The Distribution of Wealth: A Theory of Wages, Interest and Profits
By John Bates Clark
This 1908 edition is the third reprinting of Clark’s path-breaking, yet widely under-read, 1899 textbook, in which he developed marginal productivity theory and used it to explore the way income is distributed between wages, interest, and rents in a market economy. In this book Clark made the theory of marginal productivity clear enough that we take it for granted today. Yet, even today, the power of his methodical development of what seems obvious at first glance clarifies and demolishes inaccurate theories that linger on. His work remains illuminating because of its classic explanations of the mobility of capital via its recreation while it wears out, the difference between static and dynamic models, the equivalence of rent and interest, the inability of entrepreneurs to “exploit” (meaning, underpay) labor (or capital) in a competitive market economy, the flaws of widely-quoted existing theories such as the labor theory of value and the irrelevance of rent on land, and, in a
famous footnote, why von Thünen’s concept of final productivity didn’t go far enough.The work is reproduced here in full with the exception of Clark’s textbook-style marginal notes and his “chapter overviews” in the Table of Contents.Lauren Landsburg
Editor, Library of Economics and Liberty
First Pub. Date
New York: The Macmillan Company
The text of this edition is in the public domain. Picture of John Bates Clark courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Chapter II, The Place of Distribution Within the Traditional Divisions of Economics
- Chapter III, The Place of Distribution Within the Natural Divisions of Economics
- Chapter IV, The Basis of Distribution in Universal Economic Laws
- Chapter V, Actual Distribution the Result of Social Organization
- Chapter VI, Effects of Social Progress
- Chapter VII, Wages in a Static State the Specific Product of Labor
- Chapter VIII, How the Specific Product of Labor may be distinguished
- Chapter IX, Capital and Capital-Goods contrasted
- Chapter X, Kinds of Capital and of Capital-Goods
- Chapter XI, The Productivity of Social Labor Dependent on its Quantitative Relation to Capital
- Chapter XII, Final Productivity the Regulator of Both Wages and Interest
- Chapter XIII, The Products of Labor and Capital, as measured by the Formula of Rent
- Chapter XIV, The Earnings of Industrial Groups
- Chapter XV, The Marginal Efficiency of Consumers' Wealth the Basis of Group Distribution
- Chapter XVI, How the Marginal Efficiency of Consumers' Wealth is measured
- Chapter XVII, How the Efficiency of Final Increments of Producers' Wealth is tested
- Chapter XVIII, The Growth of Capital by Qualitative Increments
- Chapter XIX, The Mode of Apportioning Labor and Capital among the Industrial Groups
- Chapter XX, Production and Consumption synchronized by rightly Apportioned Capital
- Chapter XXI, The Theory of Economic Causation
- Chapter XXII, The Law of Economic Causation applied to the Products of Concrete Instruments
- Chapter XXIII, The Relation of All Rents to Value and thus to Group Distribution
- Chapter XXIV, The Unit for measuring Industrial Agents and their Products
- Chapter XXV, Static Standards in a Dynamic Society
- Chapter XXVI, Proximate Static Standards
How the Specific Product of Labor may be distinguished
In that static condition in which competition would produce its full effects and bring wages to a natural standard, the pay of labor, as has just been shown, would equal the product that could be separately traced to it. We have discovered a limited field in which whatever is produced is due to labor only; but we need to find one that is larger and more elastic. We have to look for an economic field to which many men may go, and in which they will be virtually rent-free and interest-free. They must be able to work unaided and also untaxed and to create a distinguishable product, all of which they will then get. A few men may, of course, till worthless land, and so make themselves free from landlords’ and capitalists’ claims. Many more may utilize instruments of other kinds that are too poor to afford a rent to their owners. A larger number still may get employment as additional workers in establishments that have good working appliances, and that pay no more for the use of them in consequence of the presence of the marginal men.
It does not follow that, because a man desires that the product of his industry shall not pay tribute to employers, he needs to take himself away from them. Working near to the man who tills a waste piece of land in an independent way, there may be another man who works on similar land for the owner of it, and gets as wages the value of what he raises. This man is as free from a master’s exactions as is the squatter. A man may have, as Adam Smith has said, “neither landlord nor master to share with him,” though he work for a master. If he gives his employer no more in value than his employer gives to him, his product is intact, and it all comes to him as wages. It is in positions like these that most marginal laborers are found. They are not working in solitude, yet their products are distinguishable from all other products.
