Popular Science Monthly/Volume 41/September 1892/The Wage Contract and Personal Liberty

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IN this reply to that part of Mr. Atkinson's interesting article which affirms that any State regulation of wages or of the hours of work is necessarily an abridgment of personal liberty, and therefore vicious and unjustifiable, the writer intends to confine his attention to two propositions: (1) That the settlement of labor disputes by the State does not necessarily involve an abridgment of personal liberty; (2) that compulsory arbitration through a State tribunal is the remedy for labor disputes, strikes, and lockouts.

The virtues of the "age of contract" are extolled by all disciples of the individualist school of thought, from Mr. Herbert Spencer to Mr. Edward Atkinson. Its superiority over the "age of status — "i. e., the age of slavery — no one will deny. Its adoption marks an upward step in the march of progress and civilization. As a means of attaining justice the contract has many advantages over the sword or brute force, by which human slavery was established and maintained. The right of contract is not, however, an end in itself (as this school seems to think), but merely a means to an end; and that end is justice. In the administration of justice experience has proved it to be necessary to impose many restrictions upon the right of free contract. Judge Ray has recently published a large legal work upon the subject of Contractual Limitations, and most persons will be surprised at the great number of restrictions that the law places upon this right. A full list of such cases would be tiresome, and only the more important ones will be mentioned. From time immemorial it has been customary for the State to fix a maximum rate of interest for the use of money, a maximum charge for the use of ferries, hacks, etc., for the services of millers in grinding corn, and a maximum charge of innkeepers and wharfingers for the use of their premises. In recent years the State has also fixed a maximum charge for the use of railroads and grain elevators. The constitutionality of State statutes fixing grain-elevator charges has been twice affirmed by the Supreme Court of the United States within twenty years, and the highest courts of the great States of New York and Illinois have also reached the same conclusion,[2] In the extensive class of insurance contracts the State does not hesitate to prescribe their terms and conditions and to prevent forfeitures by contract; and the constitutionality of such State statutes interfering with the freedom of contract has been upheld by the Supreme Court of the United States and by the highest State courts of Ohio and Wisconsin.[3]Besides these, there is a numerous class of contracts which the State declares shall not be made at all, or if made shall be void in law, because contrary to public policy, such as contracts in restraint of trade, gambling contracts, and contracts between husband and wife. Does Mr. Atkinson consider these State acts infringements of personal liberty or unjustifiable interferences with the freedom of contract? If so, he constitutes one of a small minority.

Turning now to the wage-contract, the question arises, "Is the State justified in fixing a minimum wage and a maximum time for work?" It is perhaps needless to say that the term "State" is here used to mean the people or the public acting through an agency or tribunal created by the people and in furtherance of their will. It does not mean something extrinsic and superior to the people's will, such as the monarchy of France was at the time when Louis XIV exclaimed, "I am the state!" In this country, if the State ever undertakes to regulate these matters, it will be done in pursuance of the will of the majority, and not of any one man or a minority. The businesses in which labor wishes the assistance of the State in the direction of restricting the freedom of contract are conducted almost exclusively by corporations under charters granted by the State. The three principal ones are railroading, manufacturing, and mining, and only an insignificant fraction of any one of these businesses is conducted by private individuals or partnerships. Although it may be of theoretic value, it is therefore of very little practical value to inquire into the right of the State to regulate the wage-contract between individuals. Now, the individual employer or partnership stands upon firmer ground in this respect than does the corporate employer. The State is justified in interfering with the latter more than with the former, for the reason that the corporation has received certain privileges and immunities from the State which the other employer has not received. In the first place, the corporation derives its being or existence from the State, and also its right to transact business. In the next place, the corporate form enables the capital of many individuals to be combined and used for one common purpose. But the most important immunity is that of limited liability, whereby the members of the corporation escape the versal liability of individuals or partners, and only risk the portion of their wealth which they invest in the corporation. This feature of limited liability, probably more than any other, accounts for the growth and number of corporations. Private individuals or copartnerships do not enjoy this privilege or immunity, but remain liable to loss to the full extent of their possessions. It is clear, therefore, that the moral right of the State or society as a whole to regulate wage-contracts with a corporation is greater than with individuals or firms, provided the necessity exists and the wage-earners desire it. It is not intended to confine the discussion to the case of corporate employers, but merely to point out some differences between the two classes of employers.

