Frank Albert Fetter.

Source book in economics, selected and ed. for the use of college classes online

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unions attempt to insure that the membership shall be re-
cruited from competent journeymen by recognizing a normal
method of learning the trade under union auspices. The ap-
prenticeship regulations of the unions are directed in large
part to this end, as are the provisions made by a number of
unions for advancement from the status of helper to that of
journeyman after a given number of years under instruction
in the former capacit}^

Minimum as a maximum. The maintenance of a minimum
rate by a union also in another way tends to make vs^ages uni-
form. The fact that a given rate is the "union" rate, and
as such becomes the center of attention and the subject of
negotiation and even of conflict — this makes it the presump-
tive rate. Moreover, many employers who are brought with
much reluctance to agree to observe the minimum look upon
the minimum as a "lump" rate which they have agreed to
pay the union for the labor of its members. These employers
often take the ground that they should not be expected or can
not afford to pay the better men more than the minimum, be-
cause they are compelled to pay the union rate to many men
who are not worth it. The provisions in agreements noted
above for ecpial increases for all the men are evidences of this
feeling. The union officials assert that some employers' as-
sociations have a rule against paying men more than the mini-
mum. There is, of course, a greater likelihood of united
action against the payment of differential wages when the
minimum is established by agreement of the union and the em-
l)loyers as a body.

Competition above minimum. The same forces that lead


to the payment of wages above the average rate where there
is no union minimum, however, often operate to cause the
payment of wages above the union minimum, even though
their effectiveness is reduced by the union regulations noted
above. The chief of these forces is, of course, competition.
Employers are often compelled to comply with the demands of
the more efficient men for higher wages in order to retain
them. There are many employers, too, who pay the better
men more than the minimum, as a matter of course, as com-
pensation for superior service and as an inclucement to the
men to put forth their best efforts.^

In any attempt to estimate the extent to which men re-
ceive wages above the minimum on account of superior effi-
ciency, it is important to bear in mind that the minimum in
different scales may stand in very different relation to the
modal or predominant wage. The proportion of men re-
ceiving more than the union minimum in a trade is frequently
large because the competitive wage has increased since the
minimum was established. Where the minimum is established
by an agreement it is customary to make it binding for a
specified period, and if in that time the competitive wage for
men increases considerably the employers will frequently offer
wages above the minimum to men of no more than average
competency. Sometimes the union refrains from raising the
minimum when an increased demand for men would make that
possible. In 1906 the secretary of the Bricklayers' and Ma-
sons' Union cautioned the local unions against putting up the
rate when the demand is brisk to a point at which it can be
permanently maintained only by throwing some members out

1 The payment of a wage rate above the minimum is not the sole form
of differential compensation. Often the belter men receive the same
hourly rate but are given more regular employment, the cleanest and
most desirable work, and even overtime payment for merely nominal work.
Because of such considerations workmen in the building trades will often
remain with an employer at the minimum rate when other employers are
offering two or three cents an hour more.


of regular employment.^ A few branches of the Granite Cut-
ters have provisions in their agreements to the effect that if an
employer advertises for men at more than the minimum rate
he shall pay the higher rate to all in his employ.

The union minimum is sometimes fixed for other reasons
below the wage rates of most of the men to whom it applies.
The rate may be kept low in order to permit men to secure
employment who would not be able to do so if the predomi-
nant wage were taken as the minimum. This policy has been
followed in some cities by the local unions of masons in the
Bricklayers' and Masons' Union. Local unions of the Ma-
chinists, too, occasionally set a low minimum rate rather than
a starting rate and a higher regular minimum. Again, a
group of workers who usually command a higher rate of pay
than other journeymen in the trade may not be given a
separate union rate. An instance in point is that of cabinet
makers or ''bench men" in the Carpenter's Union who are
given the same minimum rate as machine wood workers.

Proportion of workers getting more than minimum wage.
The extent to which differential wages are paid above the
imion minimum, when that rate is the rate actually paid to
the men whose efficiency is about the average, varies widely
in different trades. There are trades in which differential
payments of this character are very exceptional. Unskilled
laborers, such as the ordinary building laborers, are com-
monly paid one flat rate whether organized or not. The same
is largely true of men paid by the day or hour in street rail-
way or railroad service. In union agreements with the street
railway companies, the minimum rate is usually the same for
all after the first year of service, and the companies almost
without exception make this the actual rate. Men in the rail-
road yard service are paid by the hour and yard engineers,

1 Annual Reports, 3906, p. 290. Members may not strike for more
than the minimum rate. But men may strike to enforce payment of
more than the minimum from a contractor who has agreed to pay more
and later refuses (Ibid., p. 28).



