Popular Science Monthly/Volume 25/October 1884/Wages, Capital and Rich Men

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By the Author of "Conflict in Nature and Life."

IT is no marvel that labor and capital are in conflict; and yet they are necessarily co-operative factors to the same end. What benefits capital should also benefit labor, and vice versa, and there is essential harmony between them, as Bastiat, Carey, Perry, and other economists insist; but the theoretical harmony thus so obvious fails in practice, and we are compelled to acknowledge the fact of actual discordance. The interests of labor are in the hands of one class, and the interests of capital in the hands of a very different class, and they naturally enough contend about a certain margin of profit, since what one class gets of this the other must necessarily do without. The war is really between laborers and the employers of laborers; and it is quite likely in the course of events that this war will become a source of anxiety and suffering far beyond what one would expect from such apparently peaceable forces. There is hardly any doubt that, if the wealthy classes in this country could have their unrestrained way in all things, they would build up an aristocracy as oppressive and disdainful as ever existed anywhere. If the so-called working-classes (not embracing those who are their own employers) could have their way, they would do even worse by precipitating the conditions of universal poverty.

I speak of labor and capital as antagonists; and this is true, though the owner of capital is not always a party to the conflict; he is so only when he uses his own capital in the employment of labor. Very largely the employer of labor is a borrower of capital, paying for the use of the same. When this is the case, there are three parties having distinct interests. The owner of capital must have "use"; the borrower of capital and employer of labor must have "profits"; and the laborer must have "wages." But it will answer all the purposes of this statement in this connection to assume that the owner and user of capital are one, and that the contest is between him and the laborer.

Laborers in the several departments of industry are as much competitors with one another as with other classes of society, and in some respects even more so. In connection with the class-feeling, which is apt to be engendered among the laborers of a particular department of industry, they come to regard the desired increase of their wages as the one thing needful for the prosperity and happiness of mankind. Allow that the additional wages are secured; then, with what result? Labor is a large item in production, and, when it is made more expensive, the cost of production is increased. This may or may not add to the commercial price of the product: if it does, the additional price must be paid by all who purchase for consumption; and, as about three fourths of all consumers in the civilized world are working-men dependent on their wages, they are now worse off than before, being taxed to better the condition of the favored few.

"That is not the intention," retorts Reformer; "we mean that the articles so produced shall be kept at their former price by reducing the profits of the employer." A good idea, which should teach modesty to the "money power"; but it has this drawback, namely, that, if capital in this particular industry is thus compelled to accept considerably less return than capital employed in other industries, it will desert this field of operations for some other which pays better, and the laborers who have their wages thus arbitrarily raised will reap the penalty for their ignorance of economical laws by finding themselves out of employment, or working on short time. Capital and enterprise could, under such circumstances, be retained in the business at all only by an increase in the price of the product through reduced production, increased demand, or other means, so as to pay both the increase of wages and the usual interest of capital and profit to management.

Reformer answers: "Such gain at the laborers' expense is precisely what galls; there is quite too much of it; and it should be restricted by public sentiment taking the form of law." Beware, my dear sir; that is just the way the other side used to do! Within the present century, even England has had laws on her statute-books restricting the freedom of laborers as laborers in the most arbitrary manner, because it was assumed that only employers understood the proper thing to have done, and they made the laws. This was a survival of barbarism in the interest of employers, and it can hardly be revived at this late day in the interest of employés. There may, indeed, be certain forms of restriction imposed on employers for the protection of laborers; as, for example, in relation to the unhealthy condition of shops, too long hours, the employment of children, etc. But these are general rules, which do not touch the right of enterprise to select its field, and, under freedom of competition, to make the most of it. Restriction within limits may be even demanded by economics as well as by humanity; but here the limits are of importance to the last degree, since disregard of them may destroy individualism and land us in state communism.

If force could be used to compel capital under some rule to surrender all or most of its gains to laborers, it would remove to a great extent the motive for saving and the incentive to enterprise, and prevent the opening of new fields for the employment of new hands, ever asking for something to do. Hoarding would take the place of investment. Wealth would still be desired for use, but not for business; and the currents along the old channels would become sluggish, and, with failure to invest for profit, would come the falling off of means for use. This is substantially what takes place during periods of great commercial depression, when loss of confidence and fear of extending credits temporarily deprive capital of its active functions, and throw labor out of employment. It is furthermore substantially the condition of things under Eastern despots, where property is not protected from spoliation, and there is, consequently, little saved for the assistance of labor, which has, in consequence, to be done at a disadvantage, and all the people are hopelessly poor.

