Essentials of Economic Theory / As Applied to Modern Problems of Industry and Public Policy

by John Bates Clark

Why a Detachment of Laborers rather than One Man is treated as a Unit of Labor.—In making up the force of workers we might have treated each individual as a unit; but we have preferred to call a detachment a unit in order that the symmetry of the force might be preserved. Even though we were studying only a single mill it would have its departments, and it would be desirable that, when we enlarge the force of men, we should be able without difficulty to give to each part of the mill its fair share of the new laborers. If it were a shoe factory, we should need to add lasters, welters, sewers of uppers, etc., in a certain proportionate way, in order that one part of the mill might not get ahead of another and pile up unfinished products faster than they could be taken and completed.

In the last analysis the law applies to the industry of all society. The final unit in the case consists of shoemakers, cotton spinners, builders, foundrymen, miners, cultivators, etc., and of men of all subtrades included in the general callings. As the composite detachments come into the field, they apportion themselves among all the occupations that are represented, and that too in nicely adjusted proportions. We shall see in due time how this adjustment of the several shares of the social force of laborers is practically made.

The Law of Final Productivity Applicable to the Labor of Society.—The law of final productivity applies to every mill, shop, or mine separately considered. If its capital remains fixed in amount, units of labor produce less and less as they become more numerous. The product of any unit at any one time may be measured by taking it away and seeing how much the output of the establishment is reduced. The law, however, applies to all the mills, shops, mines, etc., considered as a social complex of working establishments. As the working society grows larger without growing richer in the aggregate, the power of labor to produce goods of all kinds grows less. At any one time this producing power is measured by taking away from every working establishment a number of its operatives and ascertaining how much less is produced after the withdrawal. Such a test on the social scale is never made consciously. Each employer can test in an approximate way the effect of reducing his own force, and the effect of gradually enlarging it, and there are influences at work which result in enlarging one industry when others are enlarged and in causing the final productivity of labor to be uniform in all. A shoe manufacturer can tell, in a general way, how much an extra man or two will be worth to him. It is possible to ascertain by experience about what number of shoes that additional labor will, in a year, add to the output of the shoe factory or the number of tons of steel it will add to the present annual output of a furnace. When these products vary in the case of different shops, the men are called to the points where the apparent additions are largest, and the constant tendency is toward a level of productive power. The building up of an imaginary force from the beginning presents, in a clear and emphatic way, the fact that the specific productivity of labor grows less as, other things remaining the same, workers become more numerous. We should know on a priori grounds that this must be the fact; but we can verify it by observation and statistical inquiry. Where men are numerous and land and tools are scarce, labor is comparatively unproductive; and it is highly productive where land and tools are plentiful. There is no doubt that crowding the world full of people, without providing the world with capital in a proportionate way, would impoverish everybody whose income depends on labor.

The Law of Wages.—Even though labor creates the amount ABDE, it is not yet perfectly clear that it will be able to get that amount. For aught we now know the entrepreneur may keep some of it, and for aught we know he may keep some of the quantity BCD which is distinctly the product of capital. Let us see whether he can in reality withhold any part of ABDE, which is the product of labor.

Wages under Perfect Competition.—In the static state that we have assumed, competition works without let or hindrance. It does not work thus in the actual world, and we shall in due time take account of the obstacles it encounters; but what we are now studying is the standards to which such competition as there is—and it is in reality very active—is tending to make wages conform. We want to know what would happen in case this competition encountered no hindrance at all. This would require that a workman should be able to set employers bidding against each other for his services just as actively as an employer can make laborers bid against each other in selling their services. If this were the case, every unit of labor could get what it produces, no more and no less. Even a single man, offering himself to one employer after another, would virtually carry in his hands a potential product for sale. His coming to any man's mill would mean more goods turned out in a year by the mill; and if one employer would not pay him for them at their market value, another one would. The final unit of social labor can get, under perfectly free competition, the value of whatever things that labor, considered apart from capital, brings into existence. Moreover, each unit of labor by itself alone now produces, as we have seen, the same amount of commodity as the final unit, and can get the price of it. Now that they are all working together each one of them can place itself in the position of the final unit by leaving its present employment and offering its services elsewhere.

Wages regarded as Prices of Fractional Products adjusted by Perfect Competition.—Under the hypothesis of perfect competition, as the term has been used in our discussion, the venders of goods can get their market values. These values are fixed by the final utility law. Free competition means, then, not only that any average laborer who offers himself for hire virtually carries in his hands a potential but definite product for sale, but that he may confidently offer it at the price that is fixed by its final utility. Like other venders, the laborer can get the true value of his product and he can get no more. In an ideally perfect society organized on the competitive plan a man would be as dependent on his own productive power as he would be if he were alone in a wilderness. His pay would be his product; but that would be indefinitely larger than it could be in a wilderness or in any primitive state. The capital of other men and the organization that they maintain enable a worker to create and get far more than he could if he lived alone, even though, like Crusoe, he were monarch of his whole environment. It would be a losing bargain for the worker to surrender the product of mere labor in a state of civilization in exchange for what both labor and capital create in a state of savagery.

FOOTNOTES

[1] The entrepreneur of A´ of our table must buy the A in order to impart to it that utility which is his own particular contribution. He pays as wages and interest all that he gets for this contribution. The true product of the entrepreneur is not the entire price of the A´, but is the difference between that and the price of the A. The entire amount received for the A´ resolves itself into wages, interest, and cost of A; but as a rule the price of A resolves itself practically into wages and interest only, and when it does so, all that is paid for the A´ ultimately takes these forms. The same is then true of the finished product A´´´. The entire price of it is ultimately resolvable into wages and interest; and in speaking of the product of an entire group we do not need to make any reservation for raw materials.

The case in which this statement requires qualification is that in which the material in its rawest state still has value, as is the case with ore and mineral oil contained in the earth but not a true part of land in the economic sense, since they are exhausted in the using. The price of a product into which these elements enter includes something that represents the value which they have in situ and before any labor has been expended on them. It is true even in these cases that the value of the product is measured in terms of wages and interest, provided that the exhaustible elements such as ore, oil, etc., are capable of being replenished, or provided that an effective substitute for them is in process of production by means of labor and capital. The natural raw material is then worth what the artificial substitute costs in terms of capital and labor, and the finished product which contains some of the natural material sells for the amount which the finished product costs, which is made altogether by labor and capital applied to valueless elements in nature.