The Wages Question: A Treatise on Wages and the Wages Class
By Francis A. Walker
Francis A. Walker’s
The Wages Question is generally credited as having demolished the prior, antiquated “wages fund” theory of wages [see Book I, Chapters
IX]. In the process, Walker simultaneously laid the groundwork for
John Bates Clark’s definitive descriptions of the marginal products of labor and capital. His interest in the nature of the firm contributed to
Frank H. Knight’s work by clearly describing the factors of production and how to categorize their rewards into wages, rent, and profits.Walker’s work and influence served as models not only because he discussed production, labor, and wages with unusual clarity for his time, but also because his interest in monetary issues (influenced by his father, also an economist) enabled him to describe the
difference between nominal and real values. His clarifications of monetary issues coincided with concurrent national interests in
the gold/silver/bimetallism parity controversies of the late 1800s, and the meaning of money for an economy. Walker later wrote a textbook that was used in classrooms till the publication of
Principles of Economics.Walker became the first President of the
American Economic Association. His professorships at Yale and MIT changed the courses of their economics programs. His leadership abilities were evident in every realm of his life, including his stint as a General during the Civil War. His devotion to economics as a profession paved the way for many generations of U.S. economists.For all his contributions, Walker’s popularity may also have been one of the main sources of the promulgatation of many current misunderstandings. His views of
Thomas Robert Malthus’s writings may have been the source of the popular subsequent mis-association of Carlyle’s 1849 term, the
“dismal science,” with Malthus. (Walker’s interest in labor and wages naturally led him to consider population, but may also have caused him to emphasize pressures inherent in rapid population growth, race, and class distinctions over
Malthus’s original interest in the economic incentives that deter overpopulation.) Walker’s general views and influence may have led to other underlying divisions behind different strains in macro- and micro-economic research that persist to this day.Lauren F. Landsburg
First Pub. Date
London: Macmillan and Co.
The text of this edition is in the public domain. Picture of Young courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Front Matter
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part I, Chapter 7
- Part I, Chapter 8
- Part I, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part II, Chapter 13
- Part II, Chapter 14
- Part II, Chapter 15
- Part II, Chapter 16
- Part II, Chapter 17
- Part II, Chapter 18
- Part II, Chapter 19
- Concluding Remarks
IF the three great classes which together make up modern industrial society, in its highest development, have been justly delineated, it will be seen how inaccurate is that statement of the wages question which makes it identical with the labor question. The true wages question is the question of employment. Hence the popular phrase, “the contest of labor and capital,” becomes at once revealed as a misnomer. The true controversy is not between the laborer and the capitalist, but between the laborer and his employer, to whom laborer and capitalist alike are compelled to resort for the opportunity to produce wealth and to derive an income.
In the highly-complicated organization of modern industry, the employer, the
entrepreneur, stands between the capitalist and the laborer, makes his terms with each, and directs the courses and methods of industry with almost unquestioned authority. To laborer and to capitalist alike he guarantees a reward at fixed rates, taking for himself whatever his skill, enterprise, and good fortune shall secure. How completely the laborer accepts this situation of affairs we see in the fewness of the attempts to establish productive co-operation, as shown in the preceding chapter. But the laborer does not accept the situation more utterly, more passively, than does the capitalist. Quite as closely does the man of wealth who has not been
trained to business, respect his own limitations; quite as little is he disposed to venture for himself.
We have a striking exemplification of this impotence of the capitalist, as capitalist, in the experience of the United States during the past three years. What have the capitalists done, what can the capitalists do, to help themselves in the event of a withdrawal of the business class? They have done nothing, certainly, in the present crisis: they can do nothing important, of themselves. They can lower their terms and offer their capital at diminished rates, affording enterprise thus a wider margin for profits; but if enterprise finds this inducement insufficient, the capitalist has nothing to do. The money lies in bank; the shops and stores are tenantless.