Employers are not absolute arbiters of fate, and can not make a remunerating profit with the cost of production and the state of the market against them. Should the outlay for wages in any department of industry be so great that its products could only be sold as a loss, managers must contract operations or stop altogether, when the laborer becomes the direct and principal sufferer; and thus it is shown how easy it would be for him, if he had his own way, to destroy the industry on which he depends for support. Most laborers in the present state of their education are not a whit wiser than this implies, though some of them happily are. It is stated that committees of working-men, appointed to confer with their employers, have been known even to refuse the highest wages it would have been possible to exact, lest their product should be so weighted with cost of production as to place it at a disadvantage in the markets, and thus cripple their industry, and in the end do them more harm than good. There are few such working-men, however, and it is to be feared that they are little on the increase in number and influence. Mr. Gregg affirms (1879) that "never during the experience of a generation and a half can I remember to have seen the artisans throughout the length and breadth of the land acting so entirely in defiance of common sense and right feeling, and with so total a disregard of plain and repeated warning" ("Nineteenth Century").

"Oh," interrupts Reformer, "you are running on at a great rate, and getting in too much philosophy all at once; we mean that all laborers in all industries shall have more wages." Very well; raise their wages—and, then, with what economical result? A protective tariff raises wages, but it raises the price of products even more; and it raises wages simply because it raises prices. Any arbitrary measure which should raise wages along the whole line would so disturb the prevailing equilibrium of the economic forces as to necessitate a general readjustment which would leave the laborer no better off than before. He would find himself paying out with one hand the benefits he received with the other, and a general rise of wages, like a general rise of prices, would be no rise at all.

"We mean nothing of that sort," impatiently retorts Reformer; "how short-sighted you are! We mean that what is thus given additional to labor shall come out of interest and profit." Good again; but how will that work? We are now at the very pith of this thing. To advance wages along the whole line without increase in the price of products would transfer a part or all of what is called interest and profit from capitalists and the operators of business to the laborers. "Certainly, that is what we want in order that laborers may live with dignity and comfort worthy of human beings." Just so; no one would be more pleased than myself if this could be so. But, as I was going to say, if such an economic policy could be put in force, then the aggregate of savings for the establishment of industries and the employment of labor would be smaller than before, labor would be done in consequence at an increasing disadvantage, and the penalty would fall upon all classes, and would be most severely felt by the working-men. In this way the remedy would defeat itself, and turn out to be worse than the disease. But such an economical policy can not be put in force, because there is no element in the economical domain capable of exercising any such power.

"Then, in the name of justice and humanity, is there any relief for the working-man?" There is and there is not. There are many conditions which affect the reward of labor—such as the character of the soil, the cost of raw materials, the capital at command, the number competing for work, the facilities for exchange, and the like. With a more intelligent direction of effort, with sobriety and frugality, with restraint on the increase of numbers, working-men would certainly receive better pay, and it would do them more good. There is something more wanting than the mere increase of money wages, now so generally sought as the one thing needful. Labor is eventually paid in products which go to the support of the working-man's family, and the increased expense of his goods is often greater than the increased pay for his work. Wages and prices rise and fall nearly together, and they do so as the effect of a common cause. The actual reward of labor is thus more uniform than the money price of labor. But even here, as usual, labor is at a disadvantage, because it can not be held, as goods may, for higher prices. It is hardly possible, under such circumstances, that the working-people should be able, by any concert of action, to command their employers and dictate wages.

"It's all wrong," exclaims Reformer, indignantly; "it is slavery that men shall toil to make the rich richer!" Truly, we all wish it might be otherwise; but we are compelled to accept human nature, revolt as we may against the limits of its possibilities. The economical laws have grown out of it in the struggle of life, not by conscious purpose, but by overruling necessity, as resultants of the clashing and divergent forces of individualism and competition. Nobody is responsible; and it may be that these vast accumulations of wealth have their good as well as their evil side. If a large proportion of civilized people have not had the energy and management to push themselves into positions of plenty and comfort, it may be that even making the rich richer has points of advantage which render it a blessing rather than a curse to laboring-men themselves. Let us see.

