I. Wages for Labor
As with many another abuse of technical Economic terms, so colloquial and business interpretations have distorted the significance of the technical term Wages. Even Economic teachers allow their imaginations to glide away from the comprehensive significance of this technical term much as they do from its corresponding technical term Labor.
All too readily does conventional Economic thought, when considering Wages, center upon the compensation which “shirt-sleeve” classes of hired men bargain for, “salaries” taking the place of “wages” when “white collar” workers cross the business line of vision. Still more select levels of Labor are compensated with “fees,” “commissions,” or “profits.” To thinking students, however, students of Economics who recognize Economics as a science subject to natural law rather than a grouping of arbitrary business customs—to such students all special or mere conventional kinds of compensation for human service assemble themselves naturally in the same fundamental category, and for clarity of thought are always distinguished by the same technical term.
What the term for natural compensation out of human production for human service in aid of production might better be, is of no importance provided the term be treated distinctively. For Labor compensation out of Labor-produced Wealth, Wages if treated distinctively is an appropriate term, and its long time comprehensive use in Economics entitles it to preference. Wages, then, the technical term in Economic science for that natural allocation of some Wealth to Labor, which produces all Wealth, demands primary consideration in any study of the Economic phenomena of Wealth Distribution.
By natural Economic law all Wealth in Distribution goes to Wages as compensation to Labor, up to the point at which differences in the desirable qualities or locations (or both) of particular portions of Land disclose relatively high and low opportunities for Production. In those circumstances Wages for production on the superior Land would be higher—a larger product of Wealth—than for the same Labor-power expended on inferior Land. Consequently another natural law of Economics becomes manifest. Rent for superior Natural Resources arises. It is the difference between Labor productiveness on the poorest Land in use and the productiveness of equal Labor-power on better Land. Thus Rent has a place along with Wages in the primary Distribution of Wealth. This Economic phenomenon is to be more definitely described farther on. Meanwhile the phenomenon of Wages commands our principal attention.
So long as Land freely offers equal opportunities for Production, the category of Wages comprehends the whole product of Labor. It is only as variations in the desirability of particular kinds and locations of Land play a part in Production that Wages as a whole are distinguished from total product. In those circumstances, however, the Wages category embraces the entire Product less Rent for superior Land.
It is not to be inferred, though, that deductions for Rent necessarily reduce Wages as a quantity. In normal circumstances the fact is the reverse of that. Although Rent reduces the proportion of Wages to Wealth it does not necessarily reduce the aggregate of Wages. On the contrary, Wages may be more in quantity when normal Rent is deducted from aggregate Wealth than before Rent arises. The reason is that Rent takes of Wealth only a surplus which is measured by degrees of superiority of the better over the poorest Land in demand.
Subject, then, to normal in contradistinction to arbitrary deductions for Rent, the Wages allocation of Wealth is assignable to earners in the Labor category in shares approximately proportionate to the desirability of their respective services.
Subsidiary classifications of Wages are identified by more or less descriptive terms for colloquial convenience and private accounting purposes. Among these terms are “salaries,” “commissions,” “profits,” “fees,” “labor costs,” and “dividends.” All of them are doubtless convenient for keeping track of private business or other personal details; nor are they objectionable for Economic research provided they be not considered as primary or fundamental.
All such terms as “salaries,” “commissions,” “labor costs,” and the like in private or business accounts, are in the Wages category of Economics. “Profits” and “dividends” are mixed, very much as with reference to the Productive Process in private and business accounts Wealth and Land are mixed. “Profits” may be and they usually are made up of a mixture of Wages for human service (Labor) and of Rent for natural resources (Land). Convenient as such confused classifications may be for account-keeping in private business affairs, or for other manifestations of mere custom, they have no legitimate place in the orderly categories of social Economics. However useful in business accountings, which concern only the private interests of business proprietors, they are intolerable in the science of Economics, which concerns not only a proprietor, nor every proprietor, but all mankind.
Even for private accounting purposes there seems to be a wise tendency among accountants toward more accurate assignments to normal Economic categories. One business classification holds high Economic rank deservedly. This is that subcategory of Wages known as Interest. Interest may be rightly regarded as the Wages of Capital. This is no play upon words, nor any confusion of Economic terms. It is a necessary inference from manifest facts. Since Labor produces all Wealth, and Capital is a distinct form of Wealth—Wealth devoted to the production of further Wealth,—Labor is the producer of Capital; and inasmuch as the use productively of Capital increases Wealth, a share of that increase is properly assignable in Distribution to the Distributive category called Wages, though for discriminative purposes to a Wages subdivision. That subdivision is distinguished as Interest. It is a subdivision in Distribution in perfect correspondence with that subdivision of Wealth used in Production which is distinguished as Capital. As subdivisions or secondary classifications, therefore, the productive factor known as Capital and the corresponding Distributive element known as Interest are legitimate Economic categories, provided their Economic characteristic as products of Labor be not ignored nor they be confused with Land and Rent. This proviso is often ignored, however, as when Capital is classified with Land instead of Labor, and Interest with Rent instead of Wages.
