Thomas Nixon Carver.

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43 LB.





No. ; . .

I c

No. 6





$2.50 profit

No. 7 .



6. so

2.50 profit

No. 8



5.7 e

6. so

2.7 s loss

If the price of wheat were $2 a bushel, the net gains would
have been $11.50 on Plot No. 6, $11.50 on Plot No. 7, and
$i on Plot No. 8. In other words, the last dose of 43 pounds
of nitrogen would have paid a profit of $i instead of a loss
of $2.75. But if the price of wheat had been 50 cents a
bushel, nitrogen costing the same, there would have been
a loss on every dose of nitrogen!

Problems to be worked out. These tables present a number
of interesting problems which the student may work out for
himself. Taking Tables II and III as a basis, the following
problems are suggested :

1. With 43 pounds of nitrogen costing $6.50, at what aver-
age price must wheat sell in order that the farmer may come
out just even, with neither profit nor loss, on the third dose
of 43 pounds of nitrogen (Plot No. 8) ?

2. With wheat selling at $i a bushel, at what price must
43 pounds of nitrogen sell in order that the farmer may
come out even on the same plot with the same application
of nitrogen ?

We may, without doing violence to language, turn about and
speak of "applying" doses of land-plus-other-factors to nitro-
gen. Let us start with 129 pounds of nitrogen, to which one
plot, or dose of land-plus-other-factors, is applied, yielding,
according to Tables II and III, 36| bushels. Adding two
more plots to this combination, that is, spreading our 1 29 pounds
of nitrogen over three plots instead of one, we get a much
larger crop. Assuming that Plot No. 6 is exactly equal to Plot


No. 8, we get 72 bushels ; that is, on Plot No. 6 one dose
of nitrogen with one dose of land-plus-other-factors yields
24 bushels according to our tables. Three doses of 43 pounds
of nitrogen added to three doses of land-plus-other-factors
should give us three times as much, which makes 72 bushels.

Since three doses of nitrogen with one dose of land-plus-
other-factors yields 72, it follows that the adding of two doses
of land-plus-other-factors added 35^ bushels.

A larger number of experiments of the same kind needed.
We have not plots enough to carry this analysis much farther,
but it is probably clear enough by this time that wherever, by
varying the ratios in which different factors are mixed in any
productive combination, we get varying results, any economist
who is not willing to consider the relation of the variation in
the factors to the variation in the product is not much of an
economist. It must also be apparent by this time that the rela-
tion between the variation in the quantity of any factor in the
combination and the variation in the product must have a great
deal to do with determining the value of the factor.

This method gives the key to all correct valuation. Earlier
in the chapter the term marginal productivity was applied to
the variation in the product which followed a minute variation
in the quantity of any factor in the combination. In each of
the Tables I, II, III the figures in the third column would be
called the marginal product of nitrogen. Objection has occa-
sionally been raised to the use of the word product in this
sense. It is contended that even these increments of product
are not in any sense the exclusive product of the 43 pounds of
nitrogen which were added in order to get that increment,
that 43 pounds of nitrogen, alone and unrelated to the other
factors, would not produce even the small increments of wheat
indicated in the third columns. No one, of course, claims that
they would or could. It is not worth while to discuss this or
that possible meaning of the word product or productivity.
The essential thing to consider is, How much could a farmer


afford to pay for a given quantity of nitrogen to be used in
a given combination ? It is obvious that this must depend
on the way it would affect the crop. How much more wheat
could he grow by using more nitrogen, or how much less
would he grow by using less ? There is no question more
practical than that. It is, moreover, a question which must
be raised with respect to each and every factor in that combi-
nation of factors called a -farm, or in any other business
establishment. It is in the answers to such questions that we
must find the key to any clear understanding of the problem
of the distribution of wealth, which is, as pointed out in the
beginning of this chapter, the problem of the valuation of
the factors of production.



How intensely is a man's labor desired ? The price of
labor, like the price of commodities, depends upon how
much it is desired in comparison with other things. It is
important in discussing wages, as in discussing the price of
commodities, that we remember that it is not labor in general,
but specific units of labor, which are purchased. The question
is not how intense is the need or desire for labor in general,
nor how great would be the loss if all labor were wiped out
of existence. The question is how intense is the need for a
given number of units of a given kind of labor, or how great
would be the loss if that given number of units were subtracted
from the total supply. In the case of labor, as in the case
of commodities, the practical, everyday question, on the part
of the prospective purchaser, is, How much do I need this
particular article or the labor of this particular man ? How
much better off shall I be with the advantage of his help than
without it?