Mr. Spencer's opinion that the State has no moral right to interfere with the freedom of contract between employer and employed, or to regulate wages in any way, is based upon the analogy supposed to exist between human labor and commodities. Because, in his opinion, the State has no right to regulate the price of bread, or the rate of interest, or the price of other commodities, therefore it has not the moral right to regulate the price of human labor, with the exception of labor for life, or slavery. Is this analogy correct? Is human labor a commodity? No; human labor is the creator of commodities, and commodities are things created by human labor. The creator is always superior to the thing created. The shoemaker is superior to the shoe; the watchmaker to the watch; and God to man. The slaveholder also believed that human labor when clothed in black was a commodity, and that negroes could be bought and sold as chattels; and it took four years of civil war to establish the contrary. Labor is much more than a commodity; it is the bone and sinew of the State, the very essence of its existence. It is the sole means of support of millions of human beings men, women, and children. Those who have only their labor to sell are more entitled to the protection of the State than those who have commodities to sell.

Mr. Spencer's admission that the State has the right to forbid the sale of one's self into slavery, or the sale of one's services for life, as well as to hinder freedom of contract when it endangers national existence, also proves his analogy to be unsound. For, if the State may regulate or forbid the sale of one's services for life, it may also regulate the sale of one's services for ten years, or five years, or one year, or a shorter term; and, if the State may hinder the freedom of contract when national existence is thereby endangered, why may it not hinder the freedom of contract when the existence of a large body of its citizens is thereby endangered? Their existence is endangered when they can not, by means of their utmost exertions, earn sufficient wages to purchase the necessaries of life.

That the great mass of wage-earners favor State regulation of some sort will probably be conceded. Scarcely a month passes that Congress and the State Legislatures are not asked by labor interests to restrict the freedom of contract in one way or another. They believe that their wages may be increased by legislation, just as the price of commodities is increased by tariff laws. If legislation can lower the rate of wages below the contract rate, it is difficult to see why it can not also raise the rate of wages above the contract rate. For centuries the employing class of England legislated in its own interest and kept the rate of wages below the contract rate. This they did, first, by various Statutes of Laborers, passed by Parliament, giving the employing class power to fix wages, and punishing laborers who asked or received higher wages; secondly, by laws abolishing trade guilds and confiscating their property; thirdly, by acts of Parliament and decisions of the courts holding that peaceful combinations among workmen to raise wages were conspiracies and punishable by fine or imprisonment; and, fourthly, by acts of Parliament debasing the currency, by which the purchasing power of the laborer's shilling or penny was greatly lessened. Prof. Rogers, in his great work entitled Six Centuries of Work and Wages, shows how by these various legislative means the English laborer's condition was reduced from that of comparative comfort in the fourteenth century to that of semi-starvation in the eighteenth. This system was inaugurated in 1350, shortly after the Great Plague, which destroyed one third of the entire population of England. At that time the employing class, which, of course, controlled legislation, seems to have had some excuse for passing the Statute of Laborers. The supply of labor being thus suddenly reduced one third, the demand was intense, and the laborers could get exorbitant prices for their work. The contract rate depending upon supply and demand was abnormally and unreasonably high,[4] and therefore the employing class brought all the machinery of the State to bear upon the situation, and finally succeeded in reducing the rate below the contract rate. This policy was pursued by England into the dawn of the nineteenth century, when, the conditions having changed and there being an oversupply of labor and the contract rate correspondingly low, the Statutes of Laborers were magnanimously repealed.

During all this time of State regulation of wages in favor of the employing class we look in vain for any philosopher to arise and proclaim that the sacred right of freedom of contract or of personal liberty was thereby impaired. But, as soon as there is a chance of the wage-earners being able to control legislation and they indicate their desire to increase wages, it is immediately discovered by many would-be teachers and philosophers of the individualist school that this sacred right is imperiled, and that it would be sacrilegious to touch it with the vulgar hand of the State. This school overlooks the actual condition of affairs and bases its conclusions on an ideal state of facts which does not exist except in the imagination of its members. If employer and employed stood upon an equal footing; if the necessities of one were equal to the necessities of the other; if the abilities of both were equal then freedom of contract would produce not only good but also just results. But no one with any knowledge of the world can affirm that these conditions exist. The condition of labor more nearly corresponds to that of a man who falls into a well, far removed from human habitation. After he has been there for a day without food and sees starvation staring him in the face, he attracts the attention of a stray passer-by by his cries for help. The latter comes up, but refuses to lower his rope and pull him out unless he receives five hundred dollars. The next day another man says he will help him out for one thousand dollars, but this offer is also declined. The third day, being nearly starved, he contracts to pay a third man fifteen hundred dollars for assisting him out of the well, and so regains his freedom. Labor has fallen into the well of poverty, and Capital stands on the brink and says in effect: "I did not put you there, and therefore I am justified in making the best bargain I can with you. In fact, I am forced to do so by the competition of some of my rivals who sell the same commodities. They screw wages down to the lowest point, and I can't compete with them unless I do likewise. I must either pay the same low wages, or retire from business, or become bankrupt."