There are mills and furnaces so antiquated, so nearly worn out or so badly located that their owners get nothing from them; and yet they run, so long as superintendents can earn their salaries and ordinary workers their natural wages. There are machines that have outlived their usefulness to their owners, but still do their work and give the entire product that they help to create to the men who operate them. There are railroads and steamship lines that pay operating expenses only. There are stocks of merchandise so full of remnants and unstylish goods that it barely pays salesmen to handle them. Everywhere, in indefinite variety and extent, are no-rent instruments; and, if labor uses them it gets the entire product of the operation. Let the general rate of wages rise, and many of these instruments will be thrown out of use. Let the rate then fall, and the utilizing of them will be resumed. Let a migration relieve the pressure of population in one country, and overcrowd another; and in the former country no-rent instruments of every sort will be abandoned, while in the latter such as are idle will be put into active use.
That no-rent instruments are not few in number is made clear by the fact that every tool, machine, building, vehicle or other auxiliary of labor that wears out by use must, in the course of its deterioration, necessarily reach a point at which it yields no net gain to its owner. So long as an
entrepreneur can keep such an instrument in his service, and gain anything whatever by so doing, he will keep it. When he loses something by its presence, he will abandon it. When he neither gains nor loses by the presence of the worn instrument,—that is, when the whole product gained by using it is required to pay for the labor that utilizes it,—the instrument is in the concluding or no-rent stage of its economic career. Everything that wears out in the using has such an old age period of service, preceding the moment of its abandonment; and the aggregate of things that at any one date are in this condition is enough to constitute a very large outfit of no-rent appliances, by which labor may be aided. The effect of an increase of population, if other things remained unchanged, would be to prolong the period of service of all such deteriorating capital goods. To make the existing stock of capital goods available for the larger number of men, it would be necessary to work the worn tool, the rickety engine, the unseaworthy ship, etc., somewhat longer than it would have been used under former conditions. When it is at the point of abandonment, however, the labor that uses it creates wages only.
The entire product that is created by utilizing the poorest instruments that are kept in action at all, goes to the men who work with them. The amount of this product corresponds with and expresses the rate of general wages, and it is an important element in regulating that rate. The men who use such instruments are a part of the final increment of labor, the market price of which regulates the price of all labor. They are, however, not the whole of this final increment; for there are in the field other marginal men who are not using valueless instruments of any kind. A man may be free from all claims of capitalist and landlord, without restricting himself to the difficult process of using only worthless land and tools.
If this were the only alternative open to an unemployed man, the wage law that our study is to reveal would be akin to that of Mr. George, which asserts that all wages depend on the product realized by tilling no-rent land. We should, however, have to offer one amendment to this formula, making it assert that all men must accept what any of them could produce, if they chose to utilize marginal land
and other valueless instruments. The field that would thus be open to men seeking employment is, by one point, larger than the marginal territory that mere agriculture affords; but it does not comprise the whole field that is, in reality, open to them. We must consult facts to see where men may and do resort, when thus seeking employment.
Reverting to agriculture, we find an intensive, as well as an extensive, marginal field. For one man who finds work by pushing the boundary of the tilled area into no-rent territory, there are a number who find it by a harder tillage of rent-paying lands. Whenever one waste farm is brought into use, new men are likely to be set at work on many good ones. Indeed, the overcrowding of the good lands comes first in time; for it is the diminished returns that the workers get, as they till more and more intensively these lands of high quality, that cause an overflow of the working force to inferior lands. Men are, then, crowded outward from the intensive centres of cultivation. The point at which it ceases to be profitable to add to the amount of labor spent on good land may be termed the intensive margin of cultivation. Such a field has received increment after increment of labor; but the time has come when a further force of workers can do better elsewhere.