firemen, conductors, and trainmen practically all receive the
minimum rates set for their respective classes. Men em-
ployed in railroad shops rarely receive more than the mini-
mum rates, although in these same trades in the contract
shops a considerable part of the men receive wages above the
minimum. Standardization of workmen and of work and the
practice of dealing with large bodies of men as classes tend
to standardize the wages paid in the railway service more than
in trades calling for similar grades of skill in other in-

In the building trades, the higher rates in the large cities
tend to attract the better men and keep out the poorer and
this tends to reduce the variations in competency from the
average, The employment of men in larger numbers and
the more frequent changing of the men, together with the
existence of employers' associations for dealing with the
unions, also make for greater uniformity in actual payment
in the large cities than in the smaller places.^ Wages among
the Stone Cutters and the Granite Cutters seem to conform
more closely to the minimum than in the other buiUiing trades.
The reason for this in the case of the Stone Cutters has been

In the printing trades, particularly among the compositors
and the stereotypers and electrotypers,^ and in the metal

1 The tendency toward uniform rates for men engaged in the same kind
of work is stronger in large establishments than in small establishments
for the same reasons.

-' It is difiBcult to get anything more than estimates of the percentage
of men receiving wages above the minimum. The secretary of the Com-
position Roofers estimates that not more than two per cent, of the mem-
bers in New York City receive more than the minimum. An oflBcial of
the Steam Fitters estimates that for his union in New York City the
proportion is not less than five nor more than ten per cent.

3 An officer of the local union of the Stereotypers' and Electrotypers'
Union estimates that about 50 out of G50 members in New York City
receive more than the minimum. The electrotype finishers, but not the
electrotype founders, are included in the organization there. In Boston
where both branches are included, the secretary estimates that forty per
cent, receive more than the minimum.


trades the proportion of workmen receiving more than the
minimum is larger than in the building trades. The diversi-
iied nature of the work included within the trade and the
consequent differences in experience and skill among the mem-
bership, combined with the absence of graded union rates, ac-
count largely for tlie prevalence of differential payments
among the Molders and Machinists.^

1 A national official of the Molders' Union estimates that at least thirty
per cent, of the members receive more than the minimum. This is the
liighest estimate obtained for any union. In the Iron Molders^ Journal
for September, 1900 (p. 532), a correspondent declares that there is not
a foundry in the country in which some men do not get more than the
minimum. In the number for March, 1900 (p. 147), it was reported that
in Milwaukee where the minimum was $2.75 "some of our best men get


[These illustrations of tlie relations in agriculture between costs and
profitable cultivation are taken from pp. 6-9 of Bulletin 209 of the
University of Wisconsin Agricultural Experiment Station (May, 1911),
by H. C. Taylor, Professor of Agricultural Economics.]

Prices and crop selection. It is essential to good farm
management that the farmer understand the trend of prices
in order that he may plant and breed to suit the future market
on which his products must be sold.

Within certain regions the question whether one should sow
oats, barley, or spring wheat is determined by the relative
prices for which these products can be sold. In given regions
the choice between corn, potatoes, and sugar beets (crops
which require cultivation at the same time of the year) should
be determined on the basis of the profit the farmer can make
from each of these crops and this depends upon the prices
for which they can be sold.

Costs and prices. It has been common to hear the state-
ment "The price should be high enough to pay the cost of pro-
duction and a reasonable profit." This phrase when properly
understood is full of significance. It is a misinterpretation
however, to assume this phrase to mean that every pro-
ducer of a given product has a right to expect and to de-
mand a price which will cover Ms costs and give him what he
considers a reasonable profit. Costs in a given locality vary
greatly because of differences in the men in charge of the
farms. Costs vary greatly in different regions owing to dif-
ferences in soil and climate, the character and abundance of
the labor supply and the location with respect to the market.

Costs and the efficiency of the farmer. It usually happens
that there is an inefficient producer here and there who is



producing at a cost greater than the price at which other
farmers find it profitable to produce enough to supply the
demand. Suppose the price were artificially pushed up to a
point where the inelHcient farmer can make a profit. This
would make the enterprise exceedingly profitable to the effi-
cient farmers, and would tend to increase their production, the
greater supply would force prices down and the second state
of the inefficient farmer would be worse than the first. All
who are producing at a loss should change to some other line
of production for which their qualifications count for more.
It often happens, for example, that a low grade dairyman is a
high grade tobacco producer, that a low grade grain farmer
can make money in the grazing of cattle, etc.

