The Theory of Collective Bargaining

 

PART TWO Indeterminateness

 

 

THE EARLY GROPING TOWARDS THE IDEA OF INDETERMINATENESS

IN THE LATE ’SIXTIES what appears to have been an entirely new idea was brought into the discussion of collective bargaining. It seems to consist in the rationalization of an idea which had for long vaguely existed in “the untutored mind of the workman,” but which previous economists, according to Edgeworth, had wrongly condemned as fallacious. The workman knew that if he argued and haggled with a shopkeeper about the price of an article he might obtain it for less than its marked price; and on this analogy, he did not see why, by threatening to strike, he should not obtain more wages for his labor. This theme was borrowed by the economists and developed by them into a theory that the price of labor was indeterminate, and that within the range of its indeterminateness trade unionism had a legitimate field of action, in the same way that there was a valid field for haggling in the indeterminateness of barter. It was towards this notion that Thornton, Jenkin, Longe and Leslie were in fact confusedly groping—towards a conception of the indeterminateness that exists under conditions that we now call “bi-lateral monopoly.” Their groping was very blind, for competition on both sides (not monopoly) was generally blamed for labor’s disadvantageous bargain.

FORMERLY, THE INDEFINITENESS OF ISOLATED BARGAINS SEEMS TO HAVE BEEN THOUGHT UNIMPORTANT

The earlier economists appeared to assume, either tacitly or expressly, that the indefiniteness of any particular bargain was of no importance. They were merely concerned with market-price, which they regarded as both the resultant of the innumerable individual bargains and the index of the level to which all prices would tend, and from which, in the presence of competition, they could not greatly diverge. Longfield, for instance, started with the case of barter, but did not think it worth while analyzing, as “In all civilised societies goods are exchanged for money or sold.” Moreover, while he recognized quite clearly the opposition of interest which led every individual “to buy as cheap and to sell as dear” as he could, he did not go to the trouble of pointing out the possible ratios of exchange which could arise in any individual case, because in fact, we have “the law of mutual competition.”1 Some degree of freedom of competition he seemed to take as axiomatic. “As this state of freedom nearly exists in all civilised countries,” he wrote (after a reference to the forces in the labor market), “the principle just mentioned is not to be considered as a hypothetical axiom, but both it and the consequences drawn from it are truths of considerable importance.”2 In a hypothetical isolated case, he knew that the result of a bargain between two people would be indeterminate, although he did not use this word; but the ratio resulting from that theoretical example had no relation to any rate that would be established in practice. “A labourer working for himself,” he wrote, “would find it to his interest to give 19/20ths of the produce of his labour to the person who would lend him (a spade), if the alternative was that he should turn up the earth with his naked hands.” But this rate is not paid because of the competition of capital for employment and because the profits of the least-paid capital “regulate the profits of the rest.”3 A writer in a later age might have expressed the same thought more clearly, perhaps, by saying that, whatever the “curve of indifference” of the laborer might be, he would not have to pay more than the market price for the use of capital. Neither profits nor wages, he thought, were determined by the “intensity of demand,” which is “the sacrifice we would make to obtain any commodity, if the alternative were to be compelled to remain without it.”4 Longfield has been quoted at length because he was here deliberately setting on one side as unimportant, ideas which were later thought to be novel, revolutionary and fundamental. And his judgment seems to have been right.

THE EVOLUTION OF THE IDEA

The first clear statement of the “indeterminateness” idea the writer has found in English economic literature is in a paper read to the Royal Statistical Society in 1867 by one Jacob Waley. He argued that the sharing of the gross returns of industry between capital and labor would be “in a perpetual flux and never have time to settle into a state of stable equilibrium. . . .” He continued: “I conceive that there will in general be a large margin of uncertainty as to the division of the returns, and that the precise place at which the line is drawn will to a very considerable extent be determined by circumstances which may fairly be called fortuitous, and may be greatly influenced by a bargain between the employer and the employed.” In such a case it was quite possible that a strike would be successful. This is as clear and as moderate a statement of the theory as is to be found anywhere. There are passages in F. D. Longe’s essay which suggest that he had the idea in mind, and Fleeming Jenkin in 1868 had some conception of it. (We cannot here discuss the several interesting fallacies in Jenkin’s able work.) He said that the division of the produce between capital and labor was “purely a question of bargain”; and it could legitimately vary “within very wide limits.”5 In 1869 Thornton helped to spread the idea by a violent yet vague attack on supply and demand generally (On Labour . . ., 1869).6 At times, when reading his book, one imagines that he must have regarded the price mechanism as a completely arbitrary affair; but the work is so full of apparent contradictions that one can never be sure of his real meaning. (We are giving so much attention to Thornton because of the extent of his influence on this topic and because his contribution received extravagant praise from Mill.) “The price, whether of labour or anything else, in no case whatsoever depends upon the proportion between supply and demand,”7 was his contention. “The propositions of supply and demand do not hold good under ordinary circumstances.”8 For supply and demand he substituted “competition,” which would suggest a mere verbal quibble; but he asked: “What regulates competition?” (p. 79) and replied: “Nothing. There is no regularity about competition—competition is not regulated at all . . . there is no law of competition,” (p. 80). We cannot follow him into the arguments which led him to this strange conclusion, but the notion seems to have arisen out of his expansion of a few special and for the most part quite unlikely cases into generalizations. This is so in spite of the fact that he claimed to have covered nearly the whole field of possible cases with his examples. Mill did not fail to see this point; he admitted that most of the examples were, “on the face of them, altogether exceptional,”9 but it was out of a criticism of some of Thornton’s illustrations that he developed his theory of indeterminateness.

THE PROBABLE FIRST USE OF THE WORD “INDETERMINATENESS” IN THIS CONNECTION

One of Thornton’s arguments was illustrated by an auction; and he showed how the price at which a particular article would actually exchange hands might be different according to whether bidding was up or down. Mill pointed out that to establish the point of this example he had to suppose “the case to be an exception to the rule that demand increases with cheapness: and since this rule, though general, is not absolutely universal he is scientifically right . . . but . . . in the general market of the world—it is the next thing to impossible that more of the commodity should not be asked for at every reduction of the price.” In spite of this severe criticism he admitted that Thornton had “proved that the law of supply and demand is not the whole theory of the particular case . . . what he has shown is that the law is, in this particular case, consistent with two different prices, and is equally and completely filled by either of them. The demand and supply are equal at 20s. and equal also at 18s. The conclusion is not that the law is false . . . the phenomenon cannot help obeying it, but there is some amount of indeterminateness in its operation, a certain limited extent of variation is possible within the bounds of the law. . . .” This is probably the first use of the word “indeterminateness” in this sense.10

CASES WHICH THE SUPPLY AND DEMAND DOCTRINE OF PRICE “DOES NOT REACH”

Mill then went on seriously to discuss some of Thornton’s other examples, to show that the laws of supply and demand still stood. He gravely pointed out, for instance, that in one case “at £50 there is a demand for twice or three times the supply; at £50 os. o¼d. there is no demand at all. When the scale of demand is broken by so extraordinary a jump the law fails of its application. . . .” And in another case he remarked: “Here, again, the author is obliged to suppose that the whole body of customers (24 in number) place the extreme limit of what they are prepared to pay rather than go without the article exactly at the same point . . . the case is just possible in a very small market—practically impossible in the great market of the community.” Nevertheless, from these examples Mill reached the conclusion: “when the equation of demand and supply leaves the price in part indeterminate, because there is more than one price which would fulfil the law, neither buyers nor sellers are under the action of any motives derived from supply and demand to give way to one another.” The doctrine Thornton had tried to controvert, though true, was not the whole truth. “He has shown,” said Mill, “and has been the first to show, that there are cases which it does not reach.”

THE CRUCIAL POINT

This brings us to the crucial point in the whole of Mill’s argument. “If it should turn out,” he wrote, “that the price of labour falls within one of the excepted cases—the case which the law of equality between demand and supply does not provide for, because several prices all agree in satisfying that law—we are able to see that the question between one of these prices and another will be determined by causes which operate strongly against the labourer, and in favour of the employer.” After discussing this possibility he remembered the “If” and wrote: “It will of course be said that these speculations are idle, for labour is not in that barely possible excepted case.” That is just what would occur to one and what one would expect him to prove. But he made no attempt at a proof. Instead, he went off into a criticism of the wage-fund doctrine and, leaping over an immense logical gap, wrote: “There is no law of nature making it inherently impossible for wages to rise to the point of absorbing not only the funds which he had intended to devote to carrying on his business, but the whole of what he allows for his private expenses, beyond the necessaries of life.” He obviously believed that in having shown that the conception of fixed limits to the wage-fund was erroneous he had shown that a huge range of indeterminateness existed, the exact limits of which he defined more carefully later as “the highest wages consistent with keeping up the capital of the country and increasing it pari passu with the increase of the people, and the lowest that will enable the labourers to keep up their numbers with an increase sufficient to provide labourers for the increase of employment.” This compares strangely with the moderation of his earlier generalization: “There is some amount of indeterminateness in its action, a certain limited amount of variation is possible within the bounds of the law.” Thus, with no possible justification of any kind, with absolutely no logical foundation whatever, he declared that Thornton had shown that “the doctrine hitherto taught by all or most economists (including himself) which denied it to be possible that trade unions can raise wages . . . is deprived of its scientific foundation and must be thrown aside.”

DIAGRAMMATIC TREATMENT

There were similar ideas, as has been mentioned, in an essay by Fleeming Jenkin published before Thornton’s book. After Mill’s article had appeared and after a correspondence with Jevons, Jenkin developed his ideas in a further essay, and it is probable that, through its influence on Edge worth (and Jevons), his work had more to do with the perpetuation of the idea of indeterminateness than Mill’s. Already, in 1868, Jenkin had expressed the equation of supply and demand algebraically, and in 1870 he introduced, independently of the then forgotten Cournot, and Dupuit, the device of supply and demand curves. It is not hard to imagine that such a writer should have profoundly interested the leading mathematical economist of the past generation. Edgeworth gave the two essays most enthusiastic praise, and as it was he who, more than any other thinker, elaborated the theory of indeterminateness, we can probably trace the cause to Jenkin. He (Jenkin) illustrated by supply and demand curves Thornton’s example of price in an auction, to which we have already referred, and showed that it really made the simple assumption that demand in the neighborhood of the market price was constant at all prices; that is, the demand curve became horizontal11 near the market price and, owing to the supply curve also being level (one quantity offered singly and without reserve), the actual market price would be indeterminate. He described the diagram as representing “an unusual state of mind.” This is putting it mildly indeed. It depends entirely upon the fortuitous coincidence of the horizontal section of an unusual and highly improbable demand curve with an absolutely rigid supply curve. Had the supply been larger or smaller to any noticeable extent, even in this example, the price would have been theoretically determinate. Developing this idea and, it seems, getting further away from economic realities, he said: “Where only a small number of transactions take place there can . . . be no theoretical market price; thus, with one buyer and seller of one thing, the demand and supply curve become two straight lines. . . . If the supply line overlaps the demand line, the sale will take place, and not otherwise; but the price is indeterminate.”12

EDGEWORTH DEVELOPED THE IDEA, BUT LATER ON SEEMS TO HAVE DOUBTED ITS IMPORTANCE

This was the idea that Edgeworth developed and the one that led him to make the remark already quoted, possibly inspired by the similar remark by Mill to the effect that the old belief that trade unions could not raise wages had to be given up. We cannot here discuss the detailed development of the idea in his hands. His chief contribution to the theory was to draw curves of indifference for two bargainers, thus representing graphically the area of indeterminateness. But he did not, any more than did Mill, show that there was any justification for considering the value of labor as specially influenced by this principle, or that it disclosed any increment of the total product of industry which could be diverted to those who provided labor. We cannot be certain as to how far the Edgeworth of 1891 would have upheld the point of view expressed in 1881, for in a criticism of Marshall’s “Note on Barter” (The “Note on Barter” appeared in the Second Edition of Marshall’s Principles), he said, after an analysis of ideas of which he was the chief original propagator, that in comparison with other conditions of the labor market, they were “of little practical importance.” In his own words: “I do not, however, regard these nice points as more than curiosa, of little practical importance in comparison with the conditions of the labour market on which Marshall has dwelt.” He referred here to “the tendency of any accidental disadvantage under which the work-people may be suffering to become perpetuated through the lowering of their vitality and efficiency.”13 This, however, is an entirely different point. Edgeworth had completely changed the basis of his defense of unionism. That same year, in his Introductory Lecture on Political Economy at Oxford, he said: “As an instance in which eminent theorists may have omitted a relevant circumstance, may be taken the question whether it is possible for trade unionists, by standing out for a higher than the market rate of wages, to benefit themselves permanently without injuring other workmen. The negative answer which has sometimes been given omits the consideration that an increase of wages tends to increase efficiency . . . etc.” This deliberately avoids a reference to the affirmative answer which he had given ten years previously. In Sidgwick’s Principles, Mr. L. L. Price’s Industrial Peace, and Prof. Pigou’s Principles and Methods of Industrial Peace, the idea seems to have survived with more importance than Edgeworth would himself have attached to it.