Thus, one man may plough a rocky field alone, but his ploughing is imperfect. For the best results a spade must here and there be used; and the man who uses it may be regarded as a marginal man. Again, three men may plant a field; but their planting will be slow, and some parts of the land will not have the benefit of a long growing season. Four men, however, can plant the field more quickly, and thus give to the part that is last reached a longer time to mature its crop. In this case the fourth man is the marginal one; and the value of the whole additional produce that his presence causes may go to him as wages. Once more, three men may be able to reap a field; but four can do it more quickly, and so save the crop from some of the danger to which autumnal rain exposes it. Here, again, the fourth man is the marginal one, whose whole product is his wages. The value of the wheat that in a series of years is saved from destruction through his presence may be paid to him for his labor. There may be still another man who gleans behind the reapers, and gets just the value of his gleanings. Such an additional man often adds to the perfection of the planting process or the cultivating process. But if he created less and received less than he actually does, he would betake himself to inferior land.
It is by assuming perfectly free competition among employers that we are able to say that the man on the intensive margin of an agricultural force of laborers will get, as pay, the value of his product. When such a man offers himself to an employer, he is virtually offering an addition to the farmer’s crop. If one farmer will not pay the market price of the additional produce, another will pay it, provided that competition does its work quite perfectly. Friction is, however, always an element to be taken into account; for adjustments like this are not perfect in any society. Our sole present inquiry is, nevertheless, to determine the standard to which wages
tend to conform—the standard to which they
would conform in a frictionless society. Our answer is that wages conform to the product that is attributable to marginal labor.
We are also seeking to ascertain what such marginal labor is; and in agriculture much of it consists in the final increment of labor employed in the intensive tillage of good land. Such labor demands of a farmer no appreciable increase in his investment of capital. He does not need to buy more land or to put more permanent improvements into land that he already owns. In many cases he does not need to add a single tool to his outfit. He has only to add this man, empty-handed as he is, to his laboring force. Any extra produce is attributable to the man’s labor, and to that only; and perfect competition tends to give the value of this produce to the man as wages.
Such an intensive margin of the field for labor is by no means confined to agriculture: it may be traced throughout the industrial system. Everywhere there is a line that it does not pay to pass in adding to the number of workers who are utilizing the really productive appliances of industry. Though a hundred men can sail a steamship, a hundred and five may sail it better. In that case, the five extra men are on the intensive margin of utilization of the steamship and are virtually rent-free. Whatever the ship itself must pay to its owners, was paid when it was run by the original crew. The last five men that are taken on board, therefore, create a distinct product. They render the ship a more efficient carrier and put money into the owners’ pockets; but they take this money out of the owners’ pockets, when they draw wages. In mills, mines, shops, furnaces, etc., there is in this way often a chance to vary, within narrow limits, the number of men who are employed, without affecting the owners’ incomes. If new men are thus taken, their whole product is given to them.
There are, however, some points in the industrial system at which there is no elasticity in the number of workers who can be economically employed. A given machine often requires one man to run it, and no more. It is not, then, at every point in a great establishment that the working force can be enlarged or reduced without any change in the character of the outfit of capital goods. Yet in commerce there is often an appreciable elasticity in the amount of labor that can be employed in connection with a stock of salable merchandise. In manufacturing and in transporting, too, the working force may often be varied perceptibly, with no change in the amount or in the character of the capital goods that are used in connection with it.
Such changes must, of course, be kept within comparatively narrow limits. At one point in the industrial system it may be that five men can be added to a gang of a hundred, without requiring a change in the amount of capital employed and without requiring any change in the form of it. Elsewhere only one man in a hundred can, in this way, be added or subtracted. If, in each of the general groups into which society is organized for the purpose of production, as many men as one for every hundred can be added to the working force or taken from it, without necessitating any change in the outfit of tools, machines, materials, etc., that they use, this fact is sufficient to furnish a certain theoretical basis for a law of wages. Any one man in a force of a hundred may, then, leave his own employer without injuring or benefiting the employer; and if he offers his service to another and demands, as pay, what he will produce for him, he will neither benefit nor injure this second master, in case he gets employment from him. There is, it thus appears, what we may call a zone of indifference in the field of employment that each
entrepreneur controls. Within this limit men may go or come without affecting the employers’ pockets. Motives other than pecuniary interest may cause employers to accept new men that are offered to them; and there is a chance for a limited amount of labor to flow freely from group to group in the industrial system. If competition works in ideal perfection, wherever these marginal workers go, they get their exact products as their pay; though, in fact, as competition works imperfectly, what the men get is merely an approximation to their products.