The need for more labor, rather than the absolute need for
labor. It may be true that if there were no labor of a given class,
say that of ditch diggers, the community would suffer terribly.
Nevertheless, there may be so many ditch diggers that the
addition of one to the total number would add very little to,
and the subtraction of one would subtract very little from, the
well-being of the community. When this is the case, the labor
of any one of the total number will not be very much desired.
Would-be employers will be somewhat indifferent to his offers
to help and to his threats to stop working or to emigrate.
The indispensable man, like the indispensable commodity,



commands the high price. The man who can be easily spared,
like the superfluous commodity, brings the low price.

This may be called the functional theory of wages, and it
forms a part of the functional theory of value which was out-
lined in a previous chapter. The function of a high price, in
the economy of the nation, is to call into existence a larger
supply of the thing for which it is offered. The function of
a low price is to discourage the production and reduce the
supply of the thing for which it is offered. If a larger supply
is desired or needed, a high price is the means of getting it.
If a larger supply is not desired or needed, a low price is the
means of checking, limiting, or reducing the supply. Find
out, in any given case, how much better off a community
would be, or thinks it would be, if it had more of a given
thing than it now has, and you have a fair measure of the
reward which it could afford, or thinks it could afford, to pay
in order to get more.

Stated negatively, find out how much worse off the com-
munity would be, or thinks it would be, if it were to lose
a unit or a few units of its existing supply of a given thing,
and you have a measure of what it could afford, or thinks it
could afford, to pay rather than to incur that loss. If it thinks
it would make a great difference one way or the other, a high
price will be offered. If it thinks it would make very little
difference, a low price will be offered. This applies to the
price of labor as well as to the price of commodities, and for
the same reason.

In the case of labor, as in the case of commodities, the
community may be sadly mistaken. It may fail to appreciate
real merit, and it may greatly overrate certain qualities in either
case. There is no going behind the returns in a verdict of this
kind any more than in a popular election.

Again, there may be members of the community who desire
intensely to possess a certain commodity, or to hire a certain
kind of labor, but who have not the wherewithal to purchase or


hire it. They will therefore have little influence on the price
or the wages. This impecunious condition may be due to the
fact that others have no great desire for the labor or the prod-
ucts of the persons in question. In that case the community
does not value their services very highly, and therefore their
desires have little influence on the market for other things or
other services.

Productive labor is wanted because of its product. Our next
task is to find out what determines how much the labor of any
particular man or group of men is wanted. In the simplest
possible case, that of a laborer who, without any help from
anybody else, produces a complete article, his labor is needed
just as much as, and no more than, the article itself is needed.
The price of the article, then, is his reward. If he is not satis-
fied with his income, he must find fault with the price which
the consumer pays for the product, for he gets the whole
price. This, however, is a case so simple as to be very excep-
tional. Very few finished products are produced by the labor
of a single person. One who goes out into the woods and
gathers nuts or berries, carries them in vessels which he has
himself improvised, and sells them directly to consumers may
come under this class. The woodsman who goes into the pri-
meval forest and chops wood will at least have an ax ; this
ax is likely to have been made by somebody else. He will
probably also need a team, which may have been grown or pro-
duced by somebody else. While it is not strictly true that in
a case of this kind the finished product, firewood, is produced
by the labor of one man, still the problem in distribution is
fairly simple. If the woodman has paid a fair price for his
ax, the question of distribution as between him and the ax-
maker is settled and does not need to bother us any more.
If he likewise pays a fair price for his team and wagon, the
problem of distribution as between himself and the horse
breeder and wagon maker is also settled and need not bother
us again. Since he has paid for his tools, the total value of


the wood which he cuts and hauls to town is his reward, and
there is no further problem in distribution. But the further
we proceed with our study, the more complicated the problem
will become, for we shall find that in the great majority of cases
the product is the joint product of a large number of people.

Goods generally produced by the joint labor of a num-
ber of persons. We are sometimes told that most goods are
socially produced. This is a rather impressionistic statement;
it may do no harm, but it is liable to misinterpretation. It
would be better to say that most goods are produced by the
joint efforts of several persons. The total reward which can
go to all of them cannot in the long run exceed the total
value of the finished product. This must be divided among
all those who have participated in its production. The price
of the loaf of bread must reward all those who have had any
part in its production, including the baker, the miller, the
various transportation agencies, and the farmer, as well as
the manufacturers of the farmer's, the baker's, and the miller's
tools, and so on back to the lumbermen and the miners who
extracted the raw material out of which the tools were made.