MR. FLUX HAS DOUBTED ITS IMPORTANCE

We can detect in other economists who have dealt with the question the same doubt as to the importance of the idea. Mr. Flux, for example, discussing the alleged indeterminate increment, in 190014 wrote: “Now, it can not be denied that this element is in existence in fact. The question rather is, whether it has sufficient generality, and whether the relative importance of the amounts involved is such as may entitle it to figure prominently in a discussion of the general problem of distribution.”15

MARSHALL’S TREATMENT

The later treatment of the idea by Marshall is very uncertain compared to his earlier treatment of it. He was possibly the first to give an even superficially satisfactory explanation of why the value of labor should be considered as specially influenced by this principle. Basing his treatment on Edgeworth’s conception, he illustrated it by considering the extremely artificial cases of the barter, in isolation, of nuts and apples. In such an example he had no difficulty in showing “the uncertainty of the rate at which equilibrium is reached.” It is what we should expect in a case of simple barter. But in the earlier editions of his Principles he said that this uncertainty “Does not depend on the fact that one commodity is being bartered for another instead of being sold for money. It results from our being obliged to regard the marginal utilities of both commodities as varying” (Third Edn., p. 415). It was this consideration that caused him to regard the price as likely to be indeterminate and arrived at as under barter, although, in fact, not a subject of barter. After his general treatment of the temporary equilibrium of demand and supply he remarked: “We did not allow for any appreciable change in the marginal utility of money . . . (which is) justifiable with regard to most of the markets with which we are practically concerned. . . . The exceptions are rare and unimportant in markets for commodities; but in markets for labour they are frequent and important. When a workman is in fear of hunger, the marginal utility of money to him is very high; and if at starting he gets the worst of the bargaining and is employed at low wages, it remains low, and he may go on selling his labour at a low rate” (pp. 411, 412, Third Edn.). This led him to his discussion of the barter of nuts and apples with a view of “throwing additional light” on the problem. In spite of the contention by Edgeworth that this treatment of “the specific peculiarities of the labour market . . . left little to be said freshly”16 we find Marshall’s doubts expressed in subsequent changes of text. In a later edition he had substituted throughout for the workman’s “marginal utility of money,” “his need of money (its marginal utility to him)” (Seventh Edn.). This is a strange amendment, for while the word “need” is vague, “marginal utility” is definite. He probably felt that the phrase “his marginal utility” did not quite fit the case. However, in a later edition he had relegated his “Note on Barter” to the Appendix and omitted the phrase which claimed that it threw “additional light” on the labor market. (Compare p. 412, Third Edn. and p. 336, Seventh Edn.) This also suggests a change of attitude. But his amendment to the “Note on Barter” was such as amounted to a tacit renunciation of the whole previous argument. Instead of contending that indeterminateness “does not depend on the fact that one commodity is being bartered for another instead of being sold for money,” he seemed completely to reverse his previous content, and said that it “depends indirectly on the fact that one commodity is being bartered for another instead of being sold for money . . . the steadying influences which hold together a market in which values are set in money are absent” (Seventh Edn., p. 793).17 All the amended argument of the later editions comes to is this; that where there is buying and selling through the agency of money there is more likely to be an effective market. Absence of money economy is one factor which may cause market forces to be ineffective.

UNDER COMPETITION, THE MARGINAL UTILITIES OF “INCOME” OR “MONEY” ARE IRRELEVANT TO THIS PROBLEM

Having made the uncertainty of the equilibrium rates depend upon barter (and ultimately, though not expressly stated, upon the absence of an effective market), any peculiarities of labor in respect of the marginal utility of money become irrelevant. We get back to the position that Longfield discussed a century ago. An individual worker’s need for income might be so great that he would be prepared to give 19/20ths of the results of his labor to the person who would lend him a spade rather than till the soil with his hands. But the market rate might be such that he might have to give only 1/5th. It is quite true that the poorer a workman is, the higher will be the marginal utility to him of further increments of income—that is, of those commodities in general which satisfy his needs; but while it is clear that that will affect the intensity or amount of his efforts to get further income we have no reason at all to suppose that it will (a) prevent in any way the formation of an effective market for his labor, (b) cause an equilibrium in the market at a lower rate than would result from the same quantity of labor being offered by workers to whom the marginal utilities of income were lower.

JEVONS’ TREATMENT IN “THE THEORY OF POLITICAL ECONOMY”

With Jevons the theory developed in a rather different way. Like Edgeworth he seems to have been influenced by Thornton and Jenkin. The latter had corresponded with him on the subject of the mathematical treatment of economics before publishing his second article, and it was partly in consequence of Jenkin’s essays that Jevons decided to put his own Theory of Political Economy into print as early as 1871. The idea emerged in his treatment of the theory of exchange. He put forward the proposition that “the equation of exchange will fail to be possible when the commodity or useful article possessed on one or both sides is indivisible . . .” as, for instance, in the case of a house,18 “because we cannot contemplate the existence of an increment or decrement to an indivisible article.19 . . . The theory seems to give a very unsatisfactory answer, for the problem proves to be, within certain limits, indeterminate.” Such a bargain, he said, “must be settled upon other than strictly economic grounds.” What would determine the result was “the comparative amount of knowledge of each other’s position and needs (our italics) which each bargainer may possess.” The only meaning we can suggest for this phrase is that the seller will endeavor to find out how the utility to be derived by the prospective buyer from the house compares with the utility he can derive by spending an equal amount in available alternative ways. What one is prepared to give for any commodity (or increment of a commodity) is a function of alternatives or alternative sources of supply. But Jevons was tacitly assuming that there were no alternative sources of supply of houses. The case is similar to the theoretically isolated transaction which we saw Longfield had dismissed as of no practical importance. It rests on three assumptions—largeness of unit, uniqueness and monopoly. The general unimportance of the idea is further brought out in his elaboration of it. He held that indeterminateness existed even when commodities were divisible, if their divisibility was not into infinitely small quantities. As an illustration, he took bottles of ink. A fixed price (presumably competitive) of one shilling each was given, and the indeterminateness thrown on to quantity—that is, the number of bottles purchased at that price. Would the last and doubtful one be purchased? Here, again, these hypothetical transactions are isolated both in space and time. Putting aside the absence of competing ink supplies, or supplies available in different-sized units, when we take the factor of time into account, we see that the size of the unit purchased at a particular transaction loses all its relevance and importance. We can only imagine the size of the bottles affecting the interval between purchases—not the amount of ink consumed. This has an obvious parallel, as we shall see, in the case of the supply of some kinds of capital equipment.

THE DANGER OF GENERALIZING FROM ISOLATED CASES, AND IGNORING THE TIME FACTOR IN THOSE CASES

Most of the erroneous deductions which have sprung out of the indeterminateness conception appear to have arisen from the expansion to a generalization of the results of a particular isolated case. Mr. Flux, in reviewing Mr. J. A. Hobson’s Economics of Distribution, based on ideas similar to those which we have just discussed, remarked: “That the gradations of any actual supply or demand schedule do not proceed by the infinitesimal changes assumed in the mathematical treatment of the problems of value may be granted. It need not follow that the gradations, though finite, are of a magnitude requiring as much attention as demanded in the book under discussion.”20 The important consideration, however, is not the size of units or gradations of supply and demand as affecting the size of transactions, but the influence of the time element, which causes the normal competitive economic forces to be effective.

JEVONS’ TREATMENT IN “THE STATE IN RELATION TO LABOUR”

The treatment of bargains over large units was similar in Jevons’ later work The State in Relation to Labour (1882), but he substituted for comparative “knowledge of each other’s position and needs” the “combat of desires and fears,” of the parties, a combat which, he thought, was “only solved by the lapse of time which tries the patience of both parties.” In view of the apparent similarity of this position to that which exists in the case of a strike it seems desirable to examine the idea. In any actual case we should not find complete isolation, monopoly and uniqueness; and the term “combat” is not quite satisfactory. Both parties may be extremely keen to secure the exchange of the property on good terms; and if the sum of money involved is a large one, afraid of misjudging the value of the investment or realization. The reason why the would-be seller waits is so that he may test the market. The possible purchasers at any one moment of an indivisible property of large value may be very small, but there are potential purchasers who will, in course of time, come into the market. The seller’s judgment of the probable extent of potential demand will determine the price he will be prepared to accept. His inclination will most likely be to agree to a lower price in the present than he believes he will probably be offered in the future because, in so doing, he will discount both time and risk. The reason why the buyer waits is that he believes there is no other buyer who is likely, within a reasonable space of time, to offer the price he is prepared to pay; or that by waiting he can find an equally good alternative at that price. As both are keen to make a transaction both are aware of some loss to themselves in delay. They will sooner or later be in a position to estimate whether their judgment was right or wrong and ultimately arrive at a price representing a rough coincidence of interest. Both parties may endeavor to “bluff”—that is, to create a false impression of the state of the market or their relationship to it—but the word “patience” explains nothing. If they had the means of forecasting the ultimate or long run demand or supply they would be relieved of the burden of waiting as a means of obtaining an indication of the position.

IN CHAPTER IV JEVONS HELD THAT TRADE UNIONS COULD NOT OBTAIN GENERAL AND PERMANENT INCREASES OF WAGES

Although obviously influenced by Thornton and Jenkin, Jevons did not indicate in his Theory of Political Economy that he thought the conception of indeterminateness was particularly applicable to the problem of labor’s remuneration. That the idea may have been in his mind is suggested by the interpolation (almost as an afterthought) of the phrase: “It may be that indeterminate bargains of this kind” (e.g., over the sale of a house) “are best arranged by an arbitrator or third party”—an idea which is interesting in view of the later development of this idea by himself and others21 in particular reference to labor. It was only after the appearance of Mathematical Psychics, however, that Jevons ventured to follow Edgeworth in arguing that the existence of combinations in trade disputes usually reduces them to a single contract bargain of the same indeterminate kind. He made the application to labor in his State on Relation to Labour, a treatise which appeared in April, 1882, a very short time after the publication of Edgeworth’s book. The idea appears in the last chapter and seems rather in contradiction to the argument of the earlier chapters. There are, therefore, some grounds for a suspicion that it was hurriedly inserted. We certainly never get the impression from Jevons as from Edgeworth, that the creation or magnifying of such indeterminateness by combinations was “favourable to the unionists,” or that owing to the neglect by economists of like considerations “the untutored mind of the workman had gone more straight to the point than economic intelligence.”22 On the contrary, he had concluded “that it is quite impossible for trades unions in general to effect any permanent increase in wages,”23 and that there were “two possible modes of increasing earnings: the one being to increase products, so as to have more to sell, and the second to decrease products in order to sell them at a higher price.” Moreover, it followed “inevitably that if many or all people pursued the latter policy it would fail altogether period”24 “Obviously . . .,” he said, “the rate of wages which workmen can demand will depend upon the relation of supply to demand of such particular kind of labour.”25

IN CHAPTER VII JEVONS REJECTED THE SUPPLY AND DEMAND THEORY OF WAGES AND BROUGHT IN “INDETERMINATENESS”

The remarkable thing is that the whole of the point of view here expressed, in fact, the complete argument of his Chapter IV, is, in Chapter VII on “Arbitration and Conciliation,” casually superseded in a couple of pages (pp. 153-155) as being mere abstraction, an analysis of what would have been the case if things had been different from what, in reality, they were. “The existence, however, of combinations in the labour market,” he wrote, “alters the nature of the bargains altogether. The laws of supply and demand do not apply to such a case. In all bargains about a single object there may arise, as I have explained in my Theory of Political Economy, a deadlock.” What he failed to show was that such examples could be linked in any useful way to the problem of bargains between combinations of capital and labor. Even if we could accept his assumption that they might be validly regarded as bargaining about a single object, there would still exist this radical difference, that whereas a contract over the sale of a house or an estate is a contract presumably for perpetuity, agreements between capital and labor are capable of being subjected to constant re-contract. But can bargains between combinations of capital and labor be legitimately regarded as concerned with anything resembling “a single object” or, as he had expressed it in his earlier book, “an indivisible object”? Surely, it is almost impossible to imagine anything more easily divisible than labor supplied. The two sides may haggle about the price per unit of labor but not about the amount of available labor that will be taken on at any given price. The price of labor will very rarely be immaterial to capitalists (even as perfect monopolists), in determining how much labor they can profitably employ, for instance. Each party may rely, however, on some immobility, temporary or permanent, of the factor of production owned by the other, causing a certain rigidity in the response of quantity to price; and Jevons might have extended his argument to cover this class of case. Instead, he introduced what seems at first a new consideration to explain indeterminateness—that is, the disutility of strikes and lock-outs to the parties.

