WAGES AND THE LAW OF WAGES.
We have by inference already obtained the law of wages. But to verify
the deduction and to strip the subject of all ambiguities, let us seek
the law from an independent starting point.
There is, of course, no such thing as a common rate of wages, in
the sense that there is at any given time and place a common rate
of interest. Wages, which include all returns received from labor,
not only vary with the differing powers of individuals, but, as the
organization of society becomes elaborate, vary largely as between
occupations. Nevertheless, there is a certain general relation between
all wages, so that we express a clear and well-understood idea when
we say that wages are higher or lower in one time or place than in
another. In their degrees, wages rise and fall in obedience to a common
law. What is this law?
The fundamental principle of human action—the law that is to political
economy what the law of gravitation is to physics—is that men
seek to gratify their desires with the least exertion. Evidently,
this principle must bring to an equality, through the competition
it induces, the reward gained by equal exertions under similar
circumstances. When men work for themselves, this equalization will
be largely affected by the equation of prices; and between those who
work for themselves and those who work for others, the same tendency
to equalization will operate. Now, under this principle, what, in
conditions of freedom, will be the terms at which one man can hire
others to work for him? Evidently, they will be fixed by what the men
could make if laboring for themselves. The principle which will prevent
him from having to give anything above this, except what is necessary
to induce the change, will also prevent them from taking less. Did
they demand more, the competition of others would prevent them from
getting employment. Did he offer less, none would accept the terms,
as they could obtain greater results by working for themselves. Thus,
although the employer wishes to pay as little as possible, and the
employee to receive as much as possible, wages will be fixed by the
value or produce of such labor to the laborers themselves. If wages
are temporarily carried either above or below this line, a tendency to
carry them back at once arises.
But the result, or the earnings of labor, as is readily seen in those
primary and fundamental occupations in which labor first engages,
and which, even in the most highly developed condition of society,
still form the base of production, does not depend merely upon the
intensity or quality of the labor itself. Wealth is the product of two
factors, land and labor, and what a given amount of labor will yield
will vary with the powers of the natural opportunities to which it is
applied. This being the case, the principle that men seek to gratify
their desires with the least exertion will fix wages at the produce
of such labor at the point of highest natural productiveness open to
it. Now, by virtue of the same principle, the highest point of natural
productiveness open to labor under existing conditions will be the
lowest point at which production continues, for men, impelled by a
supreme law of the human mind to seek the satisfaction of their desires
with the least exertion, will not expend labor at a lower point of
productiveness while a higher is open to them. Thus the wages which
an employer must pay will be measured by the lowest point of natural
productiveness to which production extends, and wages will rise or fall
as this point rises or falls.
To illustrate: In a simple state of society, each man, as is the
primitive mode, works for himself—some in hunting, let us say, some in
fishing, some in cultivating the ground. Cultivation, we will suppose,
has just begun, and the land in use is all of the same quality,
yielding a similar return to similar exertions. Wages, therefore—for,
though there is neither employer nor employed, there are yet wages—will
be the full produce of labor, and, making allowance for the difference
of agreeableness, risk, etc., in the three pursuits, they will be on
the average equal in each—that is to say, equal exertions will yield
equal results. Now, if one of their number wishes to employ some of his
fellows to work for him instead of for themselves, he must pay wages
fixed by this full, average produce of labor.
Let a period of time elapse. Cultivation has extended, and, instead of
land of the same quality, embraces lands of different qualities. Wages,
now, will not be as before, the average produce of labor. They will be
the average produce of labor at the margin of cultivation, or the point
of lowest return. For, as men seek to satisfy their desires with the
least possible exertion, the point of lowest return in cultivation must
yield to labor a return equivalent to the average return in hunting
and fishing.[37] Labor will no longer yield equal returns to equal
exertions, but those who expend their labor on the superior land will
obtain a greater produce for the same exertion than those who cultivate
the inferior land. Wages, however, will still be equal, for this excess
which the cultivators of the superior land receive is in reality rent,
and if land has been subjected to individual ownership will give it a
value. Now, if, under these changed circumstances, one member of this
community wishes to hire others to work for him, he will have to pay
only what the labor yields at the lowest point of cultivation. If
thereafter the margin of cultivation sinks to points of lower and lower
productiveness, so must wages sink; if, on the contrary, it rises,
so also must wages rise; for, just as a free body tends to take the
shortest route to the earth’s center, so do men seek the easiest mode
to the gratification of their desires.
Here, then, we have the law of wages, as a deduction from a principle
most obvious and most universal. That wages depend upon the margin of
cultivation—that they will be greater or less as the produce which
labor can obtain from the highest natural opportunities open to it is
greater or less, flows from the principle that men will seek to satisfy
their wants with the least exertion.
