II. Exchange-Equivalence Theories
According to these theories, the determining factor of wage justice is to be found in the wage contract. The basic idea is the idea of equality, inasmuch as equality is the fundamental element in the concept of justice. The principle of justice requires that equality should be maintained between what is owed to a person and what is returned to him, between the kinds of treatment accorded to different persons in the same circumstances. Similarly it requires that equality should obtain between the things that are exchanged in onerous contracts. An onerous contract is one in which both parties undergo some privation, and neither intends to confer a gratuity upon the other. Each exchanger desires to obtain the full equivalent of the thing that he transfers. Since each is equal in personal dignity an intrinsic worth to the other, each has a strict right to this full equivalent. Owing to the essential moral equality of all men, no man has a right to make of another a mere instrument to his own interests through physical force or through an onerous contract. Men have equal rights not only to subsist upon the earth, but to receive benefits from the exchange of goods.
The Rule of Equal Gains
The agreement between employer and employé is an onerous contract; hence it ought to be made in such terms that the things exchanged will be equal, that the remuneration will be equal to the labour. How can this equivalence be determined and ascertained? Not by a direct comparison of the two objects, work and pay, for their differences render them obviously incommensurable. Some third term, or standard, of comparison is required in which both objects can find expression. One such standard is individual net advantage. Inasmuch as the aim of the labour contract is reciprocal gain, it is natural to infer that the gains ought to be equal for the two parties. Net gain is ascertained by deducting in each case the utility transferred from the utility received; in other words, by deducting the privation from the gross return. The good received by the employer when diminished by or weighed against the amount that he pays in wages should be equal to the good received by the labourer when diminished by or weighed against the inconvenience that he undergoes through the expenditure of his time and energy. Hence the contract should bring to employer and employé equal amounts of net advantage or satisfaction.
Plausible as this rule may appear, it is impracticable, inequitable, and unjust. In the vast majority of labour contracts it is impossible to know whether both parties obtain the same quantity of net advantage. The gains of the employer can, indeed, be frequently measured in terms of money, being the difference between the wages paid to and the specific product turned out by the labourer. In the case of the labourer no such process of deduction is possible; for advantage and expenditure are incommensurable. We cannot subtract the labourer's privation, that is, his expenditure of time and energy, from his gross advantage, that is, his wages. How can we know or measure the net benefit obtained by a man who shovels sand ten hours for a wage of two dollars? How can we deduct his pain-cost from or weigh it against his compensation?
So far as the two sets of advantages are comparable at all, those of the employé would seem to be always greater than those of the employer. A wage of seventy-five cents a day enables the labourer to satisfy the most important wants of life. Weighed against this gross advantage, his pain-cost of toil is relatively insignificant. His net advantage is the greatest that a man can enjoy, the continuation of his existence. The net advantage received by the employer from such a wage contract is but a few cents, the equivalent of a cigar or two. Even if the wage be raised to the highest level yet reached by any wage earner, the net advantage to the labourer, namely, his livelihood, will be greater than the net advantage to the employer from that single contract. Moreover, the sum total of an employer's gains from all his labour contracts is less quantitatively than the sum total of the gains obtained by all his employés. The latter gains provide for many livelihoods, the former for only one. Again, no general rate of wages could be devised which would enable all the members of a labour group to gain equally. Differences in health, strength, and intelligence would cause differences in the pain-cost involved in a given amount of labour; while differences in desires, standards of living, and skill in spending would bring about differences in the satisfactions derived from the same compensation. Finally, various employers would obtain various money gains from the same wage outlay, and various advantages from the same money gains. Hence if the rule of equality of net advantages were practicable it would be inequitable.
It is also fundamentally unjust because it ignores the moral claims of needs, efforts, and sacrifices as regards the labourer. As we have seen in the chapter on profits in competitive conditions, and as we shall have occasion to recognise again in a later chapter, no canon or scheme of distributive justice is acceptable that does not give adequate consideration to these fundamental attributes of human personality.