POLITICAL ECONOMY IS NOT “SILENCED” UNDER BI-LATERAL MONOPOLY

“The men, for instance,” he wrote, “ask for fifteen per cent advance of wages all round. Rather than have a strike, it might be for the interest of employers to give the advance or for the men to withdraw their demand; a fortiori any intermediate arrangement would still more meet their views.” As in the case of the house transaction in his Theory of Political Economy he argued that there may be “absolutely no economic principle on which to decide the question.” The disutilities of strikes and lock-outs can, of course, be paralleled with the loss from delay in that illustration, but a comparison is misleading. In the case of labor there is no inability to test the market through the absence of small increments; and the continuous refusal to contract in this case seems to be a delay with an entirely different motive. Even if we neglect “motives,” we still cannot make a parallel, for in the former case the passage of time reveals the market or alternatives, whereas in the latter the very factors which normally reveal the market are suppressed. The object of the strike or lock-out when initiatory seems to be to obtain a price higher or lower than available alternatives to both parties would determine, and the power to do so ultimately rests upon control of alternatives—that is, upon the power to exploit monopoly. There are many elements of uncertainty in the determination of price in such circumstances. Apart from those which we have already noticed, the factors determining the extent of control or limitation in any case may be complex and uncertain, and hence the result unpredictable from this cause. The prices resulting may favor one party or the other, but there is no reason why we should say that economic principle fails to work; or as economists so careful as Sidgwick and, following him, Mr. L. L. Price, have held, that “where two combinations meet one another, political economy is perforce silenced.”26 Prof. Macgregor has pointed out in his Industrial Combinations that “. . . relative fewness tends to introduce elements which are more psychological than economic, though they can scarcely be called accidental to an economic analysis.”27 Judgment, of course, is less certain when transactions are few and potential demand and supply have to be estimated; and “bluff” may admittedly come in. These elements it seems are the only psychological ones which mere fewness necessarily brings in. Moreover, economic principle applies with equal relevance to conditions of relative monopoly as to conditions of relative competition. Not only is there no clear line of division between the two, but, to use Prof. Davenport’s words, “It may indeed be said that in the main competitive and monopoly theory do not diverge, that the supply and demand analysis applies without change to monopoly and that monopoly differs from competition only in the fact that in monopoly the volume of supply is under centralised control, while in competition the limit of supply is found in marginal cost of production.”28

MONOPOLIST CONTROL OF SUPPLY MAY BE DIRECT OR THROUGH PRICE CONTROL

Monopoly power rests ultimately upon the ability to limit or control supply. Such limitation or control may be direct—that is, scarcities may be created to suit the interests of particular groups by direct restriction or exclusion (and much trade-union action is of this nature); or such limitation may be indirect—that is, monopolists may proceed by enforcing certain prices which suit them. It is combined resistance to attempts of the latter kind to enforce adverse prices that usually causes strikes or lock-outs to continue for more than one moment of time.

STRIKES AND LOCK-OUTS BEST REGARDED AS “COERCIVE DEVICES”

The problems we have just been considering are perhaps made clearer if we regard strikes and lockouts (whether aggressive or defensive is immaterial) as coercive devices. Like a similar coercive weapon, “the boycott,” they may be employed for a variety of motives and for the attainment of many different ends. They are a deliberate interference with the free and continuous flow of the services of the workers, capital equipment, or other factor of production in response to a given economic condition, competitive or monopolistic. Their object is generally either to force another party to acquiesce in a price other than the competitive or to resist such a price which another party seeks to impose. As we have already seen, the mere grouping in combinations of the owners of co-operant resources such as “property” and “labor” would not necessarily cause indeterminateness, provided transactions were made in small units. It is the joint determination by one group not to let another make contracts with individuals among them, which, judged by their available alternatives, would be most favorable to them, that creates the range of indeterminateness and the conditions in which a strike is possible; the determination that all transactions shall be made at a certain price (or more favorable ones) or there will be no transactions at all. For this reason we have additional grounds for saying that there is definitely a “coercive” element in such actions. The institution of property gives all monopolists the power to prevent access by other factors of production to the resources that they control. By that means the formation of a true socially determined price is prevented and a private coercion is substituted for a social coercion. (The meaning of “social coercion” is given below.) In the absence of monopoly, the institution of property may be held to be the very institution which causes the various factors of production to move to the most profitable channels as determined by society. In its presence, that view cannot be held.29

SUCCESSFUL STRIKES AND LOCK-OUTS ESTABLISH A PRIVATE COERCION IN PLACE OF A SOCIAL COERCION

Where there is a complete absence of monopoly all individuals dealing in small increments are powerless in regard to price. They may give goods away, but we cannot call such happenings “transactions.” Except in ignorance, or as a gift, or as a method of aggression to secure concessions, selling below or buying above the market price is inconceivable under perfect competition. Hence, when the market is the ruling force, we have what might be called “a social coercion,” the impartial and impersonal ruling of society itself expressed in the resultant of those forces which make up the market. (The term “coercion” may seem the wrong word, for in this case it is definitely a product of the utmost freedom and mobility.) The monopolist aims at substituting for this socially determined price one that is believed to favor a particular group; and the power to do so is definitely obtained from a coercive power over individual cooperating units, preventing them from exercising that freedom which, under competition, results in the controlling power of market price.

THIS EXPLAINS THE “RANGE OF INDETERMINATENESS”

We can now come back to the idea of the range of indeterminateness. Is not the best explanation of it to be found in the fact that under bi-lateral monopoly you have two groups with coercive power of this kind, each attempting in the case of a strike to enforce a price against the interest of the other? The result may not be predictable, nor may the forces determining the ultimate price be expressible in schedules, but political economy is not “silenced.” Quite apart from the economic nature of the coercive power, both parties will adjust their supply or demand according to the ruling price exactly as they would if the price had been fixed by the free market or legal enactment; and this remains the case as we shall see although the actual division of the spoils of monopoly obtained at the expense of the consumer is largely an arbitrary affair; and the limits to which either party will go will be influenced by the possibility of revision of the terms and other expected long-run reactions of their policy.

CAN MONOPOLY-GAINS BE MADE AT THE EXPENSE OF THE OWNERS OF OTHER FACTORS OF PRODUCTION?

Having considered the nature of the strike and monopoly coercion, we can now tackle the question of whether, by the exploitation of monopoly, the owners of one factor of production as a whole may gain at the expense of another—labor at the expense of the owners of property, for instance, or vice versa. (These groups are, of course, not naturally exclusive. Most property owners receive incomes from work and most “workers” own some property.)

PARTICULAR GROUPS MAY GAIN BY EXCLUDING OTHER FACTORS WHEN THEY ARE COMPETITIVE

Any group of persons together owning some portion of the factors of production may gain by keeping out of supply (or operation) certain factors of production owned by others; that is, they may gain as producers and sellers of certain commodities by preventing increments of factors owned by others, which might add to the supply of those commodities, from coming in to cooperate in the task of production. In so far as they can thus exclude, the total product (not necessarily its aggregate value) will be smaller. Thus their gain will be accompanied partly by loss to those excluded from cooperating in the task, and partly by loss to those who buy the commodity, who will have to pay a higher price per unit for the smaller quantity. What factors it will pay any particular group to exclude will depend upon several considerations. Other things being equal, it will certainly pay the workers in any particular case to exclude such factors as capital equipment or new methods of organization when they are “labor-saving,” i.e. when their exclusion will mean that more workers can be employed at the same rate of wages or the same number at a higher rate of wages. In other cases, the exclusion of capital equipment, improved organization or other factors will result in a fall in demand for the workers themselves (although they might not realize this), and a gain to them is not certain. In regard to other supplies of like factors, however (workers of the same type, for example), exclusion will nearly always benefit the particular group practicing it: and the gain will have been at the expense of the owners of the units excluded, and accompanied by loss to the consumer and probably to other factors of production.

THE PHRASE “AT THE EXPENSE OF”

Before going further we need to devote some attention to the phrase “at the expense of.” Any monopolist-gain by a single monopolist among co-operant producing groups is necessarily accompanied by loss to certain of the other groups, for one reason because at the higher price asked by the monopoly factor there is, even in the absence of direct exclusion, some fall in the number of units of it demanded, and a consequent fall in the number of units of work or service demanded from the factors of production which cooperate with it. Thus, a trade union exclusion of competing workmen from a particular job tends to make both the capitalist and the consumer worse off. We might therefore say that the trade union gains at the expense of excluded workers, capital and the consumer. Yet, in a discussion such as this, mainly concerned with the possibility of redistribution, it might be convenient to distinguish broadly between (1) the source of those gains to one party which are possible because of the nature or condition of a factor of production owned by some other party, that is, when it is “exploitable” or “excludable,” and (2) those losses to owners of other factors which are incidental rather than direct, although not necessarily unimportant. For instance, there is usually no point in a labor monopoly excluding directly a body of non-competing but co-operant workers (i.e., those engaged on an entirely different, complementary process), for they will be worse off by so doing. But any exclusion which pays them may, incidentally, exclude some non-competing workers. We can distinguish here between the loss to those whom it has paid to exclude and the loss to those who also happen to be kept out by that policy. The gain may be said to be obtained by the exclusion of the former (although also accompanied by loss to the latter, but not by their exploitation, for it would be impossible to gain at their expense alone). And, again, monopoly profits which are obtainable by any factor solely because of inelasticity of demand for the commodity by the consumer, may be said to exploit him, although the other factors of production as a whole may be worse off as a result of the exploitation of that monopoly. Monopoly profits to a factor which are possible solely owing to immobility of other factors may be said to be obtained by exploiting them, although as a result of their exploitation the consumer is worse off. This use of the term “exploit” is purely for convenience; it makes no clear logical distinction,30 and it is not implied that these “incidental losses” as we have called them are not highly important. Almost invariably monopoly-gains, no matter to what factor, are accompanied by loss to the consumer.

A GROUP OF WORKERS MAY GAIN WITHOUT EXCLUSION AGAINST AN INELASTIC DEMAND

For the next stage of our argument it will be most useful to take first a particular case and ask: Is it possible for a group of workers to gain without exclusion of other workers? If so, by whose exploitation may we say they have gained? Let us assume first that all other factors are in competition among themselves. When the relationship of the workers to other factors of production and the demand for the commodity is such that the number of units of their labor demanded is inelastic to rises in their remuneration per unit (from whatever cause), the restriction of the amount offered by them at a price may mean a larger aggregate return to them. In other words, by forcing a price higher than the competitive, and practicing work-sharing or a restriction of output, every worker in the group may be better off than under competition, although no workers whom competitive remuneration would have attracted have been excluded. This appears to be what the Webbs mean when (in dealing with Edgeworth’s contention on this point that combined parties tend to gain at the expense of uncombined parties with whom they are dealing) they say: “Nor need the combination amount in any sense to a monopoly.” (Industrial Democracy, p. 653.) The action is, of course, essentially monopolistic, although not necessarily to be condemned on that account if it does result in a redistribution of the product of industry in favor of the relatively poor. “Because the total produce is diminished, it does not follow that the labourer’s share is diminished (the loss may fall on the capitalist and entrepreneur whose compressibility has been well shown by Mr. Sidgwick).” (Edgeworth, Mathematical Psychics.)

IS RESTRICTION OF OUTPUT, THEN, TO THE INTERESTS OF THE WORKERS?

But does an examination of this hypothetical possibility enable us to say, as Edgeworth said in regard to the alleged disbelief of trade unionists in the wage-fund, that in the matter of the work fund “the untutored mind of the workman had gone more straight to the point than economic intelligence misled by a bad method, reasoning without mathematics upon mathematical subjects”? Does the road to plenty for the workers lie in restriction, work-sharing and “short time”?31

GAINS OF THIS KIND RARE IN PRACTICE

Attempts to obtain pure gains of this nature seem to be very rare in practice. We find few cases of conscious and rational work-sharing. Trade-union officials think in terms of rates per head—not aggregates. There may, nevertheless, be some increment of this sort of gain combined with the gain from direct exclusion when unions are faced with an inelastic demand. If we allow for conditions which cause a certain inertia in the movement of economic factors, the conclusion suggests itself that inelastic demand for labor is ultimately very rare. The question of the demand for labor in general raises big difficulties which cannot be dealt with here. But from broad considerations of this kind we might, whilst frankly admitting the possibility of large gains to particular groups, deny the likelihood of any general improved redistribution between different factors of production or income classes. This would not satisfy the sceptic, however, and accordingly the following analysis is desirable.