There is a surplus beyond immediate consumption from the products of all the industries in the world: what shall be done with this surplus? If certain classes of people could have their way, what is now surplus would all be consumed by the end of the year. It is not so consumed now, because those who would like it for consumption can not get it. Not only the ignorant and the improvident would so elect, but the more intelligent, such as are employed in offices and places of considerable trust. Most who live on salaries manage to keep about even; they do not spend more, because their salaries are not greater. Then, if nobody saved—an extreme supposition—what would be the result? Civilization could not advance, the world could not become richer in the comforts of life, because the basis of production, capital, that is, the savings of labor, would not accumulate. Indeed, if there were not savings to be constantly invested for the repair of waste and wear, there would soon be a calamitous falling off everywhere in the comforts of life. It is capital that makes labor tell in successful production; and, without capital, we should be in the condition of barbarians, of savages even. Then, what is the part the accumulator plays? The savings from labor above consumption fall into his hands, where they are largely conserved for use. His capital seeks investment, it utilizes invention and discovery; it establishes industries and employs labor; it distributes the products; and the average of human comfort is constantly on the increase through this means. The savings of labor which have fallen so largely into the hands of the few, making them rich men, have built our railroads, steamships, telegraphs, manufactories, thus in many ways adding to the means of production, and the facilities of commerce at home and abroad. These saved earnings in the hands of men seeking investment for profit have increased the wealth, resources, and refinements of civilization, made abundance possible, and brought it within reach of all, except the unfortunate, or the indolent and improvident. The industrious and economical poor man is better off to-day than if laboring-men all through the past could have had what so many of them are at present clamoring for. This method of attaining the good does not, of course, come up to the standard of perfection; it is not harmonious and artistic; it is very far from being equitable, if tried by an ideal standard; still, it is the best possible—human nature being what it has been and still is, this taint of evil is the inevitable condition of compassing the good.

Let us suppose that capitalists and managers get less, and the workers more, of the common products. So far this would seem to be greater justice than now obtains. Suppose further—which, however, is absurd—that just as much will now be saved for business as before, and that it is in the hands of the working-people themselves for business purposes. Can they make it tell in business as it does in the hands of men whose shrewdness and skill bring them to the front by a sort of natural selection? Would there not be a great want of unity and concert of action among the million holders of this surplus to render it comparatively inefficient for the purposes of production? Would it not come to pass that, through the misapplication of capital, the masses of the people, in drawing a larger proportion of the common earnings, would soon find a smaller aggregate to draw from? Is it not plain that here is a case in which seeming justice may defeat justice, and cause the working-man after a brief triumph to fall into a worse condition than before? And this would be true, even on the supposition that the proletariat would save as much as the accumulating classes now save; but they would not so save—they would consume; there would be less capital, and business would suffer a decline, to the detriment of all classes. It is one of the difficulties of reform that a seeming good may react into evil.

Agitators do not sufficiently keep in mind that business can not be carried on without capital, and that this capital can be had only by self-denial and by saving. Capital is not a providential gift bestowed like showers of manna from heaven. Only the industrious, enterprising, economical, well-managing, are certain to acquire capital and retain it. In making investments for production by the employment of labor, there are very generally risks to run, and these risks the party responsible for the business must wholly assume. The laborer as such has no capital to fall back upon, and can not share in losses. Is it right, therefore, that he should receive so much of the products that there would be little or nothing left for the responsibility and enterprise of management? Take two men fifty years of age: A has worked hard, lived economically, invested wisely, and saved more or less every year; he is now a capitalist and employer. B has used up his earnings as he went along, and is now working for A. Has he any just right to insist that A shall forget the past, ignore its results, and take him in as an equal partner? This is substantially what all ask for who insist that labor shall have all it produces, without regard to the part which capital plays in production. It would not be just; there would be a radical and far-reaching wrong in rewarding improvidence and shiftlessness equally with risk and enterprise. To do this would be to outrage moral government, by which an action of any kind should be followed by its fitting sequence. The practical results of such a course could not be good. We must reiterate that if, in the event of giving all to labor, there were no immediate falling off in the amount of capital, such falling off would nevertheless soon come about through mistaken investment, since the shrewd and enterprising, into whose hands capital now usually falls, are precisely those who are best qualified to discover the fields in which investments may be made to the best advantage; for it is by the utilization of such fields that the greatest amount and variety of productions are had, and most is added to the general wealth of the civilized world. Profit and utility thus go along hand in hand. But the greatest loss from the indiscriminate reward of economical misdoing would be in the actual reduction of savings and diminution of capital.