When any man leaves his employer, the test that determines how much he has been worth is applied by ascertaining how much the employer loses in consequence of leaving his laboring force made, by one man, smaller. It may be that the identity of the particular man who goes is of no consequence. All that is important may be the fact that, somewhere in the mill, there are seven workmen in a gang that formerly had eight, or nineteen in a gang that had twenty. The man is, let us say, an average, unskilled workman; and he can change his occupation without that amount of waste and friction that is entailed when a man who has mastered a profitable specialty transfers himself from one group to another. One question to be answered is, How much does the former employer lose by the man’s departure? Another question is, How much does the second employer gain by the man’s presence?
So far as the men in an employer’s service are thus interchangeable, it makes no difference to him which of them it is that leaves his service. If the man who departs has been doing some kind of work that is quite necessary in conducting the business, the employer has only to put in his place the man who has been doing the work that is least needed. The work that is left undone in consequence of one man’s departure is always of the marginal kind. The men in a mill arrange themselves in different classes, in the order that expresses the importance of the work that they are doing. The first class does something that is indispensable, the second, something that is highly important but less so than that which is done by the first, etc. The last class does a kind of work that contributes least of all to the productiveness of the business. If a man belonging to the first class leaves his employment, the master has only to put into his place a man taken from the last class. It is the least needed work that will remain undone. The
effective importance to his employer of any of these interchangeable men is measured by the
absolute importance of the one that does the least necessary work.
Moreover, we shall find that, where men are not thus entirely interchangeable, something akin to this substitution of one for the other still takes place, when a superior man, performing an important function, deserts his employment. That function does not go unperformed. Another man is set to doing what the departing man did; and the work that remains undone is, as before, work of the marginal kind. The substitutions that have to be made, in order to bring about this result, do, it is true, entail a special loss on the employer; for the important kinds of work are not so well done as they were formerly. The extra loss thus occasioned measures the special value of the superior man whose departure caused the substitutions. All grades of labor are, however, really measured, in the end, by marginal standards; and the entire process of measurement can be understood when we shall have reached a later point in the study of the marginal productivity of labor.
What we need now to note is that, so far as men are interchangeable, they are all alike in what we may call their
effective productivity. One of them may actually be doing an indispensable work and another a work that is of slight importance; but it really diminishes the product of the establishment no more to take away the first man than it does to take away the second, for the second man is sure to leave his own work and do the more essential thing formerly done by the first. What we may call the absolute productivity of a particular man is measured by the importance of the particular work that he is doing. Let the man desert his place, leaving undone the work that he has heretofore done, and the loss that the establishment will thereby sustain measures the man’s absolute productivity. What we have called a man’s effective productivity is, then, measured by the loss that his employer suffers when the man departs, and when the employer rearranges his force so that the more necessary kinds of work are still done. The employer will put B into A’s place, C into B’s place, etc. ; and the only work that goes undone is of the kind that is least necessary. If the men are quite interchangeable, the effective productivity of any one of them is equal to the absolute productivity of the final or marginal one, whose work can best be dispensed with. We shall find that all wages are naturally gauged by the effective, rather than the absolute, productivity of the men who get them. In so far as men can be freely substituted for each other, any man in a series of men is actually worth to his employer only as much as the last one in the series produces.
From an employer’s point of view, the area within which he can set a few extra men working, without reducing their effective products, in amount, below those of men who are already in this marginal region, we have called the
zone of indifference—on the ground that it is of no appreciable importance to him whether such men work or not. If he hires them, he will pay their products as wages, and will make nothing out of them. A small influence will determine whether an employer will hire such man or not. There is, of course, some friction to be overcome whenever a working force is enlarged or reduced. From a workman’s point of view, this is evident. If I am a clerk out of employment, will you take me into your shop? Yes, if I can produce for you a bare tithe more than you will pay me in wages; no, if I can produce less. You may or may not take me, if I can add to your previous product exactly what I ask as wages. My labor will then lie within the zone of economic indifference, and humanity or other motives will determine your action. If I am in your employment, will you turn me off? Probably not, till the product that my labor adds to the other earnings of the shop falls short of my actual wages. If you have taken me into your shop at a time when business was unusually good, you doubtless realized, for the time, a small profit from my labor; and this sufficed to overcome the slight inertia that opposes an enlargement of a laboring force. On the other hand, when you have once enrolled me among your men, inertia will work in my favor; for you will keep me till my presence involves a loss that is large enough to make you take the overt step of discharging me.