WE CANNOT ASSUME ELASTICITY OF DEMAND FOR LABOR WHERE OTHER FACTORS ARE CO-OPERANT AND NOT COMPETITIVE

To the extent to which a considerable part of the other factors (e.g., capital equipment) can be “labor saving,” the condition of inelasticity is unlikely to exist even in the short run, because of the possibility of substitution. When, on the other hand, the marginal increments of other factors are co-operant rather than competing in their relation to labor, we cannot assume probable elasticity of demand.

THE POSSIBILITY OF ULTIMATE GAIN BY ARTIFICIAL WAGE RATES DEPENDS UPON THE ELASTICITY OF DEMAND FOR THE PRODUCT

When a group of workers raises the price per unit of its work and adopts the device of work-sharing, the effect is that in supplying less units for the process of production they have allowed less units of the other factors to cooperate; that is, they have excluded or caused to remain idle that portion of those factors which no longer finds its most profitable use in that field. They must be able either to prevent such excluded units of other factors from cooperating with other supplies of workers whom earnings above the competitive level in the particular trade would tend to attract, or to rely upon such cooperation being, for other reasons, impossible. As we have assumed that other factors are in competition the ultimate effect will be that increased costs will cause a diversion of the resources comprising those factors until the return to the marginal increment of each category thereof has fallen to normal. When this has resulted, it seems extremely improbable that the workers will have gained unless the demand for the commodity is inelastic. The elasticity of demand for the commodity will determine the price obtained by the competitive sellers for the smaller product, and hence the extent to which other resources will be driven away by the increased costs. A gain resulting from this circumstance, therefore, cannot be said to be obtained by exploiting property or any other factor, for only the nature of the demand for the product enables it to be realized. It is obtained by exploiting the consumer.

UNTIL CO-OPERANT FACTORS CAN MOVE THEY MAY BE EXPLOITED

Any monopoly increment accruing to the workers’ group which does not result from this circumstance must arise from the fact that the diversion of other factors of production referred to above may be slow. Some resources we can conceive of as being transferred immediately there is any increase of costs, but there might be a long lag with others for which there are no sufficiently profitable alternative uses. The whole question turns principally on the elasticity of supply of other factors, which it is now convenient in view of current terminology to lump together under one heading as “capital.” The supply of capital we must regard as being, in the long run, highly elastic. In respect of some forms of it, particularly new capital coming forward, it is obviously so; but in some other concerns, particularly those with large fixed plants, it seems at first sight to be the very reverse.

FACTORS MAKING FOR SHORT-RUN IMMOBILITY OF “CAPITAL”

In the short run, the elasticity of demand for labor of a particular concern is almost always inelastic. It may have, for instance, a contract to fulfill and be under a penalty for failure. In such circumstances a labor combination might demand and obtain a rise of fifty per cent in wages, and yet the numbers employed, even if the job had to be carried on at a loss, hardly fall off at all. It is perhaps in part owing to the ease with which gains may be made in this way at the expense of the entrepreneur that the terms of contracts often have a clause inserted to the effect that in the case of any changes in the remuneration of labor an adjusting modification of the price payable shall be made. There are many other kinds of short-run commitments the existence of which may make for temporary inelasticity of demand. Probably the most important of all is the necessity to pay interest on capital or on borrowed money where there are heavy overhead costs. Undertakings such as railways or other public works, in which capital consists largely in valuable plant and equipment that cannot be turned to other uses, are the outstanding example of this. At first, it seems that we have here a case in which labor can exploit capital, if not permanently, at least over a long period; and where demand is not expanding, capital does appear to be definitely exploitable. Yet, even in the extreme case of absolute immobility of capital, we can conceive of factors likely to cause some degree of elasticity. Quite apart from the possible substitution of labor-saving equipment new means of economizing labor are almost certain to become profitable when it is more expensive.

APPARENT EXPLOITABILITY OF IMMOBILE FACTORS MAY PROVE ILLUSORY

In practice, for many reasons, when considerable rises in general costs cannot be passed on to the consumer, some part of the total capital equipment will be closed down. There will most likely be a hard struggle before such action is considered, but as soon as it becomes clear that absolute loss cannot be avoided on the operation of a particular section of plant, then it will be laid idle. In such a case a new equilibrium will be suddenly realized after a time, and at a single moment a large number of workers may be at once dismissed. How soon such a result will follow any increase of costs will depend upon how near the unprofitable point the unit of plant involved happens to be before that increase. This suggests that in practice such elasticity of demand for labor as there is, is effective, so to speak, “in jerks.” Increased wages which occasion little reduction in numbers employed might, if raised a little further, result in a considerable reduction. Hence, whereas it is theoretically possible, from the factors we have so far considered that, in particular cases, labor stands to gain, it must be remembered that whether the necessary theoretical conditions will be present or not in any case will be in some degree a matter of chance. Unless the true position is realized adequately in each case a rise in wages may often result in a large drop in numbers employed.

WHEN SUCH POLICIES BECOME NORMAL, NO CO-OPERANT FACTOR IS EXPLOITABLE

But however strong the probability that capital will be exploitable in such circumstances, we cannot validly generalize from the particular. If it were really normal for labor to exploit capital invested in this class of undertaking, the result would be that less would be invested in this class. Owing to the risk of such exploitation capital would be diverted to channels which, through that risk, would become relatively profitable. New capital is absolutely mobile. Or, to put the matter in more general terms, resources are attracted to particular productive channels in the light of the claims on the value of the product made by co-operant factors. Where competition exists there is no expectation that the size of other claims will be permanent except for the contract period; but resources will only be directed into channels in which they must become immobile in the light of the probable future variation through competition of the terms demanded by the others. Where artificial interferences through monopoly or State regulations are general it is in the light of the expected course of their results that resources will be attracted. Thus, once collective bargaining or legal enactment becomes the normal policy, no co-operant factor of producion is in itself exploitable.

THE SIZE OF THE UNIT OF SUPPLY IS IRRELEVANT

The size of the technical unit of supply makes no difference to this principle at all. The supply of plant that is only possible in large units reacts to intensification of demand in exactly the same way as does plant for industries of different form, except that it does so “in jerks.” Thus, although a particular increase in wages costs may not result in a large falling off in numbers employed it may have prevented a large increase which was imminent. In practice, these considerations are somewhat masked by the fact that such concerns are themselves in some degree monopolistic and can withstand increased costs up to a point by placing a further burden on the consumer.

EXPLOITATION OF “CAPITAL” A BREACH OF FAITH WITH INVESTORS IN IMMOBILE RESOURCES

The exploitation of capital by particular groups of workers is, thus, impossible except during the first transition from competition to monopoly or regulation; and such exploitation might be regarded as a breach of faith on the part of Society with those who have chosen to invest in relatively immobile resources. We must, however, bear in mind that the probability of aggregate gain is, even in this class of case, not high. (As we have seen above.)

“LABOR” NO MORE EXPLOITABLE THROUGH IMMOBILITY THAN “CAPITAL”

In the same way, the general exploitation of “labor” by “capital” through its immobility can be shown to be equally impossible. Once again, the question can be approached by considering elasticity of supply, which is probably greatest among laborers, the completely unspecialized class. Workers of this kind, although their territorial mobility may be small (in so far as they correspond to the most poorly paid class), have yet a wide range of alternative occupations. The chief restrictions on their mobility are those which have been created by labor organizations themselves and are clearly against the advantage of owners of capital generally. Here also, as with the supply of capital, in the very short run the supply of labor is inelastic and capable, in particular cases and during the first transition from competition to monopoly among capitalists, of temporary exploitation. But with the progress of modern industrial organization and technique and the growing tendency for labor to lose its specialization, as skill is thrown more and more on to the machine, the power even in these circumstances to obtain short-run gains through immobility becomes less and less possible. In practice, for many reasons, reductions of wages sought for by capitalists involve relatively small percentages except in times of monetary disturbance when prices generally are fluctuating rapidly. Undue lowering of wages can be met by a gradual migration of the more efficient workers to the considerable disadvantage of the injudicious firm. There is no parallel in labor to the immobility of huge capital units.

DELIBERATELY IMPOSED RESTRICTIONS ON MOBILITY OF LABOR NOT ADVANTAGEOUS TO CAPITAL IN GENERAL

The principle remains the same even if, for the sake of argument, we suppose it to be possible for the capitalist to impose deliberate restrictions on the mobility of labor. In so far as a capitalist can, by any device, prevent his workers from moving to take advantage of the labor market elsewhere he can, it seems, obviously gain at their expense. The more effective his power, it appears, the greater will be his gain. Surely, it will be said, laws or institutions designed to keep agricultural workers on the land, for instance, will benefit the farming community in so far as they succeed. The answer is that more of the other resources of the country will remain in or flow into that form of enterprise. In cases where such restrictions have been imposed under changing conditions, and until a new equilibrium has been reached, and so long as competition from existing or potential farmers can be prevented, the profitableness of farming will be above the normal. But it hardly seems likely that suppression of competition would be possible in the case of so large a group, even for a short time. In any case it does not follow from this that labor in general will lose relatively to capital in general, even in the short run (including all other factors of production under the heading “capital”). For labor elsewhere will probably benefit through the relative scarcity of labor, and capitalists elsewhere lose through that same scarcity. Further analysis of this unimportant point would have to consider the effect of relative elasticities of demand for the different factors in competitive and non-competitive channels. But this is a question on which we can formulate so few valid generalizations that it seems desirable to regard it as a chance consideration affecting the result.

NEW LABOR COMING FORWARD UNEXPLOITABLE EVEN IN THE SHORT RUN

The same reasoning applies in regard to incidental immobility, i.e. that which is not the result of deliberate contrivance. Where there has been temporary exploitation of an immobile labor group, workers in other groups will tend to lose, not to gain, as it is overcome; and capitalists elsewhere will tend to gain as labor becomes more plentiful to them. Trade-union demarcations and artificial restriction on entrance to different occupations, State regulation of wages, and generally policies which hinder labor transference–all tend to create the conditions in which exploitation of the kind we are considering may appear to be possible in particular cases. It seems that if a large number of occupations have their entrance restricted, openings for adequate alternative employment for those workers who feel themselves to be unfairly treated will be so limited that they will have to lower their supply price considerably in order to get absorbed. Such short-run monopoly-gains as are possible to capitalists through the existence of such conditions must, of course, be offset by the monopoly-gains of those groups of workers whose protective system alone enables the capitalist to exploit. But in regard to the constant flow of new labor coming forward, however irrational we may believe the choice of trades to be, we may yet presume that trades whose workers are being “exploited” by employers owing to their acquired or incidental immobility will be avoided.

THE CONSUMER ALONE IS ULTIMATELY EXPLOITABLE BY COLLECTIVE ACTION

To sum up our main conclusions so far: we have seen that combined labor cannot be said to exploit the co-operant factors of production possessed by the capitalist, and that labor combinations do not enable workers in general to exploit capital in general. The ultimate gains of workers by combination when not at the expense of excluded competitors are obtained by exploiting the consumer; for the extent to which capital will be excluded by decreased supply of labor at a higher cost per unit will depend upon elasticity of demand for the commodity, which will determine the margin which gives the normal rate of return. We have also seen that combined capital not practicing exclusion of those whom competitive profits would attract cannot be said to gain by exploiting the worker but by exploiting the consumer. Briefly, the import of these conclusions may be summarized as follows:

No factor of production can maintain the cooperation of another factor by offering it or leaving it an amount of the product less than the value of its net product elsewhere. The extent to which demand for the product falls off as its price is raised determines the quantity of one factor that will be driven away by another factor getting a larger share. Hence, we can say that monopoly-gains by any factor are ultimately obtained by exploiting the consumer, although incidental losses are usually thrown upon other co-operant factors.

WHY THE ERRONEOUS BELIEF HAS ARISEN

The widespread belief that monopoly-gains (or gains by wage regulation) are obtainable by labor and capital at one another’s expense seems to have arisen (1) from the belief that if any or all wage rates are raised artificially, workers as a whole will get more; and (2) from the habit of regarding “labor” and “capital” as in opposition rather than as co-operators in production.32

LOWER WAGE RATES MAY MEAN HIGHER AGGREGATE EARNINGS

The popular view ignores completely the possibility that the aggregate amount paid in wages might be increased by a shifting (directly or through recruitment) of workers from lower-paid to higher-paid jobs, even if there were many substantial reductions in wage rates and (what would be unlikely to happen in practice) there was no corresponding rise in the less well-paid jobs. Still less does the popular view take account of the increase in the aggregate welfare of the workers which would result from greater equality caused by such a redistribution.

