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necessary to have a high degree of specialization, many differ-
ent kinds of skill will be found in the same establishment,
each kind contributing its share toward the production of the
same product. Men possessing these different kinds of skill
will be needed in slightly variable, but fairly definite, proportions.
In the production of cloth, for example, spinners and weavers
will be needed in fairly definite proportions. If by any accident
it could happen that for a period of time there were more
spinners than were necessary to supply yarn for the weavers, 1
the value of each spinner would be considerably reduced.
Under these conditions, if they could exist, it would be literally
true that a few less spinners would be little loss, provided the
remaining spinners could still supply all the yarn the weavers
could use. On the other hand, the labor of each weaver would
be of considerable value.

Since there would not be weavers enough to use all the yarn
that could be produced, one less weaver would reduce the total
production of cloth, and one more weaver would add to the
total production, assuming that machinery and room were avail-
able. Under these conditions there would grow up in any free
community a difference in wages in favor of the weavers and
against the spinners. This would be called the law of supply
and demand, but this law rests back on certain fundamental
advantages and disadvantages. The addition to the total output

1 Compare Chapter XVIII.
388



WHAT DETERMINES THE RATE OF WAGES? 389

of cloth which would result from an increase in the number
of weavers would really be much greater than the addition
which would result from an equal increase in the number of
spinners. This would be a sufficient reason why a higher price
should be offered for the labor of weavers than for that of
spinners. In the absence of compulsion, that would be the
only way of attracting more weavers and fewer spinners.

Of course this condition would soon correct itself. If the
wages of the weavers were allowed to go up and the wages of
the spinners to go down, some of the spinners would have an
excellent reason for changing their occupation. If they could
not easily do so, the oncoming generation of laborers, who
have to choose between the occupation of weaver and that of
spinner, would be attracted into the one where the wages were
higher, and thus restore the equilibrium. But if wages were
not allowed to readjust themselves, and, through some compul-
sion on the part of the government or some other agency, all
mills were forced to pay as high wages for spinners as for
weavers, and to hire all who applied, then there would be no
reason why the oncoming generation should go into the occu-
pation where they were most needed. They would simply
choose the one where the work was most agreeable. There is,
therefore, a genuine social utility to be achieved by the differ-
ence of wages which would grow up under the law of supply
and demand. It would tend to attract laborers into the occupa-
tion where more men were needed and to discourage them
from entering the occupation where more men were not needed.
This will be found to be the fundamental reason why wages
are as a matter of fact higher in some occupations than in others.
Where the ordinary processes of bargaining are not interfered
with, wages tend to be high in those occupations where more
men are needed, and needed badly, and low in those occupa-
tions where more men are not needed, or not needed badly.
The function of these differences of wages is to restore the
equilibrium between different occupations.



390 PRINCIPLES OF POLITICAL ECONOMY

Cost of acquiring skill. If there is some permanent obstacle
in the way of a free choice of occupations, there may be a per-
manent difference in the wages in different occupations, based
upon an undersupply of labor in one and an oversupply in
another. If, for example, a certain occupation requires a kind
of skill which is not widely distributed or easily acquired,
whereas another occupation requires a kind of skill which mul-
titudes of people possess or can easily acquire, there is likely
to be a permanent undersupply of the one kind of labor and
a permanent oversupply, at least relatively, of the other. The
cost of training or the difficulty and irksomeness of the neces-
sary study and practice will serve to limit the number of people
who succeed in entering the highly skilled occupations.

In this respect the cost of acquiring the necessary skill acts
very much as the cost of producing a material commodity. As
the price of the material commodity must be high enough to
cover the cost or to overcome the disinclination to the work
of production, so the wages of labor in a highly skilled occu-
pation must be high enough to pay the cost of acquiring the
skill or to overcome whatever disinclination there may be to the
preliminary work of study and practice. If this cost is high,
the wages must be correspondingly high. If the cost is very
low, so that practically no one is deterred from entering the
occupation, the wages will be correspondingly low.

Some skill is absolutely limited. There may, however, be
certain kinds of skill which are so scarce as to be almost in-
capable of being increased. Certain kinds of work may require
a man of genius rather than a man of training. But in most
cases it will be found to be a matter of training. An indefinite
number of men could be trained for almost any occupation if
the wages were only high enough to furnish a sufficient in-
ducement. This, however, will depend somewhat upon the
opportunities for education and training. Under a system of
free public education the cost of training is greatly reduced and
should naturally greatly increase the supply of highly skilled



