WAGES and prices, then, if the argument recited in the preceding chapter of this series holds good, do not under free competition tend towards social justice.  It is not true that every man gets what he produces.  It is not true that enormous salaries represent enormous productive services and that humble wages correspond to a humble contribution to the welfare of society.  Prices, wages, salaries, interest, rent and profits do not, if left to themselves, follow the simple law of natural justice.  To think so is an idle dream, the dream of the quietist who may slumber too long and be roused to a rude awakening or perish, perhaps, in his sleep.  His dream is not so dangerous as the contrasted dream of the socialist, now threatening to walk abroad in his sleep, but both in their degree are dreams and nothing more.

The real truth is that prices and wages and all the various payments from hand to hand in industrial society, are the outcome of a complex of competing forces that are not based upon justice but upon “economic strength.”  To elucidate this it is necessary to plunge into the jungle of pure economic theory.  The way is arduous.  There are no flowers upon the path.  And out of this thicket, alas, no two people ever emerge hand in hand in concord.  Yet it is a path that must be traversed.  Let us take, then, as a beginning the very simplest case of the making of a price.  It is the one which is sometimes called in books on economics the case of an unique monopoly.  Suppose that I offer for sale the manuscript of the Pickwick Papers, or Shakespere’s skull, or, for the matter of that, the skull of John Smith, what is the sum that I shall receive for it?  It is the utmost that any one is willing to give for it.  That is all one can say about it.  There is no question here of cost or what I paid for the article or of anything else except the amount of the willingness to pay on the part of the highest bidder.  It would be possible, indeed, for a bidder to take the article from me by force.  But this we presume to be prevented by the law, and for this reason we referred above not to the physical strength, but to the “economic strength” of the parties to a bargain.  By this is meant the relation that arises out of the condition of the supply and the demand, the willingness or eagerness, or the sheer necessity, of the buyers and the sellers.  People may offer much because the thing to be acquired is an absolute necessity without which they perish; a drowning man would sell all that he had for a life belt.  Or they may offer much through the sheer abundance of their other possessions.  A millionaire might offer more for a life belt as a souvenir than a drowning man could pay for it to save his life.

Yet out of any particular conjunction between desires on the one hand and goods or services on the other arises a particular equation of demand and supply, represented by a particular price.  All of this, of course, is A. B. C., and I am not aware that anybody doubts it.

Now let us make the example a little more elaborate.  Suppose that one single person owned all the food supply of a community isolated from the outside world.  The price which he could exact would be the full measure of all the possessions of his neighbors up to the point at least where they would commit suicide rather than pay.  True, in such a case as this, “economic strength” would probably be broken down by the intrusion of physical violence.  But in so far as it held good the price of food would be based upon it.

Prices such as are indicated here were dismissed by the earlier economist as mere economic curiosities.  John Stuart Mill has something to say about the price of a “music box in the wilds of Lake Superior,” which, as he perceived, would not be connected with the expense of producing it, but might be vastly more or perhaps decidedly less.  But Mill might have said the same thing about the price of a music box, provided it was properly patented, anywhere at all.  For the music box and Shakespere’s skull and the corner in wheat are all merely different kinds of examples of the things called a monopoly sale.

Now let us change the example a little further.  Suppose that the monopolist has for sale not simply a fixed and definite quantity of a certain article, but something which he can produce in larger quantities as desired.  At what price will he now sell?  If he offers the article at a very high price only a few people will take it:  if he lowers the price there will be more and more purchasers.  His interest seems divided.  He will want to put the price as high as possible so that the profit on each single article (over what it costs him to produce it) will be as great as possible.  But he will also want to make as many sales as he possibly can, which will induce him to set the price low enough to bring in new buyers.  But, of course, if he puts the price so low that it only covers the cost of making the goods his profit is all gone and the mere multiplicity of sales is no good to him.  He must try therefore to find a point of maximum profit where, having in view both the number of sales and the profit over cost on each sale the net profit is at its greatest.  This gives us the fundamental law of monopoly price.  It is to be noted that under modern conditions of production the cost of manufacture per article decreases to a great extent in proportion as a larger and larger number is produced and thus the widening of the sale lowers the proportionate cost.  In any particular case, therefore, it may turn out that the price that suits the monopolist’s own interest is quite a low price, one such as to allow for an enormous quantity of sales and a very low cost of manufacture.  This, we say, may be the case.  But it is not so of necessity.  In and of itself the monopoly price corresponds to the monopolist’s profit and not to cheapness of sale.  The price may be set far above the cost.