Now, if we turn from simple social states to the complex phenomena of
highly civilized societies, we shall find upon examination that they
also fall under this law.
In such societies, wages differ widely, but they still bear a more
or less definite and obvious relation to each other. This relation
is not invariable, as at one time a philosopher of repute may earn
by his lectures many fold the wages of the best mechanic, and at
another can hardly hope for the pay of a footman; as in a great city
occupations may yield relatively high wages, which in a new settlement
would yield relatively low wages; yet these variations between wages
may, under all conditions, and in spite of arbitrary divergences
caused by custom, law, etc., be traced to certain circumstances. In
one of his most interesting chapters Adam Smith thus enumerates the
principal circumstances “which make up for a small pecuniary gain
in some employments and counterbalance a great one in others: First,
the agreeableness or disagreeableness of the employments themselves.
Secondly, the easiness and cheapness, or the difficulty and expense of
learning them. Thirdly, the constancy or inconstancy of employment in
them. Fourthly, the small or great trust which must be reposed in them.
Fifthly, the probability or improbability of success in them.”[38] It
is not necessary to dwell in detail on these causes of variation in
wages between different employments. They have been admirably explained
and illustrated by Adam Smith and the economists who have followed
him, who have well worked out the details, even if they have failed to
apprehend the main law.
The effect of all the circumstances which give rise to the differences
between wages in different occupations may be included as supply and
demand, and it is perfectly correct to say that the wages in different
occupations will vary relatively according to differences in the supply
and demand of labor—meaning by demand the call which the community
as a whole makes for services of the particular kind, and by supply
the relative amount of labor which, under the existing conditions,
can be determined to the performance of those particular services.
But though this is true as to the relative differences of wages, when
it is said, as is commonly said, that the general rate of wages is
determined by supply and demand, the words are meaningless. For supply
and demand are but relative terms. The supply of labor can only mean
labor offered in exchange for labor or the produce of labor, and the
demand for labor can only mean labor or the produce of labor offered
in exchange for labor. Supply is thus demand, and demand supply, and,
in the whole community, one must be co-extensive with the other. This
is clearly apprehended by the current political economy in relation to
sales, and the reasoning of Ricardo, Mill, and others, which proves
that alterations in supply and demand cannot produce a general rise
or fall of values, though they may cause a rise or fall in the value
of a particular thing, is as applicable to labor. What conceals the
absurdity of speaking generally of supply and demand in reference to
labor is the habit of considering the demand for labor as springing
from capital and as something distinct from labor; but the analysis to
which this idea has been heretofore subjected has sufficiently shown
its fallacy. It is indeed evident from the mere statement, that wages
can never permanently exceed the produce of labor, and hence that there
is no fund from which wages can for any time be drawn, save that which
labor constantly creates.
But, though all the circumstances which produce the differences in
wages between occupations may be considered as operating through
supply and demand, they, or rather, their effects, for sometimes the
same cause operates in both ways, may be separated into two classes,
according as they tend only to raise apparent wages or as they tend
to raise real wages—that is, to increase the average reward for equal
exertion. The high wages of some occupations much resemble what Adam
Smith compares them to, the prizes of a lottery, in which the great
gain of one is made up from the losses of many others. This is not
only true of the professions by means of which Dr. Smith illustrates
the principle, but is largely true of the wages of superintendence
in mercantile pursuits, as shown by the fact that over ninety per
cent. of the mercantile firms that commence business ultimately
fail. The higher wages of those occupations which can be prosecuted
only in certain states of the weather, or are otherwise intermittent
and uncertain, are also of this class; while differences that arise
from hardship, discredit, unhealthiness, etc., imply differences of
sacrifice, the increased compensation for which only preserves the
level of equal returns for equal exertions. All these differences are,
in fact, equalizations, arising from circumstances which, to use
the words of Adam Smith, “make up for a small pecuniary gain in some
employments and counterbalance a great one in others.” But, besides
these merely apparent differences, there are real differences in wages
between occupations, which are caused by the greater or less rarity
of the qualities required—greater abilities or skill, whether natural
or acquired, commanding on the average greater wages. Now, these
qualities, whether natural or acquired, are essentially analogous to
differences in strength and quickness in manual labor, and as in manual
labor the higher wages paid the man who can do more would be based upon
wages paid to those who can do only the average amount, so wages in the
occupations requiring superior abilities and skill must depend upon the
common wages paid for ordinary abilities and skill.
It is, indeed, evident from observation, as it must be from theory,
that whatever be the circumstances which produce the differences of
wages in different occupations, and although they frequently vary in
relation to each other, producing, as between time and time, and place
and place, greater or less relative differences, yet the rate of wages
in one occupation is always dependent on the rate in another, and so
on, down, until the lowest and widest stratum of wages is reached, in
occupations where the demand is more nearly uniform and in which there
is the greatest freedom to engage.
