Chapter XVI. Business Security.

_Conservative influences._—We have already seen the influence of

governmental organization upon various phases of production; but the chief

fostering influence is the general stability of a community, not only in

its laws, but in its customs and habits of life. Security in property

rights is a chief condition for accumulation of wealth, and a still more

necessary condition for industry. Not even want will drive people to

industry when there is no certainty of possession when the work is

accomplished. The fruits of industry must be safe. While the laws of the

country are naturally considered the guardians of rights, the customs and

habits of the people, the actual origin of laws, are even more important.

Bad habits actually nullify good laws, while bad laws may be made quite

endurable by good customs. Thus, the welfare of every community depends

upon a conservative social influence, preventing abuse of opportunity for

injury and stimulating individual energy.

The rights of life, liberty and property must first be dear to the mass of

the people before laws can be framed for their protection. This is

especially true in a self-governing people, but is essentially the same in

the most absolute tyranny. So the chief safeguard for every kind of

business is the honest character of all business men, and such influences

as establish good character and sound judgment will be fostered on the

simplest business principles. The farmer who sells his grain or his fruit

by false samples cannot complain of false weights and measures at the

elevator. The one who gloats over victory in a horse trade has no right to

grumble at a trickster in wool buying. The man who is caught by the offer

of a gold brick is not only foolish, but false, and diminishes the

security of himself and everybody else in fair bargains and genuine

business. The man who takes advantage of his ignorant neighbor deserves to

be at the mercy of a more crafty dealer. Every one who makes a false use

of power over a workman beneath him may expect a false use of power from

an authority above him. So all business interests, as well as all rights,

are secured by the right spirit in all men.

_Nature of insurance._—The fundamental activity in accumulation of wealth

is foresight; but no foresight can prevent all disasters. Fire, flood,

wind and wave are beyond control, because in some sense they are beyond

knowledge. Against such forces no foresight can secure. The name insurance

is given to every method by which the burden of such unforeseen losses is

provided for beforehand and fairly distributed. The average of such losses

can easily be estimated by experience. Statistics show a wonderful

uniformity in the misfortunes of life as well as, the fortunes. Even

though chance be an element in every transaction, the average of chances

can be distinctly calculated; and that average is essentially constant

among a sufficiently large number of instances.

All are familiar with the application of such calculations in fire

insurance. Among ten thousand houses a certain number will be destroyed by

fire every year, provided those houses are widely distributed under

essentially similar conditions. The ten thousand house owners can insure

each owner against entire loss of his house by mutual agreement to meet

their share of the total loss. If ten houses are burned, each of the ten

thousand house owners will pay one-thousandth part of the total loss,

making a burden easily provided for. If at the beginning of the year each

has laid aside this sum, the loss will be met when it occurs without

disturbing the welfare of any. The machinery for such provision is called

an insurance company, and the separate payment of each house owner is the

premium or award expressing his share of the provision. This principle of

estimating losses and providing a definite way of meeting them is the same

in all forms of insurance. It has been recognized for hundreds of years,

but only recently has entered into the business life of the world in all

directions. For a long time false notions of reverence for the power that

wields destiny stood in the way of such distribution of misfortune; but

now the mass of people everywhere regard such foresight in united sympathy

as natural as the planting of crops.

_Various methods of insurance._—Satisfactory insurance rests upon certain

definite business principles which every insurer may wisely study. There

are various devices for accomplishing the same end. A body of men

sufficiently large to make the average of losses uniform may bind

themselves by a simple agreement to meet each loss as it occurs. To make

this plan satisfactory they will need efficient business men as officers

to devise means and methods for making the agreement effectual, for

estimating the actual loss in each case, and for distribution of the claim

by assessment sufficient to cover the loss and the expense of collections

and estimates, as well as the maintenance of the officers. These officers

must maintain the business standing of the organization in the community,

so that it shall continue for a long series of years to keep its numbers

large enough to maintain only the average loss.

This is a simple mutual insurance company, upon the assessment plan. Its

weakness lies in the comparatively slight interest taken by each member in

the selection of its officers, in the absence of security for the payment

of assessments when needed, in the long delay liable to attend

collections, and the uncertain interest of the officers in exact

adjustment of losses. Such companies are liable to be too small to give a

fair average of losses, and in any serious emergency to fail for want of

expert business ability and trustworthy character in officers.

If, instead of the assessment after losses, a definite percentage of

probable loss is paid in advance, the responsibility for use and

maintenance of such funds calls for a business character and ability in

the officers which usually secures better results. It especially avoids

the danger of slackness and failure on the part of the insurer. It leads

to closer scrutiny of actual losses, and helps the insurer to more

carefully measure his interest, since he already has an investment in the

business. Any overestimate of expected losses may be returned in dividends

to the insured, or may be retained as a surplus for security against

losses above the average of experience. The only weakness of this method

is in the power entrusted to individual officers, elected on the ground of

popularity by comparative strangers. Even when a board of directors chosen

from well-known business men is added to the machinery, the dangers from

incompetent and dishonest management are not avoided. Such directors are

too prone to consider their names their only contribution to the welfare

of the association.

A joint stock company, insuring with definite premium, is likely to bring

the best business management, the quickest though not always the fairest

adjustment of losses, and the confidence of the business community. Its

prosperity, however, is hindered somewhat by the common judgment that the

interests of the stockholders must be against the interests of the

insured. The actual cheapness of insurance depends not so much upon the

amounts paid from time to time as upon the actual quality of the insurance

purchased. Assessment companies of all kinds, without a legal lien upon

definite property, are decidedly lacking in quality, since their guaranty

of payment involves the financial credit of every person insured. No one

should be deceived by the promise of insurance at cost, until he knows

exactly how genuine that insurance will remain during the period of years

for which he desires it.

_Governmental control of insurance._—The essential importance of insurance

and the difficulties of providing against fraud and mismanagement have led

naturally to government inspection, and in some countries to government

control of insurance agencies. The laws of various states provide

differently for inspection and reports, and restrict the action of

companies in various directions. It is probable that time will develop the

necessity of greater uniformity of insurance laws and more definite

requirements in the way of published reports and expert inspection. At

present, insurance commissioners often have the confidence of neither

companies nor people, and no expert knowledge is demanded in the candidate

for that office.

The desirability of insurance by government direct is questioned so long

as governments themselves are unstable and popular will favors laxity in

the business machinery. That insurance could in this way be made cheaper

is a matter of doubt while great masses of people magnify their claims

against government and minify their obligations to it. Frauds against

government in both taxes and claims are proverbial. At any rate,

governments will not wisely undertake the indefinite applications of

insurance until larger experience and wider acquaintance with the methods

in vogue are reached.

_Applications of insurance._—The applications of insurance are indefinite

in variety. There is no limit to the possibilities except in the lack of

experience to settle the average of hardships. Insurance of property

against fire and storm is well understood and almost everywhere practiced.

Insurance of life is almost equally extended, in which the head of a

family may in a measure provide against the suffering of his family in his

unexpected removal by death. This is easily extended into insurance

against accident. In this, as in life insurance, there is some lack of

experience, as yet, as to the actual cost. It is possible even to insure

against dishonesty of employés through so-called bond and security

companies, which issue bonds for definite amounts payable in case of

failure of the person whose character is insured to meet the expectations

of his employer. Such companies, in their own interest, exercise an

influence over the character of those for whom they have given bonds by

attention to their habits of life and business methods. They make more

prominent the maxim, “Honesty is the best policy,” whether they actually

cultivate honesty in fact or not.

There is no conceivable limit to the possible applications of the

principles of insurance. It seems possible that a body of business

farmers, subject as they are to so many disasters from weather, insects

and contagious diseases of stock and vegetation, might devise methods of

equalizing and diminishing the disaster from such losses in a common

system of insurance. As a basis for such systematic action, careful

statistics for large regions of country are absolutely necessary. With

such losses clearly presented and averages fairly estimated, insurance

would be just as feasible as it is now against fire. It will be wisely

undertaken first upon such matters as can be most definitely measured in

dollars and cents. Losses from accidents to teams and other live stock

have already been studied and insurance to a limited extent attempted. The

difficulties of such insurance are greatly increased by the ease with

which owners may contrive to market unsalable stock through a false

representation of misfortune. The possibilities, however, of extending the

advantages of insurance in a business of this nature are worthy of more

careful study.

PART II. DISTRIBUTION OF WEALTH FOR WELFARE.

Chapter XVII. General Principles Of Fair Distribution.

_Wealth distributed, not welfare._—In considering the principles of fair

distribution among all the parties contributing to production of wealth,

it is necessary to remember that wealth and not welfare is the subject of

thought. A child may have equal right to welfare with his father, but

cannot in any sense have equal ownership of wealth. The welfare of a

complete imbecile may be the care of the state, but he can in no sense

control wealth. Distribution of wealth cannot, therefore, include the

subjects of charity, but must be confined to a study of the natural

relations between individual owners of wealth or individual contributors

to production, which make control of a portion of accumulated wealth

essential to individual welfare.

