Chapter XVIII. Wages And Profits.
Wages distinguished from profits.—In discussing the subject of wages and profits, it is necessary to remember that both are compensation in different ways for actual exertion. If in estimating profits we sometimes include a return for the use of capital, it is from incomplete analysis of the forces in use, since the interest upon capital can easily be separated in all actual practice, and in most enterprises is counted as a distinct expense to be provided for in entering upon the undertaking. The profits really belong to the management of any undertaking, as return for the exertion in that management. In every-day use the term wages is applied only to the stipulated amount paid from time to time for services rendered to another. There is practically no difference between such payments made for service by the hour, day, week, month or year. If, however, the engagement for service is by the year, the name salary is more likely to be given than wages.
Further, the term wages is most distinctly applied when the service is rendered as a task, and wage-earners when found in considerable bodies are usually called operatives, under the natural classification of labor explained and illustrated in Chapter [III] (page [35]).
The services of an overseer are much more likely to be permanently required, and his wages are therefore called a salary, estimated by the year even though payments be made monthly or even weekly. In this case, the labor is chiefly executive, taking a higher rank because of the greater powers required. In this case the overseer is supposed to have definite plans provided for his work, and to carry out those plans to the best of his ability.
If, in contrast with this, one's efforts are given to managing a business, devising the ends to be accomplished as well as planning for their accomplishment, he is said to have entire responsibility for results and to receive what he can make out of the business. His exertion is chiefly speculative labor, and the returns for his speculation or foresight—often effort of the severest kind—are termed profits. Such efforts have already been illustrated in Chapter [III], page [35]. No generally accepted name has been given to the one who thus carries the entire responsibility of the business, but the word manager conveys to most people the general idea involved. While it is true that a manager may sometimes work for a salary, in general the very inventive ability required for success makes the stimulant of profits the most natural means of securing higher effectiveness. Most managers, even of stock companies, must from the nature of the case be at least sharers in the profits. Farmers easily distinguish between those who work for stipulated wages, often called farm hands, and the farmer himself, who gets the pay for all his endless variety of labor, including his constant planning, in the shape of profits.
Wages defined.—Hence it is fair to define wages as a stipulated sum, paid at stipulated times, for stipulated services, measured either by the number of distinct services or by the time of service. A wage-earner must therefore be one who sells his powers, whatever they may be, for the use of another, bringing his own services rather than the products of those services to the best market he can find. In general, he prefers the definite promise of another to the indefinite chances that he may produce what is to be wanted in the future market. Very often he considers the bird in the hand worth any number in the bush, and is satisfied to take a certain living from day to day rather than risk his ability by his own contrivance to meet larger wants. Among the wage-earners we necessarily find all individuals of undeveloped powers of body or mind, dependent upon the rest of the community for both tools and task; also all who render personal services, and most of the laborers of all sorts in every kind of factory.
Profits defined.—Profits may be defined as the indefinite returns for exertion, including all risks, which any manager of his own or others' industry secures by bringing his products into open market. In general the term includes the recompense for any kind of labor, however rendered, if the uncertainty of demand and supply belongs to the one who renders the service. Thus even the fees of a lawyer or a doctor come under the general principles of profits, whenever the conditions of payment in any respect depend upon success. If, on the other hand, such fees are stipulated sums for a stated service, they fall into the rank of wages. That [pg 242] the dividing line between wages and profits is not always clear is shown in comparing payment by the piece in manufacturing clothing, for instance, and payment by the hour for the same kind of work. In the payment by the piece, the stimulant of enterprise borders upon the nature of profits. In payment by the hour, that stimulant is wanting. Yet we are likely to consider the difference as simply a difference in method of estimating wages. Two men ditching side by side may work, one by the day and the other by the rod.
It is possible even to combine the two systems of payment so as to involve both wages and profits. Farm hands in England have been paid a certain price per month, with a share in the profits, measured by the number of cart-loads of grain marketed. Clerks and agents frequently work for stipulated wages, with an added percentage upon the value of sales. Most farmers in estimating the results of a year's labor count their own services, at the price of a hand, as a part of the cost of their products, and distinguish as profits the surplus of product above all expenditures. Thus a farmer may estimate as outgo the interest on capital invested, the wear and tear of machinery, the produce consumed upon the farm, the taxes paid to the government, and the wages to all who labor, including himself and his family. Any return from his products beyond enough to meet these outgoes he will consider profits. These will reward him for extra foresight and contrivance in management and marketing, as well as risk arising from possibility of failure in his plans, destruction of his crop or stock, fluctuations in price, and uncertainty [pg 243] of collection for his sales. Such risks and exertions every independent worker assumes. Usually the exertions are impossible to the inexperienced, and the risks cannot be taken without accumulated capital or a credit established upon well-known character and ability. This fact naturally limits the number of competitors for profits. The effect is clearly illustrated in the difference between an ordinary farm hand and the renter of a farm. Few farmers would encourage the best of their farm hands to take the burden of risks and care implied in renting. The successful farm renter requires abilities and means, gained only by experience and accumulation.