It is precisely at this point that the pinch comes, which exerts a controlling influence upon the average employer. He cares nothing for fine-spun theories respecting the freedom of contract or personal liberty, but he knows from every-day experience that he can not pay high wages so long as there are even a few unscrupulous and avaricious employers in the same line of business who succeed in obtaining labor at low rates. He is forced to compete with them in the sale of his commodities, and the price of labor is a large item in the cost of their manufacture. Higher wages would eat up his profits, and drive him out of business or into bankruptcy. "If," he says, "some plan can be invented by which all my competitors will be obliged to pay high wages, then I have no objection to paying the same wages, for then we shall all stand upon an equality with respect to the cost of labor. This will increase the cost of production; but, as the increase applies alike to all my rivals as well as to myself, I can make myself whole by raising the price of the finished product, as they will do the same."

The doctrine of the freedom of contract will never place the honest and generous employer upon an equal footing with the dishonest and avaricious employer in the cost of labor. Under it the latter will always obtain an advantage over the former. This doctrine, therefore, puts a premium upon the possession of these undesirable qualities. Moreover, under the law of competition in commodities, the honest and generous employer is forced to conform substantially to the rate of wages set by the dishonest and avaricious. This tendency is inherent in the wage system, and must increase, unless some remedy be found; for evil and grasping men can not be kept out of the ranks of employers, and only a few of them are required to depress wages below their fair value. This operates not only to the detriment of their employe's, but also to the detriment of all other employe's. Is it right that a few evil characters should commit this injustice upon labor, and control the vast majority of both classes? Should the State, or society in its organized form, permit them to do this wrong? It is submitted that it should not, and that some State agency should be devised to prevent or to remedy it.

About a year ago the writer published a pamphlet entitled State Regulation of Wages, in which he outlined a plan to remedy this difficulty. Its essential feature was the establishment of State Boards of Labor or Arbitration for the settlement of disputes between employers and employed, with power to fix the minimum wage and the maximum hours of work, upon the request of a certain proportion or number of either side. In determining the minimum wage, the board should not be controlled by the rate of wages now prevailing under the "iron law of wages" of supply and demand, but by what may be called the golden rule of wages, by which labor is entitled to receive a fair and just proportion of the wealth which it creates, irrespective of supply and demand. The minimum annual wage should be that required to support the average workman and his family in frugal comfort. The adoption of this plan would place all employers upon an equality in the cost of labor and relieve the generous employer from the competition of the avaricious one upon this large item in the cost of production. It is true that its adoption by a single State would not protect the employers of that State from the competition of their rivals in other States or foreign countries; but if the plan were found to work well in one State it would be speedily followed in other States; and, as to foreign competition, the tariff laws, if not already sufficiently high to cover the difference in the cost of labor, could easily be made so.

If the people of a State see fit to establish such a Board of Labor or Arbitration for the settlement of labor disputes, it is no more an infringement of their personal liberty than is the establishment of courts of law for the settlement of legal disputes. In both cases the restraint is self-imposed, and may be thrown off at will by disestablishment. The object of both tribunals is the same, namely, that of settling disputes by the judgment of a body of disinterested and fair-minded persons, instead of leaving the stronger to overcome the weaker by force, or of allowing the cunning to victimize the innocent or simple. The experience of centuries has proved the practical utility of courts so composed in settling legal disputes, and every civilized nation has adopted the principle in one form or another. But with respect to labor disputes we are still in a state of barbarism, in which force, fraud, and cunning are always triumphant, and the matter is settled without regard to the merits of the case. Would any one advocate a return to the personal liberty of early days, when barons held their sway and settled disputes by the sword? Yet strikes and lockouts are industrial warfare, and are as barbarous methods of settling labor disputes as the baron's sword was of settling legal disputes.

