Wages

§ 8. The chief instrument by which trade unions have obtained their power of negotiating on even terms with their employers is a “Common Rule” as regards the standard wage to be paid for an hour’s work of a given class, or again for piece-work of a given class.

Custom and the rather ineffective assessments of wages by Justices of the Peace, while hindering the workman from rising, had also defended him from extreme pressure. But, when competition became free, the isolated workman was at a disadvantage in bargaining with employers. For, even in Adam Smith’s time, they were generally in agreement, formal or informal, not to outbid one another in the hire of labour. And when, as time went on, a single firm was often able to employ several thousands of workmen, that firm by itself became a larger as well as a more compact bargaining force than a small trade union.

The agreements and understandings of employers not to overbid one another were not universal, and were often evaded or broken. It is true that when the net product due to the labour of additional workers was largely in excess of the wages that were being paid to them, a pushing employer would brave the indignation of his peers, and attract workers to him by the offer of higher wages: and it is true that in progressive industrial districts this competition was sufficient to secure that no considerable body of workers should remain for long with wages much below the equivalent of their net product. It is necessary to reassert here the fact that this net product, to which the wages of a worker of normal efficiency approximate, is the net product of a worker of normal efficiency: for a suggestion has indeed been made by some advocates of extreme enforcements of the Common Rule, that competition tends to make the wages of the efficient worker equal to the net product of that worker who is so inefficient that the employer can barely be induced to employ him at all163 .

But in fact competition does not act in this way. It does not tend to make weekly wages in similar employments equal: it tends to adjust them to the efficiency of the workers. If A will do twice as much work as B, an employer on the margin of doubt as to whether it is worth his while to take on additional workers, will make just as good a bargain by taking on A at four shillings as by taking on B and another at two shillings each. And the causes which govern wages are indicated as clearly by watching the marginal case of A at four shillings as that of B at two164 .

§ 9. Speaking broadly then it may be said that trade unions have benefited the nation as well as themselves by such uses of the Common Rule as make for a true standardization of work and wages; especially when combined with a frank endeavour to make the resources of the country go as far as they will, and thus to promote the growth of the national dividend. Any rise of wages or improvement in the conditions of life, and employment, which they may obtain by these reasonable methods, is likely to make for social wellbeing. It is not likely to worry and dishearten business enterprise, nor to throw out of their stride those whose efforts are making most for national leadership: nor will it drive capital abroad to any great extent. The case is different with applications of the Common Rule which make for a false standardization; which tend to force employers to put relatively inefficient workers in the same class for payment as more efficient workers; or which prevent anyone from doing work for which he is capable, on the ground that it does not technically belong to him. These uses of the Rule are primâ facie anti-social. There may indeed be stronger reasons for such action than appear on the surface: but their importance is apt to be exaggerated by the professional zeal of trade union officials for the technical perfection of the organization, for which they are responsible. The reasons are therefore of a kind for which external criticism may be serviceable, in spite of its aloofness. We may begin with a strong case, on which there is now relatively little difference of opinion.

In the days when trade unions had not learnt full self-respect, forms of false standardization were common. Obstacles were put in the way of the use of improved methods and machinery; and attempts were made to fix the standard wage for a task at the equivalent of the labour required to perform it by methods long antiquated. This again tended to sustain wages in the particular branch of industry concerned; but only by so great a check to production, that the policy, if generally successful, would have greatly curtailed the national dividend, and lessened employment at good wages in the country generally. The service which the leading trade unionists rendered to the country by condemning this anti-social conduct are never to be forgotten. And though some partial relapse from its high principles on the part of an enlightened union led up to the great dispute of 1897 in the engineering trade, the error was quickly purged of at least its worst features165 .

Again, false standardization is involved in a practice, still followed by many unions, of refusing to allow an elderly man, who can no longer do a full standard day’s work, to take something less than standard wages. This practice slightly restricts the supply of labour in the trade, and appears to benefit those who enforce it. But it cannot permanently restrict numbers: it often involves a heavy burden on the benefit funds of the union, and it is generally shortsighted even from a purely selfish point of view. It lowers the national dividend considerably: it condemns elderly men to take their choice between oppressive idleness, and a weary struggle to work harder than is good for them. It is harsh and anti-social.