Costs vary with natural conditions. Low efficiency of the
farmer in the given line of production is only one of the
causes which may result in costs which exceed prices. As has
been stated, costs are greater in some regions than in others.
The wheat regions of the world are numerous and widely scat-
tered. The cost, per bushel, of producing wheat and putting
it upon the world's central wheat market, Liverpool, varies
greatly. During periods when the supply of wheat is increas-
ing slowly and the demand for wheat is increasing at a slightly
more rapid rate the price of wheat will tend to remain high
enough to retain in the wheat industry the region where the
costs are greatest. When, however, as a result of a new dis-
covery or the extension of means of transportation a new and
fertile wheat region enters into competition with the old re-
gions it may happen that the supply of wheat will increase
more rapidly than the population and to induce the people to
consume more wheat per capita the price must be lowered.
As a result of the fall in the wheat price some of the old wheat
regions will find their costs greater than the prices they can

Changes from wheat growing to dairying. This condition
was brought about in the wheat industry when the fertile
wheat regions of Kansas, Minnesota, and the Dakotas were


made accessible, and poured their abundant supplies of grain
upon the markets of Europe. The farmers of the east of Eng-
land found wheat growing a losing enterprise. Had they
understood the cause of the fall in wheat prices they would
have known that the one thing to do was to drop wheat grow-
ing and take up some other line where foreign competition was
not so keen. After a long time this came about, the wheat
lands were converted into meadows and pastures and the
dairy industry pays well for the efforts expended. Unfor-
tunately many farmers held to wheat production long after it
had ceased to yield a profit. In some cases this resulted in
bankruptcy which alertness to the price situation might have

We are not without illustrations of this principle in this
country. The falling wheat price due to the rapid growth
of the wheat industry in the northwest was an important fac-
tor in driving Wisconsin farrtiers from a system of grain
farming with wheat as the money crop into the livestock in-
dustry with dairy products as the chief sources of income.

The westward movement of the wheat industry in the north
was paralleled by a westward expansion of cotton production
in the south. From the old centers in Georgia and the Caro-
linas the cotton industry extended into the fertile "Black
Prairie" of Alabama, sprang up in the rich alluvial of the
Mississippi and confluent rivers, and in the Black Prairie of
Texas. There was a rapid increase in the quantity of cotton
produced. The increased supply was produced at a lower cost
than was possible in the old regions. The obvious result was
falling prices and an unprofitable industry in the old cotton

Burley tobacco produced at lower costs. Another illus-
tration, which is of particular interest to-day, may be drawn
from the Burley tobacco situation in Kentucky. Burley to-
bacco was first grown in Kentucky in the northern part of
the blue-grass region. This is a rough country where the soil
soon lost much of its fertility. The industry gradually spread


southward into the counties of Scott, Bourbon, Franklin,
Woodford, Fayette and Jessamine. These counties contain
the bhie limestone region known as the heart of the blue grass
country. This is a region of unusual natural fertility. A
large proportion of this land had remained in blue-grass
pastures from the first settlement of the country. As the to-
bacco industry commenced to encroach upon this fertile region
the farmers found it exceedingly profitable to plow up the old
pastures and plant them in tobacco. Under these conditions
the supply of tobacco was increased enormously. Prices fell,
but the farmers in the new regions of production were making
large profits at prices which meant starvation to the growers
of the old Burley tobacco centers.

The blame for the falling prices was laid at the door of the
tobacco trust, and it is doubtless true that the trust made the
situation worse, but the condition which made it possible to
increase the supply at falling costs in the new region of pro-
duction was the cause of the depressed condition of the grow-
ers in the old regions of Burley tobacco production. The
remedy is for the men who are producing tobacco at a loss to
change to some other line of production or else move to central
Kentucky, where the fertility of the old pasture lands may
enable them to make a profit.

Prices and intensity of culture. The choice of crops and
of livestock is not the only point where prices are controlling
factors in the management of a farm. There is a close rela-
tion between the price of products and the degree of intensity
of culture which will prove most profitable. High prices
for products usually results in high land values. High land
values make it profitable to use land more sparingly. For ex-
ample fewer acres should be used for a herd of a given number
of cows or, what is the same thing, more cows must be kept on
a given area than formerly, if the farmer is to secure maxi-
mum profits from high-priced land. This means more inten-
sive culture.

These illustrations should be sufficient to show that the


farmer's interest in prices begins long before his product is
ready for the market, and that he should study prices as a
farm operator as well as a seller of farm products if he would
make his farm yield maximum profits.


[The "Tariflf Board" report on Schedule / of the tariff of 1909 (Cotton
Manufactures), was transmitted by President Taft to Congress, March
26, 1912. In its published form it is a document of 841 pages, in
two volumes (House Document No. 643, 62d Congress, 2d session).
The Board's letter of submittal contains, in brief summary, the findings
of the investigation as to relative costs of production and prices,
with reference to the existing rates of duty. We omit the intro-
ductory survey of the scope of the investigation but give the greater
part of the letter of submittal (pp. 8-17 of the report).]

