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.