AS THE CONSUMER IS ALONE EXPLOITABLE WE EXPECT TO FIND AND DO FIND “JOINT MONOPOLIES”

The habit of regarding labor and capital as in opposition has been encouraged by economic text-books. It may be convenient for some purposes to represent their relations to one another by supply and demand schedules, so long as it is not forgotten that the ultimate demand for both of them is the demand for their jointly produced product. As monopoly gains, both to workers’ and to capitalists’ combinations, are ultimately obtained solely by limiting the supply of the commodities, it is not surprising that we find joint monopolies, that is, different co-operant factors of production consciously or tacitly practicing monopoly together and dividing the spoils. A joint monopoly is a greatly strengthened one, and represents a concentration of interests against those excluded. It is a particular case of vertical combination (generally tacit). Often, it will definitely pay an employers’ monopoly that its employees shall combine. If there is any body of workers free to cooperate with a rival manufacturer whom monopoly prices would bring into the field the capitalist’s monopoly is threatened; and this accounts for the frequent agreement between an employers’ combination and a trade union for the payment of a high wage provided that the union will see that no workers at all in that occupation shall be employed at less. In modern times the State has intervened to strengthen such joint monopolies, either by making agreements arrived at by industrial councils binding on the trade or by direct legal enactment. Combined workers themselves have nearly always encouraged their employers to combine also. They have been strong advocates of price agreements, have roundly condemned “cut-throat” competition, and have asked for State help to protect “the good employer.” In joint monopoly is to be found the explanation of most trade-union action in these times, and of much capital combination at all times.

THE INDETERMINATENESS OF “THE QUOTA”

There is always an arbitrary element in the division of monopoly spoils. In the case of the quota system with a capital monopoly, or a system of work-sharing by a trade union, the problem is always there of deciding how many shall be allowed to participate at all. In the case of a trade union it will probably be the normal number employed before the exercise or further exercise of monopoly power. And then we get the problem of how different kinds of participants shall share in the proceeds. In the case of a group of workers engaged on the same process “the standard rate” usually settles the matter, although there may still be some grading according to ability. When we get two groups of workers sharing the monopoly but engaged on non-competing or complementary (co-operant) processes, some formula roughly based on “justice” may be applied; e.g. we may get the proceeds divided more or less in proportion to former competitive earnings, or supposed difficulty of the task or technical status, etc. There is, however, no certain exterior principle such as the market to refer to in this division: from some points of view it is a purely arbitrary affair. In regard to considerations which can be usefully expressed or represented in schedules or curves, the division among them is “indeterminate.” As a rule, equal division per head of workers seems to be sufficiently just: they are seldom conscious of any serious divergence of interest between different groups. Yet, in essence, the problem of the division between workers of the monopoly increment is the same as in the case of joint monopoly between capital and labor.

THE ADVANTAGE IN COLLUSION

Now joint monopolists may either act independently, or in collusion (deliberate or tacit). If they act independently and seek to maximize their own share of the monopoly-gain, the aggregate gain will be, other things being equal, smaller than if they act in collusion. For in acting independently they will each restrict their contribution in response to the terms on which they can get the other factors to cooperate. If any one factor only is a monopolist, it will presumably so limit its contribution as to maximize the return to it, given what competition commands shall be paid to the other factors. Any increase in costs to that monopolized factor (whether due to monopoly of another factor or not is immaterial) will presumably cause it to reduce its contribution still further in order to maximize, not the aggregate received for the commodity, but its share of the total. As it is to the obvious advantage of all factors considered together that the greatest aggregate shall be obtained, we can say that each monopolist factor seeking its own end does not serve their general good. No matter what division of the proceeds finally results (within the range of indeterminateness), collusion in regard to output will benefit all factors, for no factor need get less and all may get more than under independent action. Hence, we may expect to find, and in practice we do find, some measure of tacit collusion, or forebearance and “reasonableness” among co-operant monopolistic groups.

JOINT MONOPOLY IN THE EARLY NINETEENTH CENTURY

It is impossible in this essay adequately to indicate the significance in economic history of joint monopoly of this kind. All that can be done is to suggest grounds for the belief that its importance has been greatly under-estimated. It has already been pointed out that practically all the combinations among employers that were revealed by the inquiries in England in 1824 and 1825 were either retaliatory against unions exploiting “the strike in detail” or else the employers’ side of joint monopolies operating with the encouragement and connivance of the workers. Francis Place merely wanted the Combination Laws repealed, and had no interest in bringing out the true significance of the evidence which was brought forward. His comment on an obvious case of joint monopoly was: “Employers advised the men to combine. Thus it appears the law is so iniquitous that those in whose favour it was made encourage the men to break it.” (Note written on his copy of the Report of the 1824 Select Committee on Artisans and Machinery, p. 279). Even in the days when combinations were illegal there is much evidence of employers encouraging their men to combine. There seems to have been a good deal of it among the Framework Knitters, directly fostered by the masters.33 And we find just as frequently cases of organized workmen petitioning their employers and urging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to get their masters to organize.34 The rules of the Journeyman Paper-Makers of 1823 included a doggerel verse beginning with the ominous words: “May masters with their men unite.”35 Other cases of joint monopoly (or attempts to protect the “honourable masters” as they were called), before 1824 were found among the Rochdale weavers,36 the Stockport Cotton Spinners, the Dublin Saddlers, the Hosiers, the Shipwrights, the Calico Printers, and many other established trades of that day.37 It was always the “honourable employers” whom they sought to protect; and the same phraseology remains today. In those early times they had even conceived of the utility of the device known today as “extension of agreements” which is found in conjunction with legislation concerning industrial councils and arbitration courts in so many parts of the world. In 1824 the Lace-Makers petitioned Sir J. Hobhouse to introduce a bill “for regulating wages by the decisions of a board composed of selected masters and men, and making the scale thus agreed upon binding on the trade. . . .”38 He refused.

INADEQUATE RECOGNITION OF THE SIGNIFICANCE OF “JOINT MONOPOLY”

The nineteenth century is full of further examples of joint monopoly. Yet, as already pointed out, it has received singularly little recognition except by casual comment of unimportant writers. A pamphlet in 1867 recognized that “the means which secure the workmen the monopoly of labour, secure the masters also from any heavy pressure of competition.”39 In 1905, a writer on Employers’ Associations recognized that they were “but a logical step in, and the natural complement of, the trade-union movement,” and that they were “an essential feature (of it) without which it would be impossible for it to accomplish the purposes for which it exists.”40 But we seldom find so certain an understanding of this relation between employers’ and workers’ combinations. This is perhaps because formal combinations between capital and labor have been rare. In the late ’nineties of last century a number of open alliances of this kind were flourishing in England in certain hardware, furniture and china trades. The leading advocate of this form of organization was one E. J. Smith, who had no very clear idea of the economic implications of the developments he advised. His schemes received the cordial approval of the Economic Review and were by no means regarded as against the general interest by the Economic Journal.41 The injurious and monopolistic nature of such organizations was, however, pointed out by Prof. Cannan42 and by Prof. Pigou.43 About the same time similar organizations had grown up on the Continent—“Les Syndicats Mixtes” of France. None of these alliances resulted in very close bodies and they do not appear to have survived for long.

IMPORTANCE OF JOINT MONOPOLY IN MODERN SOCIETY

If open and deliberate alliances like these have been rare, cases of tacit mutual support of each other by capitalist and labor groups have been widespread, and are typical of modern economic society. They have been encouraged and developed by tariff and industrial legislation—especially by arbitration, conciliation, and wage regulation acts. In joint monopoly, the writer believes, we have the real clue to the understanding of “anti-sweating” movements, which have not yet, in his opinion, received adequate impartial study. In the present stage of development, when the size of the monopoly unit is tending to become larger, and when capitalist monopoly tendencies are made respectable by the adoption of the propagandist euphemism “rationalization,”44 the same relationship is there on a larger scale. Dr. Robert Liefmann’s proposal that trade-union representatives should be admitted to cartel directorates and that employers should have permanent representatives on trade-union executives is a good manifestation of it.

OUR ASSUMPTION HERE OF RATIONAL ACTION BY MONOPOLISTS NOT JUSTIFIABLE IN PRACTICE

The practical results of the widespread existence of collective bargaining may be more harmful than this discussion has suggested. For convenience and simplicity we have made here certain assumptions in regard to rational action on the part of combinations which cannot be justified in practice. The truth is that only the vaguest guesses as to the long-run elasticity of demand for products are possible in the actual economic world; and we find, as a result, that bilateral monopoly creates “indeterminateness” of wage rates in another sense—through causing the price and wage-fixing mechanism to lose its sensitiveness. There arises a process of higgling between large and clumsy units in which the forces determining the settlement have only a remote connection with the interests of those members of the community who will be affected by the result. So undefinable are the forces which in such circumstances actually bring about the result that the adjective “indeterminate” well fits the case. Within the complex of factors determining price there are none which are sufficiently constant to be honored with the name of “cause.” It often appears to the writer that the continued appearance of industrial depression in Great Britain is primarily due to the widespread existence of monopolistic bodies on both sides which (quite apart from their having caused equipment and labor to remain idle by policies aiming at “not spoiling the market”) have destroyed the sensitiveness of the price and particularly the wage system.

EXPLOITATION OF THE CONSUMER HITS THE WORKING-CLASS MOST HEAVILY

The above analysis has sought to show that the ultimate gains of trade unions as well as monopolies of capital are obtained either by the “exploitation” of the consumer or the exclusion of competitors (although in the latter case, of course, the consumer also loses). In regard to gains at the consumers’ expense, the effect upon distribution will depend upon the extent to which the owners of different factors of production are the final consumers of the product concerned. In fact, we find that the greater part of the demand for consumers’ goods is exercised by relatively poor people, and most of the commodities in whose manufacture the working-class are employed are consumed by themselves as a class. This is a question of fact which has often been commented on.45 Hence, apparent gains by workers at the expense of the consumer are likely, in general, to cause a more than proportionate real loss to them. If trade unions had, and exercised, the power to break down capitalists’ monopolies they would benefit the workers of the community as consumers, but in practice their effect is to bolster up the capitalist’s exclusiveness and to erect a dike (against potential competition) covering an even larger area.

TRADE UNIONS ARE THE WRONG INSTITUTION FOR ATTEMPTING TO IMPROVE DISTRIBUTION

Workers’ combinations are impotent to secure a redistribution of the product of industry in favor of the relatively poor. Such a result cannot be achieved by interference with the value mechanism. Economists are all clearly conscious of the desirability of a more equal distribution of wealth; indeed, they base their case for it upon the firm foundation that it will lead to a maximization of economic welfare, and not upon abstractions such as “natural right” or “justice.” There are means of achieving greater equality that will still allow the value mechanism to function freely. It can be achieved by the thoughtful modification of economic institutions. But the consideration of this point lies outside the scope of this essay.

THE “LEGITIMATE” FUNCTIONS OF TRADE UNIONISM ARE PERHAPS CONCERNED WITH OTHER MATTERS THAN WAGE RATES

The rate of wages which is best for the workers as a whole is that which is determined in the free market. The main useful function of collective bargaining may perhaps be negotiating about those things which, unlike prices or rates of wages, are not adequately determined by the market process. For example, hours of work and conditions of work are things that intimately concern workmen and are best decided collectively. They are a social matter, and ought, if possible, to express the will of the majority. “The employer” is concerned not so much with wages, hours, or conditions of work as with labor costs. Once it is recognized that shorter hours, or extra workshop comforts that cost money and do not add to efficiency, tend, in the absence of monopoly, to reduce wages, collective bargaining becomes an excellent thing. So long as one of the factors making up total labor costs is allowed to vary in harmony with economic change the value mechanism in society can continue to work. One cost factor at least must be a variable, and it is desirable that it should be the one which is most sensitive to change and therefore the most reliable index to guide human effort. That condition is satisfied by the rate of wages.

NOTE.—Since the final proofs of this book were returned the author has seen the manuscript of an acute and lucid article by Mr. J. R. Hicks which criticizes the contributions of Edgeworth and Marshall to the theory of wage indeterminateness. The article will, it is understood, shortly appear in the Economic Journal. It gives strong general support to the main thesis of this book, and in particular fills the gap left by the omission here of the detail of Edge-worth’s discussion.

______________

46. Lectures on Politicial Economy, 1834, p. 46.

47. Ibid., p. 67.

48. Ibid., p. 195.

49. Ibid., p. 194.

50. Fleeming Jenkin, Collected Papers, p. 22.

51. At first published as articles, then incorporated in On Labour . . ., 1869. Two Editions,

52. Ibid., Second Edn., p. 44.

53. Ibid., p. 49.

54. Fortnightly Review, 1869—reprinted in Essays and Dissertations, Vol. IV.

55. Thornton had used the word “indeterminateness” in regard to the size of the wage-fund.

56. He represented prices on the horizontal axis.

57. Fleeming Jenkin, Collected Papers, p. 85.

58. Edgeworth, Papers Relating to Political Economy, Vol. II, p. 319.

59. Econ. Jour., 1900, p. 381.

60. Compare Edgeworth’s review of Davidson’s “Bargain Theory of Wages” in the Economic Journal, 1899.

61. Econ. Jour., 1899, p. 231.

62. The word “indirectly” seems the wrong one. If he had said “generally” it would have been more true; for indeterminateness can exist where all transactions take place through the monetary mechanism.

