<h2>CHAPTER 23</h2>
<h3>THE LAW OF WAGES</h3>
<h4>§ I. NATURE OF WAGES AND THE WAGES PROBLEM</h4>
<div class="sidenote">Wages and rent compared and contrasted</div>
<p>1. <i>Wage in the broad sense is the income due to labor, in distinction
from that due to the control of material agents.</i> The uses of material
agents, studied under the subject of rent, are sometimes called
"material services." The adjective refers to the source or bearer of the
use, and does not imply that the service is to be thought of as a
material thing. In its last analysis a service is never a material
thing, but a psychic effect on men and their wants. Material services
and human services are merely specific kinds of the genus services (or
utilities), and it would doubtless be a better usage to speak of labor's
services and wealth's uses. Wages bear the same relation to man's
services that rent does to the material uses of wealth. Wages are more
like rent than like interest in that neither wages nor rent are
expressed as a percentage. While rent is the value of the uses of
things, wages is the value of the services of men. In discussing
interest, wealth is capitalized; but, in discussing wages, men are
thought of as affording utilities for a time, as is wealth under the
renting contract. The resemblance thus is very close between rent and
wages, but not so close between wages and interest.</p>
<p>Despite this interesting analogy, it is not well to speak, as some do,
of "the rent of labor"—as well might one speak of the wages of wealth.
Such a usage only beclouds the<span class="pagenum"><SPAN name="Page_206" id="Page_206">[Pg 206]</SPAN></span> distinction between two concepts,
suggesting identity where there are important differences. The aim of
scientific classification is missed when contrasts are thus concealed
under a single term.</p>
<div class="sidenote">Nature of the law of wages</div>
<p>2. <i>A law of wages is a statement of the relation of the general causes
of value to the value of human services.</i> In real life no one agent is
valued independently of other goods. The felt importance of a good
depends on the degree to which other wants are gratified. If men are
starving, they attach less importance to ornaments; if cold, more
importance to clothing and fuel, being willing to part even with some
needed food to secure them. That is, man's desire for each thing is
affected by his general condition and by the existence of other goods
and wants. A similar relation exists between the values of indirect
agents, and must exist between wages and rent.</p>
<p>We are to discuss the law of wages. An economic law does not state a
command; it is not a political law; it states merely an observed
relation. Things do not need to happen actually according to any law of
wages that can be formulated, but they will happen in the measure that
the assumed conditions exist. The law states a tendency of wages, just
as the law of gravitation states a tendency and does not predict
positively whether a given object will fall at a given moment. The "law
of wages," therefore, is to be understood as a hypothetical statement of
the value that will be attributed to labor under a given set of
conditions.</p>
<div class="sidenote">Economic wages and contract wages</div>
<p>3. <i>Economic wages are the value of human services in the broad sense;
contract wages are the goods paid by one wages man to another according
to an agreement.</i> In discussing rent and interest, we have become
familiar with this important distinction between economic and contract
values. Economic wages are fundamental, the primary subject of
theoretical study. Contract wages are the wages paid by one man to
another in accordance with an agreement, and may not at this moment
coincide with economic wages.<span class="pagenum"><SPAN name="Page_207" id="Page_207">[Pg 207]</SPAN></span> When the contract was made, one party may
have been ignorant or helpless, and have failed to get all he now could;
or meantime the conditions may have changed. But contract wages are
based on economic wages and tend to conform to them. If one person
performs services for another without expecting to receive economic
goods or services in return, it is a gift, not wages. A workman can get
as contract wages the amount of his economic wage if free competition
exists and he acts intelligently. Of course, these are important
conditions.</p>
<p>Real and nominal wages must be distinguished: real wages are the reward
of labor as measured in goods and enjoyments; nominal wages are the
reward expressed in terms of money, whose purchasing power varies from
time to time and from place to place.</p>
<div class="sidenote">Scarce services gratify wants</div>
<p>4. <i>Human services, being one of the conditions of psychic income, bear
the same relation to wants that material goods bear.</i> As the material
agents that are fitted to gratify wants are scarce, labor is applied to
the outer world to change and adapt it, thus making it answer desire
better. Labor, thus, in many of its applications merely supplements the