To pass to a more doubtful case:—some delimitation of the functions of each industrial group is essential to the working of the Common Rule: and it is certainly in the interests of industrial progress that every urban artisan should seek to attain high proficiency in some branch of work. But a good principle is apt to be pushed to evil excess, when a man is not allowed to do a certain part of the work on which he is engaged, though it is quite easy to him, on the pretext that it belongs technically to another department. Such prohibitions are of relatively little injury in establishments that make large numbers of similar goods. For in these it is possible so to arrange the work that there is fairly uniform employment for an integral number of operatives of each of many different classes: an integral number, i.e., one with no ragged fringe of workers who earn a part of their living elsewhere. But such prohibitions press hardly on small employers; and especially on those who are on the lower rungs of a ladder that may lead in two generations, if not in one, to great achievements that make for national leadership. Even in large establishments, they increase the chance that a man, for whom it is difficult to find work at the time, will be sent to seek employment elsewhere; and thus swell for the time the ranks of the unemployed. Delimitation then, though a social good when applied moderately and with judgment, becomes an evil when pushed to extremes for the sake of the minor tactical advantages which it offers166 .

§ 10. Next we may pass to a still subtler and more difficult matter. It is a case in which the Common Rule appears to work badly, not because it is applied harshly: but because the work, to which it is set, requires it to be more perfect technically than it is, or perhaps can be made. The centre of this matter is that the standards of wages are expressed in terms of money: and since the real value of money changes from one decade to another, and fluctuates rapidly from year to year, rigid money standards cannot work out truly. It is difficult, if not impossible, to give them appropriate elasticity: and that is a reason against extreme applications of the Common Rule, which must perforce use so rigid and imperfect an implement.

The urgency of this consideration is increased by the natural tendency of trade unions to press for a rise in standard money wages during inflations of credit, which raise prices and lower the purchasing power of money for the time. At that time employers may be willing to pay high wages, measured in real purchasing power and still higher wages in terms of money, even for labour that falls somewhat short of the standard of full normal efficiency. Thus men of but second-rate efficiency earn the high standard money wages, and make good their claim to be admitted as members of the union. But very soon the inflation of credit subsides, and is followed by a depression; prices fall, and the purchasing power of money rises: the real value of labour falls, and its money value falls faster. The high standard of money wages, attained during the inflation, is now too high to leave a good margin of profits even on the work of fully efficient men; and those, who are below the standard of efficiency, are not worth the standard wages. This false standardization is not an unmixed evil to the efficient members of the trade: for it tends to make their labour more in demand, just as does the compulsory idleness of elderly men. But it does so only by checking production, and therefore checking the demand for the labour of other branches of industry. The more such a policy is persisted in by trade unions generally, the deeper and the more sustained is the injury caused to the national dividend; and the less is the aggregate of employment at good wages throughout the country.

In the long run every branch of industry would prosper better, if each exerted itself more strenuously to set up several standards of efficiency for labour, with corresponding standards for wages; and were more quick to consent to some relaxation of a high standard of money wages when the crest of a wave of high prices, to which it was adapted, had passed away. Such adjustments are full of difficulty: but progress towards them might be hastened if there were a more general and clear appreciation of the fact that high wages, gained by means that hinder production in any branch of industry, necessarily increase unemployment in other branches. For, indeed, the only effective remedy for unemployment is a continuous adjustment of means to ends, in such way that credit can be based on the solid foundation of fairly accurate forecasts; and that reckless inflations of credit—the chief cause of all economic malaise—may be kept within narrower limits.

This matter cannot be argued here: but a few words may be said in further explanation. Mill well observed that “What constitutes the means of payment for commodities is simply commodities. Each person’s means of paying for the productions of other people consist of those which he himself possesses. All sellers are inevitably, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should, by the same stroke, double the purchasing power.

Everybody would bring a double demand as well as supply; everybody would be able to buy twice as much, because everyone would have twice as much to offer in exchange.”