63. The example of the sale of an estate was discussed in a not dissimilar manner in T. J. Dunning’s Trade Unions and Strikes . . ., 1859, p. 6.

64. As a matter of fact, it is very easy to conceive of an increment to a house, as, indeed, of most other large properties.

65. Econ. Jour., 1900, p. 381.

66. Especially by Prof. Pigou. “It is only because there is a margin of indeterminateness that the possibility and the need of (arbitration) exists” (Principles and Methods of Industrial Peace, p. 36).

67. Mathematical Psychics.

68. Jevons, The State in Relation to Labour, 1882, p. 106.

69. Ibid., p. 94.

70. Ibid., p. 93.

71. L. L. Price, Economic Science and Practice, p. 192. (Also in his Industrial Peace.)

72. Industrial Combinations, pp. 69-70.

73. Economics of Enterprise, p. 482.

74. This must not, of course, be taken as implying a condemnation of “large” properties. In the community of the world a very large property indeed may, through direct competition and that of substitutes and alternatives, be quite unable to exploit any monopoly power at all. But the usual defense of private property on economic grounds does not necessarily hold in such cases. That defense presupposes the most complete mobility and responsiveness of every unit of resources. It is only when this mobility and responsiveness exists that there can be any certain validity in what is thought to be a common assumption of economists that the price determined under private enterprise is the one which best serves the common good.

75. The elasticity of supply of any “non-exploitable” co-operant factor in this sense will influence the degree to which it is desirable to exploit any other co-operant factor or the consumer.

76. When a fund such as “unemployment donation” (provided by State or charity) exists to remunerate workers excluded, the whole body of workers may conceivably gain as a whole. But this represents a direct transference of society’s income which could have been effected equally well without trade union action, the resulting unemployment and its incidental loss.

77 In so far as they are competitors they may gain at one another’s expense by excluding units of competing resources, e.g. successful labor opposition to labor-saving machinery, etc. It is not suggested that such a policy can be to the general advantage of either party. The reverse can be shown.

78. E.g., Evidence of Thorpe and Ben Taylor. Report of Select Committee on Artisans and Machinery, 1824, pp. 274, 281.

79. Place Add. MSS. 27799:147-8.

80. Report of Select Committee on Combination Laws, 1825, p. 59

81. Ibid., p. 154.

82. The Reports of the Committees of 1824 and 1825 already referred to are full of evidence, direct and indirect on this point, as are also the Place MSS. and cuttings. We find the same phenomenon during the seventeenth and eighteenth centuries.

83. Felkin, History of the Machine Wrought Hosiery . . . etc., p. 344.

84. H. M. White, The Principles of Trade Unionism, 1867, p. 17.

85. Quarterly Journal of Economics, 1905, p. 110.

86. See paragraph, obviously written by Edgeworth, in Econ. Jour., 1898, p. 227.

87. Econ. Jour., 1900, p. 63.

88. Principles and Methods of Industrial Peace.

89. It is deplorable that this term has become so closely associated in the Press with quota schemes and price-fixing cartels. Unfortunately, the stress is nearly always on “ration” not “rational.”