A pound of tea may include in its value the efforts of a hundred different

persons. What are the principles upon which those hundred people may be

fairly compensated by the actual consumer of the pound of tea? This

illustrates the complexity of the whole subject of distribution. No

drinker of tea would dare to settle the question of fair distribution

arbitrarily. No one would even offer a theory by which a perfect

settlement could be reached. Yet when the pound of tea is put upon the

pantry shelf, the fifty cents paid for it has already been divided into a

hundred unequal portions adjusted by some method of custom to meet the

ideas of every helper in the long list. Each has had some portion of the

wealth produced, though the distribution may have taken place in different

countries, under different laws and customs, through a period of months or

years. This distribution involves the whole question of industrial

freedom, and rests finally upon the principle of equity as applied to

ownership of one’s powers and the product of those powers. It also

involves, to a certain extent, the decision of what is properly wealth and

what is properly a part of universal welfare.

The important questions connected with the subject will not be

satisfactorily settled until a reasonable adjustment of all claims is

reached by the masses engaged in production. The modern discussions of the

interests of laborers are proof that the world is thinking more and more

of individual rights in property, and no sweeping assertions as to

inequity of property rights help to solve the questions. It is because

each individual has a distinct equity in what is produced in part by his

efforts that there is need of better adjustment. All reforms, therefore,

must be along the line of fair distribution, or fail of their end.

_Distribution by exchange._—Ordinary observation shows that distribution

is made chiefly in the customary method of exchange. A pound of butter may

find its way from the farmer’s dairy to the actual consumer in a distant

country. In its final value, the consumer compensates the retail dealer

for his services in handling it and for advance payments, including every

other handler and every other service, down to the boy who drove the cows

to pasture. If the system of universal exchanges is free and fair, each

has received his fair compensation. In general, then, distribution of

wealth is made automatically in the ordinary processes of production,

exchange itself being one of the steps by which value to the consumer

becomes value also to the producer.

_Fair exchange above laws._—Under perfect freedom of exchange, the general

law of supply and demand already illustrated is more effective than any

laws can be in adjusting wages or profit to efforts in production, and in

adjusting interest or rent or both to the capital employed or to other

means of production controlled. Any customs or laws which interfere with

natural conditions of supply and demand hinder rather than help toward a

fair adjustment. In any progressive community such laws will surely fail,

for the reason that in making such laws human nature is in conflict with

itself. The history of increasing individual welfare in any part of the

world gives a story of more ready and free competition in open market for

all commodities and all services. In perceiving this we must not overlook

the fact that fraud and ignorance, as well as arbitrary power, stand

opposed to fair exchanges. Nor must we be satisfied with any condition

which involves meeting restrictions with restrictions or force with force.

Such conditions must be but temporary.

_Actual and nominal compensation._—In considering compensation for any

services, it is necessary to distinguish carefully between the actual

compensation in welfare and the nominal compensation in money. A farmer in

Nebraska may get a larger return for his labor with corn at 15 cents a

bushel than he could in Massachusetts with corn at 40 cents a bushel. Just

so a wage-earner, receiving $1.50 a day in Ohio, might lose in welfare by

exchanging work with his neighbor in New Mexico, who gets $2.50 a day.

This means that $1.50 in Ohio may buy more comfort than $2.50 can buy in

New Mexico. This is very important in comparing the wages of different

classes of workmen in the same country, as well as the wages of similar

workmen in different countries. It has an important bearing, too, upon

relative profits and interest. The actual compensation in welfare is the

natural basis for adjustment in all distribution, and the law of supply

and demand rests directly upon this.

_Wages, profits, interest and rent take the product._—It is common to

consider distribution as made in the forms of wages for labor given

without risk as to the product, profits to the one whose labor is

associated with risk of loss as well as gain, interest to the one who

furnishes capital in any form and waits for his compensation, and rent to

the landlord, or owner of estate, whose property is used for a definite

time and returned. It is evident that any advantage received in any of

these ways, at any time, must come from the actual available goods in

store suitable for division and consumption. The farmer cannot pay his

hired hand with his farm, though he may be able to do so with his

products. The farmer himself cannot realize his profits until he has the

proceeds of his work in the shape of consumable goods. So, at any

particular time, the total of products fit for consumption makes the

source from which all distribution must come. Debts and credits can have

no consideration in the total, for the reason that they exactly offset

each other. A general conflict of interested persons as to wages, profits,

interest or rent comes from the difficulty of sharing in the actual goods

at hand. The relation of each to the whole depends upon circumstances to

be discussed in future chapters. It is certain that the larger proportion

of daily production goes to the mass of the people who consume their share

from day to day. It is estimated that fully 80 per cent of such wealth is

used up by those who contribute no use of capital to the productive force.

It seems probable also that this ratio is increasing rather than

diminishing, but no statistics are sufficient to show the exact facts.

_Cheap standards of living._—In the natural competition of laborers with

each other, the general standard of living—physical, intellectual and

moral—have an important bearing. The Chinaman in this country competes

with the American upon a wholly different plane of living. His habitual

needs being less, he is willing to work for wages that will not tempt the

native American. If he can do the same work, living as he does, he

necessarily becomes a cheaper force in production, and the American must

find a better field for his energies or go without employment. Under

ordinary circumstances, the introduction of laborers able to live more

cheaply acts upon the better class of laborers exactly like the

introduction of labor-saving machinery. It first brings hardship from

direct competition, but the cheapening of products brings enlarged demands

and so gives new impetus to production, requiring the very skill which the

better class of laborers alone can furnish.

Thus the employment of Chinamen upon railroad embankments made places for

native laborers as section bosses and engineers. The Huns and Italians

that underbid the Irish miners in Pennsylvania have destroyed the “Molly

McGuires” by making the same men responsible for larger enterprises. Yet

the standards of living, which show a constant improvement, indicate a

truer freedom of competition and a clearer recognition of individual wants

and abilities. No one can watch the development of any country without

realizing that its thrift, enterprise and progressive welfare depend

largely upon increasing wants. Men who live best produce most and enjoy

most.

Chapter XVIII. Wages And Profits.

_Wages distinguished from profits._—In discussing the subject of wages and

profits, it is necessary to remember that both are compensation in

different ways for actual exertion. If in estimating profits we sometimes

include a return for the use of capital, it is from incomplete analysis of

the forces in use, since the interest upon capital can easily be separated

in all actual practice, and in most enterprises is counted as a distinct

expense to be provided for in entering upon the undertaking. The profits

really belong to the management of any undertaking, as return for the

exertion in that management. In every-day use the term wages is applied

only to the stipulated amount paid from time to time for services rendered

to another. There is practically no difference between such payments made

for service by the hour, day, week, month or year. If, however, the

engagement for service is by the year, the name salary is more likely to

be given than wages.

Further, the term wages is most distinctly applied when the service is

rendered as a task, and wage-earners when found in considerable bodies are

usually called operatives, under the natural classification of labor

explained and illustrated in Chapter III (page 35).

The services of an overseer are much more likely to be permanently

required, and his wages are therefore called a salary, estimated by the

year even though payments be made monthly or even weekly. In this case,

the labor is chiefly executive, taking a higher rank because of the

greater powers required. In this case the overseer is supposed to have

definite plans provided for his work, and to carry out those plans to the

best of his ability.

If, in contrast with this, one’s efforts are given to managing a business,

devising the ends to be accomplished as well as planning for their

accomplishment, he is said to have entire responsibility for results and

to receive what he can make out of the business. His exertion is chiefly

speculative labor, and the returns for his _speculation_ or

foresight—often effort of the severest kind—are termed profits. Such

efforts have already been illustrated in Chapter III, page 35. No

generally accepted name has been given to the one who thus carries the

entire responsibility of the business, but the word manager conveys to

most people the general idea involved. While it is true that a manager may

sometimes work for a salary, in general the very inventive ability

required for success makes the stimulant of profits the most natural means

of securing higher effectiveness. Most managers, even of stock companies,

must from the nature of the case be at least sharers in the profits.

Farmers easily distinguish between those who work for stipulated wages,

often called farm hands, and the farmer himself, who gets the pay for all

his endless variety of labor, including his constant planning, in the

shape of profits.

_Wages defined._—Hence it is fair to define wages as a stipulated sum,

paid at stipulated times, for stipulated services, measured either by the

number of distinct services or by the time of service. A wage-earner must

therefore be one who sells his powers, whatever they may be, for the use

of another, bringing his own services rather than the products of those

services to the best market he can find. In general, he prefers the

definite promise of another to the indefinite chances that he may produce

what is to be wanted in the future market. Very often he considers the

bird in the hand worth any number in the bush, and is satisfied to take a

certain living from day to day rather than risk his ability by his own

contrivance to meet larger wants. Among the wage-earners we necessarily

find all individuals of undeveloped powers of body or mind, dependent upon

the rest of the community for both tools and task; also all who render

personal services, and most of the laborers of all sorts in every kind of

factory.