But though men have the power to purchase they may not choose to use it. For when confidence has been shaken by failures, capital cannot be got to start new companies or extend old ones. Projects for new railways meet with no favour, ships lie idle, and there are no orders for new ships. There is scarcely any demand for the work of navvies, and not much for the work of the building and the engine-making trades. In short there is but little occupation in any of the trades which make fixed capital. Those whose skill and capital is specialized in these trades are earning little, and therefore buying little of the produce of other trades. Other trades, finding a poor market for their goods, produce less; they earn less, and therefore they buy less: the diminution of the demand for their wares makes them demand less of other trades. Thus commercial disorganization spreads: the disorganization of one trade throws others out of gear, and they react on it and increase its disorganization.

The chief cause of the evil is a want of confidence. The greater part of it could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production and their demand for the wares of others. If all trades which make goods for direct consumption agreed to work on, and to buy each other’s goods as in ordinary times, they would supply one another with the means of earning a moderate rate of profits and of wages. The trades which make fixed capital might have to wait a little longer: but they too would get employment when confidence had revived so far that those who had capital to invest had made up their minds how to invest it. Confidence by growing would cause itself to grow; credit would give increased means of purchase, and thus prices would recover. Those in trade already would make good profits, new companies would be started, old businesses would be extended; and soon there would be a good demand even for the work of those who make fixed capital. There is of course no formal agreement between the different trades to begin again to work full time, and so make a market for each other’s wares. But the revival of industry comes about through the gradual and often simultaneous growth of confidence among many various trades; it begins as soon as traders think that prices will not continue to fall: and with a revival of industry prices rise167 .

§ 11. The main drift of this study of Distribution then suggests that the social and economic forces already at work are changing the distribution of wealth for the better: that they are persistent and increasing in strength; and that their influence is for the greater part cumulative; that the socio-economic organism is more delicate and complex than at first sight appears; and that large ill-considered changes might result in grave disaster. In particular it suggests that the assumption and ownership by Government of all the means of production, even if brought about gradually and slowly, as the more responsible “Collectivists” propose, might cut deeper into the roots of social prosperity than appears at first sight. Starting from the fact that the growth of the national dividend depends on the continued progress of invention and the accumulation of expensive appliances for production; we are bound to reflect that up to the present time nearly all of the innumerable inventions that have given us our command over nature have been made by independent workers; and that the contributions from Government officials all the world over have been relatively small. Further, nearly all the costly appliances for production which are now in collective ownership by national or local Governments, have been bought with resources borrowed mainly from the savings of business men and other private individuals. Oligarchic Governments have sometimes made great efforts to accumulate collective wealth; and it may be hoped that in the coming time, foresight and patience will become the common property of the main body of the working classes. But, as things are, too great a risk would be involved by entrusting to a pure democracy the accumulation of the resources needed for acquiring yet further command over nature.

There is therefore strong primâ facie cause for fearing that the collective ownership of the means of production would deaden the energies of mankind, and arrest economic progress; unless before its introduction the whole people had acquired a power of unselfish devotion to the public good which is now relatively rare. And, though this matter cannot be entered upon here, it might probably destroy much that is most beautiful and joyful in the private and domestic relations of life. These are the main reasons which cause patient students of economics generally to anticipate little good and much evil from schemes for sudden and violent reorganization of the economic, social and political conditions of life.

Further, we are bound to reflect that the distribution of the national dividend, though bad, is not nearly as bad as is commonly supposed. In fact there are many artisan households in England, and even more in the United States in spite of the colossal fortunes that are found there, which would lose by an equal distribution of the national income. Therefore the fortunes of the masses of the people, though they would of course be greatly improved for the time by the removal if all inequalities, would not be raised even temporarily at all near to the level which is assigned to them in socialistic anticipations of a Golden Age168 .

But this cautious attitude does not imply acquiescence in the present inequalities of wealth. The drift of economic science during many generations has been with increasing force towards the belief that there is no real necessity, and therefore no moral justification for extreme poverty side by side with great wealth. The inequalities of wealth though less than they are often represented to be, are a serious flaw in our economic organization. Any diminution of them which can be attained by means that would not sap the springs of free initiative and strength of character, and would not therefore materially check the growth of the national dividend, would seem to be a clear social gain. Though arithmetic warns us that it is impossible to raise all earnings beyond the level already reached by specially well-to-do artisan families, it is certainly desirable that those who are below that level should be raised, even at the expense of lowering in some degree those who are above it.