For, although barriers of greater or less difficulty may exist, the
amount of labor which can be determined to any particular pursuit is
nowhere absolutely fixed. All mechanics could act as laborers, and many
laborers could readily become mechanics; all storekeepers could act
as shopmen, and many shopmen could easily become storekeepers; many
farmers would, upon inducement, become hunters or miners, fishermen or
sailors, and many hunters, miners, fishermen, and sailors know enough
of farming to turn their hands to it on demand. In each occupation
there are men who unite it with others, or who alternate between
occupations, while the young men who are constantly coming in to fill
up the ranks of labor are drawn in the direction of the strongest
inducements and least resistances. And further than this, all the
gradations of wages shade into each other by imperceptible degrees,
instead of being separated by clearly defined gulfs. The wages, even
of the poorer paid mechanics, are generally higher than the wages
of simple laborers, but there are always some mechanics who do not,
on the whole, make as much as some laborers; the best paid lawyers
receive much higher wages than the best paid clerks, but the best paid
clerks make more than some lawyers, and in fact the worst paid clerks
make more than the worst paid lawyers. Thus, on the verge of each
occupation, stand those to whom the inducements between one occupation
and another are so nicely balanced that the slightest change is
sufficient to determine their labor in one direction or another. Thus,
any increase or decrease in the demand for labor of a certain kind
cannot, except temporarily, raise wages in that occupation above, nor
depress them below, the relative level with wages in other occupations,
which is determined by the circumstances previously adverted to,
such as relative agreeableness or continuity of employment, etc.
Even, as experience shows, where artificial barriers are imposed
to this interaction, such as limiting laws, guild regulations, the
establishment of caste, etc., they may interfere with, but cannot
prevent, the maintenance of this equilibrium. They operate only as
dams, which pile up the water of a stream above its natural level, but
cannot prevent its overflow.
Thus, although they may from time to time alter in relation to each
other, as the circumstances which determine relative levels change, yet
it is evident that wages in all strata must ultimately depend upon
wages in the lowest and widest stratum—the general rate of wages rising
or falling as these rise or fall.
Now, the primary and fundamental occupations, upon which, so to
speak, all others are built up, are evidently those which procure
wealth directly from nature; hence the law of wages in them must be
the general law of wages. And, as wages in such occupations clearly
depend upon what labor can produce at the lowest point of natural
productiveness to which it is habitually applied; therefore, wages
generally depend upon the margin of cultivation, or, to put it more
exactly, upon the highest point of natural productiveness to which
labor is free to apply itself without the payment of rent.
So obvious is this law that it is often apprehended without being
recognized. It is frequently said of such countries as California and
Nevada that cheap labor would enormously aid their development, as it
would enable the working of the poorer but most extensive deposits of
ore. A relation between low wages and a low point of production is
perceived by those who talk in this way, but they invert cause and
effect. It is not low wages which will cause the working of low-grade
ore, but the extension of production to the lower point which will
diminish wages. If wages could be arbitrarily forced down, as has
sometimes been attempted by statute, the poorer mines would not be
worked so long as richer mines could be worked. But if the margin of
production were arbitrarily forced down, as it might be, were the
superior natural opportunities in the ownership of those who chose
rather to wait for future increase of value than to permit them to be
used now, wages would necessarily fall.
The demonstration is complete. The law of wages we have thus obtained
is that which we previously obtained as the corollary of the law of
rent, and it completely harmonizes with the law of interest. It is,
that:
_Wages depend upon the margin of production, or upon the produce which
labor can obtain at the highest point of natural productiveness open
to it without the payment of rent._
This law of wages accords with and explains universal facts that
without its apprehension seem unrelated and contradictory. It shows
that:
Where land is free and labor is unassisted by capital, the whole
produce will go to labor as wages.
Where land is free and labor is assisted by capital, wages will consist
of the whole produce, less that part necessary to induce the storing up
of labor as capital.
Where land is subject to ownership and rent arises, wages will be fixed
by what labor could secure from the highest natural opportunities open
to it without the payment of rent.
Where natural opportunities are all monopolized, wages may be forced by
the competition among laborers to the minimum at which laborers will
consent to reproduce.
This necessary minimum of wages (which by Smith and Ricardo is
denominated the point of “natural wages,” and by Mill supposed to
regulate wages, which will be higher or lower as the working classes
consent to reproduce at a higher or lower standard of comfort) is,
however, included in the law of wages as previously stated, as it is
evident that the margin of production cannot fall below that point at
which enough will be left as wages to secure the maintenance of labor.