_Profits defined._—Profits may be defined as the indefinite returns for

exertion, including all risks, which any manager of his own or others’

industry secures by bringing his products into open market. In general the

term includes the recompense for any kind of labor, however rendered, if

the uncertainty of demand and supply belongs to the one who renders the

service. Thus even the fees of a lawyer or a doctor come under the general

principles of profits, whenever the conditions of payment in any respect

depend upon success. If, on the other hand, such fees are stipulated sums

for a stated service, they fall into the rank of wages. That the dividing

line between wages and profits is not always clear is shown in comparing

payment by the piece in manufacturing clothing, for instance, and payment

by the hour for the same kind of work. In the payment by the piece, the

stimulant of enterprise borders upon the nature of profits. In payment by

the hour, that stimulant is wanting. Yet we are likely to consider the

difference as simply a difference in method of estimating wages. Two men

ditching side by side may work, one by the day and the other by the rod.

It is possible even to combine the two systems of payment so as to involve

both wages and profits. Farm hands in England have been paid a certain

price per month, with a share in the profits, measured by the number of

cart-loads of grain marketed. Clerks and agents frequently work for

stipulated wages, with an added percentage upon the value of sales. Most

farmers in estimating the results of a year’s labor count their own

services, at the price of a hand, as a part of the cost of their products,

and distinguish as profits the surplus of product above all expenditures.

Thus a farmer may estimate as outgo the interest on capital invested, the

wear and tear of machinery, the produce consumed upon the farm, the taxes

paid to the government, and the wages to all who labor, including himself

and his family. Any return from his products beyond enough to meet these

outgoes he will consider profits. These will reward him for extra

foresight and contrivance in management and marketing, as well as risk

arising from possibility of failure in his plans, destruction of his crop

or stock, fluctuations in price, and uncertainty of collection for his

sales. Such risks and exertions every independent worker assumes. Usually

the exertions are impossible to the inexperienced, and the risks cannot be

taken without accumulated capital or a credit established upon well-known

character and ability. This fact naturally limits the number of

competitors for profits. The effect is clearly illustrated in the

difference between an ordinary farm hand and the renter of a farm. Few

farmers would encourage the best of their farm hands to take the burden of

risks and care implied in renting. The successful farm renter requires

abilities and means, gained only by experience and accumulation.

_Wages vary with abilities employed._—The variation of wages among

different classes of workmen in the same calling is universally recognized

as dependent upon the powers employed. The strictly operative labor is

usually paid by the hour, day or week, the terms varying with the supposed

strength or skill exerted. Executive duties commanding monthly or yearly

salaries vary with the total amount of responsibility implied, the large

establishment requiring greater abilities than the small one. The strain

of responsibility increases in some degree with the number of operative

laborers employed, and successful oversight of many hands may be essential

to their profitable employment. In that case the salary of the overseer

gains something of the nature of profits, since the manager gauges the pay

by profits expected. If, as in great stock companies, a manager is hired

at a stipulated salary, his personal abilities, as tested by

accomplishment, are likely to be the sole gauge of wages. A successful

manager of a great enterprise can scarcely be said to have a market price

for his services, but will estimate himself in large measure by the

profits he might secure as an independent business man. Within limits,

such salaries will vary with the experience and inventive ability

required.

_Supply and demand in wages._—Wages in general are subject as truly to the

law of supply and demand as are the products of labor. If few places are

vacant and many applicants seek those places, it is impossible to prevent

the reduction of wages through the anxiety of some applicants to secure

places. On the other hand, if few applicants seek the places open to many,

each will find the employer most willing to give an increase of wages for

his work. Laws cannot prevent such natural competition, though they may

hinder it. Even organization under secret bonds can only temporarily

restrain. Human nature is stronger than any arbitrary restriction.

In general, then, wages in any particular occupation may be affected

directly by limited competition. Any necessity for peculiar abilities of

body or mind, or for preparation by education or training, makes certain,

as far as it goes, a limited competition, and therefore the opportunity

for higher than ordinary wages. In the same way, if unavoidable hardships

or dangers are involved, comparatively few workers will seek such

employment and can have larger pay. If, however, the dangers carry with

them a stimulating excitement and exhibition of daring, arousing

admiration for the worker, this may offset entirely the effect of the

danger.

Soldiers and railroad employés for such reasons do not command pay in

proportion to the dangers met. Any employment where there are obstacles to

natural advancement or where continuance is uncertain does not attract

applicants except by higher wages. Illustrations of all these occasions

for limited competition are found everywhere.

_Stimulants to competition._—If any occupation shows circumstances making

entrance easy for new applicants, or if advantages for promotion are

readily seen, or if it seems to have a special respectability with the

advantage of social privileges, especially if it in some respects seems a

work of philanthropy, there will be multitudes ready to engage, and

willing to undertake the work at less than average compensation. It is

commonly said that these peculiar advantages are a part of the

compensation. They operate simply as a stimulant to competition, making

more people willing to enter such employment at small wages than would be

willing without these special advantages.

A good illustration of such employments is found in common school

teaching. While a teacher does need an expensive preparation, and success

is dependent upon special adaptability to the work, it is nevertheless

true that the work can be taken up readily and as readily laid down; it

confers upon the applicant the privilege of social recognition and

somewhat of personal dignity; it gives opportunities for some note in the

community, and, with all, it is considered a work of philanthropic

character, entitling to the gratitude of the public. The result is that

teachers everywhere command less of salary or wages in proportion to their

abilities than other classes of wage-earners. Fortunately, this stimulant

to competition appeals largely to those characteristics of the individual

teacher which make him more serviceable in his calling. The opportunity

for a life of study, added to other considerations, makes still more

effective the competition of earnest, philanthropic students, such as the

world needs for teachers.

In the lower ranks of teachers, competition is still more increased by the

fact that common school teaching can be temporarily carried on in the

intervals of study, without interfering with mental growth. Teaching is

also specially adapted for the temporary employment of young men and women

not quite ready to enter the actual life work. Acquaintance with human

nature, which it fosters, is thought to be good preparation for home and

business life. The employments in which women largely engage as

wage-earners are chiefly of this temporary character. The fact that the

life work of most women must be the making of the home hinders competition

in employments where long apprenticeship or special skill of any kind may

be demanded. Any temporary employment not only appeals to her sense of

capacity for earning wages, but seems better adapted to her future. If

that employment at the same time affords opportunity for social life and

calls for the natural adornments of youth, the young woman considers wages

only a small part of the general consideration, and is satisfied with a

bare living. Hence clerkships in stores, subordinate positions as teachers

and places as typewriters are crowded with applicants at wages

insufficient for a life-time support. Employment in domestic service,

which might be supposed more consistent with the larger work of life, is

rendered less attractive by the almost entire absence of social privileges

and natural opportunities for advancement in knowledge of the world. Girls

who would prefer house work, with equal social freedom and the natural

stimulant of contact with other young people, compete for lower wages in

less satisfactory employment during the years of their girlhood. This is

less noticeable in country life, where girls in domestic service become a

part of the household and share in the privileges of the young people at

home.

Another illustration of the depressing effect upon wages of excessive

competition is found in the work of women upon cheap clothing. This work

is usually done by the piece in the home, and can be taken up at intervals

between household duties. Many women consider earnings of this kind a mere

addition of spending money to a somewhat meager support in their home

life. It can be carried on without display, and so preserves the dignity

of persons who would otherwise shrink from wage earning. The result is a

very serious competition, reducing wages below even enough to sustain life

and character.

These are only illustrations of what happens in every calling when

circumstances stimulate excessive competition. Relief can come only from

larger range of satisfactory employment and a clearer distinction in favor

of genuine wage-earners and genuine employers among the mass of the

people. The customs of society have a much stronger influence upon the

life of women in steady employments than upon that of men. A thoroughly

enlightened community can do much to enlarge the sphere of such women as

are naturally wage-earners, by proper encouragement of their enterprise.

_Fluctuation of wages._—Wages in every employment are just as naturally

subject to fluctuation under the law of supply and demand as are prices of

commodities. Whatever operates to increase the number seeking employment,

or to diminish the amount of employment open to competition, reduces the

wages. Whatever increases the opportunity for employment, or diminishes

the number of persons seeking employment, increases the wages. This is

well illustrated in the cost of harvest hands in a year of large crops as

compared with a year of small crops. Any financial disturbance, checking

the building of railroads and other great enterprises, brings multitudes

of would-be farm hands to compete with those who naturally follow farming.

On the other hand, the introduction of factories or mining industries has

sometimes affected directly the wages of farm hands through a large region

by lessening competition.

