in, 288, note

Value, theory of, 72, note, 254,

257 ; labor a complicated case,

72, 256, 257
Variations in subsistence theory,

() ; in intensity of labor, 15 ;

in the employer's estimate, i6r

Wages, theories, development of,
3 ; as an element of cost, 9 ;
a gross return, 11 ; and the cost
of living, 24, 25 ; of women, 25-
28 ; the family the wage-earn-
ing unit, 27, 251, 252 ; gener-
al, and per head, 42 ; source of
wages, 45, 4O, 53-f'9 ; paid out
of income, 55, 56, and output,
Brentano on, 87 ; and output,
comparative statistics, 88; econ-
omy of high and economy of
low, loi-ioS ; the indifference
theory of, 103 ; cost and labor
cost, 105 ; dynamic principle
thought necessary in theory of,
109 ; method of residues ap-
plied to theory of, 107-119;
doctrine of evolution and criti-
cism of theories of, 128 ; de-
fects of the historic theories,
129-135 ; Ml. Sedley Taylor
on degradation in earning,
150; artificial lower limit
to, Henjamin Franklin on,
152 ; bargaining, influence of
legislation and public opinion
on, 117, 173; and trade mo-
bility, 183 ; McCulloch on,
196 ; levelled up by effect of

property owning, 209-213 ; im-
proved communications, 213-
215 ; piece wages, 2S3 ; weekly
payments of, 284 ; deferred
payment of, 286
Wages Fund : and Capital, 53-55;
ownership of, 57 ; not abso-
lutely fixed and predetermined,
60-69 » sliould include credit,
61 ; amount of, 65 ; and luxu-
rious expenditures, 69 ; a
" Zwischen -reservoir,"' 159;
increased by some methods of
remuneration, 159, 297-303
Wages-Fund Theory, Mill's re-
cantation of, 4 ; problem of,
43; formulated in three propo-
sitions, 47, 53, 69 ; considers
hired labor only, 48 ; a theory
mainly of the demand for labor,
52; and competition, 69;
critics usually consider money
wages only, 79 ; and rent as
residual share, 112 ; a recon-
ciliation of subsistence and pro-
ductivity theories, 133 ; the
fundamental error of, 134 ; but
the most adequate of the his-
toric theories, 135 ; over-em-
phasizes the second element of
employer's estimate, 158

Walker (Prof.), residual method
applied to wage theory, 115-
118 ; on mobility, 174, 188,
189

Wicks (Mr. F.), on trade-unions,
271, note

Wilcox ( Prof.), on migration, 204

Women, wages of , 25-28 ; migra-
tion of, 216; influence on trade-
unionism, 275

Wfight (Carroll), wages and cost
of living in United States, 25 ;
piece wages in United States,
283

ji ,

i.;

i ,

SOUND MONEY.

THE SILVER SITUATION IN THE UNITED STATES. By

F, W. Taussig, LL.B., Ph.D., Professor of Political Economy in
Harvard University; author of "The Tariff History of the United
States," (No. 74 in the Questions of the Day Series.) Second Edition.
Revised and enlarged. 8vo, ch:)th -i! 75

" We do not hesitate to sny that this book is in all respects as excellent as it is oppor-
tune. It is extremely concise in statement, and deserves to be read by the learned as well
as by the ignorant, while the times should insure it the widest circulation,"— AVw I'orA
Evtning Post,

CORPORATION FINANCE. By Thomas L. Greene, Auditor of

the Manhattan Trust Co. A Study of the Principles and Methods of

the Management of the Finances of Corporations in the United States,

vv'ith special reference to the valuation of corporation securities. 8vo,

|i 25

" The author's practical and theoretical knowledge has enabled him to prepare an in-
structi/e book, useful alike to the student at college and the every-day man of affairs. He
writes in a careful, discriminating way, is conservative in expression and views, and does
not aim at effects, but presents his statements and arguments in a plain, straightforward
way. We imagine few competent critics will take issue with him on any material points
in fiis discussions."— 77«e? Financial Chronicle.

REAL BI-METALLISM ; or, True Coin versus False Coin. A Les-

son for " Coin's Financial School." By Everett P. Wheeler, authoi

of " The Modern Law of Carriers." (Question of the Day Series, No.