What we are seeking is, of course, the standard to which the pay of labor tends to conform; but inertia and friction are influences that, as we have asserted with all needed emphasis, have a place in all economic theories that aim to be complete. It is not, however, in that part of the theoretical statement which aims to establish the natural standard of wages that we have to measure the effects of friction. Even though, in the adjustment of wages, there were very large disturbing influences to be encountered, yet, if competition caused the pay of labor to gravitate always toward the rate that is fixed by the product of the marginal part of the supply of labor, it would be enough for our present purpose to establish that fact; and this would be true, though friction and disturbance—the elements that are elsewhere to be studied—kept the actual rate of wages much farther from the theoretical standard than they do.
The conclusions that we have now reached may be summarized as follows:
Wages tend to equal the product of marginal labor; and that part of the working force which occupies a zone of indifference is thus marginal. The men who run no-rent machinery, or extort the last increment of product from better machinery, are within this field; and so are the men who till waste land, or give the final touches to the intensive tillage of good land. So, also, are the laborers who anywhere bring capital goods to the height of their efficiency, and so effect any of the final gleanings of the industrial field. All these men create a certain amount of wealth. Competition tends to give them the whole of it; and it also tends to make other laborers accept what these men create and get. If the workmen within the zone of indifference constitute an appreciable force, and if they can be transferred freely from one position to another, it is clear that
the effective product of any workman must be equal to the absolute product of a man who is within the marginal zone. Let any man desert an employer’s working force and, however necessary that man’s labor may be, the employer will lose only what some man in the marginal area is now producing. He will take this man, who is now doing some of the final gleaning work, and put him into the place where the more important labor is to be performed. By
effective standards all men’s labor is equally important, provided that the men are interchangeable. The friction that the interchange encounters is, again, an element for separate study. In the absence of friction, men who can be moved from place to place are of equal effective importance and get equal pay—that is the amount that the marginal workers produce.
Another step may now be taken toward the attainment of a standard of general wages. The product that is created within one employer’s zone of indifference tends to equal what is produced on the corresponding part of another employer’s field. If the marginal machinery of some cloth-making firm is very poor,—consisting, perhaps, in antiquated and rickety looms in a remote mill in the country,—the men who use this machinery can produce only a little. If in a modern mill, elsewhere located, the marginal instruments are much better, the men who use them create more; and, under free competition, they tend to get more. Here, let us say, is a situation that calls for a transfer of men from one field to the other.
The old and worn machines will be abandoned, and the men who used them will go to the good mills, and will there utilize poorer instruments than, in these mills, have heretofore been used; or they will make less productive uses of the good instruments that there abound. In short, they will press the margin of employment downward to a less productive level; and this movement will tend to go on till, in one employer’s mill, marginal labor creates and gets the same amount of wealth that it does in the mills of his competitors.
This is saying that the acres of indifference in the several employers’ fields, all taken together, constitute a zone of indifference running through the whole group, or branch of industry, to which the men belong. Any man within this zone may leave one employer and betake himself to another, and he will produce for the second the same amount of wealth that he created for the first. This entire zone is an area of uniform productivity for labor and of equal pay for labor, if competition works without friction. The static adjustment toward which industrial society is at each instant tending is one in which the marginal men in all establishments belonging to one group are uniformly productive and are paid at a uniform rate.
Again, there is a similar tendency to uniformity of productive power and of pay in the marginal areas in the different branches of industry. What is produced within the zone of indifference in one industrial group, tends to equal what is produced in the corresponding zone in another; and there is, in reality, a social zone of indifference that includes all the local areas. Thus, marginal labor in shoe manufacturing tends to be as productive and as well paid as is marginal labor in iron-smelting, in quarrying, in transporting, etc. If this were not so, there would be a steady flow of labor from the less productive to the more productive area. If in one occupation the marginal men create what is worth a dollar and a half a day, while elsewhere they create what is worth two dollars a day, the employers in this latter field are interested in hiring men entirely from that field in which the product and the pay are the lowest. This transfer of men from the one field to the other equalizes the productive powers of men at the several margins of employment. In the one field men will relinquish the poorest instruments and the least productive uses of good ones. The effect of this, in the branch of industry from which the men go, is to make better instruments become the marginal ones; and it is also to make more profitable uses of good instruments become the final or no-rent uses. It increases the absolute product of the marginal labor, and that raises the effective product of all labor. The result in the group to which men are going is the reverse of this. There the use of poorer and poorer instruments, and the making of less and less productive uses of good instruments, is the rule. There marginal labor is being forced into less and less productive fields. The inducement to move is withdrawn, and the movement ends when in farming, in cotton-spinning, in mining, in shoemaking, in cattle raising, etc., the final increments of labor are equally productive. Marginal social labor, in short, tends everywhere to be uniformly productive: labor of uniform personal quality is equally productive in all parts of the industrial system. The interchangeability of labor insures this. It is, therefore, all paid at the same rate; for the wages of a unit of labor anywhere in the working field tend to equal the product of a unit on the marginal part of it. The zone of indifference, then, extends through every group and sub-group into which industrial society is organized. The distinctive fact about it is, that it is everywhere a matter of indifference to an employer whether, within this area, he employs a man or not.