§ 12. Prompt action is needed in regard to the large, though it may be hoped, now steadily diminishing, “Residuum” of persons who are physically, mentally, or morally incapable of doing a good day’s work with which to earn a good day’s wage. This class perhaps includes some others besides those who are absolutely “unemployable.” But it is a class that needs exceptional treatment. The system of economic freedom is probably the best from both a moral and material point of view for those who are in fairly good health of mind and body. But the Residuum cannot turn it to good account: and if they are allowed to bring up children in their own pattern, then Anglo- Saxon freedom must work badly through them on the coming generation. It would be better for them and much better for the nation that they should come under a paternal discipline something like that which prevails in Germany169 .

The evil to be dealt with is so urgent that strong measures against it are eagerly to be desired. And the proposal that a minimum wage should be fixed by authority of Government below which no man may work, and another below which no woman may work, has claimed the attention of students for a long while. If it could be made effective, its benefits would be so great that it might be gladly accepted, in spite of the fear that it would lead to malingering and some other abuses; and that it would be used as a leverage for pressing for a rigid artificial standard of wages, in cases in which there was no exceptional justification for it. But, though great improvements in the details of the scheme have been made recently, and especially in the last two or three years, its central difficulties do not appear to have been fairly faced.

There is scarcely any experience to guide us except that of Australasia, where every inhabitant is part owner of a vast landed property; and which has been recently peopled by men and women in full strength and health. And such experience is of but little use in regard to a people whose vitality has been impaired by the old Poor Law, and the old Corn Laws; and by the misuses of the Factory system, when its dangers were not yet understood. A scheme, that has any claim to be ready for practical adoption, must be based on statistical estimates of the numbers of those who under it would be forced to seek the aid of the State, because their work was not worth the minimum wage; with special reference to the question how many of these might have supported life fairly well if it had been possible to work with nature, and to adjust in many cases the minimum wage to the family, instead of to the individual170 .

§ 13. Turning then to those workers who have fairly good moral and physical stamina, it may be estimated roughly that those who are capable only of rather unskilled work constitute about a fourth of the population. And those who, though fit for the lower kinds of skilled work are neither fit for highly skilled work, nor able to act wisely and promptly in responsible positions, constitute about another fourth. If similar estimates had been made in England a century ago, the proportions would have been very different: more than a half would have been found unfit for any skilled labour at all, beyond the ordinary routine of agriculture; and perhaps less than a sixth part would have been fit for highly skilled or responsible work: for the education of the people was not then recognized as a national duty and a national economy.

If this had been the only change the urgent demand for unskilled labour would have compelled employers to pay for it nearly the same wage as for skilled: the wages for skilled labour would have fallen a little and those for unskilled would have risen, until the two had nearly met. Even as it is, something like this has happened: the wages of unskilled labour have risen faster than those of any other class, faster even than those of skilled labour. And this movement towards the equalization of earnings would have gone much faster, had not the work of purely unskilled labour been meanwhile annexed by automatic and other machinery faster even than that of skilled labour; so that there is less wholly unskilled work to be done now than formerly. It is true that some kinds of work, which traditionally belong to skilled artisans, require now less skill than formerly. But, on the other hand, the so-called “unskilled” labourer has now often to handle appliances too subtle and expensive to have been safely entrusted to the ordinary English labourer a century ago, or to any people at all in some backward countries now.

Thus mechanical progress is a chief cause of the great differences that still exist between the earnings of different kinds of labour; and this may seem at first sight a severe indictment: but it is not. If mechanical progress had been much slower the real wages of unskilled labour would have been lower than they are now, not higher: for the growth of the national dividend would have been so much checked that even the skilled workers would generally have had to content themselves with less real purchasing power for an hour’s work than the 6d. of the London bricklayer’s labourer: and the unskilled labourers’ wages would of course have been lower still. It has been assumed that the happiness of life, in so far as it depends on material conditions, may be said to begin when the income is sufficient to yield the barest necessaries of life: and that after that has been attained, an increase by a given percentage of the income will increase that happiness by about the same amount, whatever the income be. This rough hypothesis leads to the conclusion that an increase by (say) a quarter of the wages of the poorer class of bonâ fide workers adds more to the sum total of happiness than an increase by a quarter of the incomes of an equal number of any other class. And that seems reasonable: for it arrests positive suffering, and active causes of degradation, and it opens the way to hope as no other proportionate increase of incomes does. From this point of view it may be urged that the poorer classes have derived a greater real benefit from economic progress on its mechanical and other sides, than is suggested by the statistics of their wages. But all the more is it the duty of society to endeavour to carry yet further an increase of wellbeing which is to be obtained at so low a cost171 .