The successive division of labor does not create a very
difficult problem in distribution. We find here that we are in
contact with what, in a previous chapter, has been called the
division of labor. This is, as already pointed out, of two
kinds : contemporaneous and successive. We have the suc-
cessive division among the farmer, the miller, the railroad,
and the baker, since, one after the other, they work upon the
same material. We have an example of the contemporaneous
division of labor in the case of the mill owner and his em-
ployees of various kinds, the farmer and his hired men, the
railroad company and its employees, and so on. The problem
of distributing the price of the finished product among those
who work upon the raw material in regular succession is
simply a problem in the price of commodities. Thus, the
reward of the farming group comes to them in the form of


the price of wheat. This price must then be distributed among
the contemporaneous workers on the farm, that is, the farmer
himself and his hired men. The difference between the price
of wheat and the price of flour and its by-products must fur-
nish the reward for the milling group, and the difference
between the price of flour and the price of the bread must
furnish the total reward for the baking group.

All this is fairly simple and leads to no serious social problem.
Of course the farmer would like to get a higher price for his
wheat, and the miller would like to get it at a lower price,
and each one may from time to time accuse the other of try-
ing to manipulate the price ; but it is a question of market
price, and therefore society in general has not taken up the
quarrel. Similarly, the miller would like to get a higher price
for his flour, and the baker would like to get it at a lower
price. This conflict of interests, however, does not now create
what is known as a social problem. The commodity market is
supposed to take care of it, and social reformers in general
have not exercised themselves to any great extent on the
subject. Occasionally, of course, someone is acccused of corner-
ing wheat or manipulating the price of flour. Similarly, the
baker would like not only to get his flour cheaper, but also
to sell his bread at a higher price. This, again, is taken care
of by the commodity market.

When bakers are accused of manipulating price, as is not
infrequently done by dissatisfied consumers, no great social
problem is supposed to be created. There have been historic
occasions, of course, when mobs of irate consumers have
hanged bakers to their own lamp-posts because the price of
bread was higher than the consumer liked to pay. They have
not always stopped to consider how much the baker had to
pay for his flour, or the miller for his wheat, or how hard a
time the farmer has had in growing his wheat, owing to bad
weather and pests of various kinds. All that the irate con-
sumers realized was that the price of bread was higher than


they were accustomed to paying, and the unfortunate baker
was the only one within their reach upon whom they could
wreak their vengeance.

The division of the product among contemporaneous workers
the difficult problem. The great social problem of to-day, so
far as it relates to the distribution of wealth, is the problem of
distributing the price of the product among the contempora-
neous workers. Of the total price of wheat, how much should
go to the landowner (if he is a different man from the farmer),
how much to the farmer, how much to the laborer, how much
to the capitalist (if he is a different man from the farmer) ? Or,
again, of the total spread between the price of wheat and the
price of flour, which furnishes the total reward to the milling
group, how much should go to the capitalist, how much to the
owner of the mill site, how much to the manager, and how
much to the various types of laborers ? And so on through
the transportation groups and the baking groups, the difficult
problem is always that of the distribution of the total earnings
of the group among the contemporaneous workers within it.

Not much headway can ever be made in the study of this
problem unless we hold carefully in mind the law of variable
proportions as explained in the last chapter. When it is sug-
gested, for example, that each factor of production should be
paid for in proportion to its contribution to the product, any
student who does not understand the law of variable propor-
tions is likely to say that there is no way of finding out what
each factor contributes. He will say, for example, that it is
like trying to find out how much of the welding is done by
the anvil and how much by the hammer, or how much of the
cutting by the upper and how much by the lower blade of the
scissors. To use this comparison is to show that one does not
understand the problem. If one blade of the scissors were a
little longer than the other, it would not require any so-called
metaphysical or theoretical reasoning to see that the scissors
might be improved by lengthening the shorter blade. If two


workmen were to offer their services, one to lengthen the
longer blade and one to lengthen the shorter blade, it would
not take much of a theoretician to decide which workman it
would be better to hire. The workman who would lengthen
the shorter blade would add somewhat more to .the cutting
power of the scissors than the workman who would lengthen
the longer blade.

Most economic problems, as pointed out many times already
in this volume, relate to the problems of more or less, of im-
provement or deterioration, of readjustment of existing equip-
ment, organization, etc. If the blacksmith were ever called
upon to decide whether to get along with an anvil without
any hammer, or with hammers without any anvil, there might
be some point to the comparison. The question which he has
to decide is how to balance up his equipment so as to have
hammers and anvils well adapted to one another. If he were
to find that he could improve his work slightly by having
another hammer, but that he could gain nothing by buying
another anvil, there is not much doubt that he would be more
likely to spend money on hammers than on anvils. He would
not spend much time puzzling over the abstract question as to
whether hammers or anvils were the more productive. Simi-
larly, if a farmer found that he could increase his crop more
by having extra help than by having more land, he would be
more likely to offer wages to someone than to offer rent to
someone else. If farmers generally felt that" way about it,
wages would be high and rent low. Under the opposite
conditions rent would be high and wages low.