90. E.g., cf. Pigou, Economics of Welfare, Second Edn., pp. 646-8,

• 1. Lectures on Politicial Economy, 1834, p. 46.
• 2. Ibid., p. 67.
• 3. Ibid., p. 195.
• 4. Ibid., p. 194.
• 5. Fleeming Jenkin, Collected Papers, p. 22.
• 6. At first published as articles, then incorporated in On Labour . . ., 1869. Two Editions,
• 7. Ibid., Second Edn., p. 44.
• 8. Ibid., p. 49.
• 9. Fortnightly Review, 1869—reprinted in Essays and Dissertations, Vol. IV.
• 10. Thornton had used the word “indeterminateness” in regard to the size of the wage-fund.
• 11. He represented prices on the horizontal axis.
• 12. Fleeming Jenkin, Collected Papers, p. 85.
• 13. Edgeworth, Papers Relating to Political Economy, Vol. II, p. 319.
• 14. Econ. Jour., 1900, p. 381.
• 15. Compare Edgeworth’s review of Davidson’s “Bargain Theory of Wages” in the Economic Journal, 1899.
• 16. Econ. Jour., 1899, p. 231.
• 17. The word “indirectly” seems the wrong one. If he had said “generally” it would have been more true; for indeterminateness can exist where all transactions take place through the monetary mechanism.
• 18. The example of the sale of an estate was discussed in a not dissimilar manner in T. J. Dunning’s Trade Unions and Strikes . . ., 1859, p. 6.
• 19. As a matter of fact, it is very easy to conceive of an increment to a house, as, indeed, of most other large properties.
• 20. Econ. Jour., 1900, p. 381.
• 21. Especially by Prof. Pigou. “It is only because there is a margin of indeterminateness that the possibility and the need of (arbitration) exists” (Principles and Methods of Industrial Peace, p. 36).
• 22. Mathematical Psychics.
• 23. Jevons, The State in Relation to Labour, 1882, p. 106.
• 24. Ibid., p. 94.
• 25. Ibid., p. 93.
• 26. L. L. Price, Economic Science and Practice, p. 192. (Also in his Industrial Peace.)
• 27. Industrial Combinations, pp. 69-70.
• 28. Economics of Enterprise, p. 482.
• 29. This must not, of course, be taken as implying a condemnation of “large” properties. In the community of the world a very large property indeed may, through direct competition and that of substitutes and alternatives, be quite unable to exploit any monopoly power at all. But the usual defense of private property on economic grounds does not necessarily hold in such cases. That defense presupposes the most complete mobility and responsiveness of every unit of resources. It is only when this mobility and responsiveness exists that there can be any certain validity in what is thought to be a common assumption of economists that the price determined under private enterprise is the one which best serves the common good.
• 30. The elasticity of supply of any “non-exploitable” co-operant factor in this sense will influence the degree to which it is desirable to exploit any other co-operant factor or the consumer.
• 31. When a fund such as “unemployment donation” (provided by State or charity) exists to remunerate workers excluded, the whole body of workers may conceivably gain as a whole. But this represents a direct transference of society’s income which could have been effected equally well without trade union action, the resulting unemployment and its incidental loss.
• 32In so far as they are competitors they may gain at one another’s expense by excluding units of competing resources, e.g. successful labor opposition to labor-saving machinery, etc. It is not suggested that such a policy can be to the general advantage of either party. The reverse can be shown.
• 33. E.g., Evidence of Thorpe and Ben Taylor. Report of Select Committee on Artisans and Machinery, 1824, pp. 274, 281.
• 34. Place Add. MSS. 27799:147-8.
• 35. Report of Select Committee on Combination Laws, 1825, p. 59
• 36. Ibid., p. 154.
• 37. The Reports of the Committees of 1824 and 1825 already referred to are full of evidence, direct and indirect on this point, as are also the Place MSS. and cuttings. We find the same phenomenon during the seventeenth and eighteenth centuries.
• 38. Felkin, History of the Machine Wrought Hosiery . . . etc., p. 344.
• 39. H. M. White, The Principles of Trade Unionism, 1867, p. 17.
• 40. Quarterly Journal of Economics, 1905, p. 110.
• 41. See paragraph, obviously written by Edgeworth, in Econ. Jour., 1898, p. 227.
• 42. Econ. Jour., 1900, p. 63.
• 43. Principles and Methods of Industrial Peace.
• 44. It is deplorable that this term has become so closely associated in the Press with quota schemes and price-fixing cartels. Unfortunately, the stress is nearly always on “ration” not “rational.”
• 45. E.g., cf. Pigou, Economics of Welfare, Second Edn., pp. 646-8,
• 46The earlier economists appeared to assume, either tacitly or expressly, that the indefiniteness of any particular bargain was of no importance. They were merely concerned with market-price, which they regarded as both the resultant of the innumerable individual bargains and the index of the level to which all prices would tend, and from which, in the presence of competition, they could not greatly diverge. Longfield, for instance, started with the case of barter, but did not think it worth while analyzing, as “In all civilised societies goods are exchanged for money or sold.” Moreover, while he recognized quite clearly the opposition of interest which led every individual “to buy as cheap and to sell as dear” as he could, he did not go to the trouble of pointing out the possible ratios of exchange which could arise in any individual case, because in fact, we have “the law of mutual competition.” Some degree of freedom of competition he seemed to take as axiomatic. “As this state of freedom nearly exists in all civilised countries,” he wrote (after a reference to the forces in the labor market), “the principle just mentioned is not to be considered as a hypothetical axiom, but both it and the consequences drawn from it are truths of considerable importance.” In a hypothetical isolated case, he knew that the result of a bargain between two people would be indeterminate, although he did not use this word; but the ratio resulting from that theoretical example had no relation to any rate that would be established in practice. “A labourer working for himself,” he wrote, “would find it to his interest to give 19/20ths of the produce of his labour to the person who would lend him (a spade), if the alternative was that he should turn up the earth with his naked hands.” But this rate is not paid because of the competition of capital for employment and because the profits of the least-paid capital “regulate the profits of the rest.” A writer in a later age might have expressed the same thought more clearly, perhaps, by saying that, whatever the “curve of indifference” of the laborer might be, he would not have to pay more than the market price for the use of capital. Neither profits nor wages, he thought, were determined by the “intensity of demand,” which is “the sacrifice we would make to obtain any commodity, if the alternative were to be compelled to remain without it.” Longfield has been quoted at length because he was here deliberately setting on one side as unimportant, ideas which were later thought to be novel, revolutionary and fundamental. And his judgment seems to have been right.
• 47The earlier economists appeared to assume, either tacitly or expressly, that the indefiniteness of any particular bargain was of no importance. They were merely concerned with market-price, which they regarded as both the resultant of the innumerable individual bargains and the index of the level to which all prices would tend, and from which, in the presence of competition, they could not greatly diverge. Longfield, for instance, started with the case of barter, but did not think it worth while analyzing, as “In all civilised societies goods are exchanged for money or sold.” Moreover, while he recognized quite clearly the opposition of interest which led every individual “to buy as cheap and to sell as dear” as he could, he did not go to the trouble of pointing out the possible ratios of exchange which could arise in any individual case, because in fact, we have “the law of mutual competition.” Some degree of freedom of competition he seemed to take as axiomatic. “As this state of freedom nearly exists in all civilised countries,” he wrote (after a reference to the forces in the labor market), “the principle just mentioned is not to be considered as a hypothetical axiom, but both it and the consequences drawn from it are truths of considerable importance.” In a hypothetical isolated case, he knew that the result of a bargain between two people would be indeterminate, although he did not use this word; but the ratio resulting from that theoretical example had no relation to any rate that would be established in practice. “A labourer working for himself,” he wrote, “would find it to his interest to give 19/20ths of the produce of his labour to the person who would lend him (a spade), if the alternative was that he should turn up the earth with his naked hands.” But this rate is not paid because of the competition of capital for employment and because the profits of the least-paid capital “regulate the profits of the rest.” A writer in a later age might have expressed the same thought more clearly, perhaps, by saying that, whatever the “curve of indifference” of the laborer might be, he would not have to pay more than the market price for the use of capital. Neither profits nor wages, he thought, were determined by the “intensity of demand,” which is “the sacrifice we would make to obtain any commodity, if the alternative were to be compelled to remain without it.” Longfield has been quoted at length because he was here deliberately setting on one side as unimportant, ideas which were later thought to be novel, revolutionary and fundamental. And his judgment seems to have been right.
• 48The earlier economists appeared to assume, either tacitly or expressly, that the indefiniteness of any particular bargain was of no importance. They were merely concerned with market-price, which they regarded as both the resultant of the innumerable individual bargains and the index of the level to which all prices would tend, and from which, in the presence of competition, they could not greatly diverge. Longfield, for instance, started with the case of barter, but did not think it worth while analyzing, as “In all civilised societies goods are exchanged for money or sold.” Moreover, while he recognized quite clearly the opposition of interest which led every individual “to buy as cheap and to sell as dear” as he could, he did not go to the trouble of pointing out the possible ratios of exchange which could arise in any individual case, because in fact, we have “the law of mutual competition.” Some degree of freedom of competition he seemed to take as axiomatic. “As this state of freedom nearly exists in all civilised countries,” he wrote (after a reference to the forces in the labor market), “the principle just mentioned is not to be considered as a hypothetical axiom, but both it and the consequences drawn from it are truths of considerable importance.” In a hypothetical isolated case, he knew that the result of a bargain between two people would be indeterminate, although he did not use this word; but the ratio resulting from that theoretical example had no relation to any rate that would be established in practice. “A labourer working for himself,” he wrote, “would find it to his interest to give 19/20ths of the produce of his labour to the person who would lend him (a spade), if the alternative was that he should turn up the earth with his naked hands.” But this rate is not paid because of the competition of capital for employment and because the profits of the least-paid capital “regulate the profits of the rest.” A writer in a later age might have expressed the same thought more clearly, perhaps, by saying that, whatever the “curve of indifference” of the laborer might be, he would not have to pay more than the market price for the use of capital. Neither profits nor wages, he thought, were determined by the “intensity of demand,” which is “the sacrifice we would make to obtain any commodity, if the alternative were to be compelled to remain without it.” Longfield has been quoted at length because he was here deliberately setting on one side as unimportant, ideas which were later thought to be novel, revolutionary and fundamental. And his judgment seems to have been right.
• 49The earlier economists appeared to assume, either tacitly or expressly, that the indefiniteness of any particular bargain was of no importance. They were merely concerned with market-price, which they regarded as both the resultant of the innumerable individual bargains and the index of the level to which all prices would tend, and from which, in the presence of competition, they could not greatly diverge. Longfield, for instance, started with the case of barter, but did not think it worth while analyzing, as “In all civilised societies goods are exchanged for money or sold.” Moreover, while he recognized quite clearly the opposition of interest which led every individual “to buy as cheap and to sell as dear” as he could, he did not go to the trouble of pointing out the possible ratios of exchange which could arise in any individual case, because in fact, we have “the law of mutual competition.” Some degree of freedom of competition he seemed to take as axiomatic. “As this state of freedom nearly exists in all civilised countries,” he wrote (after a reference to the forces in the labor market), “the principle just mentioned is not to be considered as a hypothetical axiom, but both it and the consequences drawn from it are truths of considerable importance.” In a hypothetical isolated case, he knew that the result of a bargain between two people would be indeterminate, although he did not use this word; but the ratio resulting from that theoretical example had no relation to any rate that would be established in practice. “A labourer working for himself,” he wrote, “would find it to his interest to give 19/20ths of the produce of his labour to the person who would lend him (a spade), if the alternative was that he should turn up the earth with his naked hands.” But this rate is not paid because of the competition of capital for employment and because the profits of the least-paid capital “regulate the profits of the rest.” A writer in a later age might have expressed the same thought more clearly, perhaps, by saying that, whatever the “curve of indifference” of the laborer might be, he would not have to pay more than the market price for the use of capital. Neither profits nor wages, he thought, were determined by the “intensity of demand,” which is “the sacrifice we would make to obtain any commodity, if the alternative were to be compelled to remain without it.” Longfield has been quoted at length because he was here deliberately setting on one side as unimportant, ideas which were later thought to be novel, revolutionary and fundamental. And his judgment seems to have been right.
• 50The first clear statement of the “indeterminateness” idea the writer has found in English economic literature is in a paper read to the Royal Statistical Society in 1867 by one Jacob Waley. He argued that the sharing of the gross returns of industry between capital and labor would be “in a perpetual flux and never have time to settle into a state of stable equilibrium. . . .” He continued: “I conceive that there will in general be a large margin of uncertainty as to the division of the returns, and that the precise place at which the line is drawn will to a very considerable extent be determined by circumstances which may fairly be called fortuitous, and may be greatly influenced by a bargain between the employer and the employed.” In such a case it was quite possible that a strike would be successful. This is as clear and as moderate a statement of the theory as is to be found anywhere. There are passages in F. D. Longe’s essay which suggest that he had the idea in mind, and Fleeming Jenkin in 1868 had some conception of it. (We cannot here discuss the several interesting fallacies in Jenkin’s able work.) He said that the division of the produce between capital and labor was “purely a question of bargain”; and it could legitimately vary “within very wide limits.” In 1869 Thornton helped to spread the idea by a violent yet vague attack on supply and demand generally (On Labour . . ., 1869). At times, when reading his book, one imagines that he must have regarded the price mechanism as a completely arbitrary affair; but the work is so full of apparent contradictions that one can never be sure of his real meaning. (We are giving so much attention to Thornton because of the extent of his influence on this topic and because his contribution received extravagant praise from Mill.) “The price, whether of labour or anything else, in no case whatsoever depends upon the proportion between supply and demand,” was his contention. “The propositions of supply and demand do not hold good under ordinary circumstances.” For supply and demand he substituted “competition,” which would suggest a mere verbal quibble; but he asked: “What regulates competition?” (p. 79) and replied: “Nothing. There is no regularity about competition—competition is not regulated at all . . . there is no law of competition,” (p. 80). We cannot follow him into the arguments which led him to this strange conclusion, but the notion seems to have arisen out of his expansion of a few special and for the most part quite unlikely cases into generalizations. This is so in spite of the fact that he claimed to have covered nearly the whole field of possible cases with his examples. Mill did not fail to see this point; he admitted that most of the examples were, “on the face of them, altogether exceptional,” but it was out of a criticism of some of Thornton’s illustrations that he developed his theory of indeterminateness.
• 51The first clear statement of the “indeterminateness” idea the writer has found in English economic literature is in a paper read to the Royal Statistical Society in 1867 by one Jacob Waley. He argued that the sharing of the gross returns of industry between capital and labor would be “in a perpetual flux and never have time to settle into a state of stable equilibrium. . . .” He continued: “I conceive that there will in general be a large margin of uncertainty as to the division of the returns, and that the precise place at which the line is drawn will to a very considerable extent be determined by circumstances which may fairly be called fortuitous, and may be greatly influenced by a bargain between the employer and the employed.” In such a case it was quite possible that a strike would be successful. This is as clear and as moderate a statement of the theory as is to be found anywhere. There are passages in F. D. Longe’s essay which suggest that he had the idea in mind, and Fleeming Jenkin in 1868 had some conception of it. (We cannot here discuss the several interesting fallacies in Jenkin’s able work.) He said that the division of the produce between capital and labor was “purely a question of bargain”; and it could legitimately vary “within very wide limits.” In 1869 Thornton helped to spread the idea by a violent yet vague attack on supply and demand generally (On Labour . . ., 1869). At times, when reading his book, one imagines that he must have regarded the price mechanism as a completely arbitrary affair; but the work is so full of apparent contradictions that one can never be sure of his real meaning. (We are giving so much attention to Thornton because of the extent of his influence on this topic and because his contribution received extravagant praise from Mill.) “The price, whether of labour or anything else, in no case whatsoever depends upon the proportion between supply and demand,” was his contention. “The propositions of supply and demand do not hold good under ordinary circumstances.” For supply and demand he substituted “competition,” which would suggest a mere verbal quibble; but he asked: “What regulates competition?” (p. 79) and replied: “Nothing. There is no regularity about competition—competition is not regulated at all . . . there is no law of competition,” (p. 80). We cannot follow him into the arguments which led him to this strange conclusion, but the notion seems to have arisen out of his expansion of a few special and for the most part quite unlikely cases into generalizations. This is so in spite of the fact that he claimed to have covered nearly the whole field of possible cases with his examples. Mill did not fail to see this point; he admitted that most of the examples were, “on the face of them, altogether exceptional,” but it was out of a criticism of some of Thornton’s illustrations that he developed his theory of indeterminateness.
• 52The first clear statement of the “indeterminateness” idea the writer has found in English economic literature is in a paper read to the Royal Statistical Society in 1867 by one Jacob Waley. He argued that the sharing of the gross returns of industry between capital and labor would be “in a perpetual flux and never have time to settle into a state of stable equilibrium. . . .” He continued: “I conceive that there will in general be a large margin of uncertainty as to the division of the returns, and that the precise place at which the line is drawn will to a very considerable extent be determined by circumstances which may fairly be called fortuitous, and may be greatly influenced by a bargain between the employer and the employed.” In such a case it was quite possible that a strike would be successful. This is as clear and as moderate a statement of the theory as is to be found anywhere. There are passages in F. D. Longe’s essay which suggest that he had the idea in mind, and Fleeming Jenkin in 1868 had some conception of it. (We cannot here discuss the several interesting fallacies in Jenkin’s able work.) He said that the division of the produce between capital and labor was “purely a question of bargain”; and it could legitimately vary “within very wide limits.” In 1869 Thornton helped to spread the idea by a violent yet vague attack on supply and demand generally (On Labour . . ., 1869). At times, when reading his book, one imagines that he must have regarded the price mechanism as a completely arbitrary affair; but the work is so full of apparent contradictions that one can never be sure of his real meaning. (We are giving so much attention to Thornton because of the extent of his influence on this topic and because his contribution received extravagant praise from Mill.) “The price, whether of labour or anything else, in no case whatsoever depends upon the proportion between supply and demand,” was his contention. “The propositions of supply and demand do not hold good under ordinary circumstances.” For supply and demand he substituted “competition,” which would suggest a mere verbal quibble; but he asked: “What regulates competition?” (p. 79) and replied: “Nothing. There is no regularity about competition—competition is not regulated at all . . . there is no law of competition,” (p. 80). We cannot follow him into the arguments which led him to this strange conclusion, but the notion seems to have arisen out of his expansion of a few special and for the most part quite unlikely cases into generalizations. This is so in spite of the fact that he claimed to have covered nearly the whole field of possible cases with his examples. Mill did not fail to see this point; he admitted that most of the examples were, “on the face of them, altogether exceptional,” but it was out of a criticism of some of Thornton’s illustrations that he developed his theory of indeterminateness.