The terms “zone,” “area” and “field,” are figurative expressions; and what they really signify is opportunity to labor. A fertile piece of land or a well-equipped shop offers to a certain number of men an opportunity to work in a highly productive way. This best opening for labor may be represented by the figure of a central circle in the universal field for employment. Additional men create less than did the original ones, because their opportunities are poorer; and this fact may be indicated by locating them, in imagination, on zones surrounding the central area. There is a series of such opportunities for labor, each of which is poorer than the preceding ones, and the last is the poorest of all. It is this most sterile of the fields, openings or opportunities for labor that we describe graphically as an outermost zone, within which men produce only their wages. This is the zone of indifference from an employer’s point of view, because, if he sets men working within this area, he must give them all that they produce as wages. If one employer offers to them less than, by their productive power, they are worth, another will offer more, provided competition is perfectly free and efficient. Theoretically, there is competition between employers for every workman whose presence in an establishment affords to the owner any profit over what he pays to him; and the competition stops only when this profit is annihilated.
In this there is a parallelism of great importance between the natural value of goods and the natural wages of labor. It has been rightly asserted by early economists that the natural price of an article is one that yields only the cost of producing it, and this view is in harmony with common experience. Normal prices are no-profit prices. They afford wages for all the labor that is involved in producing the goods, including the labor of superintending the mills, managing the finances, keeping the accounts, collecting the debts and doing all the work of directing the policy of the business. They afford, also, interest on all the capital that is used in the business, whether it is owned by the
entrepreneur or borrowed from some one else. Beyond this there is no return, if prices stand exactly at their normal rate; and the reason for this is that
entrepreneurs compete with each other in selling their goods, and so reduce prices to the no-net-profit level.
Prices, however, seldom remain long at the exact cost rates. There are fluctuations that carry them at one time above the rate, and then cause them to subside toward it. The no-profit level of price is thus normal; because it furnishes, not the rate at which things continue to sell, but the one toward which prices are forever gravitating, where competition is free. Wherever there is an
entrepreneur’s net profit, some article is, for the time being, selling for more than this normal price. The tendency of competition is to annihilate the profit; and that is the same thing as bringing actual prices to what, in accepted economic theory as well as in common experience, is their “natural” level. The friction that this movement toward the natural level encounters is a subject for later study; but we already see that the pure profit of an
entrepreneur could never exist, if it were not for this friction. If the price of everything could instantly take the level fixed by the bare cost of producing it, there would be nothing left for an
entrepreneur, as such.
In employing marginal labor, competition, if it is free and efficient, has the same effect: it annihilates the profit that an employer might make on the last increment of labor that he hires. Employers have the same inducement to bid over each other for labor that will give them a net gain, as they have to bid under each other to secure a sale for goods that yield a profit. In the latter case, they run the prices down till no margin of gain is left for themselves; and in the former case they run the wages of the last increment of labor up, till no profit remains for them. The marginal wage rate is, then, naturally a no-net-profit rate; and it is employers’ competition that tends to make it so. Here, again, there is friction to be encountered; for competition does not do its work with accuracy. Hence there are now and then profits or losses connected with marginal labor. The no-profit pay for such labor is, however, natural, for the same reason that cost prices of goods are natural: it is the rate toward which, under the influence of competition, the pay of marginal labor is everywhere tending.