_Upward tendency of wages._—It is certain that the general tendency of

wages in all employments is upward rather than downward, in spite of

serious disturbances from financial depression often repeated. The gradual

increase of welfare among wage-earners is greater even than the increase

in money wages. Those who are inclined to join in the cry that the former

times were better than these can be answered as they were in Solomon’s

time, “Thou dost not inquire wisely concerning this.” No doubt the

transition from small workshops to large ones and from small factories to

great combinations has caused friction in adjustment to the new

conditions. Many are now wage-earners who were once profit-gainers. But

with the improvements in association and a clearer understanding of

abilities and needs, each worker becomes a stronger factor than ever

before in bringing about a fair competition and a satisfactory

compensation.

There are still new difficulties in every change of method. The influence

of custom often retards freedom of movement, makes more slow the natural

rise of wages, and hinders a gradual adjustment to new conditions. In many

cases it prevents individual enterprise among wage-earners, and crowds

from the higher ranks into competition with the lower because of no

natural outlet for ambition. Even laws intended to protect laborers

sometimes operate against them. Thus a law restricting the terms of

contract between workmen and their employer has sometimes prevented the

employer from investing capital in a business which otherwise would have

increased the opportunity for labor, and so would have actually increased

wages.

The effect of free schools upon ability to earn is generally recognized.

The best estimates place the increase resulting from common school

education at fully 25 per cent. Some of the best establishments are

limiting their offers of employment to young people who have had the

advantage of even high school training. This more general education tends

in two ways to increase the compensation of wage-earners: first, by giving

a clear knowledge of abilities that makes competition fairer; and second,

by increasing the general effectiveness of all production, which enlarges

the sum to be divided.

Every movement toward greater social freedom and uniformity of opportunity

contributes to the same end. Next to slavery, social caste is the chief

obstacle to free and fair competition of laborers. Any barriers of race,

social organizations, or even churches, which cultivate exclusiveness in

any direction, in the end work hardship. If they bring temporary advantage

to a few, they are sure to hamper the freedom of many. The welfare of the

community is surest when social conditions favor the freest communication

in all ranges of employment, whether in wage-earning or in profit-making.

The cheapening of transportation in recent years, bringing all the world

nearer, has had various effects upon wages. It has destroyed, to a

considerable extent, the inequality of wages between different regions of

country. If laborers of any kind are scarce, a telegram will within a few

hours bring numbers from some place where they are too plenty. The result

is a tendency to greater uniformity throughout the world. As yet the full

effects of this progress are not realized. Some hardships will undoubtedly

be endured from the ready introduction of unskilled laborers from crowded

countries into our less densely peopled country. But with a larger range

of production opened by cheap labor, our better workmen will find more

constant and more remunerative employment. If restrictions upon

immigration are necessary, it must be to prevent too sudden a transition,

hindering adjustment to new conditions. The danger of overcrowded

population comes more certainly to the nation excluding itself from the

great world by excluding the rest of the world from itself.

The general effect of improved machinery has been several times referred

to already. Its advantages come to the wage-earner directly in multiplying

employments and in multiplying the demand by cheapening products.

Indirectly, the benefits are still greater, because these cheaper products

form the bulk of living for the workers. It is probable that even the

better living thus provided has raised the efficiency of labor so as to

command better wages. It is certain that every movement of civilization

which gives a clearer knowledge of human nature and the world about us

adds to the power of every man, whatever his work. We may welcome every

element of progress in this enlightenment as a direct help to the portion

of humanity recognized as wage-earners. The better the masses of people

understand each other the better each understands himself; and that

understanding is the best protection against oppression of circumstances

or of men.

_Variation in profits._—Profits in various pursuits, like wages, are

affected by limited competition. The need of special abilities and

experience in any particular undertaking keeps back the timid from that

enterprise, and the accumulation of experience of a peculiar kind hinders

one from turning to other occupations. Even if a young man is willing to

take the risk of inexperience as a manager, he can seldom gain the

confidence of those who control capital. Hence competition in new and

untried enterprises is slight, and profits are often great. Other

undertakings are of such a nature as to involve great uncertainty. The

risk of failure retards the cautious, and so the most enterprising win

great returns. In estimating such returns, we overlook the failures and

count only the great successes. Sometimes accidental opportunities open to

the few a limited range of enormous profits. Legislation fostering

monopoly sometimes favors such opportunities. These are usually temporary,

and such advantage cannot long be maintained under the most fortunate

conditions. Secret methods have sometimes controlled the market for

individuals with enormous gain, and in a few instances a nation has

maintained such secrecy with apparent success. But these, too, quickly

yield before competing enterprise, since wage-earners under such employers

must share to some extent the secret, and will have the stimulant of

enormous profits to use the secret for themselves.

_Profits in competition._—Profits are themselves a stimulant to

competition, and competition in every pursuit tends to reduce the profits.

If any circumstance apparently insures more than average profits in any

undertaking, competition becomes excessive and profits vanish. The promise

of a tariff on wool leads farmers to expect an advance in the profits of

sheep raising. Competition begins in the purchase of flocks, by which the

profits of those already in the business are greatly increased.

Competition continues by multiplication in the flocks until sellers of

sheep are more plenty than buyers. Thus, the stimulant to competition has

operated to lessen profits in the end. A famous sheep raiser in New York,

when asked to give a maxim for success in the business, answered, “Buy

when your neighbors sell, and sell when your neighbors buy.”

Similar experience has been noted in various pursuits. The tendency,

however, with wider knowledge of others’ wants and efforts is toward a

greater uniformity of profits. Modern methods of production and clearer

perception of ways and means make it easier for competition to have its

full effect between different kinds of business, as well as in the same

business. The more we know of our neighbor’s work through the daily press

and extensive travel, the fairer is the opportunity for competition to

act. This tendency brings hardship to the weaker portion of managers

engaged in any particular business. This makes the power of so-called

trusts and great combinations apparently harmful. In the end, however, the

result is more constant profits, though smaller, and the advantage of the

whole community in a more stable business. It is even conceivable that the

stimulant of fair profits may finally reach a larger proportion of the

community through interest in the great establishments than in the past

from the unequal and uncertain returns of independent managers.

Even among professional men, whose fees for services have somewhat the

nature of profits, the same law of competition, dependent upon supply and

demand, holds sway. The compensation of an author for his publications,

though protected by copyright, is dependent upon conditions limiting

competition or stimulating it. It is customary for surgeons, physicians

and dentists to make a fee proportional to the demand for their services.

Thus the skilled dentist, who is wanted by ten times as many people as he

can serve, raises his price till the demand is limited to meet his

strength. This enables younger men at smaller prices to gain the

opportunity to establish like reputations by doing equally good work.

_Profits in agriculture._—The profits in agriculture are subject to the

same laws. Many influences operate in both directions. The limitation of

land fit for agricultural purposes has a tendency in itself to increase

the profits of land-holders, under the principle of monopoly, though its

chief effect is on land values. The increasing wealth of the world, and

the greatly increased wants of the civilized community, multiplying

manufactures, limit competitors more and more. The relative number of

farmers in our country is gradually diminishing, while the demand for food

is actually increasing beyond the increase in population. Men are

predicting every year a scarcity price for wheat,—unwisely,

probably,—through the limited range of possibilities in wheat raising. The

introduction of labor-saving machinery enables enterprising farmers to

greatly increase their product for the same number of acres, and still

further to increase the range of management so as to make larger farms a

possibility. The rapid advance of means of transportation has so widened

the range of competition as to make the farmer in one part of the world

compete with the farmers of every other part. The staple products,

especially wheat, being so easily adapted to new countries, are constantly

liable to over-production. At the same time the effects of a bad season in

any particular region, while reducing the crop, are not likely to advance

the price to the same extent as formerly. The opening of vast regions once

considered deserts to a rapid settlement by farmers for the sake of the

profits in land speculation has again and again wrought changes in the

entire business of agriculture. Similar effects may be expected still with

the development of South America, South Africa and Siberia.

All these facts tend now to make the profits in agriculture decline, and

the fact that farm life has certain attractions in establishing permanent

homes for families and life-time associations, contributes to this

tendency by holding people to their place as farmers for at least a

generation. The possibility of independent enterprise, even with small

profit, and the freedom of family life from interference of neighbors make

large numbers of farmers willing to continue their business in spite of

the reduced earnings.

_Fluctuation in profits._—It is proper to call attention to the rapid

effects of any change in market upon the profits of any enterprise. Wages

are in large measure an anticipation of profits, and so far as they are

affected by changes in market prices, it is largely through estimates upon

averages. Custom has much to do with wages demanded and paid, but profits

are fluctuating constantly with the fluctuation of prices, with every

change of methods affecting competition, with every introduction of

improved machinery and with every accident of fortune.