Does the capitalist, discontented with the inadequacy of his remuneration when he has for months received but two or three per cent per annum upon his money, set up business in order to employ his own capital and make a better interest for himself? I trow not. The very fact that the veteran professional conductors of business have withdrawn from production, or have greatly curtailed their operations, is a sufficient advertisement to him that it is no time for outsiders to push into the field. He knows that, in the best of seasons, a single venture into an industry of which he has had no personal experience, or even into one from which he has retired, but so long ago as to have become rusty in its methods, unfamiliar with its latest machinery, and strange to the
personnel of the trade, might well cost him a year’s interest on his fortune; while an attempt to carry on production, merely for the sake of employing his capital, in a time when the masters of the business shrink from the prospect of disaster, would, most likely, cost him the bulk of the capital itself. It is not in such a time, if ever, that the outside capitalist ventures into the field of industry. Even less than the laborer, who may be goaded by the stings of personal want, is he likely to step forward to take the place from which the
entrepreneur retires. He, too, waits for better times, and meanwhile gets what he can for his money “on call.”
I shall, then, in the four remaining chapters of this work confine myself to (1) the comparative advantages, either in the essence of the relationship or in the accidental constitution of the classes as they are found in existing economical society, which the employers and the employed may be seen to possess; and (2) the means by which that class which we shall find at a relative disadvantage may be helped or hindered in competition for the product of industry.
And, in the first place, it should be inquired, has either a natural advantage over the other?
It is to be observed that they are respectively buyers and sellers of the same thing,
*33 service or labor; and each finds his own interest only as the bargain is effected. Unless that bargain be made, the employer can not have his profits any more than the laborer can have his wages. So far their interest is common: that the laborer shall be employed. It is only as to the rate of wages and the rate of profits that opinions and interests diverge. Hence we say, the relation of the two parties is not and can not be one of antagonism, for the object and effect of antagonism is to destroy or to supplant.
Since, then, the employer gets his profits only as the laborer gets his wages,
*34 and because the laborer gets his
wages, it is difficult to see that the employer is any more necessary to the laborer than the laborer is to the employer, or that either has any
natural advantage over the other.
Not a little, however, has been written to prove that the employer has such an advantage. Mr. Thornton, in his well-known treatise On Labor, has sought to show that the sellers of labor are at a disadvantage.
“All other commodities,” he says,
*35 “may be stored up for a longer or a shorter time without loss either in quantity or quality. But labor will not keep; it can not be left unused for one moment without partially wasting away. Unless it be sold immediately some portion of it can never be sold at all.
To-day’s labor can not be sold after to-day, for to-morrow it will have ceased to exist. A laborer can not, for however short a time, postpone the sale of his labor without losing the price of the labor which he might have exercised during the period of the postponement.”
Mr. Thornton certainly did not intend to say that labor can not be unused “for one moment” without wasting away, since the very first condition of labor is that for several hours in each day, perhaps one half of the twenty-four, it shall be unused. But taking this expression as a mere slip of the pen, we note that Mr. Thornton overlooks a common experience in industry when he asserts that the omission to labor on any day carries with it a total loss of the labor that might have been performed. It surely can not be denied that a man may work considerably harder one day for having lain-by the day before, provided it was not for a debauch, or in honor of Saint Monday, but that the time was really taken for rest. So that it is entirely possible, if, to save contention, we take the case of a man engaged in piece-work or hired by the hour, that a man may still have left him to sell a part at least of the labor
which, on Mr. Thornton’s assumption, he would entirely and forever lose by failing to work, whether from deliberate choice, or by higgling with his employer, or by looking about for better terms than those offered him.