The Rule of Free Contract
Another form of the exchange equivalence theory would disregard the problem of equality of gains, and assume that justice is realised whenever the contract is free from force or fraud. In such circumstances both parties gain something, and presumably are satisfied; otherwise, they would not enter the contract. Probably the majority of employers regard this rule as the only available measure of practicable justice. The majority of economists likewise subscribed to it during the first half of the nineteenth century. In the words of Henry Sidgwick, "the teaching of the political economists pointed to the conclusion that a free exchange, without fraud or coercion, is also a fair exchange."[215] Apparently the economists based this teaching on the assumption that competition was free and general among both labourers and employers. In other words, the rule as understood by them was probably identical with the rule of the market rate, which we shall examine presently. It is not at all likely that the economists here referred to would have given their moral approval to those "free" contracts in which the employer pays starvation wages because he takes advantage of the ignorance of the labourer, or because he exercises the power of monopoly.
No matter by whom it is or has been held, the rule of free contract is unjust. In the first place, many labour contracts are not free in any genuine sense. When a labourer is compelled by dire necessity to accept a wage that is insufficient for a decent livelihood, his consent to the contract is free only in a limited and relative way. It is what the moralists call "voluntarium imperfectum." It is vitiated to a substantial extent by the element of fear, by the apprehension of a cruelly evil alternative. The labourer does not agree to this wage because he prefers it to any other, but merely because he prefers it to unemployment, hunger, and starvation. The agreement to which he submits in these circumstances is no more free than the contract by which the helpless wayfarer gives up his purse to escape the pistol of the robber. While the latter action is free in the sense that it is chosen in preference to a violent death, it does not mean that the wayfarer gives, or intends to give, the robber the right of ownership in the purse. Neither should the labourer who from fear of a worse evil enters a contract to work for starvation wages, be regarded as transferring to the employer the full moral right to the services which he agrees to render. Like the wayfarer, he merely submits to superior force. The fact that the force imposed upon him is economic instead of physical does not affect the morality of the transaction.
To put the matter in another way, the equality which justice requires is wanting in an oppressive labour contract because of the inequality existing between the contracting parties. In the words of Professor Ely: "Free contract supposes equals behind the contract in order that it may produce equality."[216]
Again, the rule of free contract is unjust because it takes no account of the moral claims of needs. A man whose only source of livelihood is his labour does wrong if he accepts a starvation wage willingly. Such a contract, however free, is not according to justice because it disregards the requirements of reasonable life. No man has a right to do this, any more than he has a right to perpetrate self mutilation or suicide.
The Rule of Market Value
A third method of interpreting exchange equivalence is based upon the concept of value. Labour and compensation are thought to be equal when the value of one is equal to the value of the other. Then the contract is just and the compensation is just. The only objection to these propositions is that they are mere truisms. What does value mean, and how is it to be determined? If it is to receive an ethical signification; if the value of labour is to be understood as denoting not merely the value that labour will command in a market, but the value that labour ought to have,—the statement that wages should equal the value of labour becomes merely an identical proposition. All that it tells us is that wages ought to be what they ought to be.
In its simplest economic sense value denotes purchasing power, or importance in exchange. As such, it may be either individual or social; that is, it may mean the exchange importance attributed to a commodity by an individual, or that attributed by a social group. In a competitive society social value is formed through the higgling of the market, and is expressed in market price.
Now individual value is utterly impracticable as a measure of exchange equivalence in the wage contract. Since the value attributed to labour by the employer differs in the great majority of instances from that estimated by the labourer himself, it is impossible to determine which is the true value, and the proper measure of just wages.
The doctrine that the social value or market price of labour is also the ethical value or just price, is sometimes called the classical theory, inasmuch as it was held, at least implicitly, by the majority of the early economists of both France and England.[217] Under competitive conditions, said the Physiocrats, the price of labour as of all other things corresponds to the cost of production; that is, to the cost of subsistence for the labourer and his family. This is the natural law of wages, and being natural it is also just. Adam Smith likewise declared that competitive wages were natural wages, but he refrained from the explicit assertion that they were just wages. Nevertheless his abiding and oft-expressed faith in the theory that men's powers were substantially equal, and in the social beneficence of free competition, implied that conclusion. Although the great majority of his followers denied that economics had moral aspects, and sometimes asserted that there was no such thing as just or unjust wages, their teaching tended to convey the thought that competitively fixed wages were more or less in accordance with justice. As noted above, their belief in the efficacy of competition led them to the inference that a free contract is also a fair contract. By a free contract they meant for the most part one that is made in the open market, that is governed by the forces of supply and demand, and that, consequently, expresses the social economic value of the things exchanged.