bounty of nature. Men have a use to and for each other; they have a
relation to other men's welfare similar to that borne by material
things. The different human actions have all grades of relation to
gratification, from harmful to helpful, just as things have. According
to their relation to this scale services therefore become ranked either
high or low in the estimation of men. Some acts are negative services,
to use the term service in a paradoxical sense; they are things to be
avoided and escaped. Value then is attributed to the services of men
according to their rank in this scale, just as it is to the uses of
agents in the case of rent.</p>
<p>Scarcity is the condition of value in labor, as it is of value in any
good; but scarcity is a relative term. The commonest kinds of labor
would not ordinarily be called scarce, but compared with their possible
desirable uses, they are scarce,<span class="pagenum"><SPAN name="Page_208" id="Page_208">[Pg 208]</SPAN></span> and this fact is the key to a large
part of the wage problem. The question is: how and in what degree does
this scarcity cause value to attach to labor?</p>
<h4>§ II. THE DIFFERENT MODES OF EARNING WAGES</h4>
<div class="sidenote">The simplest case of economic wages</div>
<p>1. <i>The self-employed laborer earns wages in the broad economic sense.</i>
In this sense the isolated workman, Robinson Crusoe on his island, earns
wages, but these wages could not be measured at all exactly. They are a
part of an indivisible income, and there is no way to determine how much
should be attributed to the uses of the wealth employed and how much to
the labor. The independent farmer, producing on his own farm nearly
everything he consumes, may be said to earn wages in the broad sense.
These can, moreover, be estimated, because they can be compared with
what he could get by working for some one else. The farmer, therefore,
attributes a certain part of his income to the farm as rent and a
certain part to his own labor as wages.</p>
<div class="sidenote">Wages of the self-employed exchanging worker</div>
<p>2. <i>The wages of self-employed labor are often simply the value of the
material product it secures by exchange.</i> Labor has value indirectly
because embodied in products. The worker value of these products is
reflected to the labor which secures them. The wages of the fisherman
day by day, as he follows his vocation, are simply the market value of
the fish he catches day by day. The gold-miner, working with simple
tools in the days of placer-mining, earned wages exactly expressed by
the gold he washed out.</p>
<p>The independent worker with few tools does not think of attributing any
considerable part of his income to his tools. The umbrella-mender's
"kit" is so small that his true wage is little less than his total
receipts. The tinker, the shoemaker, and the tailor, who went from house
to house in the old days, thought only in the vaguest way of marking off
from their incomes a part to be counted as the rent of their little
outfit of tools. Until very recent times the capital invested<span class="pagenum"><SPAN name="Page_209" id="Page_209">[Pg 209]</SPAN></span> in tools
commonly was small, and usually was owned by the handworker who thus
received an undivided income, of which wages were by far the larger
part. It was inevitable, therefore, that labor alone should have been
thought of as the cause of the value of goods produced by the artisans
in the towns and cities. This error, small at first, was magnified as
the capital investment of modern industry grew, and it persists in many
fallacious notions that still taint modern economic theory.</p>
<div class="sidenote">Both impersonal and personal causes of contract wages</div>
<p>3. <i>Contract wages, paid by an employer, rest on the same cause of
value, the direct or indirect effect of labor in the gratifying of
wants.</i> When contract wages come to be spoken of, the personal element
of bargaining between man and man comes in to obscure somewhat the
impersonal causes that are operating. If the fisher and the miner bring
their products to the general markets, the impersonal part of the
problem is uppermost and the wages are recognized to be the market value
of the material products. But if an employer hires a number of workmen,
and the labor of each becomes merged and lost to view in a complex
product, the uncritical mind stops, loses all hold on a guiding
principle of value, and sees only the superficial fact of a personal
bargain between employer and workman. Such a view overlooks the logical
cause of value, and the network of impersonal forces which enwraps and
binds the personal acts.</p>
<div class="sidenote">A single direct personal service</div>
<p>To begin with the simplest case: workers often are temporarily employed
to produce for others means of gratification at once consumed. The
barber shaves his patron, the ferryman takes the traveler across the
river, the boy carries a message, the surgeon sets a broken bone. Each
performs a useful service, but produces no long-abiding material result
outside of the beneficiary, and no separable, salable material good.