At present the public does not realize that it has a vital interest in settling labor disputes peaceably, and in providing some competent tribunal for that purpose. The public is good-natured and easy-going, but it will not require many more large strikes and lockouts to arouse its ire. Take the case of a strike or lockout on a railroad or street-car company. These are quasi-public corporations, created by the State for the convenience of the public. They are subject to the control of the public; but if a strike or lockout arises, the public may be inconvenienced for days, weeks, or months, simply because there is no tribunal with power to settle the dispute. As the public has the power to remedy this evil, it has only itself to blame for its continued existence.

Nor is the public's interest in settling labor disputes confined to railroading, but also extends to manufacturing, mining, and other businesses. The public is injuriously affected by any act which seriously interferes with the production or distribution of wealth. Strikes and lockouts undoubtedly not only interfere with the production and distribution of wealth, but they also endanger the public peace and security of life and property.

The strong argument of employers is that their business is a matter of private concern, and that therefore they have the right to conduct it as they see fit, without the State's interference. This is true to a great extent. For instance, the employer may decide what business he will adopt, where he will transact it, what goods he will manufacture, when and where and at what prices he will offer them for sale, what persons he will employ, and in many other ways act on his own judgment, uncontrolled "by the State or the general public. But when disputes, strikes, and lockouts arise, it is only right that the State should require him to submit the matter to some superior power for determination and settlement. If the public has sufficient interest in a dispute between A and B respecting the ownership of an acre of land, or the liability of B to A for a pair of shoes, to justify the State in compelling them to submit to the decision of a court, it is extremely difficult to understand why the public has not sufficient interest in labor disputes, which frequently entail loss and suffering upon thousands of the public as well as upon the immediate parties to the dispute, to justify the State in requiring the parties to submit to the decision of a State tribunal.

Within the past ten or twelve years the principle of arbitration as a means of settling labor disputes has made considerable progress. The States of Massachusetts, New York, New Jersey, Pennsylvania, Maryland, Missouri, and Montana have all established Boards of Arbitration. The new State of "Wyoming has provided in its Constitution for the creation of such a board. By the act of October 1, 1888, Congress legalized a Board of Arbitration, to consist of three members, one to be chosen by each side and the third by the other two, with power to adjust differences between interstate railroads and their employés. Under these various boards some good results have been attained, some labor disputes have been settled, and some strikes and lockouts have been prevented. But the practical value and utility of these boards have been largely impaired by the provision in the law of their organization requiring both employer and employed to agree to submit the matter to the board, and also by the failure of the law to confer any power upon the board to enforce its decision or orders. In other words, under existing laws, these boards have jurisdiction only when both sides are willing, and even after the board has rendered a decision, the unsuccessful party may disobey its orders with impunity, as the board has no power to fine or imprison for disobedience. The result is that the board only acts in the small number of cases in which both sides believe themselves right, and never acts in the more numerous and important cases in which one side is conscious of the injustice of its demands. The board's decision has merely a moral but no legal force. The law should be amended in these respects so as to give the board jurisdiction upon the request of a certain number of either side, and with power to enforce its orders — that is, the Labor Board should have the same power over the parties to a labor dispute that a court has over the parties to a legal dispute, and its jurisdiction should not depend upon the consent of both parties. Either side should possess the right to compel the other to submit the matter to the board; and if both sides refuse for a long time to submit to arbitration, and the public interests are endangered, it might be expedient to give a certain number of the public at large the right by request or petition addressed to the board to invoke its jurisdiction. With these powers exercised by a tribunal of disinterested persons it is believed that wages would be raised to the point of fairness, that the honest employer would be protected from the competition of the dishonest employer, that strikes and lockouts would cease, and that the eight-hour day would soon become an accomplished fact.

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  1. A reply to Mr. Edward Atkinson's paper on Personal Liberty, in The Popular Science Monthly for February, 1892.
  2. Munn vs. Illinois, 94 U. S., 113; Budd vs. New York, 143 U. S., 317; People vs. Budd, 117 N. Y., 1; Munn vs. People, 69 Ill., 80
  3. Equitable Life Insurance Company vs. Clements, 140 U. S., 226; Insurance Company vs. Leslie, 47 Ohio St., 409; Queen Insurance Company vs. Leslie, 24 N. E. Rep. (Ohio), 1072; Reilly vs. Franklin Insurance Company, 43 Wis., 449.
  4. The preamble to the statute recites that wages had risen to double or treble the rate that prevailed immediately before the plague.