All the objections that have been brought against the rule of the prevailing rate apply even more strongly to the doctrine of the market rate. The former takes as a standard the scale of wages most frequently paid in the market, while the latter approves any scale that obtains in any group of labourers or section of the market. Both accept as the ultimate determinant of wage justice the preponderance of economic force. Neither gives any consideration to the moral claims of needs, efforts, or sacrifices. Unless we are to identify justice with power, might with right, we must regard these objections as irrefutable, and the market value doctrine as untenable.
The Mediæval Theory
Another exchange-equivalence theory which turns upon the concept of value is that found in the pages of the mediæval canonists and theologians. But it interprets value in a different sense from that which we have just considered. As the measure of exchange equivalence the mediæval theory takes objective value, or true value. However, the proponents of this view did not formally apply it to wage contracts, nor did they discuss systematically the question of just wages. They were not called upon to do this; for they were not confronted by any considerable class of wage earners. In the country the number of persons who got their living exclusively as employés was extremely small, while in the towns the working class was composed of independent producers who sold their wares instead of their labour.[218] The question of fair compensation for the town workers was, therefore, the question of a fair price for their products. The latter question was discussed by the mediæval writers formally, and in great detail. Things exchanged should have equal values, and commodities should always sell for the equivalent of their values. By what rule was equality to be measured and value determined? Not by the subjective appreciations of the exchangers, for these would sometimes sanction the most flagrant extortion. Were no other help available, the starving man would give all he possessed for a loaf of bread. The unscrupulous speculator could monopolise the supply of foodstuffs, and give them an exorbitantly high value which purchasers would accept and pay for rather than go hungry. Hence we find the mediæval writers seeking a standard of objective value which should attach to the commodity itself, not to the varying opinions of buyers and sellers.
In the thirteenth century Albertus Magnus[219] and Thomas Aquinas[220] declared that the proper standard was to be found in labour. A house is worth as many shoes as the labour embodied in the latter is contained in the labour embodied in the former. It is worthy of note that the diagram which Albertus Magnus presents to illustrate this formula of value and exchange had been used centuries before by Aristotle. It is likewise noteworthy that this conception of ethical value bears a striking resemblance to the theory of economic value upheld by Marxian Socialists. However, neither Aristotle nor the Schoolmen asserted that all kinds of labour had equal value.
Now this mediæval labour-measure of value could be readily applied only to cases of barter, and even then only when the value of different kinds of labour had already been determined by some other standard. Accordingly we find the mediæval writers expounding and defending a more general interpretation of objective or true value.
This was the concept of normal value; that is, the average or medium amount of utility attributed to goods in the average conditions of life and exchange. On the one hand, it avoided the excesses and the arbitrariness of individual estimates; on the other hand, it did not attribute to value the characters of immutability and rigidity. Contrary to the assumptions of some modern writers, the Schoolmen never said that value was something as fixedly inherent in goods as physical and chemical qualities. When they spoke of "intrinsic" value, they had in mind merely the constant capacity of certain commodities to satisfy human wants. Even to-day bread has always the intrinsic potency of alleviating hunger, regardless of all the fluctuations of human appraisement. The objectivity that the mediæval writers ascribed to value was relative. It assumed normal conditions as against exceptional conditions. To say that value was objective merely meant that it was not wholly determined by the interplay of supply and demand, but was based upon the stable and universally recognised use-qualities of commodities in a society where desires, needs, and tastes were simple and fairly constant from one generation to another.