Nor is it only on the day following that he may find himself able to render a portion of the service which Mr. Thornton assumes to be wholly lost by the failure to perform a day’s work every day. It is notorious that a laborer may be able, by lying-by a whole week, to perform a distinctly greater amount of work every day of the week following; not, perhaps, that he can well do two ordinary weeks’ work in one, but that he can in six days do considerably more than one ordinary week’s work, if he has been prepared for the effort by a long rest. And this capability of storing-up the power of labor is not wholly confined within the limits of a secular week. It is well known that in many trades, having peculiar natural or industrial conditions, workmen acquire an anaconda-like faculty of alternately gorging and digesting
*36 through periods amounting to entire seasons of the year. I do not say that this is desirable; I merely assert it as a fact. In none, it may be assumed, do the workmen perform as much, in the aggregate for twelve months, as if they had worked continuously, or at least with intervals of rest and recreation expressly adapted to maintain the highest degree of physical vigor; yet in none, probably, do they fail to perform more, and it may be very much more, than it would have been possible for them to perform in equal periods, without the preparation of a long term of complete rest.
But it was not alone to correct Mr. Thornton in this particular that I quoted him here. Granting, for the time, the total loss of labor in the instances given, and admitting, for argument’s sake, that the sellers of labor are in a different position from the sellers of any other commodity, is not
the buyer of labor in the same situation precisely? If he does not buy to-day’s labor to-day, he surely can not buy it to-morrow; it will then, on Mr. Thornton’s assumption, have ceased to exist. If the laborer does not realize wages on his present capacity for labor, the employer certainly can not realize profits on it. Manual labor is the essential condition of all production of wealth. If manual labor is withdrawn, land can not yield rent, money interest, or business-enterprise profits. Labor, meanwhile, and just for the same length of time, loses its wages. If the stoppage is for a month, each party loses one twelfth of its year.
But that is an even stranger reason which Mr. Thornton has discovered for attributing to the employer, in his turn, a disadvantage to a degree counterbalancing that which he attributes to the laborer, as above. It is that the employer, in case of the continued cessation of industry, will become “industrially defunct” (On Labor, p. 275) when he has eaten up all his capital, whereas “the laborer, who is trying conclusions with him, provided only that his health be not permanently impaired by the privations he is meanwhile enduring, in preserving his thews and sinews preserves also his stock-in-trade and his industrial ability.” Mr. Thornton elsewhere (p. 177) explains what he means by employers becoming industrially defunct: “to them entire exhaustion of resources would be absolutely fatal…. For the capitalist in losing his capital loses his all, distinctive class-existence included; he ceases to be a capitalist.” So, we suppose, if the laborer should starve to death for want of employment, he would lose his distinctive class-existence, with his other existence, and cease to be a laborer.
Now, in the first place, who, pray (accepting Mr. Thornton’s definitions of laborer and capitalist), is to find subsistence for the laborer, whom Mr. Thornton takes as habitually poor, through the long struggle during which the capitalist is to become industrially defunct? Is it not
something very like a bull to make the assumption that the means of the employing capitalist would be exhausted before the means of the striking laborer, who accordingly remains sound and plump in “thew and sinew,” while the emaciated master sinks out of his distinctive class-existence and, economically speaking, expires of inanition?
But, secondly, the employer (here spoken of by Mr. Thornton as the capitalist) does not necessarily lose all and become industrially defunct on losing his capital. “Goodwill” remains, constituted of business connection and business reputation, which has been in countless cases better than a fortune to the able and deserving man of business. It is scarcely too much to say that an employer of character and standing, who should sink his capital in such a contest as Mr. Thornton supposes, would not fail to command the means to resume and carry forward his industrial operations. Indeed, it is, at least in the United States, uncommon for a really reputable house to be extinguished even by a failure on commercial grounds. Witness the great liquidation of 1873-6.
We do not, then, find any ground for attributing to either employer or laborer a
natural advantage over the other. Certainly, if there be truth in the adage of Chateaubriand, “Le salaire n’est que l’esclavage prolongé,” it is not on account of any thing essential in the nature of the relations of the employer and the employed.