WHAT DETERMINES THE RATE OF WAGES? 391



labor. Where the money cost of education is eliminated, the
only cost remaining is the irksomeness of hard study. Those to
whom this irksomeness is very slight will naturally be attracted
into the more highly paid occupations. There may, however,
be artificial restrictions in the way of entering certain well-
paid occupations. If a group of laborers in one of those few
occupations where something resembling the apprenticeship
still prevails, would limit the number of apprentices, that
would of course limit the number of laborers who could ac-
quire skill enough to follow the occupation. In other cases
the policy of the closed shop might be carried to such an
extreme as to reduce the supply of labor in the given occu-
pation, and thus prevent the readjustment of the labor supply
to meet the demand. The tendency of freedom, however, is to
encourage the automatic readjustment of the supply of labor
to the demand.

f Fatigue

Disinclination to Long hours
work because of 1 Loss of opportunity for

[ pleasure

Disinclination to f A high standard of living
multiply because < Late marriages
of [ Birth control



CAUSES

OF THE

SCARCITY

OF LABOR



In the unskilled
trades



In the skilled
trades



{Women
Children
Men of other races

Restriction of immigration
Encouragement of emigration

("War
Destruction of life through < Pestilence

{_ Famine
Rarity of genius
Expenses of education
Disinclination to study
Reduction of number of apprentices
Closed shop



392 PRINCIPLES OF POLITICAL ECONOMY

These are the principal factors which determine the excess
in wages of the skilled trades and occupations and the learned
professions over and above those paid in what are known as
the unskilled occupations. By the unskilled occupations is
meant, however, those which require a kind of skill which
practically everybody can acquire without much special study.
There is skill involved in the handling of a spade or a wood-
man's ax, as any inexperienced person will find if he tries to
use one or the other effectively ; but it is a kind of skill which
large numbers of people acquire easily, and therefore the supply
of such skill is so great as to keep wages down pretty close to
what is known as the standard of living. We have, therefore,
the problem of finding out what determines the wages of this
general mass of unskilled labor. What is there here which
corresponds to the cost of producing a material commodity or
the cost of acquiring the skill required in one of the well-paid
occupations ? The factors which take the place of cost of pro-
duction here are, first, the disinclination to work, and, second,
the disinclination to multiply.

Scarcity of unskilled labor. Among the vigorous Euro-
pean and American stocks the disinclination to work is not
so very great. Nevertheless, there is an appreciable quantity of
labor which is chronically withdrawn from productive work by
reason of this factor. That part of the leisure class which is
made up of people who have inherited, married, or otherwise
come into possession of sufficient wealth to enable them to
live without work, show this disinclination rather clearly.
There are also the chronic loafers, the tramps, and the
nomadic element among us, who show a strong disinclination
to work, and only do so under strong temptation.

The disinclination to multiply is unfortunately strongest
among those who possess the most forethought. Those who
live only in the present, who have no regrets for yesterday
and no fears for to-morrow, generally give way to their primal
impulses and multiply almost as rapidly as is physiologically



WHAT DETERMINES THE RATE OF WAGES? 393

possible. Those, however, who look to the future, not only
of themselves but of their children, who foresee the disadvan-
tages which their children will suffer if they are insufficiently
nourished or inadequately educated, generally have smaller
families than are physiologically possible. The multiplication
of numbers among such people becomes in part a moral process
instead of a purely animal process. Family building takes the
place of spawning. Marriages of those who take thought for
the future are postponed until they are able to support and
educate their children.

The group of motives and factors which serve to hold the
procreative instincts in check are generally called by the name
of the standard of living. This is a somewhat technical term
in economics and requires some careful explanation.

Meaning of the standard of living. Technically the term
standard of living means the number of desires which, in the
average person of the class in question, take precedence over
that group of desires which result in the multiplication of num-
bers. For purposes of discussion we will call the latter group
of desires the domestic instincts. When the domestic instincts
act powerfully and without opposing motives to hold them in
check, the individual will undertake the support of a family
before he is assured of a sufficient income to satisfy any but
the most elementary desires. Under these conditions he is said
to have a low standard of living. In his case there are very
few other desires which take precedence over the domestic
instincts. The individual of .whom that is true will accordingly
marry and undertake the support of a family as soon as he has
sufficient income to satisfy that other small group of desires.
In other cases a large number of other desires take precedence
over the domestic instincts. An individual of whom that can
be said will not marry and undertake the support of a family
until he feels reasonably certain of being able to satisfy all
these other desires. He is said to have a high standard of
living ; that is, an expensive standard.



