Earning capacity

“ The demand for labor, as for every other commodity, depends, on the one hand, on the value in use of it, and on the other, on the purchaser's capacity to pay for it (his solvability) , These two elements determine the maximum limit of wages, as [Pg 52] the means of support considered indispensable by the workmen determine the minimum. There are circumstances conceivable under which the rise in wages might entirely eat up rents; but there must always be a portion of the national income reserved to reward capital (its profit) . ”

“ The conditions, indeed, of mobility of capital and labour, which are necessary to justify the assumption of a correspondence between the effort and expenditure of different employments and their rewards, require to be carefully interpreted; and it is not necessary that every individual labourer and employer, and every particular portion of capital, should exhibit the capacity to move from the less to the more advantageous occupation. ”

“ Government and business and industry are in duty bound, within the limits of their financial capacity, to increase the earnings of their laborers and low-salaried employees, at least, while the cost of living remains high. ”

“ The product to be distributed would be greater, and wage incomes would rise. A similar result would ensue if the magic formula of the expert endowed all workingmen with greater skill and energy. Any addition to or subtraction from the capacity of any agent of production tends to affect not only its own income, but that of all claimants. ”

“ In the other, the wage earner is viewed primarily as a member of an occupational group or class, whose wages should be regulated by the standard of life of his group or class, rather than by strict measurement 142 of his own individual capacity. ”

“ It brings the living wage determination into direct relation with—or makes it relative to—the productive capacity of the industrial system at the time and place in question. For a study of the standard of life of the wage earners and the middle classes of the community is of great assistance in indicating the standard of life to which it may be possible to raise even the worst paid industrial groups, by those adjustments in production and distribution which it is the object of a living wage policy to produce. ”

“ If the productive organization has at its command a plentiful supply of capital; if in the community there are many men possessed of a high order of business ability; if then, 55 labor for the commoner tasks of production is relatively scarce, the work of the ordinary wage earner will be a means of adding considerably to the total of market values produced. Or, as it is sometimes put, each use of labor will be an important use. Labor will be in great demand, and wages will be high. ”

“ Within competing groups, where there is free choice for labor and capital to select the most remunerative occupations, the hardest and most disagreeable employments will be best paid, and the wages and profits will be in proportion to the sacrifice involved in each case. If so, the amount paid in wages and profits represents the sacrifices in each case. [pg 270] Now, the aggregate product of an industry is the source from which is drawn its wages and profits: the aggregate wages and profits, therefore, must vary with the value of the total product. ”

“ If the numbers in any group of wage earners are high relative to the uses in which the employment of the members of that group results in a considerable addition to the product of market values, the wages of that group will be low, and vice versa. The need of the productive system for any kind of labor, relative to the supply available to fill that need is an important factor in determining the reward paid for that labor. ”

“ It is not merely the wage scale that must be kept up but the amount of wages that a worker receives over the course of a year. This is only another way of saying that what we need, fundamentally, is a broader distribution of the profits of industry. ”

“ There is, therefore, in the politico-economic sense of the term wages no distinction as to the kind of labour, or as to whether its reward is received through an employer or not. Wages means the return received for the exertion of labour, as distinguished from the return received for the use of capital, and the return received by the landholder for the use of land.
The man who cultivates the soil for himself receives his wages in its produce, just as, if he uses his own capital and owns his own land, he may also receive interest and rent. ”

“ 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. ”

“ For, it is to be anticipated, that in the course of the development of our industrial organization, the amount of invested capital relative to the number of wage earners will grow. This means that the absolute amount of the product of industry which takes the form of profits will increase, even if the relative share does not. As Professor Taussig has written, "In general, the very forces which make the total income of society high and the general rate of wages high cause the proportion of income which forms return on capital to be large." ”

“ From England, and from American towns here and there, we hear stories of the wage-earner on whom increasing income has had the effect of lessening the effort to work; who stops during the week when the higher wage scale has paid him the amount he is accustomed to regard as a week's earnings. Now, would it not seem natural to expect that any man encountering improved market conditions for his output, whether of commodity or service, would seek to turn the situation to advantage by increasing that output as largely as lay in his power? ”

“ Thus we see, that with every rise of wages, in proportion as the capital employed in any occupation consists of circulating capital, its produce will be of greater relative value than the goods produced in another occupation, where a less proportion of circulating, and a greater proportion of fixed capital are employed. ”

“ As an applied doctrine, the doctrine of the unity of wage income and of the wage earners means that the same wage should be paid throughout industry for work which requires approximately the same human qualities, and which makes approximately the same demands upon the individual. The common effort involved in production is emphasized, rather than the differences between the work performed by workers in different parts of the field of production. ”

“ It has taken a largely increasing share of the national income, which of course has been at the expense of other classes of people. This is true of every industry wherein the index of wages is higher than the general economic index unless there has been an offsetting increase in the efficiency of the labor. ”

“ For, upon the assumption that wages are drawn directly from capital, and not from the product of labour, is based, not only the doctrine that wages depend upon the ratio between capital and labour, but the doctrine that industry is limited by capital - that capital must be accumulated before labour is employed, and labour cannot be employed except as capital is accumulated ”