We have already, in discussing the causes which diminish industrial mobility, alluded to the principal causes which place the wage-laborer at a disadvantage in competition. Now that we have formally arrayed the employing and the employed classes over against each other, two of these causes may instructively be considered more in detail. The first is the accidental fact of the superiority of numbers on the side of the employed, giving the employers an advantage which is not at all of the essence of the relationship. In most countries and in most occupations
*37the buyers of labor are few, the sellers of labor are many. Aside from the effects of possible combinations among the buyers or the sellers, there is in this an element of weakness to the individual seller. For instance, if we consider the case of a manufacturer employing usually. twenty hands, we may say that his need to employ those workmen is correspondent precisely to their need of employment. If the conditions of his business would allow the profitable employment of twenty hands, his loss, if for any cause he employs but nineteen, may be assumed to be as great as the twenty workmen, taken as a body, suffer therefrom. But just here is the rub: the twenty are not a body having a common interest. The loss is not to be divided equally among them. It is to fall entire on a single one of the number; and this calamity each one for himself seeks to escape.
In the apprehension, amounting it may be to terror, of being left out of the number of the employed, each of the twenty is ready to accept terms below the ordinary rate. It does not require any analysis of the elements of the case to show that, in such a temper of the competitors for employment, wages will go below—it may be greatly below—the limit at which the employer might be able fairly to reimburse himself for his expenditure and make his average profits. Here we have a result of distinct economical advantage on the part of the employer, arising not from the essential character of the relation, but from the accident that the employers are few, the employed many.
The second great fact in regard to the wages class as we find them, is their habitual poverty. This poverty is not
at all involved in the position of a wage-laborer, and in fact it is not found as a rule in some communities, nor without exception in any community. The vast majority, however, of all wage-laborers have little or no accumulations, many being even without the means of subsisting themselves a month, or a week, without work. They are, therefore, unable to stand out against their employers and make terms for their services, or to seek a better market for their labor in another town or city, but must accept the first offer of employment, however meagre the compensation. Even though the matter in dispute between them and their employers may be sufficient to justify a protracted contest, they lack the primary physical means of sustaining that contest. The wage-laborer is thus like a poor litigant who must lose a valuable claim because he has not the money to pay the cost of a suit; and after a struggle, short at the utmost, he sees himself on the verge of suffering or even of starvation; and, if not for his own sake, at least for that of his wife and children, is fain to accept the terms that are offered him.
The employer, on the other hand, has only to calculate whether the matter in dispute between him and his hands is really worth a contest; and if he find it so, he can, so far as his own mere physical maintenance is concerned, protract the contest indefinitely. By “indefinitely” I mean that the term through which the master can withhold employment is altogether out of proportion to the term during which the laborer, as he is found in actual life to be furnished with the means of subsistence, can manage to live without employment.
But the employer may not deem the matter in dispute worth a contest, and hence it is of great importance to the laborer that he should have the ability, at least for a time, to dispute the employer’s terms, and make him fairly face the prospect of a struggle before deciding against his demands. If, then, the employer sees that the profits which the lower wages would enable him, in a given period, to
make will be eaten up in a period of inactivity, it may fairly be assumed that, if he can, he will concede what is asked. This, of course, implies that the question of pecuniary interest only is considered, and that bad temper and creature pugnacity
*38 do not enter as elements in the situation.
In connection with this assumed calculation by the employer as to the expediency of standing out against a demand for wages which he may be able, though reluctant, to concede, we have to take into account two elements which are additional to the simple one of the amount of wages to be paid.
The first is the employer’s interest in
the continuity of production.
The interest which the employer has in the continuity of production, over and above the mere profits which he might expect to realize in a given period during which a suspension of industry might be proposed or threatened,
arises mainly out of that business connection and that business reputation which are summed up in the phrase “goodwill.” Altogether besides the loss of immediate profits, an employer of labor has to contemplate a certain loss of custom as involved in any protracted stoppage of his works.