Then, what is the economical function the rich man performs? He conserves the surplus of production, holding it in trust for the good of all, and without him there would be no civilization. The accumulator, the self-made rich man, usually expends only a percentage, often a small percentage, of his income, on his own gratifications. What he retains beyond this can not go to his own behoof, and, if it helps anybody to more of the goods of life, it must, as a rule, help others; and it is precisely this surplus, thus saved and used as the basis of every industrial and commercial enterprise, that makes him rich and keeps him rich. So bound up is he with the system of civilized methods that he can not add to his wealth by successful enterprise on the methods which legitimate business requires without helping others. The worthy rich man is, indeed, a self-exalted prince of civilization, who holds his wealth in trust for the maintenance and further advancement of that civilization. Surely he is entitled to our blessings rather than to our curses.

Still, when we see wealth in the hands of the worthless who live in idleness, but to exemplify the vanities of life, while many a one who is a useful member of society, with capabilities of still greater usefulness, is struggling in the battle of life with odds against him, we may impulsively curse the lottery that favors the one and dooms the other.

"It's hardly in a body's power

To keep, at times, frae being sour,
To see how things are shared;
How best o' chiels are whiles in want,
While coofs in countless thousands rant,

And ken na how to wair't."

But this is largely incidental, and is an illustration of the discordances which attend on the operation of general laws in the constitution of things. There is no getting rid of such discordances; they are an inevitable part of the system, and bound fast to the good. If we are blessed with the rain, we should not repine at the disorder in the elements which sometimes accompanies it.

But, while we are compelled to take this view of the economical function of wealth, let us not do it the injustice of drawing unwarranted inferences from it I do not lose sight of the fact that the advantages of the moneyed classes are not wholly those which accrue from the legitimate action of economical principles. These classes have always seen to it that the laws were made in their favor, thus securing for wealth and position additional leverage to make the rich richer and the poor poorer. The natural advantages which wealth gives them is not enough; they secure arbitrary privileges by legal enactment, and with these increase the distance between themselves and the masses of the people. And this is true, whether the people are the reputed rulers or not; only too often the innocent voter is unconsciously doing the political work which has been prepared for him by a dexterous hand which he does not see. I yield to none in utter execration of the unscrupulous devices whereby monopoly is "lawfully" armed to take from the substance of the people for its own aggrandizement.

In consequence of this very tendency to make a selfish and unjust use of power in government and society do the strong classes only too generally succeed in putting off labor with inadequate compensation. There is something else in life than mere money and the exuberant development of material prosperity. We could afford a little less of these, in order that the working-people might be richer in the substance of every-day life. But, when even liberal wages are not only consumed, but too often consumed in a way to injure the laborer, we see how difficult it is to hit upon the best practical thing to do. Too low wages is bad; and wages arbitrarily made extremely high would soon prove to be bad by cutting off the source from which wages are derived. I but state economical difficulties, and protest that they should not be made the occasion of unwarranted inferences.

Another point which, in this connection, I do not forget, concerns the shadows of wealth. There are certain forms of good which can not be had without wealth; but, when such wealth is secured, it brings with it certain forms of evil which have never yet been separated from the possession of wealth. But, if I attempt to show that the dreams of labor-reformers are impracticable in that they would soon reduce all to the same level of poverty, that attempt, in recognizing the economical conditions of plenty, is certainly not to be construed in support of the evils of wealth; for wealth is the very thing, whatever its drawbacks, without which civilization can not exist.

  1. From "Reforms: their Difficulties and Possibilities." New York: D. Appleton & Co., 1884.