No better illustration of this fact can be given than is familiar to every

farmer in comparison of results from the work of different seasons. With

the same outgo for labor he may find the profits of two successive years

wide apart. One year has granted the fortune of good crops with fair

prices, while the other has yielded him a half crop when the prices of his

product in the world are low. Possibly the improved machinery in wheat

raising, applicable to the great farms of Minnesota, Dakota and

California, has caused him to bring a costly product into close

competition with a cheap one. Possibly, too, he has been tempted to

excessive use of labor-saving machinery himself at too great cost for the

transition, and it is more than probable that, stimulated by the high

price of oats last year, he, with thousands of his neighbors, has made an

extra crop of oats this year, to the actual destruction of the market. In

all these cases the farmer himself suffers directly, while his hired hand

is affected only indirectly by the unwillingness of farmers in some

seasons to employ as much labor.

_Profits offset by losses._—The actual profits in any enterprise are often

overestimated by our failing to notice that all the waste of unthrifty

undertakings comes practically out of the profits of the more thrifty.

Wage-earners as a class are protected against losses by frequent

settlements and by public sentiment. The losses of the unthrifty managers

come out of the accumulations of previous thrift, or else are borne by the

thrifty men who have trusted them. The bulk of bad debts in failure of any

enterprise is for materials, machinery, etc., furnished by other

producers. In great financial depression, the profit-makers bear the evil

directly, while the wage-earners feel the effects in the lessened

competition for their service.

Chapter XIX. Conflict Between Wage-Earners And Profit-Makers.

_The nature of the conflict._—The mutual interest of all whose energies

are used in production, that the total product of wealth should be as

great as possible, is often disturbed by doubt as to the fair division of

what is produced. Under the modern factory system, the multitude sustain

the relation of employés to a comparatively few employers. Antipathies are

liable at any time to arise between these two classes of workers. Those

who officially control wealth in great enterprises are subject to

suspicion of unfair treatment of their less independent employés.

Ignorance among the mass of laborers of the intricacies of business life

contributes to such suspicion. In fact, the so-called conflict of capital

and labor is a struggle for and against profits. Interest and rent are

only indirectly involved in the question. The manager’s profits may be

assumed by both manager and wage-earners to arise from reduction of wages.

The necessary reticence of business managers and the frequent arbitrary

decisions as to wages help the wage-earner to feel that his interests

conflict with those of his employer.

It is well for all to realize that this conflict, when there is one, is

not so much between the rich and the poor as between the struggler for

profits and the struggler for wages. In many instances the true solution

lies in the same direction, if both could see the facts alike. It is an

acknowledged fact that generous wages make enlightened, energetic

laborers, and that greater profits come in the long series of undertakings

from the most intelligent service. A farm-hand at $20 a month is sometimes

worth more than two at $15. On the other hand, if markets are low and

profits decline, permanence of employment will depend upon a readiness of

wage-earners to accept a new adjustment of wages to conditions. Everything

which fosters a better understanding between profit-makers and

wage-earners contributes to the welfare of both. Everything which hinders

such understanding injures the welfare of both. The cost of such friction

is borne by both parties. But in the long run, the wage-earners are liable

to carry the larger part. Even the destruction of property by rust, decay,

or even violence, comes back upon the wage-earners who might have been

employed in its use, quite as truly as upon the manager whose profits and

accumulations are wasted.

_Obstacles to fair understanding._—The necessary ills connected with

advancing civilization, in the laying aside of old methods for new, in the

adoption of extensive machinery, and in the more perfect competition with

the world, fall upon both profit-maker and wage-earner. The wage-earner

feels the immediate loss of his usual opportunities. The profit-maker

feels the weight of providing new machinery, devising new methods and

taking the longer range of chances. All these ills are met in time by

intelligent and hopeful struggles for the best. In the worst conditions

ever brought by improved machinery, a very few years have brought relief

and improvement to the very class of laborers injured.

The danger is that wholesome competition upon a clear basis of fair

understanding and free range of enterprise may be checked by legislation

or organization for class purposes. Against the interests of the mass of

the people are all extended franchises, giving arbitrary control for long

periods of years over any industry; monopolies sustained by patent rights

or protective duties; trusts, so far as they imply a combination of men to

resist the law of supply and demand; and laws which in any way favor one

class of people engaged in one kind of industry as opposed to any or every

other.

Quite as prominent are those hindrances which come from every kind of

fraud, including adulteration and misrepresentation of products, deception

as to market conditions, false credit, and violence of every kind. The

more perfect the light thrown upon all the conditions of production, the

better the understanding which all men may have of a neighbor’s welfare,

and the easier it is to put ourselves in our neighbor’s place.

_Strikes._—The methods of warfare between wage-earners and profit-makers

are quite generally understood under the names of strikes, boycotts and

lockouts. The occasion for a strike, which means a sudden stopping of work

by the employés of an establishment, is usually some question of immediate

advantage to the workmen. A desire for increased wages, fewer or different

hours of labor, or the removal of some restriction upon habits or

associations, gradually becomes general, and through some permanent or

temporary organization united action is taken. Quite frequently a strike

is occasioned by a sudden and apparently arbitrary reduction of wages,

affecting a large body of men. Many strikes are inaugurated in the

interests of discharged workmen, when the organization to which they

belong is supposed to be interested.

Thus a strike is always a form of warfare, and should be entered upon only

after the same careful consideration that makes war sometimes a necessity.

Under ordinary circumstances and upon general principles, no body of

workmen has any more right to suddenly stop work without notice than

railway managers have to stop a daily milk train. The end to be secured

must be important enough to humanity to overbalance the injury of the

strike itself.

Since a strike is an effort to produce a corner in the labor market, it

will succeed in the end sought only when conditions for cornering the

market are favorable. Even then the loss to the entire community is

considerable. The injury to property, while directly borne by the

profit-makers, is widely distributed. First, all wages stop and

wage-earners suffer. Second, ability to pay debts ceases and capital

owners suffer. Third, insurance companies have their risks increased and

all insurers suffer. Fourth, the market for the products is demoralized

and all consumers suffer. Fifth, almost always social disorder results,

police expenses are greatly increased, and all taxpayers suffer. Sixth, in

the end the relation between employers and employed is more strained and

less free than before, so that all humanity suffers.

The chances of success, as indicated by the record of many years, are

small, and apparent successes are often temporary. And yet the world

recognizes the right of a body of laborers to strike, just as it

recognizes the right of revolution to secure the general welfare. Formerly

a combination of workmen in a strike was treated as a conspiracy and

punished as such. Now the general rule is absolute freedom of combination

with rigorous repression of fraud and violence. This enables any body of

men to make a serious test of the conditions of a labor market, at the

risk, primarily, of their own welfare, but with serious strain upon the

general good. It leaves room for the possible breaking down of old

customs, which are stronger than law, and it sometimes proves, like a war

for liberty, a means of great enlightenment to those who take part in it.

It is properly held as the last resort in the struggle for fair

recognition of the rights and necessities of wage-earners.

It is noticeable that the tendency to strikes among the more skilled

workmen is diminishing, and that the mass of communities are weighing

their own interests more carefully as they see the general destructiveness

of the method. At present strikes are expected among laborers of least

skill, where they are, from usual conditions, least effective. Strikes are

frequent among coal miners, where wages are liable to reach the lowest

possible mark because of the ease of competition from all parts of the

world, though the effect of such strikes in bettering the condition of

miners has scarcely been felt. The fact that destruction of property and

the natural waste from strikes is so widely distributed among workmen and

consumers retards popular sympathy, and the fact that strikes increase the

risk of capital employed, and actually reduce the amount of capital in

use, diminishes the chance of increasing wages or comfort in those

employments where they are likely to occur. It seems evident that some

better remedy for oppressive conditions of wage-earners must take the

place of strikes.

_The boycott._—The boycott is a comparatively recent device for enlarging

the field of combat to include not only the employés of an establishment

but the consumers of its products. This is especially applicable to those

industries the products of which are largely consumed by wage-earners,

whose sympathies can be depended upon to carry it out. It asks all

sympathizers to refuse to purchase products from the employer or firm

attacked. A great bakery, for instance, can easily be ruined by a boycott,

if its customers are chiefly wage-earners. It is easily applied in cases

where custom has allowed the use of a label from some organization of

workers. It has been attempted with some success against a railroad so

related to other roads as to require the services of sympathizers with its

striking employés to carry its freight to final destination. An instance

of its widest application is in an effort to persuade the people of a city

to refuse to patronize the street-car system.

The warlike nature of this method is apparent in the effort to use terror

as one means of persuasion. In this case it uniformly overreaches itself

in destroying public sympathy with the strikers. That it has a possible

place in the struggle of wage-earners for their rights cannot be disputed,

since it corresponds with the nature of a blockade or a siege in other

warfare. But its nature as a method of warfare is equally clear, and its

use in the interests of humanity belongs, with all war, as a last resort.