In connection with the subject of Wages, Taxation for the support of Government demands passing consideration. If it be true, as indicated in our Lesson on the Productive Process, that the legitimate activities of Government belong in the Wealth production category as a Labor factor, then the Economically legitimate income of Government, whether through Taxation or otherwise, would seem to belong to the Distributive category of Wages.
Controversies over Taxation take the form primarily of “Taxation according to ability to pay” versus “Taxation according to financial benefits conferred” upon the taxpayer by the social whole of which the agent is Government.
The former contention—apportionment of Taxation according to ability to pay—puts Government in the position of a highwayman whose “loot” corresponds to so much of the proportionate property of his victims as he is able to extort. But how shall taxes be measured in proportion to governmental or social benefits received in financial form by the taxpayer? A sound Economic discrimination might be made by levying upon Rent only, instead of both Rent and Wages as is now customary.
But by what right could Government levy upon Rent only if its claims to an income are as a producer of Wealth functioning in the category of Labor, the natural compensation for which is not Rent but Wages? The answer would seem to be that inasmuch as all Wealth is produced by Labor from and upon Land, and as the Rent allocation of Wealth attaches to Land-ownership—Land itself making no claim to compensation,—Government might with Economic consistency exact its Wages as a factor in Production from the receivers, actual and potential, of Rent, whose ownership of the Land, valueless without Governmental protection, rises in Value with Economic progress and falls in Value with Economic decline.
Such an adjustment would exact no more of Economic science than appropriate alterations of the technical terms respectively for the two fundamental allocations of Wealth in Distribution. Instead of identifying one allocation as Wages and the other as Rent, the two could be identified respectively as Individual Wages and Social Wages. This mode of identification would in no wise disturb the natural characteristics of the two allocations into which the Wealth produced by Labor from and upon Land naturally distributes itself.
In that connection it may be useful to note the fact that Taxes on the Wages allocation of Wealth tend to check the production of Wealth. They interfere with Trade, that gigantic factor of Production, by thrusting the tax upon consumers as part of the Price—not only the tax, but also business profits on the tax. On the other hand, taxes upon Rent tend to check the Economic evil of speculation in Landownership and the consequent monopolization of Natural Resources unproductively.
Related to the problems thus suggested is the policy commonly and widely known as “the Single Tax,” the fiscal method proposed and widely popularized by Henry George for initiating and promoting an evolutionary process in the direction not only of ethical readjustments of fiscal methods but also of ethical readjustments of the Economic relations of mankind to Natural Resources and to Artificial Objects produced from and upon Natural Resources in accordance with natural Economic law.
That policy rests upon three Economic principles. One is the principle that Land (Natural Resources) is not an individual inheritance but is a common inheritance. Since no man or body of men ever has or ever can create Land, it is by edict of natural Economic law the inheritance of all that are living. But inasmuch as Land cannot be well utilized (such Natural Resources as the sea and other open waters excepted) unless subjected to private possession for farming, mining, manufacturing, merchandising and homes, or the like, private possession, control and management of areas of Land are an Economic necessity. To adapt that practical necessity, therefore, to the common right, the Single Tax policy proposes to make private possession secure without prejudice to common ownership, by the assignment annually, through taxation, of the annual Economic Rent or Value of all Natural Resources to Governmental treasuries by way of annual compensation to the community for the annual values which the community gives to that Land. Concurrently the Single Tax policy would exempt Artificial Products and their producers from all taxation, on the principle that Artificial Products (Wealth) are the private property of their producers and purchasers.
The contention of “Single Taxers” is that such a policy would place Taxation upon a sound and ethical basis; that it would secure to utilizers of particular Natural Resources the full value of their use; that it would properly take from them for the benefit of all, the value of their monopoly of possession of common property; that it would stabilize the value of monopolized but unused Natural Resources (Land) at the level of their value for use, thereby abolishing speculation in the future values of Natural Resources; that it would open opportunities for Labor in its broadest and fullest sense to utilize Natural Resources in the production of Wealth (Artificial Objects) from Land (Natural Resources); that it would remove the artificial and lessen the natural barriers to Trade; and that it would bring about conditions of industrial freedom and equality on the basis of which every other needed social or Economic reform could rest securely and function effectively.
As the practical approach to that fundamental Economic reform—that reform of which its principal and distinguished advocate, Henry George, said that it would not accomplish everything in the way of Economic adjustment, but that without it nothing could be accomplished, for without it every Economic improvement instead of raising Wages raises Rent, instead of increasing the compensation of producers of Artificial Objects increases the values of the Natural Resources from which alone Artificial Objects can be produced and on which alone they can be traded, used or enjoyed—as the practical approach to that fundamental Economic reform the Single Tax policy proposes its application gradually. It aims to substitute by stages the Taxation of Land according to its value as a commodity, for the present unrighteous and obstructive taxation of the actual uses of Land.[6]
[6] See “Progress and Poverty,” “Protection or Free Trade,” and “Social Problems,” by Henry George, and “What Is the Single Tax?” by Louis F. Post.
Irrespective, however, of Taxation problems or of private versus common rights, and retaining the long-time technical terms for primary Distribution of Wealth—Wages as to Wealth not allocated to Landownership, and Rent as to Wealth so allocated—we may proceed to our study of Rent for Landownership as the secondary allocation of Wealth in Economic Distribution.