When each is paid according to the value of the gratification afforded,
the first step is taken toward the regular contract-wage relation
between man and man.</p>
<div class="sidenote">The continued wage contract for personal services</div>
<p>In ordinary domestic service the only condition not present<span class="pagenum"><SPAN name="Page_210" id="Page_210">[Pg 210]</SPAN></span> in the
cases just given is the more abiding character of the contract relation.
The employer does not hire a coachman each time he wishes to take a
ride, but having summed up the advantages of a coachman's services, he
buys them by the month or the year. The price is determined in the
market for coachmen of the needed ability, qualities ranging from stupid
to bright, from weak to strong, and from drunk to sober. Instead of
buying flowers from day to day, a wealthy man hires a gardener to
cultivate them in a conservatory. The average market price of flowers
influences the wages paid to the gardener, his wages being but the sum
of the values (or of his contribution to the values) of flowers,
well-kept lawn, and garden products. According to the conditions of each
household and of the general market, the one or the other mode of buying
these utilities is the more advantageous.</p>
<div class="sidenote">Labor employed on products exchanged</div>
<p>4. <i>The payment of the laborer to produce goods for exchange is the most
common modern case of wages.</i> The relation of wages to the value of the
product is in this case more complex, for the employer is directing the
labor to gratifying the wants of others, not his own wants. It is the
desire of prospective customers for the product, and the chance of
exchanging it, that will eventually enable the employer to recover the
amounts paid to laborers. Labor is only one of the elements entering
into the product. Within limits it may be substituted for the other
elements, fewer machines being used and more laborers, or vice versa. No
more will be given for any labor than it is expected to add to the value
of the product. As employers test by experience the contribution of the
marginal labor to the value of the product, labor is constantly compared
with the value of other things.</p>
<p>When industry becomes complex, the connection between the wages and the
value ultimately realized in the product may be broken for a time, but
rarely for a very long time. Because of miscalculations, labor is
employed on things that<span class="pagenum"><SPAN name="Page_211" id="Page_211">[Pg 211]</SPAN></span> prove to be quite valueless, and on other
things that have a much greater value than was expected. When months or
years intervene before the value of the labor is realized in the sale of
the product, the employer must forecast the outcome as best he can, and
employ labor only when the wages promise to be recovered. These are
complicating facts, but in any logical view they do not falsify the
principle that wages are determined by their prospective contribution to
the utility of goods.</p>
<div class="sidenote">Various methods of remuneration, but one general rule</div>
<p>5. <i>The wages paid by the various methods of remuneration—as, by time,
by the piece, by premium for output—all conform in a general way to the
economic value of the service.</i> Many methods are employed to measure the
services of wage workers. If time is used, a general or average output
is assumed, and the workman must come up to that standard if he is to
hold his place. If payment is by the piece, the price per piece must be
enough to make possible the prevailing time-wage to workers of that
grade if the supply is to be maintained in that industry. The
convenience of the different methods of payment varies from industry to
industry, and even from task to task within the same factory, so that
now one, now another method is followed. In any case, however, the aim
is to find some convenient measurement of the rate of labor, and of its
contribution to the value of the product.</p>
<h4>§ III. WAGES AS EXEMPLIFYING THE GENERAL LAW OF VALUE</h4>
<div class="sidenote">Ratio of exchange of services adjusted to their marginal
utility</div>
<p>1. <i>Each grade of labor is a potential supply of desirable things and
its wage is determined in essentially the same way as if it were an
actual supply.</i> If all the various psychic goods that labor produces
were spread out before men in visible form, some would be in great
demand, some would exchange in a very unfavorable ratio with others. The
exchange would come to equilibrium at a point where each buyer had
adjusted his supply of enjoyments in the most<span class="pagenum"><SPAN name="Page_212" id="Page_212">[Pg 212]</SPAN></span> favorable way, had so
distributed his purchasing power as to get those kinds and amounts of
services which afford him the highest possible sum of enjoyment.</p>
<div class="sidenote">Differences in wages persist</div>
<p>In this situation the real wages of some being so much more than those