_The lockout._—Lockout is a name given to a method employed by managers to

prevent the continuance of a strike by aid of the sympathy of employés not

directly interested. It often happens that a comparatively small body of

workmen in a great factory strike for higher wages, and are sustained in

their strike by the sympathy and support of other workmen in the same

factory. Under these conditions the employer is tempted to stop all work

by a sudden closing of all shops, that the pressure of suffering among a

large body of wage-earners may force the smaller body to accept the old

conditions. The lockout seldom gains a popular sympathy, for the reason

that employers appear to be using this method of warfare from a superior

position of power. And yet no one can dispute the general right of

employers to control of their business. Such a sudden stopping of business

without an attack by a strike or some similar provocation would be

considered inhuman, and popular sympathy would be wholly with the laborers

and consumers interested.

_General evils of such conflicts._—The incidental effects of such violent

opposition between profit-makers and wage-earners are certainly

detrimental to all interests. The great multitude of farmers throughout

the country depend for welfare upon the body of people using farm

products, and all the waste of power from enforced idleness of

wage-earners, managers and machinery is shared by farmers through

diminished power of the rest of the world as consumers. In only a few

instances have strikes affected agriculture directly, partly because the

relations of employer and employed are so largely personal; partly because

the supply of agricultural laborers for the season is usually large; but

chiefly because wage-earners upon farms in this country expect eventually

to become themselves proprietors, and so no separate organization is

probable. In some countries, however, where wage-earners in farming

communities are a class by themselves, a strike has been the only method

by which the barrier of custom and law, built up through many generations,

could be broken. The great agricultural strike in England will always be

remembered as having elevated the standard of labor and living in that

country. It is to the interest of all farmers to cultivate a better

understanding between employers and employed than can be maintained with

any general expectation of strikes, boycotts, lockouts or similar warlike

methods of settling fair wages.

_Trades’ unions._—The organizations known as trades’ unions, in which the

wage-earners in any particular kind of business unite for self-protection,

have had a gradually widening influence upon the relation of managers to

employés. Once they were characterized as “machinery by which 10 per cent

of the working classes combine to rob 90 per cent,” because the advantage

secured usually comes out of the consumers of products. But today

reasonable doubts of the general advantage of a well-managed trades’ union

have disappeared. If once they seemed a conspiracy against society in

general, they are now recognized as a part of the general progress in

mutual recognition of rights and privileges. It seems right to expect from

them still larger usefulness, with a clearer perception of their

importance. It is evident that they contribute somewhat to general

intelligence of their members, and so far as this is true they help toward

greater efficiency. At the same time they help to maintain stability of

employment and stability of other conditions surrounding labor.

A brief enumeration of ends they may serve directly will help to

appreciate their importance. First, they can as truly estimate the market

value of wages by gathering statistics from all parts of the country and

from other countries as can any organization in commerce estimate the

market value of produce. Second, they can serve as an employment bureau in

furnishing information of places where work is wanted, thus equalizing the

advantages as well as the burdens of their associates. Third, they can

make more uniform and more satisfactory the customs in regard to the

length of a day’s work or privileges of any kind associated with the work

as perquisites. Fourth, they can, if they will, find the true gradation of

skill and of wages among workmen, so as to establish a natural line of

advancement. Fifth, they rightly do, and can still further, serve for

mutual support in cases of illness, and for protection of a community

against fraud in pleas of poverty. Sixth, they may easily and properly, if

they will, provide for insurance of character, both as men and as workmen,

by issuing certificates, and under proper provision giving bonds, such as

are required in many positions of trust. Seventh, they may extend their

operations even to the taking of jobs that require a variety of work

continuing through a period of time. Eighth, they can, under most

favorable circumstances, undertake various stock enterprises, especially

coöperative stores, thus securing an incentive to saving, and diminishing

the spirit of antagonism against the profit-makers. Finally, though they

have the best possible organization for a successful strike, if necessary,

they can subordinate this disposition toward warfare to a broader

machinery for fair consideration of all interests and for individual

arbitration of rights.

Such organizations, under good management, win the respect of all, and

find a recognition of their methods satisfactory. Farmers’ clubs and

granges, though far from reaching ideal efficiency, furnish suggestions of

the general utility. Unfortunately, these organizations, having little if

any basis of capital, have seldom been incorporated under the laws of the

state. Could the powers and purposes of such organizations be established

upon a basis of statute law, the range of their usefulness might be

greatly increased. They might even sustain a method for enforcing in the

courts the collection of wages, where the single wage-earner often accepts

the half loaf in a compromise rather than meet the expense and loss of

time involved in a law suit. Certainly the establishment of legal

relations between the trades’ union and the state would give to it a

character and stability most likely to promote all interests.

_Federations of labor._—The so-called federations of labor, in which

practically the only bond of union between individuals is the fact that

all are wage-earners, have so far worked out but a small part of the

problem involved in their existence. They have the advantage of uniting

large numbers and a variety of interests; but they have the disadvantage

of subordinating all other interests to the supposed conflict between

employers and employed. Their tendency is almost certain toward lowering

standards of efficiency, and attempting by class legislation to get the

advantage of mere numbers.

It is almost impossible that the organization shall be kept out of the

field of bargains in politics and contrivance for special legislation,

demoralizing to the whole country. Too often the votes of members are made

a bribe for securing certain favors. In the nature of the case, they

sustain a body of officers whose chief business is in danger of becoming

that of either political agitators or political bosses. The machinery of

organization is liable to reduce the independence of individuals. The

organization itself is liable to demand a personal subordination almost

equivalent to military rule, and the badge of the society may mark a man

as under direction of authority. Even in questions where the majority

rule, the force of the federation requires the caucus principle of

absolute adherence, even though the majority represents the weakest and

least intelligent part of the organization. The demoralizing effect of

such methods, including wholesale trading of opinions, is liable to debase

citizenship, and so to diminish the individual self-respect, which is the

highest possible protection for laborers.

_Courts of arbitration._—Arbitration between employers and employed, in

cases of serious misunderstanding, has long been advocated as a wise means

of settling differences. The obstacles to its general, voluntary adoption

are considerable. Employers object because it involves the admission of an

outsider as a judge of their business methods. The employés object because

they fear the sympathy of arbitrators with the superior intelligence,

wealth and power of employers. Yet there seems no good reason why a

representative body of men, chosen for character and ability, should not

be appealed to by both parties in a contest which has already broken up

the natural relations of business. As has been shown, the whole community

suffers in every interruption of production and trade, and so far the

community has the right, and should have the legal privilege, of insisting

upon the fairest and quickest means of settling the controversy. In far

less important difficulties between individuals, society insists that

either individual shall have the right to bring the other into court.

Society is waiting only to settle the best form of a court of arbitration

for labor difficulties. The trend of popular judgment is in favor of a

well-organized commission, having the dignity if not the authority of a

supreme court. That such commissions have not generally come up to the

ideal is due largely to political influence among leaders of

organizations, so that the commissioners become the choice of a faction

rather than of the people. It is conceivable that the functions of judges

in a series of state courts may be so enlarged under carefully framed laws

as to include the duty of arbitration in labor contests.

If the people are not yet ready for compulsory settlement of such

questions, the time is surely coming, under the enormous aggregation of

industries and the immense combination of employés, when the judgment of

the people expressed in due form of law will control both employer and

employé. The whole world is recognizing methods of arbitration as better

than warfare. It will soon insist that these minor wars within the

commonwealth shall cease.

_Profit-sharing._—Some general system of preventing antipathy between

profit-makers and wage-earners seems desirable. Certain interests are

known to be mutual, and both employers and employed welcome any system by

which those mutual interests can further the success of the business.

Among the methods proposed, and sometimes successfully employed, the most

prominent is profit-sharing. This implies on the part of employers after

payment of current wages a distribution, at stated times, far enough apart

to secure a fair average in the profit and loss account, of some portion

of net profits among all the wage-earners. The per cent of net profits to

be thus distributed is matter of agreement, and the basis of distribution

is naturally the scale of wages accepted by the employés in their contract

for employment. The particular methods of applying these principles vary

with circumstances, but in all cases depend upon the actual confidence of

employés in their employers. The effects seem to be good, bad or

indifferent, in proportion to the general intelligence and stability of

the employés. With really skilled workmen, established in homes and

feeling responsibility as citizens, profit-sharing stimulates to the

highest energy. With weak and irresponsible wage-earners it is likely to

bring waste and sometimes false notions in regard to wealth production.

The weakness of the whole system is the lack of provision for fairly

sharing burdens in the constantly recurring periods of loss. If the

employé’s share of the profits is consumed upon comfort or luxury, he is

even less prepared than without such profits to meet the loss of not only

profits, but his wages, in times of depression. If these additional

earnings shared as profits become an insurance to the wage-earner, a sort

of reserve for sustenance and safety in the necessary times of weakness in

any industry, they stimulate the best characteristics of saving and

character-building, and cultivate a disposition to meet all emergencies in

patience. It is quite customary, therefore, in any system of

profit-sharing to provide also an investment for the employés in a reserve

fund, from which the necessities of the business and the needs of the

whole community of workers may be met. Such a method, if wisely managed,

makes the interests of the employés coincide with those of the employer.