Under the law of variable proportions, or that special phase
of it known as the law of diminishing returns from land, it is
actually found that in a community where there is an abundance
of good land but a scarcity of labor to work it, one or more
laborers added to the existing number makes a considerable
difference in the crop. That is a sufficient reason for paying
high wages to labor. Additional laborers are very much needed ;


the agricultural situation would be very much improved by
having more laborers and would be very much injured if any
were lost. The question of more laborers or of fewer laborers
is one of considerable importance.

On the other hand, where land is so abundant and laborers
so few that it is difficult to cultivate the existing land, it would
not be of much advantage to production to have a few more
acres, nor much of a disadvantage to have a few less. The
question of more or less is not, in this case, very important.
This is the question which presents itself to the practical farmers.
The question as to which is absolutely more important, land or
labor, is a question which occurs only to armchair philosophers.
This would be in all respects like the question as to which does
more of the cutting, the upper or the lower blade of the scissors.

Shares generally divided into wages, rent, interest, and profit.
It simplifies the problem somewhat to classify those who take
part in the contemporaneous division of labor according to the
functions which they are supposed to perform. It is customary
to divide them into four main classes. The first class is made up
of the laborers, who work either with their hands or with their
heads, and receive their share in the form of wages or salaries
(for the sake of simplicity, salaries are, in this chapter, in
eluded under wages) ; the second class is made up of the land-
owners, who furnish the land and receive rent ; the third class
is made up of the capitalists, who supply the capital and receive
a reward in the form of interest ; and the fourth class is made
up of the independent business men, who undertake to assemble
all the other factors, who take the chief risks of the enterprise,
and receive whatever is left over after all the others are paid,
and call it profits.

Any or all of these functions may be performed by, and any
or all of these shares may go to, the same man. In many small
enterprises the independent business man does his own work and
is therefore a laborer, owns his own land and is therefore his
own landlord, and furnishes his own capital and is therefore


his own capitalist. A very large proportion of the total busi-
ness of the nation is done in this way. The typical farm in
the northern half of the country comes under this description,
as do also many small shops and stores in country towns, and
a few even in the larger cities. But even the farmer, as well
as any other business man who does a part of his own work,
may hire additional help and pay wages, though getting wages
for himself. He may also rent additional land, though owning
some land of his own and getting rent for it. He may borrow
additional capital, though owning some capital of his own and
getting interest on it. In fact, we can find every possible varia-
tion, from the enterprise where every function is performed by
the same man to that where no one performs more than a
single function. An example of the latter would be the enter-
prise where laborers do all the work and receive nothing but
wages or salaries, where someone else is the landowner, and
furnishes nothing but land and receives nothing but rent, where
another man, or group of men, furnishes nothing but capital and
receives nothing but interest, and where still another man, or
group of men, assumes the risks of the enterprise, invests the
borrowed capital on the rented land, hires the labor, and under-
takes to find sale for the products. In this chapter we are
concerned with the income which pays for the function of
the laborer. Wages are the price which is paid to call forth the
necessary quantity of productive labor.

We may say in general that when one factor of production
is oversupplied in proportion to the others which need to be
combined with it, the question of getting more of it, or even
of maintaining the existing supply, becomes unimportant. Ac-
cordingly not much will be paid in order to get more of it,
or even to hold the existing supply. But when any factor is
undersupplied in proportion to the others which have to be com-
bined with it, the question of getting more of it, or of holding
the existing supply, becomes very important. Accordingly a
high price will be offered for it.


This principle applies not simply to land, labor, and capital,
but to the different kinds of each. If there is a scarcity of
skilled labor in proportion to the unskilled labor which has to
be combined with it, it becomes very important to get more
skilled labor, or at least to keep some of the existing supply
from going elsewhere. In that case a high wage will be offered
for skilled labor. Under the same conditions there is, of course,
a large supply of unskilled labor in proportion to the skilled.
It is therefore not very important that there should be more
unskilled labor, nor even that the existing supply should be
kept from diminishing. Not much is likely to be paid, under
such conditions, for unskilled labor.

The next question is, What determines the relative supply
of the various factors of production ?



Causes of differences of wages in different occupations. Let us
consider, first, the causes of the difference of wages in different
occupations. If, in order to get efficient production, it is found

Online LibraryThomas Nixon CarverPrinciples of political economy → online text (page 31 of 48)