of others, the low-paid workers will have a motive to change their
occupations. But the various laborers have limited abilities and cannot
change at will and, despite the unfavorable ratio, they may be compelled
to continue at the same work. Just as apples cannot become peaches or
sheep become horses when there is a change in their price, so the
unskilled workman cannot become skilled quickly, if he ever can, and the
possibility of changing occupations within any reasonable period is very
small indeed. Labor is constantly trying to adjust itself, to get into
the better-paid industries. It moves, it emigrates, it seeks training
and education. Especially the workers between the ages of fifteen and
twenty-five choose the callings that promise the highest reward. Within
limits an adjustment is possible, but these limits are not wide and not
quickly shifted, and the wages of labor continue diverse in different
occupations for an indefinite time.</p>
<div class="sidenote">Various grades of labor and rates of wages</div>
<p>2. <i>The term general rate of wages can be used only of a certain grade
of labor and of the rate for the average worker.</i> Every grade and kind
of ability has its rate of wages. To be sure, it is sometimes convenient
to speak in a broad but inexact way of "a general rate of wages," when
comparing different countries and periods. When it is said that the rate
of wages is higher in America than in England, in England than in
France, in France than in India, the comparison is between men of the
same occupation in the different countries; <i>e.g.</i>, the unskilled
laborer or the mechanic gets more here than the same grade of laborer
gets in England. There is no such thing as a general rate of wages
extending throughout all industries.</p>
<p>The different grades of ability differ more markedly in wages than do
industries compared as wholes. In<span class="pagenum"><SPAN name="Page_213" id="Page_213">[Pg 213]</SPAN></span> the manufacture of cloth all grades
of ability are required, from the highly paid artist and engineer, down
to the roustabout in the yard. The industries of manufacturing,
commerce, and education alike require the coöperation of bookkeepers,
janitors, carpenters, and superintendents. It is easy in most cases to
pass from any grade of occupation in one industry to a corresponding
grade in another industry; but it is difficult to pass from a lower
grade to a higher grade in the same or another industry.</p>
<div class="sidenote">Equilibrium of services and wages</div>
<p>Abstractly considered, that is, wherever free competition exists, there
is a constant tendency toward a state of equilibrium; each workman is
moving into the industry where he earns the highest possible amount, and
where he receives just what his fellow-men estimate his importance to
be, judged by the service he performs. Each man's place is determined by
his specific gravity, just as the place of liquids poured into a glass
is determined by their density. There is much reason to believe that
this condition is approached actually in a far greater degree than is
thought by those who come to the question with preconceived notions of
what ought to be, or of what they would like to see. This principle of
the economic wage does not preclude the questioning of the justice of
existing institutions, but it is a guide in the discussion of all
practical problems of wages.</p>
<div class="sidenote">Wages follow the law of marginal valuation</div>
<p>3. <i>The law of wages may be stated thus: in any state of the labor
market the wages of any labor or class of labor is equal to its marginal
contribution—that is, to the value of its products.</i> Each agent in
industry, whether it be a plough, a horse, or a man, is valued in
connection with other agents, never apart or isolated. It is not the
total service any one of them performs that can be got at; all that can
be got at is the utility attributed to the last unit of supply. Their
marginal contribution determines their importance. Each agent is
considered in combination with other things at a given moment under
existing conditions of supply.</p>
<div class="sidenote">Wages exemplify the general law of value</div>
<p>This statement of the law of wages is broad, and appears<span class="pagenum"><SPAN name="Page_214" id="Page_214">[Pg 214]</SPAN></span> to be modified
in many ways in practice: by changes in industry, by ignorance on the
part of the worker, by unequal skill in bargaining; but the law of wages
just stated allows for these modifications, and is a guide amid the
complexity of facts, for it gives a place to the influence of trade
unions, caste, and everything else that affects the labor-supply. The
law of wages is but the general law of value, working itself out amid
the special conditions accompanying the gratification of wants by human
effort.</p>
<hr class="chap" />
<p><span class="pagenum"><SPAN name="Page_215" id="Page_215">[Pg 215]</SPAN></span></p>
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