Like Ricardo’s law of rent of which it is the corollary, this law of
wages carries with it its own proof and becomes self-evident by mere
statement. For it is but an application of the central truth that is
the foundation of economic reasoning—that men will seek to satisfy
their desires with the least exertion. The average man will not work
for an employer for less, all things considered, than he can earn by
working for himself; nor yet will he work for himself for less than he
can earn by working for an employer, and hence the return which labor
can secure from such natural opportunities as are free to it must fix
the wages which labor everywhere gets. That is to say, the line of rent
is the necessary measure of the line of wages. In fact, the accepted
law of rent depends for its recognition upon a previous, though in many
cases it seems to be an unconscious, acceptance of this law of wages.
What makes it evident that land of a particular quality will yield as
rent the surplus of its produce over that of the least productive land
in use, is the apprehension of the fact that the owner of the higher
quality of land can procure the labor to work his land by the payment
of what that labor could produce if exerted upon land of the poorer
quality.
In its simpler manifestations, this law of wages is recognized by
people who do not trouble themselves about political economy, just
as the fact that a heavy body would fall to the earth was long
recognized by those who never thought of the law of gravitation. It
does not require a philosopher to see that if in any country natural
opportunities were thrown open which would enable laborers to make
for themselves wages higher than the lowest now paid, the general
rate of wages would rise; while the most ignorant and stupid of the
placer miners of early California knew that as the placers gave out or
were monopolized, wages must fall. It requires no fine-spun theory to
explain why wages are so high relatively to production in new countries
where land is yet unmonopolized. The cause is on the surface. One man
will not work for another for less than his labor will really yield,
when he can go upon the next quarter section and take up a farm for
himself. It is only as land becomes monopolized and these natural
opportunities are shut off from labor, that laborers are obliged to
compete with each other for employment, and it becomes possible for the
farmer to hire hands to do his work while he maintains himself on the
difference between what their labor produces and what he pays them for
it.
Adam Smith himself saw the cause of high wages where land was yet
open to settlement, though he failed to appreciate the importance and
connection of the fact. In treating of the Causes of the Prosperity of
New Colonies (Chapter VII, Book IV, “Wealth of Nations,”) he says:
“Every colonist gets more land than he can possibly cultivate. He has
no rent and scarce any taxes to pay. * * He is eager, therefore, to
collect laborers from every quarter and to pay them the most liberal
wages. But these liberal wages, joined to the plenty and cheapness of
land, soon make these laborers leave him in order to become landlords
themselves, and to reward with equal liberality other laborers who
soon leave them for the same reason they left their first masters.”
This chapter contains numerous expressions which, like the opening
sentence in the chapter on The Wages of Labor, show that Adam Smith
failed to appreciate the true laws of the distribution of wealth only
because he turned away from the more primitive forms of society to
look for first principles amid complex social manifestations, where he
was blinded by a preaccepted theory of the functions of capital, and,
as it seems to me, by a vague acceptance of the doctrine which, two
years after his death, was formulated by Malthus. And it is impossible
to read the works of the economists who since the time of Smith have
endeavored to build up and elucidate the science of political economy
without seeing how, over and over again, they stumble over the law of
wages without once recognizing it. Yet, “if it were a dog it would bite
them!” Indeed, it is difficult to resist the impression that some
of them really saw this law of wages, but, fearful of the practical
conclusions to which it would lead, preferred to ignore and cover it
up, rather than use it as the key to problems which without it are so
perplexing. A great truth to an age which has rejected and trampled on
it, is not a word of peace, but a sword!
Perhaps it may be well to remind the reader, before closing this
chapter, of what has been before stated—that I am using the word wages
not in the sense of a quantity, but in the sense of a proportion. When
I say that wages fall as rent rises, I do not mean that the quantity
of wealth obtained by laborers as wages is necessarily less, but that
the proportion which it bears to the whole produce is necessarily
less. The proportion may diminish while the quantity remains the same
or even increases. If the margin of cultivation descends from the
productive point which we will call 25, to the productive point we will
call 20, the rent of all lands that before paid rent will increase by
this difference, and the proportion of the whole produce which goes
to laborers as wages will to the same extent diminish; but if, in the
meantime, the advance of the arts or the economies that become possible
with greater population have so increased the productive power of labor
that at 20 the same exertion will produce as much wealth as before at
25, laborers will get as wages as great a quantity as before, and the
relative fall of wages will not be noticeable in any diminution of the
necessaries or comforts of the laborer, but only in the increased value
of land and the greater incomes and more lavish expenditure of the
rent-receiving class.
FOOTNOTES:
[37] This equalization will be effected by the equation of prices.
[38] This last, which is analogous to the element of risk in profits,
accounts for the high wages of successful lawyers, physicians,
contractors, actors, etc.