Cost of equipment. The method of determining costs
adopted by the Board does not include the item of interest,
so that the cost figures as given show nothing regarding the
original investment necessary to carry on the process of manu-
facture except the item of depreciation. This item is slight
so far as cost per yard of cloth is concerned. Obviously, how-
ever, the relative advantage or disadvantage of the foreign
and domestic manufacturer in competition is affected by the
amount of original capital on which interest must be earned.
Consequently figures are presented showing the relative costs
of completing and equipping a spinning plant and a weaving
plant in England and this country, designed to carry on the
same line of production. From these figures it appears that
the cost of erecting a building is about 40 per cent, greater in
this country than in England, the cost of equipment
for a spinning mill about 70 per cent, higher, and
the cost of equipment for a weaving plant (with plain
looms in both countries) about 50 per cent, higher. These
figures are for the equipment considered adequate for
a given production in the two countries. It varies somewhat
according to different methods prevailing in the two countries,



and the figures do not necessarily establish the relative prices
of identical machines here and abroad. "Where a mill is
equipped with automatic looms the cost of the looms is at least
two and a half times the cost for a mill equipped with plain

A very small part of the cotton machinery used in this
country is imported, a marked contrast to the case of worsted
machinery. With the exception of spinning mules, more than
90 per cent, of the machinery is of domestic manufacture.
Practically all looms and all ring spindles are of domestic
make. Of cards and jack spindles about 15 per cent, are of
foreign make. Mule spinning in this country involves only
about 20 per cent, of the total number of spindles, and of the
mules in use in the mills investigated 83 per cent, were im-

Cost of yarns. In comparing the cost of making yarns in
England and the United States it has seemed essential, in
view of the fact that 80 per cent, of English spindles are on
mules and 80 per cent, of American spindles on ring frames,
to compare the cost of mule spinning in England with the
cost of ring spinning in this country. As a rule, mule spin-
ning is a more expensive process, and the production from
mule spinning is of somewhat finer quality, even with yarns
of the same nominal count. These facts should be kept in
mind ; but it is evident that the really significant comparison
is that between the actual results obtained under the pre-
vailing methods of each country.

In the cost of raw material there is practically no advan-
tage possessed by either country. Any general difference in
the price between England and the United States is less than
occurs from mill to mill or month to month in either country.

The actual book figures for English mills and American
mills show that in comparing the most efficient mill for which
we have figures in England with the most efficient mill for
which we have figures in this country — and these mills are


typical in both cases — the per cent, of the total English labor
cost to the total American labor cost per pound of yarn varies
from 78 to 95 per cent. Comparing all of the yarns selected,
the English labor cost is found on the average to be practically
seven-eighths of the American in the case of these two mills.

In the matter of general expense the difference between the
two countries is decidedly greater, thereby increasing the dif-
ference in the total conversion cost of yarn. Again, by com-
paring the two most efficient mills, as referred to above, it is
found that the total conversion cost of yarn in England varied
from 65 to 79 per cent, of the American conversion cost. The
average on all counts taken shows the English conversion cost
to be about 73 per cent, of the American.

It should be noted that these comparisons are based upon
taking that mill in each country which showed in general the
lowest cost on the whole range of yarns. On certain particular
counts a lower cost was shown in other mills, so that the figures
may be taken as typical for mills of high efficiency. They
cover warp and filling yarns not higher than 50 's for warp and
70 's for filling.

Taking all the mills covered by the investigation in each
country, there were wider variations in the American costs
secured than in the English costs, due partly to the fact that
the English mills were all in the Lancashire district, where
wages and other conditions are well standardized, while the
American costs were taken from mills covering a much wider
area, with much greater differences in labor and other con-
ditions. Another reason for the wider variations in American
costs is that the English mills for which figures were secured
are all of a modern and efficient type, while some of the Amer-
ican mills included were old and of low efficiency.

In the ease of most yarns for which figures are given for the
United States the highest conversion cost is 50 per cent, higher
than the lowest conversion cost. In a few cases it is nearly
double. Consequently the difference in conversion cost would


appear mueli greater in a comparison drawn between mills of
lowest cost in England and mills of highest cost in the United

In this connection care should be taken not to confuse con-
version cost with the value of the finished yarn. In saying
that the cost of manufacturing yarn in an English mill is 72
per cent, of the cost in an American mill, it is not meant that
the total cost of English yarn, including the value of the cot-
ton in it, is 72 per cent, of the total cost of the American
yarn. As a matter of fact, the difference in conversion cost
between the two countries varies from 3.8 per cent, to 11.9 per
cent, of the total cost of production in England, including
raw material.

It should also be noted that these relative costs do not in-
clude yarns of the highest counts or other yarns used largely
for special purposes, since the Board was not able to secure

Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 18 of 30)