394 PRINCIPLES OF POLITICAL ECONOMY

If we can imagine a community to which immigrants from
the outside do not come, and in which the average unskilled
laborer has a high standard of living, we will have a com-
munity in which the average laborer will not marry and under-
take the support of a family until he is sure of wages high
enough to satisfy a large number of desires. If the average
individual, however, has a low standard of living, he will marry
and undertake the support of a family on low wages ; that is,
wages that are just high enough to secure him the means of
satisfying a small group of desires. If the unskilled laborers
of the community have a high standard of living, the average
age of marriage will be a little higher and the average size of
the family a little smaller, so that the rate of multiplication will
be materially slower than would be the case if they had a low
standard of living. The rate of multiplication being slower, the
oncoming supply of labor is less, and in the succeeding genera-
tions laborers will thus be able, through the smaller supply, to
continue to get high wages. If wages are low to begin with, they
will refuse to marry or will defer marriage to such a late age
as to reduce the supply of labor and thus force wages up to a
level which will enable them to maintain their standard. If the
standard of living, however, is low, and the rate of multiplica-
tion correspondingly high, wages tend to continue low. Even
if wages were temporarily high, unless the standard of living
should rise quickly, the rate of multiplication would so increase
through early marriages and large families as to oversupply
the labor market and force wages down again until they were
just sufficient to maintain the low standard of living.

Standard of living affects the price of labor as cost of pro-
duction affects the price of a commodity. From the foregoing
discussion it will be seen that the standard of living affects
the wages of the general mass of unskilled labor precisely in
the same way as the cost of producing a material commodity
affects its price. Wages must be sufficient to overcome the dis-
inclination to marry and produce families. This disinclination,



WHAT DETERMINES THE RATE OF WAGES? 395

however, is the joint product of a number of conflicting
desires. In an elementary sense there is a strong inclination
to marry rather than a disinclination, but the inclination to
marry is held in check by the desire of the individual for con-
sumers' goods of his own. If he realizes that, with a family
to support, he will have a little less money to spend on him-
self, or that, if his family is too large, he will have less for
each one of them and may not be able to educate them, such
considerations will create a disinclination which may more than
balance the inclination toward marriage. A real safeguard
against low wages, therefore, is a high standard of living, which
will check somewhat the tendency toward early marriages and
large families. How far this should go is always a serious
question. No one advocates so low a standard as would cause
multiplication to take place as rapidly as is physiologically pos-
sible. If that were the case, marriages would take place at the
age of puberty, and women would be continually engaged in
the functions of motherhood as long as childbearing was
possible. Nobody would favor that. Everyone favors some
kind of a standard of living and some postponement of mar-
riage. It is only a question as to how high a standard and
how much postponement is desirable.

The law of population. This brings us to the great law of
population, which has generally been associated with the name
of Malthus. The law which Malthus worked out and which
has never been successfully refuted, though many attempts
have been made, may be briefly stated as follows :

1. Every species of plant and animal has the physiological
power to multiply faster than its means of subsistence will per-
mit. Subsistence is the factor which actually limits numbers.

2. The physiological power of human increase is also so
great that if it should operate without moral or social restraints
of any kind, it would carry population to such limits that vice
or misery or both would begin to thin out the surplus popula-
tion and thus operate as a check upon further increase.



396 PRINCIPLES OF POLITICAL ECONOMY

3. Owing to the law of diminishing returns, a larger number
of people cannot, in any given state of civilization and the
industrial arts, be so well provided for from the produce of a
restricted area as a smaller number can.

4. There is a strong natural instinct which inclines the
members of our species to the multiplication of numbers, and
unless this is counteracted by other motives, it will lead to an
increase of population beyond the limits where comfortable
subsistence is possible.

5. This natural instinct is, however, opposed and held in
check by several contrary motives, not the least important of
which is the desire for the goods which one has been accus-
tomed to consume, coupled with the perception on the part
of each head, or would-be head, of a family that a larger num-
ber of children means a smaller share of the necessaries, com-
forts, and luxuries of life for each one, and this keeps the rate
of increase far below that which is physiologically possible.

6. How rigidly the increase of numbers is held in check by
this motive depends upon the ideas of the people as to what
is essential, in the way of incomes, to their happiness, in
other words, upon their standard of living. It is the standard
of living, therefore, which determines the rate of increase of
population, given the amount of wealth and the possibilities of
production. It plays the same part in determining the supply
of labor which the cost of producing commodities plays in
determining their supply.

Refinement of the law of population. While this general
law has never been successfully refuted, and is accepted by
every economist of any standing, some refinements have been
found necessary. For example, it makes a great deal of differ-
ence in what stratum of society the increase in population
takes place. There might be such a thing as a considerable
increase in the total population which would result in a con-
siderable increase in the rate of wages of unskilled labor. If
we could double or treble or quadruple the number of people



WHAT DETERMINES THE RATE OF WAGES? 397

in what are known as the employing classes (that is, the pro-
fessional men and, more particularly, the successful entrepre-
neurs and independent business men), the competition among
these business men would take several forms. In order to
equip and man their establishments they would have to bid
against one another to get labor and also to sell their products.
This would tend to bring up the price of labor and to bring
down the price of products, in other words, to leave a narrower
margin of profits on which business men would have to live.
For example, recent immigrants into the Philippine Islands
from America have not been unskilled laborers but skilled
laborers, engineers, technicians, and business men. This has
added somewhat to the population of the Philippines, but at the
same time it has increased the demand for unskilled laborers
and has therefore tended to improve their condition. Whether
the increase in the higher economic grades comes through
immigration or higher birth rate or better systems of education,
they all produce much the same result.