If added to this there is ample opportunity for suggestions as to

enlargement and improvement of the business in all minutiæ, the best

abilities of the workmen are called out and the heartiest sympathy is

possible. There still remains against such a system the objections, that

losses are not shared as truly as profits, and that employés are liable to

require too intimate an acquaintance with the condition of their

employer’s business to foster the success of the enterprise. Its

successful application is so far confined to lines of business easily

comprehended and direct in their methods.

_Sliding scales of wages._—Another device for connecting directly with the

fluctuations of business any compensation of wage-earners is called the

sliding scale of wages. This is an attempt to make each sharer in

production depend directly upon the price of products in the market for

rate of wages. The wages of different workers are adjusted to each other

by contract upon some ratio established by experience, and then the wages

of each are made to vary from month to month with the average price of the

finished product in the general market. This subjects all parties directly

to the fluctuations of the business in both profit and loss. Its success

is dependent upon the confidence placed by employés in the fairness of the

adjustment. It stimulates to highest productiveness when prices are high,

and checks production slightly when prices are low. But it provides no

direct method for readjusting business under the pressure of great changes

in methods of management, nor does it save from strong antipathy against

the improvement of a business by labor-saving machinery. Its successful

employment depends in general upon the character and efficiency of

employers and the general intelligence and enterprise of employés.

_Coöperative industry._—Coöperative industries are sometimes advocated as

a complete solution of labor difficulties. The system implies a union of

independent workmen, all of whom shall be sharers in the capital employed

as well as in the labor involved, including management. The management of

the enterprise is entrusted to chosen members of the coöperative force,

and wages or salaries are fixed according to abilities employed,

essentially upon the scale of current wages outside the coöperative

enterprise. All profits are then shared among all members of the

association in proportion to their wages. But an investment of such

profits in the growth of the business is an essential part of the plan.

This method satisfies the ideal of equity in division of wealth produced,

provided the basis of adjustment between classes of wage-earners is

accepted as fair. The principal difficulty in this respect arises in

reference to the salary of managers and overseers. Such salaries are less

clearly defined in the labor market, being usually complicated with

profit-making, and are liable to be considered out of all proportion with

the wages of other workers. If underestimated, the marked abilities

required in management are likely to be withdrawn from the enterprise for

independent management in profit-making.

The chief difficulties, however, with coöperative production grow from the

want of confidence of the multitude of shareholders in their managers. Few

kinds of business can be carried on successfully under a body of absolute

rules, and fewer still will bear the delays and hesitation required for a

general consultation of many authorities. The comparatively few instances

of genuine success in coöperative production are due, in the first place,

to the comparative simplicity of the undertaking; and, in the second

place, to the genius of some organizer, who has been willing to contribute

his superior abilities for the sake of the enterprise itself rather than

the compensation.

A few principles may be fairly drawn from the general experience. First,

all shareholders must be actual workers, in some way responsible for a

part of the production. Second, the influence of each shareholder must in

some way be held in direct ratio to his share in the production. Third,

the system of accounts must be such as all can fairly understand. Fourth,

the management must be entrusted to a chosen few, whose interests are

chiefly in the business itself, whose character secures the confidence of

all, and whose administrative ability is not too much hampered by rules.

The opportunity for coöperative industry is nowhere greater than in a

community of farmers. Butter and cheese factories, cold storage plants and

milk stations invite the coöperation of interested farmers upon the

simplest possible basis of agreement. The multiplication of such

enterprises is desirable, and the farmers of every community may

profitably study the conditions of success. The greatest obstacle

heretofore, has been the want of competent management, and the distrust

aroused and maintained by the inefficiency and fraud of managers. It is

possible, too, that farmers generally do not recognize the actual

importance of executive abilities, and are unwilling to pay the salary

actually earned by a thoroughly competent man.

_Legal restrictions as to labor._—It is natural for those who suffer in

the struggle for better wages to seek the support of law in restrictions

upon contracts as to wages, hours of employment and conditions of comfort.

The principle that governments must protect the weak against the strong in

any community is a thoroughly established one. Yet its applications are

subject to continual readjustment. Multitudes of experiments have been

tried, affecting the whole range of inequalities in wages and perquisites.

In many instances, wages have been fixed by law, and that for long periods

of time, but without relieving in any respect the actual force of

competition among wage-earners themselves. Indeed, the tendency of very

explicit enactments is to weaken the individual ability of wage-earners by

destroying ambition. Wages fixed by law are necessarily as low as the

average would be in a free competition; otherwise production is hindered

and capital is diminished. With this low average any worker of more than

average ability gains nothing by exerting his ability, but does gain ease

by neglect. Thus enforced uniformity reduces the energy of the producing

forces and practically closes the doors of advancement from wage-earning

to profit-making.

A similar effect is found in efforts to regulate the hours of labor by

law, except where the law simply defines the meaning of a day’s work or

emphasizes the importance of public health and vitality rather than

equality in distribution. Humanity has done much in reducing hours of

toil, and may yet do more; but it will be for humanity’s welfare in larger

considerations than are measured by money. The eight-hour question, so

constantly agitated in certain callings, concerns the entire people just

so far,—and no farther,—as the general health and energy of the community

depend upon it. Farming communities stand aloof from its application; and

yet there is no question that the farmer’s home might be even better than

it is for developing physical and mental vigor, if hours of toil were more

carefully restricted to meet the conditions of healthful growth and

activity.

Other conditions, affecting the employment of children and women, are

proper subjects of restriction by law; for these also involve the

consideration of general welfare in the elevation of the physical, mental

and moral characteristics of the race. Upon the same plane must be put all

legal restrictions upon methods and machinery, reducing the dangers from

accident and promoting the comfort of employés. All restrictions serve

their purpose only so long as they are appreciated as having their reason

for existence in general welfare. The rights of an employer, under

contract with his employé, like the rights of a parent in control of his

child, are subject to the law of good will; and the world will yet find a

way to make its restrictions felt wherever recklessness or carelessness or

greed destroys good will.

_Nationalization of industry._—A somewhat popular suggestion in solution

of labor difficulties is the so-called nationalization of industry. This,

in general terms, is a proposition to equalize compensation and avoid

fluctuation in both wages and employment by public control of all

industries under official management. While this involves some principles

of socialism, more properly discussed in connection with consumption of

wealth, its relations to productive industry may be briefly presented

here. The plans proposed are as yet expressed only in most general terms.

Even the method of bringing about such a revolution of thought, feeling

and action has not been devised. Still less ready is anyone to point out

the details of a plan for the actual production. The nearest associated

ideas are found in governmental services through a post office department

or the management of a system of transportation. Most advocates of the

method overlook the fact that in such government administration of partial

industries the law of competition is still operative between these

enterprises and the universal industry of the people.

The difficulties in governmental management under present conditions are

anything but small, especially under popular rule, where the dominion of

party and the influence of position are all-powerful. Under monarchial

rule the organization of such industries becomes like that of an army, in

which arbitrary power predominates. It seems easy to see that any effort

to solve the problems of labor employment by national control involves

finally the arbitrary decision of power, in adjustment of both duties and

compensation. The management by officials, however those officials are

appointed, is not necessarily wiser, more efficient or more benevolent

than the management by interested men, whose life is in natural contact,

through business relations, with employés. Those who have had experience

with official control under popular government are not likely to expect a

readjustment of all interests from the standpoint of politicians to be

marked by either universal good will or universal common sense. It is

reasonable to suppose that wherever general welfare in actual use of

wealth can be best promoted by public control, such control will come

through the free exercise of individual judgment with reference to the

work in hand. While there ought to be no objection on the part of any to a

government enterprise which can be shown to serve in that way the greatest

good of all, nobody ought to assume that the nationalization of industries

is for the greatest good. Each great undertaking will require its own

proof, not only of the welfare to be expected, but of the practical means

by which that end can be secured.

_The spirit of equity chief._—The trend of experience goes to show that

true economic interests, not only of the community but of individuals, are

in accord with general principles of welfare. It seems certain that

communities paying the highest wages are those which gain the highest

return for labor in product, and maintain the highest general rates of

profit. In general, also, those enterprises which are controlled with most

care for equity in wages and for the general welfare of employés are most

stable under fluctuations of business and most genuinely successful. While

wealth may be accumulated unjustly in the hands of those who oppress their

neighbors, there can be no doubt that in long periods of time the best

adjustment of all interests gives not only the truest welfare but the

largest wealth and the best use of it. The spirit of equity must

eventually control both managers and wage-earners, and no other

disposition can furnish a final solution of the problems of distribution

between employers and employed. If employers are greedy, the wrong will

not be righted by an equal display of greed on the part of wage-earners.

The spirit of true philanthropy is the only proper spirit for discussion

of these questions.

Chapter XX. Proceeds Of Capital: Interest And Rent.

_Practical distinctions._—The terms interest and rent are distinguished in

actual practice by the fact that interest is paid for the use of capital

in some circulating form, while rent is paid for the use of fixed capital.