How or where was this relatively objective value of goods to find concrete expression? In the "communis aestimatio," or social estimate, declared the canonists. Objective value and just price would be ascertained practically through the judgment of upright and competent men, or preferably through legally fixed prices. But neither the social estimate nor the ordinances of lawmakers were authorised to determine values and prices arbitrarily. They were obliged to take into account certain objective factors. In the thirteenth and fourteenth centuries, the factors universally recognised as determinative were the utility or use-qualities of goods, but especially their cost of production. Later on, in the sixteenth and seventeenth centuries, risk and scarcity were given considerable prominence as value determinants. Now cost of production in the Middle Ages was mainly labour cost; hence the standard of value was chiefly a labour standard. Moreover, this labour doctrine of true value and equality in exchanges was strongly reinforced by another mediæval principle, according to which labour was the supreme if not the only just title to rewards.
How was labour cost to be measured, and the different kinds of labour evaluated? By the necessary and customary expenditures of the class to which the labourer belonged. Mediæval society was composed of a few definite, easily recognised, and relatively fixed orders or grades, each of which had its own function in the social hierarchy, its own standard of living, and its moral right to a livelihood in accordance with that standard. Like the members of the other orders, the labourers were conceived as entitled to live in conformity with their customary class-requirements. From this it followed that the needs of the labourer became the main determinant of the cost of production, and of the value and just price of goods. Inasmuch as the standards of living of the various divisions of the workers were fixed by custom, and limited by the restricted possibilities of the time, they afforded a fairly definite measure of value and price,—much more definite than the standard of general utility. To Langenstein, vice chancellor of the University of Paris in the latter half of the fourteenth century, the matter seemed quite simple; for he declared that every one could determine for himself the just price of his wares by referring to the customary needs of his rank of life.[221]
Nevertheless, class needs are not and cannot be a standard of exchange-equivalence. They cannot become a criterion of equality, a common denominator, a third term of comparison, between labour and wages. When we say that a given amount of wages is equal to a given content of livelihood, we express a purely economic, positive, and mathematical relation: when we say that a given amount of labour is equal to a given content of livelihood, we are either talking nonsense or expressing a purely ethical relation; that is, declaring that this labour ought to equal this livelihood. In other words, we are introducing a fourth term of comparison; namely, the moral worth or personal dignity of the labourer. Thus, we have not a single and common standard to measure both labour and wages, and to indicate a relation of equality between them. While class needs directly measure wages, they do not measure labour, either quantitatively, or qualitatively, or under any other aspect or category.
Aside from this purely theoretical defect, the canonist doctrine of wage justice was fairly satisfactory as applied to the conditions of the Middle Ages. It assured to the labourer of that day a certain rude comfort, and probably as large a proportion of the product of industry as was practically attainable. Nevertheless it is not a universally valid criterion of justice in the matter of wages; for it makes no provision for those labourers who deserve a wage in excess of the cost of living of their class; nor does it furnish a principle by which a whole class of workers can justify their advance to a higher standard of living. It is not sufficiently elastic and dynamic.
A Modern Variation of the Mediæval Theory
In spite of its fundamental impossibility, the concept of exchange-equivalence still haunts the minds of certain Catholic writers.[222] They still strive to get a formula to express equality between labour and remuneration. Perhaps the best known and least vulnerable of the attempts made along this line is that defended by Charles Antoine, S.J.[223] Justice, he declares, demands an objective equivalence between wages and labour; and objective equivalence is determined and measured by two factors. The remote factor is the cost of decent living for the labourer; the proximate factor is the economic value of his labour. The former describes the minimum to which the worker is entitled; the latter comprises perfect and adequate justice. In case of conflict between the two factors, the first is determinative of and morally superior to the second; that is to say, no matter how small the economic value of labour may seem to be, it never can descend below the requisites of a decent livelihood.