Effect of immigration. We began our discussion of the
effect of the standard of living by assuming a community to
which no immigrants came. However high the standard of
living of the native laborers, or however strong the tendency of
the educational and social system to raise the standard of living,
if large numbers of immigrants with a low standard kept com-
ing in, it would keep the standard down to a low level. At
any rate the oversupply of unskilled labor would tend to keep
wages down. Their coming tends to make business conditions
easier for men who need to employ unskilled labor, but to
make conditions very much harder for the unskilled laborers
who are already there. If, however, the immigrants resemble
those Americans who go to the Philippine Islands (that is, if
they belong to the skilled, the professional, and the employing
classes), they tend to make conditions easier for the unskilled
laborers but harder for the skilled, the professional, and the
employing classes who are already there.



398 PRINCIPLES OF POLITICAL ECONOMY

Noncompeting groups. This brings in the principle known
by various names, such as the principle of noncompeting
groups or the principle of joint demand. In the case of mate-
rial commodities it sometimes happens that two or more articles
have to be combined to supply the same demand, such as
sugar and cranberries, bread and butter, etc. If sugar is so
scarce and so high that people cannot afford to buy it, there
will be less demand for cranberries ; but if sugar is abundant
and cheap, so that everybody can afford to buy it, there will be
an increased demand for cranberries. In the field of produc-
tion we get much better illustrations than in the field of con-
sumption. It frequently happens that several different kinds
of material have to be combined in the making of a single
product, 1 coal and iron ore, for example, in the making
of steel. If coal were scarce and very expensive, and other
kinds of fuel likewise, the best iron ore in the world would be
of very little use and would have to sell, if it sold at all, at a very
low price. With cheap and abundant coal the value of ore beds
tends to rise. The same principle applies to different types of
labor. Managerial skill, technical skill, and manual labor have
to be combined in the production of many manufactures. If
there were no manual labor to be had, managerial skill and
technical skill would be of very little use ; with an abundant
and cheap supply of manual labor these other forms of skill
become enormously valuable to their possessors. Conversely,
with no managerial and technical skill to go with it, manual
labor would be worth very little in our industries ; with an
abundance of managerial labor and technical skill large quanti-
ties of manual labor can be utilized so that many industries can
start. The first and most important refinement to be made in
the doctrine of population, therefore, is to point out that the
question of absolute number is not the only question involved,
but the question of the occupational distribution of numbers.
When the increase in numbers takes place among the unskilled

1 Compare the law of variable proportions as presented in a previous chapter.



WHAT DETERMINES THE RATE OF WAGES? 399

laborers, it works to their disadvantage but to the advantage of
those who belong in noncompeting groups, say the technically
skilled and those possessing managing ability ; but when the
increase in numbers takes place in the higher economic classes,
it works to the advantage of the unskilled laborer.

Summary. The discussion thus far may be summarized
as follows :

1 . The wages of any person will depend upon how much his
labor is desired. The wages of any class will depend upon
how important it is thought to be that there should be more
laborers of that class, or that there should not be any less.
High wages indicate a strong desire and low wages indicate a
weak desire to have more of a certain kind of work done.

2. Different kinds of labor usually have to be combined in
fairly definite but somewhat variable proportions. If there
happens to be more of a certain kind than will combine satisfac-
torily with the existing supply of the other necessary kinds,
the oversupplied kind will not be strongly desired. There
will be no great need for more of it, and therefore no strong
reason for paying high wages. The kind of labor, however,
which is undersupplied will be much more needed. There will
be a strong reason for desiring more of it, and the only way,
in a free society, to get more of it is to offer high wages.

3. Labor which requires a kind of skill that is difficult to
acquire will usually be scarce, relatively to the need for it.
Wages must be high enough to induce men to make the neces-
sary effort in order to fit themselves for the work.

4. Unskilled labor is usually abundant, being limited only
by the disinclination to work and the standard of living or the
cost of bringing up children. Where the cost is high, or the
unwillingness great, wages must be high enough to induce men
to marry and bring up children. When the cost is low and
there is very little unwillingness to overcome, wages may be
low because men will bring up children on very low wages
and thus keep the supply of labor intact.



CHAPTER XXXIII

THE ORGANIZATION OF LABORERS

Comparative advantages in bargaining. It has long been
recognized that in the ordinary bargaining process between



Online LibraryThomas Nixon CarverPrinciples of political economy → online text (page 32 of 48)