We have then to strive to keep mechanical progress in full swing: and to diminish the supply of labour, incapable of any but unskilled work; in order that the average income of the country may rise faster even than in the past, and the share of it got by each unskilled labourer may rise faster still. To that end we need to move in the same direction as in recent years, but more strenuously. Education must be made more thorough. The schoolmaster must learn that his main duty is not to impart knowledge, for a few shillings will buy more printed knowledge than a man’s brain can hold. It is to educate character, faculties and activities; so that the children even of those parents who are not thoughtful themselves, may have a better chance of being trained up to become thoughtful parents of the next generation. To this end public money must flow freely. And it must flow freely to provide fresh air and space for wholesome play for the children in all working class quarters172 .

Thus the State seems to be required to contribute generously and even lavishly to that side of the wellbeing of the poorer working class which they cannot easily provide for themselves: and at the same time to insist that the inside of the houses be kept clean, and fit for those who will be needed in after years to act as strong and responsible citizens. The compulsory standard of cubic feet of air per head needs to be raised steadily though not violently: and this combined with a regulation that no row of high buildings be erected without adequate free space in front and behind, will hasten the movement, already in progress, of the working classes from the central districts of large towns, to places in which freer playroom is possible. Meanwhile public aid and control in medical and sanitary matters will work in another direction to lessen the weight that has hitherto pressed on the children of the poorer classes.

The children of unskilled workers need to be made capable of earning the wages of skilled work: and the children of skilled workers need by similar means to be made capable of doing still more responsible work. They will not gain much, they are indeed more likely to lose, by pushing themselves into the ranks of the lower middle class: for, as has already been observed, the mere power of writing and keeping accounts belongs really to a lower grade than skilled manual work; and has ranked above it in past times, merely because popular education had been neglected. There is often a social loss as well as a social gain when the children of any grade press into the grade above them. But the existence of our present lowest class is an almost unmixed evil: nothing should be done to promote the increase of its numbers, and children once born into it should be helped to rise out of it.

There is plenty of room in the upper ranks of the artisans; and there is abundant room for new comers in the upper ranks of the middle class. It is to the activity and resource of the leading minds in this class that most of those inventions and improvements are due, which enable the working man of to-day to have comforts and luxuries that were rare or unknown among the richest of a few generations ago: and without which indeed England could not supply her present population with a sufficiency even of common food. And it is a vast and wholly unmixed gain when the children of any class press within the relatively small charmed circle of those who create new ideas, and who embody those new ideas in solid constructions. Their profits are sometimes large: but taking one with another they have probably earned for the world a hundred times or more as much as they have earned for themselves.

It is true that many of the largest fortunes are made by speculation rather than by truly constructive work: and much of this speculation is associated with anti-social strategy, and even with evil manipulation of the sources from which ordinary investors derive their guidance. A remedy is not easy, and may never be perfect. Hasty attempts to control speculation by simple enactments have invariably proved either futile or mischievous: but this is one of those matters in which the rapidly increasing force of economic studies may be expected to render great service to the world in the course of this century.

In many other ways evil may be lessened by a wider understanding of the social possibilities of economic chivalry. A devotion to public wellbeing on the part of the rich may do much, as enlightenment spreads, to help the tax-gatherer in turning the resources of the rich to high account in the service of the poor, and may remove the worst evils of poverty from the land.

§ 14. The inequalities of wealth, and especially the very low earnings of the poorest classes, have just been discussed with reference to their effects in dwarfing activities as well as in curtailing the satisfaction of wants. But here, as everywhere, the economist is brought up against the fact that the power of rightly using such income and opportunities, as a family has, is in itself wealth of the highest order, and of a kind that is rare in all classes. Perhaps £100,000,000 annually are spent even by the working classes, and £400,000,000 by the rest of the population of England, in ways that do little or nothing towards making life nobler or truly happier. And, though it is true that a shortening of the hours of labour would in many cases lessen the national dividend and lower wages: yet it would probably be well that most people should work rather less; provided that the consequent loss of material income could be met exclusively by the abandonment by all classes of the least worthy methods of consumption; and that they could learn to spend leisure well.