Now, neither of these standards is in harmony with the principle of exchange-equivalence, nor capable of serving as a satisfactory criterion of wage justice. Father Antoine argues that labour is always the moral equivalent of a decent livelihood because the worker expends his energies, and gives out a part of his life in the service of his employer. Unless his wage enables the labourer to replace these energies and conserve his life, it is not the equivalent of the service. If the wage falls short of this standard the labourer gives more than he receives, and the contract is essentially unjust. In this conception of equivalence, energy expended, instead of cost of living, becomes the term of comparison and the common measure of labour and remuneration. Energy expended is, however, technically incapable of providing such a common standard; for it does not measure both related terms in the same way. The service rendered to the employer is the effect rather than the equivalent of the energy expended; and the compensation is a means to the replacement of this energy rather than its formal equivalent. Moreover, the formula does not even furnish an adequate rational basis for the claim to a decent minimum wage. A wage which is merely adequate to the replacement of expended energy and the maintenance of life, is really inadequate to a decent livelihood. Such compensation would cover only physical health and strength, leaving nothing for intellectual, spiritual, and moral needs. As Father Antoine himself admits and contends, the latter needs are among the elements of a decent livelihood, and a wage which does not make reasonable provision for them fails to comply with the minimum requirements of justice.
The second factor of "objective equivalence" is even more questionable than the first. To be completely just, says Father Antoine, wages must be not merely adequate to a decent livelihood, but equivalent to the "economic value of the labour" ("la valeur économique du travail"). This "economic value" is determined objectively by the cost of production, the utility of the product, and the movement of supply and demand; subjectively, by the judgment of employers and employés. In case of conflict between these two measures of value, and in case of uncertainty concerning the objective measure, the decision of the subjective determinant must always prevail.
These statements are hopelessly ambiguous and confusing. If the objective measure of "economic value" is to be understood in a purely positive way, it merely means the wages that actually obtain in a competitive market. In the purely positive or economic sense, the utility of labour is measured by what it will command in the market, the movement of supply and demand is likewise reflected in market wages, and the determining effect of cost of production is also seen in the share that the market awards to labour after the other factors of production have taken their portions of the product. In other words, the "economic value" of labour is simply its market value. This, however, is not Father Antoine's meaning; for he has already declared that the "economic value" of labour is never less than the equivalent of a decent livelihood, whereas we know that the market value often falls below that level. In his mind, therefore, "economic value" has an ethical signification. It indicates at least the requisites of decent living, and it embraces more than this in some cases. When? and how much more? Let us suppose a business so prosperous that it returns liberal profits to the employer and the prevailing rate of interest on the capital, and yet shows a surplus sufficient to give all the labourers ten dollars a day. Is "cost of production" to be interpreted here as allowing only the normal rate of profits and interest to the business man and the capitalist, leaving the residue to labour? Or is it to be understood as requiring that the surplus be divided among the three agents of production? In other words, is the "economic value" of labour in such cases to be determined by some ethical principle which tells beforehand how much the other agents than labour ought to receive? If so, what is this principle or formula?
None of these questions is satisfactorily answered in Father Antoine's pages. They are all to be solved by having recourse to the subjective determinant of "economic value"; namely, the judgment of employers and employés. Thus his proximate factor of justice in wages, his formula of complete as against minimum just wages, turns out to be something entirely subjective, and more or less arbitrary. It is in no sense a measure of the equivalence between work and pay.
Moreover, it is inadequate as a measure of justice. Should the majority of both employers and employés fix the "economic value" of the labour of carpenters at five dollars a day, there would be no certainty that this decision was correct, and that this figure represented just wages. Should they determine upon a rate of fifty dollars a day, we could not be sure that their decision was unjust. Undoubtedly the combined judgment of employers and employés will set a fairer wage than one fixed by either party alone, since it will be less one-sided; but there is no sufficient reason for concluding that it will be in all cases completely just. Undoubtedly employers and employés know what wages an industry can afford at prevailing prices, on the assumption that business ability and capital are to have a certain rate of return; but there is no certainty that the prevailing prices are fair, or that the assumed rates of profits and interest are fair. In a word, the device is too arbitrary.
To sum up the entire discussion of exchange-equivalence theories: Their underlying concept is fundamentally unsound and impracticable. All of them involve an attempt to compare two entities which are utterly incommensurate. There exists no third term, or standard, or objective fact, which will inform men whether any rate of wages is the equivalent of any quantity of labour.