One who borrows anything, expecting to return not the thing itself but its

equivalent in value, is said to borrow upon interest. One who borrows the

same thing, expecting to return the identical thing, is said to pay rent

for its use. Thus interest is paid for control of circulating capital

until an equivalent is returned, and rent is paid for control of fixed

capital until the same articles are returned in prime condition. A farmer

who borrows a mowing machine from the warehouse, giving his note for its

value, pays, when he returns that value at the end of the year, interest

upon his note. If he borrows the same machine from his neighbor under

contract to return the machine in good condition at the end of the season,

he pays rent for its use. The young man who borrows his neighbor’s farm,

expecting at the end of five years to make that farm his own, gives a

mortgage note, promising at the end of five years to return an equivalent

value for the farm, with annual interest. If, on the contrary, he expects

to return the farm itself at the end of five years, without reduction in

value, he makes a lease, embodying this agreement, with annual rent for

use of the farm.

Both interest and rent are liable to involve the element of risk as to the

proper return of the valuable thing promised, and to that extent they

partake of the nature of profits. The true interest and rent are

independent of the possible risk, and have to do simply with the advantage

naturally accruing to the possessor of wealth from its use as capital, and

forming one of the chief reasons for accumulating wealth at all.

In technical discussion the term rent is usually confined to the

compensation secured from appropriation of space, peculiar location,

natural fertility, mineral deposits, water privileges, or any natural

advantage to be used in production. In this limited meaning rent is

confined to the advantage gained by the owner of wealth in any form so

affected by the law of supply and demand as to gain a scarcity value. The

term unearned increment,—meaning an increase of value without cost of

exertion,—has been largely applied to such cases, and illustrations are

taken chiefly from the ownership of land and similar natural forces. The

same unearned increment, however, accrues to the possessor of any article

of value or any personal attainment, which through increasing wants of the

community becomes, on that account alone, more valuable in market. Thus a

bin full of wheat, saved from a year of plenty to a year of scarcity, has

gained a value abnormal,—that is, from the fact of its scarcity. Yet no

one would think of applying the term rent in such a ease, because the

foresight which stored the grain gains its compensation in profits. If the

same kind of foresight has plotted a city upon wild lands, and held a

portion of those plotted lots until a crowded population competes for

their use, such wealth is said to be gained upon the principle of rent.

The difference seems to be chiefly in the greater permanence and the

gradual advancement of the profits secured.

The every-day operations of a farming community illustrate both interest

and rent in all their complications and definitions. Every farmer, in

estimating the cost of his wheat crop, may properly calculate both the

interest on his capital invested in tools, teams, machinery and wages, and

the rent of his land, keeping distinct accounts of interest and rent; or

he may combine in one account as interest the use of capital in machinery

and land. If he owns the whole establishment, he is likely to combine both

interest and rent with the return for his foresight and energy in managing

the farm under the name profits. All these returns, however, come for

different reasons, though under the same general principle of values

expressed in the law of supply and demand. The farmer working a rented

farm and the one working a mortgaged farm are alike paying both rent and

interest, since every farm involves both the wealth accumulated by

exertion and the wealth advanced by increasing population. While the owner

of the mortgaged farm apparently pays interest, if at the end of the term

of the mortgage the farm is returned to its former owner by foreclosure,

the result is that the mortgagee, while nominally owner of the land, has

simply been a renter. In a fair settlement of equities he will have paid

for the use of the land he has cultivated. Interest and rent are thus seen

to be terms separated rather by peculiarities of application than by

difference of principle. It is proper, however, to treat them separately

for the sake of more perfect understanding of the conditions applicable to

each.

Chapter XXI. Principles Of Interest.

_Reasons for interest._—The propriety of interest under any circumstances

has often been questioned, and its rightfulness is still bitterly

disputed. Both church and state have at times denounced the receiving of

interest as criminal. Yet in actual practice of commercial life throughout

the world interest has been sustained in all ages. The Jewish law

prohibited interest between neighbors, where the reason for borrowing was

assumed to be poverty, but authorized it in dealings with foreigners,

where the transaction was assumed to be in trade. The principle upon which

interest in all productive industry is actually founded is that capital,

gained by exertion and saved by self-control, secures to its present

possessor such advantages of time and choice of use for his abilities as

can be given by nothing else. In the study of production we have seen that

time-saving is an important result of capital in its various forms. A

carpenter’s kit of tools represents a value in use equal at least to the

time he might consume in making them. He can afford to keep them for

another’s use only while they bring to him the advantage of that

time-saving. His neighbor is willing to secure him in that advantage by

paying him for the use of the tools all, or nearly all, that he gains by

using tools over what he would have without them. The borrower will still

be the gainer by opportunity to do work not possible without the tools.

The bargain between borrower and lender, like any bargain, is a fair one

only when both are benefited. The limits of fairness in the deal are

naturally reached when a clear understanding of all conditions is had in

open market. Neither borrower nor lender can take advantage of the other

without fraud. Neither is under obligation to give to the other without an

equivalent. The whole question rests upon service rendered, as truly as in

any other bargain.

A large proportion of the opposition to interest arises from a

misconception of the phrase, “borrowed money.” The fact is that borrowing

and lending have to do chiefly with other forms of wealth. Most notes are

given for the transfer of all sorts of property under a promise to return

equal value in the future. Money may not enter into the transaction at

all, except as the standard of value is in terms of money. Even when money

is exchanged for a note, the borrower hastens to part with the money for

the tools or provisions which make him a profitable producer. In payment

of his note he offers money again, simply because it commands every

desirable form of value for the owner of the wealth. If a farmer wants a

wagon without the present means to buy, he offers the dealer his promise

to pay after six months, when the corn crop just planted shall have

matured. If the dealer cannot afford to hold the note because he needs the

capital in his business, that others may be supplied with wagons, either

the farmer or the dealer carries the note to some one who _can_ afford to

wait for returns, which may be either a banker, whose business provides

just such accommodation, or a neighboring farmer who has just sold his

wool. In either case, the first farmer borrows what he wants in carrying

on his business, and at the end of six months, through a similar

transaction of finding some one ready to take his product, pays his note

with corn. (See p. 164.)

Interest is never confined to money transactions, nor even to those in

which terms of money are used. All owners of productive wealth gain

interest in its use as truly as in lending it. The farmer is not a

money-lender in general, because his wealth will bring him larger profit

by its use as stock or machinery. Even when he borrows from his neighbors,

it is possible that he secures a larger interest, though he calls it

profit, than he pays the lender. Interest is often paid in kind. The

laughable story of borrowing a hen from one neighbor and a sitting of eggs

from another, to be returned after a time with advantage, is actually

paralleled by some transactions. A friend of mine having a magnificent

pasture agreed with his neighbor, who owned a fine flock of ewes, to

pasture that flock for three years, returning at the end of that time just

twice the number of sheep received. He explained to me that he had made a

great bargain, since the wool would pay for the use of the pasture, and he

should have at the end of the three years a flock about equal to the flock

he returned. This bargain involved interest at the rate of 33-⅓ per cent,

without any terms of money, and an indefinite profit to the owner of the

pasture in addition to an average price for such use. This profit is his

return for the risk undertaken; since he promised to double the flock

under any circumstances, and if foot-rot or scab had ruined the flock

under his management, he would still have the same obligation toward the

owner.

Such bargains will always be made so long as both parties are benefited,

for no possible construction of laws and no diatribes of fanatics can

prevent them. Any calculation as to the enormous growth of wealth by

interest is more than balanced by a similar calculation of the

multiplication of wealth by production. If Abraham’s shekels at compound

interest make an impossible sum of money, Abraham’s flock of sheep with

the ordinary rate of increase makes an equally impossible worldful.

_Varying rates of interest._—Interest rates are subject to fluctuation and

variations under the natural relations of borrowers and lenders very much

as are prices of commodities. Variations, in comparison of different

regions, are due to several causes. In any community where enterprise is

great and industrial forces are unusually productive, the interest rates

are high as compared with another community with few competitors in

industrial enterprise and less productive forces. Thus in countries having

new land producing large crops with moderate exertion and an increasing

population ready to put in such crops, the return for the use of capital

in provisions, stock and machinery is great, and the lender gets high

rates of interest. If, added to this apparent productiveness, there are

risks of failure from droughts, storms and injurious insects, the bargain

is more favorable to the lender in expressed terms, though it may be less

favorable in actual results. Thus risk enters practically into

calculations of interest, whatever the circumstances.

Interest varies in the same region with a variation of energy and

productive enterprise or of the speculative spirit undertaking great

improvements, and on the other hand with any change of circumstances

affecting universal credit. Distrust on the part of anybody reduces the

readiness with which borrowers find lenders. In times of widespread lack

of confidence, when all credit becomes debt, the borrower is likely to

offer unusual rates of interest. And the few who are willing to lend at

all expect enormous profits in such interest.