But unfortunately human nature improves slowly, and in nothing more slowly than in the hard task of learning to use leisure well. In every age, in every nation, and in every rank of society, those who have known how to work well, have been far more numerous than those who have known how to use leisure well. But on the other hand it is only through freedom to use leisure as they will, that people can learn to use leisure well: and no class of manual workers, who are devoid of leisure, can have much self-respect and become full citizens. Some time free from the fatigue of work that tires without educating, is a necessary condition of a high standard of life. In this, as in all similar cases, it is the young whose faculties and activities are of the highest importance both to the moralist and the economist.

The most imperative duty of this generation is to provide for the young such opportunities as will both develop their higher nature, and make them efficient producers. And an essential condition to this end is long-continued freedom from mechanical toil; together with abundant leisure for school and for such kinds of play as strengthen and develop the character. Even if we took account only of the injury done to the young by living in a home in which the father and the mother lead joyless lives, it would be in the interest of society to afford some relief to them also. Able workers and good citizens are not likely to come from homes, from which the mother is absent during a great part of the day; nor from homes, to which the father seldom returns till his children are asleep: and therefore society as a whole has a direct interest in the curtailment of extravagantly long hours of duty away from home, even for mineral-train-guards and others, whose work is not in itself very hard.

§ 15. In discussing the difficulty of adjusting the supply of industrial skill of various kinds to the demand for it, attention was called to the fact that the adjustment could not be nearly accurate, because the methods of industry change rapidly, and the skill of a worker needs to be used for some forty or even fifty years after he has set himself to acquire it173 . The difficulties which we have just discussed turn largely on the long life of inherited habits and tones of thought and feeling. If the organization of our joint-stock companies, of our railways or our canals is bad, we can set it right in a decade or two. But those elements of human nature which have been developed during centuries of war and violence, and of sordid and gross pleasures, cannot be greatly changed in the course of a single generation.

Now, as always, noble and eager schemers for the reorganization of society have painted beautiful pictures of life, as it might be under institutions which their imagination constructs easily. But it is an irresponsible imagination, in that it proceeds on the suppressed assumption that human nature will, under the new institutions, quickly undergo changes such as cannot reasonably be expected in the course of a century, even under favourable conditions. If human nature could be thus ideally transformed, economic chivalry would dominate life even under the existing institutions of private property. And private property, the necessity for which doubtless reaches no deeper than the qualities of human nature, would become harmless at the same time that it became unnecessary.

There is then need to guard against the temptation to overstate the economic evils of our own age, and to ignore the existence of similar and worse evils in earlier ages; even though some exaggeration may for the time stimulate others, as well as ourselves, to a more intense resolve that the present evils shall no longer be allowed to exist. But it is not less wrong, and generally it is much more foolish, to palter with truth for a good than for a selfish cause. And the pessimist descriptions of our own age, combined with romantic exaggerations of the happiness of past ages, must tend to the setting aside of methods of progress, the work of which if slow is yet solid; and to the hasty adoption of others of greater promise, but which resemble the potent medicines of a charlatan, and while quickly effecting a little good, sow the seeds of widespread and lasting decay. This impatient insincerity is an evil only less great than that moral torpor which can endure that we, with our modern resources and knowledge, should look on contentedly at the continued destruction of all that is worth having in multitudes of human lives, and solace ourselves with the reflection that anyhow the evils of our own age are less than those of the past.

And now we must conclude this part of our study. We have reached very few practical conclusions; because it is generally necessary to look at the whole of the economic, to say nothing of the moral and other aspects of a practical problem before attempting to deal with it at all: and in real life nearly every economic issue depends, more or less directly, on some complex actions and reactions of credit, of foreign trade, and of modern developments of combination and monopoly. But the ground which we have traversed in Books V. and VI. is, in some respects, the most difficult of the whole province of economics; and it commands, and gives access to, the remainder.