The world of politics does not sooner forget a former leader in retirement than the world of business forgets one who withdraws from the competitions of trade. Even the strongest houses, however completely they may seem to have the control of the market in their line, do not like to have their customers and correspondents learn to go elsewhere, through any failure of theirs to meet every demand upon them. Hence they not infrequently continue producing through considerable periods of depression, making a sacrifice of their accustomed profits, and sometimes even for shorter periods producing at an actual loss, though on a scale as much diminished as is consistent with keeping their hold on their connection.
But, secondly, the employer has an interest in the
continuity of employment.
This arises (
a) out of the knowledge acquired, through previous service, of the laborer’s disposition and character, especially as to honesty, truthfulness, and sobriety; (
b) out of that mutual adaptation, in way and habit, extending even to the tone of the voice and the carriage of the body, which results between man and master, and between every man and his mates, from long acquaintance; (
c) out of that familiarity which the workman acquires with the peculiarities of his employer’s business, which is wholly additional to a mastery of the technicalities of the occupation, and which includes an intimate knowledge of the localities in which the industry is prosecuted, of the fixtures and machinery in use, of the customers, it may be, of the establishment; and lastly, of the minor yet important characteristics which often distinguish the product of one establishment from that of any other, and thus give it a quality which, though it perhaps adds nothing to its utility in the hands of the consumer, yet serves the purposes of the producer for the advertisement and easy recognition of his wares
*40; and (
d) out of the loss of time or of energy which every change, simply as change, involves, in greater or less degree.
The interest which, on the above several accounts, employers have in preserving the continuity of employment, varies greatly. No employer, it may be assumed, but is interested to a degree in knowing how far he may look to his individual workmen for the simple virtues of honesty, truthfulness, and sobriety; but in many large departments of industry the advantages which we have indicated as implied in the retention of workmen would
seem shadowy and unsubstantial. New men taken on in an emergency do as much work, and perhaps do it as well, as the old. The conditions of the business, the nature of the products, are not such as to make it worth while to retain a workman at any great sacrifice, so long as another of the same industrial grade can be had.
In other branches of industry, however, the advantages which have been enumerated are not only substantial but of great importance. At times, indeed, they are recognized in the grading of wages somewhat according to the length of service; and probably few employers of labor in these branches would deny that the reason of the case would justify that system being carried much further than it is. Yet, while the distinct acknowledgment of the advantages of continuity of employment, by money payments proportioned to length of service, is still highly exceptional, it may be said that these advantages are almost as a rule recognized by employers in a preference given to their older employees in the event of a reduction of force; and since, as has been shown heretofore, regularity of employment is to be taken into account in reducing nominal to real wages, we may fairly say that these advantages are actually paid for in no inconsiderable amount.
Yet, though workmen are thus compensated through money payments, or, more frequently, by preference given them in reductions of force, for the power they have acquired, through continuance in employment, of rendering a higher quality of service; in general, at least, there is strong reason to believe that they are not paid as much on this account as the considerations adduced would warrant. The force of custom, the jealousy of fellow-employees, the stress of trades-union regulations,
*41 and, not least, the failure of the employer to recognize the full merit of the
workman and the degree in which it contributes to his own success; these latter, in connection with the master’s knowledge that, though the workman may take from him these advantages,
he can not carry them to any one else, are in a great majority of cases sufficient to keep the remuneration of the higher grades of labor from rising proportionally to their real worth. Yet we can not doubt that the employer’s conscious interest in the continuity of employment does enter,
*42 in almost every issue joined between him and his workmen, as an element in deduction from the computed difference between the wages paid and the wages demanded. Few masters in any branch of industry could contemplate the sudden change of their entire laboring force as less than a business calamity, while in many branches of production it would involve great loss if not ruin. Partial changes may indeed be effected without actual sacrifice of capital, but not without a marked increase of labor and of anxiety on the part of employers.
had a thing to sell.
Part II, Chapter XVII