Furthermore, as all pay for marginal labor tends to adjust itself to the product of that labor, so the pay for all other labor tends to adjust itself to that of the marginal part of the supply. What a man on the zone of indifference is getting, another man must accept, if the employer can substitute the one for the other. This principle would afford a sufficient regulator of wages, if its zone of indifference, as it has been described, were the whole marginal field of employment of labor; but it is not. Besides utilizing worthless instruments and bringing out the latent possibilities of good ones—that is, by enlarging the whole field of labor in the extensive and the intensive ways that have thus far been described—an addition to the working force may in still another way find employment in which it will create a distinct product and get the whole of it. It is, therefore, not fair to say that the product of labor on the zone of indifference is the sole and adequate standard to which the pay of all labor conforms. It is the product of labor on a still larger marginal field, of which this zone is only a part, that constitutes this standard.
The opportunity for employment, which has been described by the term “zone of indifference,” consists in the liberty to use capital-goods, or concrete instruments of production, in ways that make them yield more than they already do. Taking the working equipment of the world as it stands, we may get somewhat more out of it, if we spend more labor in using it. This is a different thing from getting more out of a given
capital by a similar intensifying of labor. A mill with its machines as they stand can take more laborers than are now employed in it; but if the mill is worth a million dollars, that amount of capital is capable of employing a much larger number of marginal workers than the mill can use as it stands. The vast stock of working appliances that the United States possesses can enable more men to work than are now working; but sixty-five billion “dollars ” not confined to these appliances, but free to invest themselves in any other things, could give openings to a much greater number of additional workmen. There is a radical difference between the margin of employment that is offered by a particular stock of capital-goods and the one that is offered by a given
In many parts of the industrial field a few more men or a few less might be employed, in connection with the amounts of capital that are there already in use, and
without any change in the form of that capital. Thus, leaving a farm, with its buildings, live stock, implements, etc., exactly as they are, you may add a man to the working force or withdraw one from it without affecting the employer’s gains. This slight elasticity in the size of the laboring force that an industrial plant can receive is of great importance; but as an essential fact it is insignificant in comparison with the elasticity in the size of the force that a given capital can receive. Though there are shops into which one or more men could be taken without loss, there are also shops that could not economically take another man. There are, again, machines that must be tended all day by one operator. There are farms, gardens, mines, sailing craft, etc., to which the bringing of one more workman would mean an excessive and uneconomical supply of labor; but there is no such limit to the number who can work with a fixed amount of capital,
if the forms of it can be varied to suit the number of the men. If, whenever you added to the number of your workmen, you could instantly, and without waste, put your capital into any new shapes that you might select, you might double, quadruple or octuple your force of men without adding to the amount of your capital as a whole. If, therefore, capital is not limited in its forms, the labor that can use it is not limited in quantity.
This fact makes it ultimately possible for a far greater quantity of labor to move from group to group in the industrial system than could so move if capital were frozen rigidly into a fixed set of forms. If this were the case, only men on the zone of indifference could be transferred without a disastrous amount of waste and disturbance. If there were two industries, each of which employed a hundred thousand men and a hundred million dollars’ worth of capital, it might be that one thousand men could move freely from one to the other without any gain or loss in productive power. If, however, it were desired to transfer ten thousand men or fifty thousand, this would be impracticable, so long as the forms of the capital in the two industries remained unchanged. Take half of the working men out of the one set of mills and put them into the other, and in the first set many machines will cease to run at all, while in the other mills men will be unable to do anything that in useful enough to make their company worth as much as their room. Yet a perfect mobility of labor is one of our primary hypotheses. Unless labor is thus mobile, it cannot be brought to an equality of earning power in different industries, and a general or social rate of wages cannot be established. It is clear that in thinking, in a practical way, of the manner in which a general rate of pay is established, we tacitly recognize the unrestricted power that
capital, as such, has to employ varying amounts of labor. Because the capital of each group has this power, the groups are brought to an equilibrium, and their outputs are made normal. Because the capital of society, as a whole, has this power, labor, as a whole, always has, under normal conditions, an outlook for employment where its product will set the standard of its pay. An industrial society can, in some way, absorb any amount of labor. If capital is freely transmutable in form, labor becomes freely transferable and able to count on an indefinitely elastic field of employment. What a marginal unit of it can produce in this elastic field is the amount that can be specifically attributed to any unit.