And now notice the peculiar relation that is set up between the monopolist’s production and the satisfaction of human wants.  In proportion as the quantity produced is increased the lower must the price be set in order to sell the whole output.  If the monopolist insisted on turning out more and more of his goods, the price that people would give would fall until it barely covered the cost, then till it was less than cost, then to a mere fraction of the cost and finally to nothing at all.  In other words, if one produces a large enough quantity of anything it becomes worthless.  It loses all its value just as soon as there is enough of it to satisfy, and over-satisfy the wants of humanity.  Thus if the world produces three and a half billion bushels of wheat it can be sold, let us say, at two dollars a bushel; but if it produced twice as much it might well be found that it would only sell for fifty cents a bushel.  The value of the bigger supply as a total would actually be less than that of the smaller.  And if the supply were big enough it would be worth, in the economic sense, just nothing at all.  This peculiarity is spoken of in economic theory as the paradox of value.  It is referred to in the older books either as an economic curiosity or as a mere illustration in extreme terms of the relation of supply to price.  Thus in many books the story is related of how the East India Companies used at times deliberately to destroy a large quantity of tea in order that by selling a lesser amount they might reap a larger profit than by selling a greater.

But in reality this paradox of value is the most fundamental proposition in economic science.  Precisely here is found the key to the operation of the economic society in which we live.  The world’s production is aimed at producing “values,” not in producing plenty.  If by some mad access of misdirected industry we produced enough and too much of everything, our whole machinery of buying and selling would break down.  This indeed does happen constantly on a small scale in the familiar phenomenon of over-production.  But in the organization in which we live over-production tends to check itself at once.  If the world’s machinery threatens to produce a too great plenty of any particular thing, then it turns itself towards producing something else of which there is not yet enough.  This is done quite unconsciously without any philanthropic intent on the part of the individual producer and without any general direction in the way of a social command.  The machine does it of itself.  When there is enough the wheels slacken and stop.  This sounds at first hearing most admirable.  But let it be noted that the “enough” here in question does not mean enough to satisfy human wants.  In fact it means precisely the converse.  It means enough not to satisfy them, and to leave the selling price of the things made at the point of profit.

Let it be observed also that we have hitherto been speaking as if all things were produced under a monopoly.  The objection might at once be raised that with competitive producers the price will also keep falling down towards cost and will not be based upon the point of maximum profit.  We shall turn to this objection in a moment.  But one or two other points must be considered before doing so.

In the first place in following out such an argument as the present in regard to the peculiar shortcomings of the system under which we live, it is necessary again and again to warn the reader against a hasty conclusion to the possibilities of altering and amending it.  The socialist reads such criticism as the above with impatient approval.  “Very well,” he says, “the whole organization is wrong and works badly.  Now let us abolish it altogether and make a better one.”  But in doing so he begs the whole question at issue.  The point is, can we make a better one or must we be content with patching up the old one?  Take an illustration.  Scientists tell us that from the point of view of optics the human eye is a clumsy instrument poorly contrived for its work.  A certain great authority once said that if he had made it he would have been ashamed of it.  This may be true.  But the eye unfortunately is all we have to see by.  If we destroy our eyes in the hope of making better ones we may go blind.  The best that we can do is to improve our sight by adding a pair of spectacles.  So it is with the organization of society.  Faulty though it is, it does the work after a certain fashion.  We may apply to it with advantage the spectacles of social reform, but what the socialist offers us is total blindness.  But of this presently.