“ That argument is that it will prove impossible to maintain uniform standard wage rates throughout an industry in which the various enterprises are distributed over a wide area; in the several parts of which area the cost of living, the general conditions of labor, and the demand and supply situation for labor differ considerably. ”

“ It cannot be too strongly emphasized that high rates of wages do not necessarily mean high earnings—they frequently mean no earnings and no work. Increasing the productive efficiency of labour does increase the ability of industry to pay. ”

“ Or between two employments, interest and risk remaining the same, wages of superintendence sometimes produce a wide difference. The portion, too, of the gross profit, which forms the remuneration for the labor and skill of the dealer or producer, is very different in different employments. This is the explanation always given of the extraordinary rate of apothecaries' profit. There are cases, again, in which a considerable amount of labor and skill is required to conduct a business necessarily of limited extent. ”

“ The remuneration of capital in different employments, much more than the remuneration of labor, varies according to the circumstances which render one employment more attractive or more repulsive than another. The profits, for example, of retail trade, in proportion to the capital employed, exceed those of wholesale dealers or manufacturers, for this reason among others, that there is less consideration attached to the employment. ”

“ There ought normally to be a gradual increase in the proportion of the national income accruing to labor, for as production increases by virtue of improvements in methods, the share of capital being limited by competition, there becomes available a greater dividend for the wage earners ”

“ We have seen that the current theory that wages depend upon the ratio between the number of laborers and the amount of capital devoted to the employment of labor is inconsistent with the general fact that wages and interest do not rise and fall inversely, but conjointly. ”

“ As has already been suggested, the efficiency of the wage earners plays a part in determining their field of employment in this competition for employment.
Secondly, the simpler statements of the action of the factor of relative plenty and scarcity, such as are represented by the marginal diagrammatic expositions familiar in economics, obscure the fact that distribution is a process in which human wills are actively engaged. The constant assertion of will is a real force in the working out of distribution. ”

“ This conception of a standard of life, though fluctuating, is a relatively fixed thing in the flux of forces determining distribution. The workman, by combination tacit or explicit, fixes it and his employer adjusts production to it. The employer will do all in his power, usually with success, to secure an increase in output in return for every increase of wages, and where the local standard compels him to pay higher wages than his competitor in 60 other districts to extract an amount of work correspondingly greater. ”

“ The fall in price may or may not lead to rapid increase in the demand for the product of the group sufficiently great to give employment to all its members, or increased employment; although that result has usually appeared in the long run also.
The fundamental fact is that the demand for the product of labor is ordinarily subject to indefinite increase. If labor is economized in one direction, the power dispensed with will be utilized in another direction. The community income of economic goods is a flow. ”

“ When this leveling has taken place in both cases, the all-around marginal product of labor fixes the rate of wages, and that of capital fixes the rate of interest. What a man creates on the good land and with the adequate capital, or on poor land with proportionate capital,—in any occupation on land of either grade,—determines the pay that he and other men can get. It constitutes in itself the wages of labor. ”

“ Wages, therefore—for, though there is neither employer nor employed, there are yet wages—will be the full produce of labor, and, making allowance for the difference of agreeableness, risk, etc., in the three pursuits, they will be on the average equal in each—that is to say, equal exertions will yield equal results. Now, if one of their number wishes to employ some of his fellows to work for him instead of for themselves, he must pay wages fixed by this full, average produce of labor. ”

“ They are paid with the residue of production after the service of land and capital are requited. The wage-earner's assurance, he says, of receiving the approximate value of his product rests solely upon the effectiveness of competition among employers. His wage is, however, guaranteed from falling very low by his own power of producing directly for the market. ”

“ The Effect of Changes in the Relative Amounts of Labor and Capital.—The law of wages, as stated in an early chapter of this work, makes it evident that an increase of population, while the social fund of capital remains the same, would reduce the product of marginal labor and therefore the rate of wages. In every establishment into which more workmen should come, while its capital remained the same in amount, the power of an individual worker to produce goods would be lessened. ”

“ With these limitations of the terms, wages not only depend upon the relative amount of capital and population, but cannot, under the rule of competition, be affected by anything else. Wages (meaning, of course, the general rate) cannot rise, but by an increase of the aggregate funds employed in hiring labourers, or a diminution in the number of the competitors for hire; nor fall, except either by a diminution of the funds devoted to paying labour, or by an increase in the number of labourers to be paid. ”

“ It proves that the employer can afford to give high wages to the laborer, in consequence of the profits of his business, and the borrower high interest to the lender, in consequence of the gain which he makes by the use of capital. On the contrary, in countries where business is dull and languishing, and all the walks of society are full, the small profits that are made will not justify high interest or high wages. ”

“ Of the net profits of persons in business, a part, as before observed, may be considered as interest on capital, and of a perpetual character, and the remaining part as remuneration for the skill and labor of superintendence. The surplus beyond interest depends on the life of the individual, and even on his continuance in business, and is entitled to the full amount of exemption allowed to terminable incomes. ”