" 84.) Illustrated. Paper, 40 cts. ; cloth . . . . $ 75

" Mr. Wheeler has a firm .and comprehensive grasp of his subject, and in a few com-
pact chapters he lays bare ' Coin's' sophistries and misstatements, and effectually demon-
strates the folly and danger of independent free silver coinage at the present ratio."—
Commercial Advertiser,, New York.

A HISTORY OF MODERN BANKS OF ISSUE. With an Ac
count of the Economic Crises of the Present Century. By Charles A.
CONANT. 8vo $3 00

"We can only express our hearty appreciation of the book as a whole It is ex-
treniely interesting. It cannot but be useful, and to us it is very cheering. Mr Conant's
book, from beginning to end, is a proof that sound currency is evolved necessarily from
the progress of an industrial and commercial people. We have unhesitating, unfaltering
laith in the progress of the people of our country in industry and commerce, and that
sound currency will therefrom be evolved."— iV. Y. Times, '

THE HISTORY OF CURRENCY (1252 to 1894). Being an Ac

count of the Gold and Silver Monies and Monetary Standard of Europe

and America together with an Examination of the Effects of Currency

and Exchange Phenomena on Commercial and National Progress and

Well-Being. By W. A., Shaw M. A. 8vo . . . net $3 75

" The present bimetallic controversy has given birth to nothing more profound and
convincing, , . . Mr. Shaw's work possesses a permanent historical interest far trans-
cending the present battle of the standards."— A^. J'. Nation,

G. P. PUTNAM'S SONS

NEW YORK AND LONDON

f ,

il i I

SOUND MONEY.

THIRTY YEARS OF AMERICAN FINANCE. A Short Finan-
cial History of the Governmenf and reoi)le of the United States since
the Civil War 1865-1S96. By Alexander Dana Noyes. i2mo

SOUND MONEY MONOGRAPHS. By Wiluam C. Cornwell,

President of the City Bank, Buffalo, author of "The Currency and the

Banking Law of Canada". 8vo $I 00

*• The author deals intelligently with the origin of monej', fiat money and legal tender,
the result of legal tender and the remedy, and international annage."— Boston Globe,

MONETARY PROBLEMS AND REFORMS. By Charles H.
Swan, Jr. (No. 91 in Question of the Day Series.) Svo . $ 75

"Mr. Swan's discussion of the subject is clear, concise, and sound, and constitutes a
valuable addition to the literature of the subject.— 6"^. Louis Globe-Democrat,

THE NATURAL LAW OF MONEY. The successive steps in the
growth of Money traced from the days of Barter to the Introduction of
the Modem Cleaiing-house, and Monetary Principles examined in their
ielation to Past and Present Legislation. By William Brough.
i2mo, cloth, $1 00

" The author's style is clear and concise, and he gives a great deal of valuable infor-
mation well adapted to the understanding of the general reader in a brief compass."^
Boston Saturday Eve, Gazette,

A L*oTORY OF MONEY AND PRICES. Being an Inquiry into
their Relations from the Thirteenth Century to the Present Time. By
J. Schoenhof; author of "The Econony of High Wages," etc.
(No. 85 in the Questions of the Day Series.) i2mo . . $1 50

"Mr. Schoenhof's book, 'Money and Prices,' is a positive and most valuable con-
tribution to economic literature inasmuch as_ it supplies, in a clear and popular manner,
just the information necessary for the formation of correct opinions respecting the vexed
problem of prices, and especially respecting their relation to monetary changes. The ex-
amination ought to be more an essential of every high educational system." — David A.
Wblls.

PRINCIPLES AND PRACTICE OF FINANCE. A Practical
Guide for Bankers, Merchants, and Lawyers, together with a Summary
of the National and State Banking Laws, and the Legal Rates of In-
terest, Tables of Foreign Coins, and a Glossary of Commercial and
Financial Terms. By Edward Carroll, Jr. Svo, cloth . $1 75

" Mr. Carroll's volume aims to be a practical guide for bankers, merchants, and law-
yers, and certainly does give a great deal of information which they ought to know. . , ,
It is refreshing to get a book on finance which is not given up to the discussion of the
writer's personal views on the current questions of financial agitation. . . . These
subjects will soon fail to interest, for in the nature of things, they will soon be settled.
They are too practical to remain open. But Mr. Carroll's volume will be valuable long
after those matters have been disposed of. It is well written, and the index makes it k
convenient book of reference,"— CA/ira^.£7 Inter-Occan ,

G. P. PUTNAM'S SONS

NEW YORK AND LONDON

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