To return to the argument.  Let us consider next what wages the monopolist in the cases described above will have to pay.  We take for granted that he will only pay as much as he has to.  How much will this be?  Clearly enough it will depend altogether on the number of available working men capable of doing the work in question and the situation in which they find themselves.  It is again a case of relative “economic strength.”  The situation may be altogether in favor of the employer or altogether in favor of the men, or may occupy a middle ground.  If the men are so numerous that there are more of them than are needed for the work, and if there is no other occupation for them they must accept a starvation wage.  If they are so few in number that they can all be employed, and if they are so well organized as to act together, they can in their turn exact any wage up to the point that leaves no profit for the employer himself at all.  Indeed for a short time wages might even pass this point, the monopolist employer being willing (for various reasons, all quite obvious) actually to pay more as wages than he gets as return and to carry on business at a loss for the sake of carrying it on at all.  Clearly, then, wages, as Adam Smith said, “are the result of a dispute” in which either party must be pushed to the wall.  The employer may have to pay so much that there is nothing or practically nothing left for himself, or so little that his workmen can just exist and no more.  These are the upward and downward limits of the wages in the cases described.

It is therefore obvious that if all the industries in the world were carried on as a series of separate monopolies, there would be exactly the kind of rivalry or competition of forces represented by the consumer insisting on paying as little as possible, the producer charging the most profitable price and paying the lowest wage that he could, and the wage earner demanding the highest wage that he could get.  The equilibrium would be an unstable one.  It would be constantly displaced and shifted by the movement of all sorts of social forces ­by changes of fashion, by abundance or scarcity of crops, by alterations in the technique of industry and by the cohesion or the slackening of the organization of any group of workers.  But the balanced forces once displaced would be seen constantly to come to an equilibrium at a new point.

All this has been said of industry under monopoly.  But it will be seen to apply in its essentials to what we call competitive industry.  Here indeed certain new features come in.  Not one employer but many produce each kind of article.  And, as far as each employer can see by looking at his own horizon, what he does is merely to produce as much as he can sell at a price that pays him.  Since all the other employers are doing this, there will be, under competition, a constant tendency to cut the prices down to the lowest that is consistent with what the employer has to pay as wages and interest.  This point, which was called by the orthodox economists the “cost,” is not in any true and fundamental sense of the words the “cost” at all.  It is merely a limit represented by what the other parties to the bargain are able to exact.  The whole situation is in a condition of unstable equilibrium in which the conflicting forces represented by the interests of the various parties pull in different directions.  The employers in any one line of industry and all their wage earners and salaried assistants have one and the same interest as against the consumer.  They want the selling price to be as high as possible.  But the employers are against one another as wanting, each of them, to make as many sales as possible, and each and all the employers are against the wage earners in wanting to pay as low wages as possible.  If all the employers unite, the situation turns to a monopoly, and the price paid by the consumer is settled on the monopoly basis already described.  The employers can then dispute it out with their working men as to how much wages shall be.  If the employers are not united, then at each and every moment they are in conflict both with the consumer and with their wage earners.  Thus the whole scene of industry represents a vast and unending conflict, a fermentation in which the moving bubbles crowd for space, expanding and breaking one against the other.  There is no point of rest.  There is no real fixed “cost” acting as a basis.  Anything that any one person or group of persons ­worker or master, landlord or capitalist ­is able to exact owing to the existing conditions of demand or supply, becomes a “cost” from the point of view of all the others.  There is nothing in this “cost” which proportions to it the quantity of labor, or of time, or of skill or of any other measure physical or psychological of the effort involved.  And there is nothing whatever in it which proportions to it social justice.  It is the war of each against all.  Its only mitigation is that it is carried on under the set of rules represented by the state and the law.

The tendencies involved may be best illustrated by taking one or two extreme or exaggerated examples, not meant as facts but only to make clear the nature of social and industrial forces among which we live.

What, for example, will be the absolute maximum to which wages in general could be forced?  Conceivably and in the purest and thinnest of theory, they could include the whole product of the labor of society with just such a small fraction left over for the employers, the owners of capital and the owners of land to induce them to continue acting as part of the machine.  That is to say, if all the laborers all over the world, to the last one, were united under a single control they could force the other economic classes of society to something approaching a starvation living.  In practice this is nonsense.  In theory it is an excellent starting point for thought.

And how short could the hours of the universal united workers be made?  As short as ever they liked:  An hour a day:  ten minutes, anything they like; but of course with the proviso that the shorter the hours the less the total of things produced to be divided.  It is true that up to a certain point shortening the hours of labor actually increases the total product.  A ten-hour day, speaking in general terms and leaving out individual exceptions, is probably more productive than a day of twelve.  It may very well be that an eight-hour day will prove, presently if not immediately, to be more productive than one of ten.  But somewhere the limit is reached and gross production falls.  The supply of things in general gets shorter.  But note that this itself would not matter much, if somehow and in some way not yet found, the shortening of the production of goods cut out the luxuries and superfluities first.  Mankind at large might well trade leisure for luxuries.  The shortening of hours with the corresponding changes in the direction of production is really the central problem in social reform.  I propose to return to it in the concluding chapter of these papers, but for the present it is only noted in connection with the general scheme of industrial relations.

Now let us ask to what extent any particular section or part of industrial society can succeed in forcing up wages or prices as against the others.  In pure theory they may do this almost to any extent, provided that the thing concerned is a necessity and is without a substitute and provided that their organization is complete and unbreakable.  If all the people concerned in producing coal, masters and men, owners of mines and operators of machinery, could stand out for their price, there is no limit, short of putting all the rest of the world on starvation rations, to what they might get.  In practice and in reality a thousand things intervene ­the impossibility of such complete unity, the organization of the other parties, the existing of national divisions among industrial society, sentiment, decency, fear.  The proposition is only “pure theory.”  But its use as such is to dispose of any such idea as that there is a natural price of coal or of anything else.

The above is true of any article of necessity.  It is true though in a less degree of things of luxury.  If all the makers of instruments of music, masters and men, capitalists and workers, were banded together in a tight and unbreakable union, then the other economic classes must either face the horrors of a world without pianolas and trombones, or hand over the price demanded.  And what is true of coal and music is true all through the whole mechanism of industry.

Or take the supreme case of the owners of land.  If all of them acted together, with their legal rights added into one, they could order the rest of the world either to get off it or to work at starvation wages.

Industrial society is therefore mobile, elastic, standing at any moment in a temporary and unstable equilibrium.  But at any particular moment the possibility of a huge and catastrophic shift such as those described is out of the question except at the price of a general collapse.  Even a minor dislocation breaks down a certain part of the machinery of society.  Particular groups of workers are thrown out of place.  There is no other place where they can fit in, or at any rate not immediately.  The machine labors heavily.  Ominous mutterings are heard.  The legal framework of the State and of obedience to the law in which industrial society is set threatens to break asunder.  The attempt at social change threatens a social revolution in which the whole elaborate mechanism would burst into fragments.

In any social movement, then, change and alteration in a new direction must be balanced against the demands of social stability.  Some things are possible and some are not; some are impossible to-day, and possible or easy to-morrow.  Others are forever out of the question.

But this much at least ought to appear clear if the line of argument indicated above is accepted, namely, that there is no great hope for universal betterment of society by the mere advance of technical industrial progress and by the unaided play of the motive of every man for himself.

The enormous increase in the productivity of industrial effort would never of itself have elevated by one inch the lot of the working class.  The rise of wages in the nineteenth century and the shortening of hours that went with it was due neither to the advance in mechanical power nor to the advance in diligence and industriousness, nor to the advance, if there was any, in general kindliness.  It was due to the organization of labor.  Mechanical progress makes higher wages possible.  It does not, of itself, advance them by a single farthing.  Labor saving machinery does not of itself save the working world a single hour of toil:  it only shifts it from one task to another.

Against a system of unrestrained individualism, energy, industriousness and honesty might shatter itself in vain.  The thing is merely a race in which only one can be first no matter how great the speed of all; a struggle in which one, and not all, can stand upon the shoulders of the others.  It is the restriction of individualism by the force of organization and by legislation that has brought to the world whatever social advance has been achieved by the great mass of the people.

The present moment is in a sense the wrong time to say this.  We no longer live in an age when down-trodden laborers meet by candlelight with the ban of the law upon their meeting.  These are the days when “labor” is triumphant, and when it ever threatens in the overweening strength of its own power to break industrial society in pieces in the fierce attempt to do in a day what can only be done in a generation.  But truth is truth.  And any one who writes of the history of the progress of industrial society owes it to the truth to acknowledge the vast social achievement of organized labor in the past.

And what of the future?

By what means and in what stages can social progress be further accelerated?  This I propose to treat in the succeeding chapters, dealing first with the proposals of the socialists and the revolutionaries, and finally with the prospect for a sane, orderly and continuous social reform.