• 53The first clear statement of the “indeterminateness” idea the writer has found in English economic literature is in a paper read to the Royal Statistical Society in 1867 by one Jacob Waley. He argued that the sharing of the gross returns of industry between capital and labor would be “in a perpetual flux and never have time to settle into a state of stable equilibrium. . . .” He continued: “I conceive that there will in general be a large margin of uncertainty as to the division of the returns, and that the precise place at which the line is drawn will to a very considerable extent be determined by circumstances which may fairly be called fortuitous, and may be greatly influenced by a bargain between the employer and the employed.” In such a case it was quite possible that a strike would be successful. This is as clear and as moderate a statement of the theory as is to be found anywhere. There are passages in F. D. Longe’s essay which suggest that he had the idea in mind, and Fleeming Jenkin in 1868 had some conception of it. (We cannot here discuss the several interesting fallacies in Jenkin’s able work.) He said that the division of the produce between capital and labor was “purely a question of bargain”; and it could legitimately vary “within very wide limits.” In 1869 Thornton helped to spread the idea by a violent yet vague attack on supply and demand generally (On Labour . . ., 1869). At times, when reading his book, one imagines that he must have regarded the price mechanism as a completely arbitrary affair; but the work is so full of apparent contradictions that one can never be sure of his real meaning. (We are giving so much attention to Thornton because of the extent of his influence on this topic and because his contribution received extravagant praise from Mill.) “The price, whether of labour or anything else, in no case whatsoever depends upon the proportion between supply and demand,” was his contention. “The propositions of supply and demand do not hold good under ordinary circumstances.” For supply and demand he substituted “competition,” which would suggest a mere verbal quibble; but he asked: “What regulates competition?” (p. 79) and replied: “Nothing. There is no regularity about competition—competition is not regulated at all . . . there is no law of competition,” (p. 80). We cannot follow him into the arguments which led him to this strange conclusion, but the notion seems to have arisen out of his expansion of a few special and for the most part quite unlikely cases into generalizations. This is so in spite of the fact that he claimed to have covered nearly the whole field of possible cases with his examples. Mill did not fail to see this point; he admitted that most of the examples were, “on the face of them, altogether exceptional,” but it was out of a criticism of some of Thornton’s illustrations that he developed his theory of indeterminateness.
• 54The first clear statement of the “indeterminateness” idea the writer has found in English economic literature is in a paper read to the Royal Statistical Society in 1867 by one Jacob Waley. He argued that the sharing of the gross returns of industry between capital and labor would be “in a perpetual flux and never have time to settle into a state of stable equilibrium. . . .” He continued: “I conceive that there will in general be a large margin of uncertainty as to the division of the returns, and that the precise place at which the line is drawn will to a very considerable extent be determined by circumstances which may fairly be called fortuitous, and may be greatly influenced by a bargain between the employer and the employed.” In such a case it was quite possible that a strike would be successful. This is as clear and as moderate a statement of the theory as is to be found anywhere. There are passages in F. D. Longe’s essay which suggest that he had the idea in mind, and Fleeming Jenkin in 1868 had some conception of it. (We cannot here discuss the several interesting fallacies in Jenkin’s able work.) He said that the division of the produce between capital and labor was “purely a question of bargain”; and it could legitimately vary “within very wide limits.” In 1869 Thornton helped to spread the idea by a violent yet vague attack on supply and demand generally (On Labour . . ., 1869). At times, when reading his book, one imagines that he must have regarded the price mechanism as a completely arbitrary affair; but the work is so full of apparent contradictions that one can never be sure of his real meaning. (We are giving so much attention to Thornton because of the extent of his influence on this topic and because his contribution received extravagant praise from Mill.) “The price, whether of labour or anything else, in no case whatsoever depends upon the proportion between supply and demand,” was his contention. “The propositions of supply and demand do not hold good under ordinary circumstances.” For supply and demand he substituted “competition,” which would suggest a mere verbal quibble; but he asked: “What regulates competition?” (p. 79) and replied: “Nothing. There is no regularity about competition—competition is not regulated at all . . . there is no law of competition,” (p. 80). We cannot follow him into the arguments which led him to this strange conclusion, but the notion seems to have arisen out of his expansion of a few special and for the most part quite unlikely cases into generalizations. This is so in spite of the fact that he claimed to have covered nearly the whole field of possible cases with his examples. Mill did not fail to see this point; he admitted that most of the examples were, “on the face of them, altogether exceptional,” but it was out of a criticism of some of Thornton’s illustrations that he developed his theory of indeterminateness.
• 55One of Thornton’s arguments was illustrated by an auction; and he showed how the price at which a particular article would actually exchange hands might be different according to whether bidding was up or down. Mill pointed out that to establish the point of this example he had to suppose “the case to be an exception to the rule that demand increases with cheapness: and since this rule, though general, is not absolutely universal he is scientifically right . . . but . . . in the general market of the world—it is the next thing to impossible that more of the commodity should not be asked for at every reduction of the price.” In spite of this severe criticism he admitted that Thornton had “proved that the law of supply and demand is not the whole theory of the particular case . . . what he has shown is that the law is, in this particular case, consistent with two different prices, and is equally and completely filled by either of them. The demand and supply are equal at 20s. and equal also at 18s. The conclusion is not that the law is false . . . the phenomenon cannot help obeying it, but there is some amount of indeterminateness in its operation, a certain limited extent of variation is possible within the bounds of the law. . . .” This is probably the first use of the word “indeterminateness” in this sense.
• 56There were similar ideas, as has been mentioned, in an essay by Fleeming Jenkin published before Thornton’s book. After Mill’s article had appeared and after a correspondence with Jevons, Jenkin developed his ideas in a further essay, and it is probable that, through its influence on Edge worth (and Jevons), his work had more to do with the perpetuation of the idea of indeterminateness than Mill’s. Already, in 1868, Jenkin had expressed the equation of supply and demand algebraically, and in 1870 he introduced, independently of the then forgotten Cournot, and Dupuit, the device of supply and demand curves. It is not hard to imagine that such a writer should have profoundly interested the leading mathematical economist of the past generation. Edgeworth gave the two essays most enthusiastic praise, and as it was he who, more than any other thinker, elaborated the theory of indeterminateness, we can probably trace the cause to Jenkin. He (Jenkin) illustrated by supply and demand curves Thornton’s example of price in an auction, to which we have already referred, and showed that it really made the simple assumption that demand in the neighborhood of the market price was constant at all prices; that is, the demand curve became horizontal near the market price and, owing to the supply curve also being level (one quantity offered singly and without reserve), the actual market price would be indeterminate. He described the diagram as representing “an unusual state of mind.” This is putting it mildly indeed. It depends entirely upon the fortuitous coincidence of the horizontal section of an unusual and highly improbable demand curve with an absolutely rigid supply curve. Had the supply been larger or smaller to any noticeable extent, even in this example, the price would have been theoretically determinate. Developing this idea and, it seems, getting further away from economic realities, he said: “Where only a small number of transactions take place there can . . . be no theoretical market price; thus, with one buyer and seller of one thing, the demand and supply curve become two straight lines. . . . If the supply line overlaps the demand line, the sale will take place, and not otherwise; but the price is indeterminate.”
• 57There were similar ideas, as has been mentioned, in an essay by Fleeming Jenkin published before Thornton’s book. After Mill’s article had appeared and after a correspondence with Jevons, Jenkin developed his ideas in a further essay, and it is probable that, through its influence on Edge worth (and Jevons), his work had more to do with the perpetuation of the idea of indeterminateness than Mill’s. Already, in 1868, Jenkin had expressed the equation of supply and demand algebraically, and in 1870 he introduced, independently of the then forgotten Cournot, and Dupuit, the device of supply and demand curves. It is not hard to imagine that such a writer should have profoundly interested the leading mathematical economist of the past generation. Edgeworth gave the two essays most enthusiastic praise, and as it was he who, more than any other thinker, elaborated the theory of indeterminateness, we can probably trace the cause to Jenkin. He (Jenkin) illustrated by supply and demand curves Thornton’s example of price in an auction, to which we have already referred, and showed that it really made the simple assumption that demand in the neighborhood of the market price was constant at all prices; that is, the demand curve became horizontal near the market price and, owing to the supply curve also being level (one quantity offered singly and without reserve), the actual market price would be indeterminate. He described the diagram as representing “an unusual state of mind.” This is putting it mildly indeed. It depends entirely upon the fortuitous coincidence of the horizontal section of an unusual and highly improbable demand curve with an absolutely rigid supply curve. Had the supply been larger or smaller to any noticeable extent, even in this example, the price would have been theoretically determinate. Developing this idea and, it seems, getting further away from economic realities, he said: “Where only a small number of transactions take place there can . . . be no theoretical market price; thus, with one buyer and seller of one thing, the demand and supply curve become two straight lines. . . . If the supply line overlaps the demand line, the sale will take place, and not otherwise; but the price is indeterminate.”
• 58This was the idea that Edgeworth developed and the one that led him to make the remark already quoted, possibly inspired by the similar remark by Mill to the effect that the old belief that trade unions could not raise wages had to be given up. We cannot here discuss the detailed development of the idea in his hands. His chief contribution to the theory was to draw curves of indifference for two bargainers, thus representing graphically the area of indeterminateness. But he did not, any more than did Mill, show that there was any justification for considering the value of labor as specially influenced by this principle, or that it disclosed any increment of the total product of industry which could be diverted to those who provided labor. We cannot be certain as to how far the Edgeworth of 1891 would have upheld the point of view expressed in 1881, for in a criticism of Marshall’s “Note on Barter” (The “Note on Barter” appeared in the Second Edition of Marshall’s Principles), he said, after an analysis of ideas of which he was the chief original propagator, that in comparison with other conditions of the labor market, they were “of little practical importance.” In his own words: “I do not, however, regard these nice points as more than curiosa, of little practical importance in comparison with the conditions of the labour market on which Marshall has dwelt.” He referred here to “the tendency of any accidental disadvantage under which the work-people may be suffering to become perpetuated through the lowering of their vitality and efficiency.” This, however, is an entirely different point. Edgeworth had completely changed the basis of his defense of unionism. That same year, in his Introductory Lecture on Political Economy at Oxford, he said: “As an instance in which eminent theorists may have omitted a relevant circumstance, may be taken the question whether it is possible for trade unionists, by standing out for a higher than the market rate of wages, to benefit themselves permanently without injuring other workmen. The negative answer which has sometimes been given omits the consideration that an increase of wages tends to increase efficiency . . . etc.” This deliberately avoids a reference to the affirmative answer which he had given ten years previously. In Sidgwick’s Principles, Mr. L. L. Price’s Industrial Peace, and Prof. Pigou’s Principles and Methods of Industrial Peace, the idea seems to have survived with more importance than Edgeworth would himself have attached to it.
• 59We can detect in other economists who have dealt with the question the same doubt as to the importance of the idea. Mr. Flux, for example, discussing the alleged indeterminate increment, in 1900 wrote: “Now, it can not be denied that this element is in existence in fact. The question rather is, whether it has sufficient generality, and whether the relative importance of the amounts involved is such as may entitle it to figure prominently in a discussion of the general problem of distribution.”
• 60We can detect in other economists who have dealt with the question the same doubt as to the importance of the idea. Mr. Flux, for example, discussing the alleged indeterminate increment, in 1900 wrote: “Now, it can not be denied that this element is in existence in fact. The question rather is, whether it has sufficient generality, and whether the relative importance of the amounts involved is such as may entitle it to figure prominently in a discussion of the general problem of distribution.”
• 61The later treatment of the idea by Marshall is very uncertain compared to his earlier treatment of it. He was possibly the first to give an even superficially satisfactory explanation of why the value of labor should be considered as specially influenced by this principle. Basing his treatment on Edgeworth’s conception, he illustrated it by considering the extremely artificial cases of the barter, in isolation, of nuts and apples. In such an example he had no difficulty in showing “the uncertainty of the rate at which equilibrium is reached.” It is what we should expect in a case of simple barter. But in the earlier editions of his Principles he said that this uncertainty “Does not depend on the fact that one commodity is being bartered for another instead of being sold for money. It results from our being obliged to regard the marginal utilities of both commodities as varying” (Third Edn., p. 415). It was this consideration that caused him to regard the price as likely to be indeterminate and arrived at as under barter, although, in fact, not a subject of barter. After his general treatment of the temporary equilibrium of demand and supply he remarked: “We did not allow for any appreciable change in the marginal utility of money . . . (which is) justifiable with regard to most of the markets with which we are practically concerned. . . . The exceptions are rare and unimportant in markets for commodities; but in markets for labour they are frequent and important. When a workman is in fear of hunger, the marginal utility of money to him is very high; and if at starting he gets the worst of the bargaining and is employed at low wages, it remains low, and he may go on selling his labour at a low rate” (pp. 411, 412, Third Edn.). This led him to his discussion of the barter of nuts and apples with a view of “throwing additional light” on the problem. In spite of the contention by Edgeworth that this treatment of “the specific peculiarities of the labour market . . . left little to be said freshly” we find Marshall’s doubts expressed in subsequent changes of text. In a later edition he had substituted throughout for the workman’s “marginal utility of money,” “his need of money (its marginal utility to him)” (Seventh Edn.). This is a strange amendment, for while the word “need” is vague, “marginal utility” is definite. He probably felt that the phrase “his marginal utility” did not quite fit the case. However, in a later edition he had relegated his “Note on Barter” to the Appendix and omitted the phrase which claimed that it threw “additional light” on the labor market. (Compare p. 412, Third Edn. and p. 336, Seventh Edn.) This also suggests a change of attitude. But his amendment to the “Note on Barter” was such as amounted to a tacit renunciation of the whole previous argument. Instead of contending that indeterminateness “does not depend on the fact that one commodity is being bartered for another instead of being sold for money,” he seemed completely to reverse his previous content, and said that it “depends indirectly on the fact that one commodity is being bartered for another instead of being sold for money . . . the steadying influences which hold together a market in which values are set in money are absent” (Seventh Edn., p. 793). All the amended argument of the later editions comes to is this; that where there is buying and selling through the agency of money there is more likely to be an effective market. Absence of money economy is one factor which may cause market forces to be ineffective.
• 62The later treatment of the idea by Marshall is very uncertain compared to his earlier treatment of it. He was possibly the first to give an even superficially satisfactory explanation of why the value of labor should be considered as specially influenced by this principle. Basing his treatment on Edgeworth’s conception, he illustrated it by considering the extremely artificial cases of the barter, in isolation, of nuts and apples. In such an example he had no difficulty in showing “the uncertainty of the rate at which equilibrium is reached.” It is what we should expect in a case of simple barter. But in the earlier editions of his Principles he said that this uncertainty “Does not depend on the fact that one commodity is being bartered for another instead of being sold for money. It results from our being obliged to regard the marginal utilities of both commodities as varying” (Third Edn., p. 415). It was this consideration that caused him to regard the price as likely to be indeterminate and arrived at as under barter, although, in fact, not a subject of barter. After his general treatment of the temporary equilibrium of demand and supply he remarked: “We did not allow for any appreciable change in the marginal utility of money . . . (which is) justifiable with regard to most of the markets with which we are practically concerned. . . . The exceptions are rare and unimportant in markets for commodities; but in markets for labour they are frequent and important. When a workman is in fear of hunger, the marginal utility of money to him is very high; and if at starting he gets the worst of the bargaining and is employed at low wages, it remains low, and he may go on selling his labour at a low rate” (pp. 411, 412, Third Edn.). This led him to his discussion of the barter of nuts and apples with a view of “throwing additional light” on the problem. In spite of the contention by Edgeworth that this treatment of “the specific peculiarities of the labour market . . . left little to be said freshly” we find Marshall’s doubts expressed in subsequent changes of text. In a later edition he had substituted throughout for the workman’s “marginal utility of money,” “his need of money (its marginal utility to him)” (Seventh Edn.). This is a strange amendment, for while the word “need” is vague, “marginal utility” is definite. He probably felt that the phrase “his marginal utility” did not quite fit the case. However, in a later edition he had relegated his “Note on Barter” to the Appendix and omitted the phrase which claimed that it threw “additional light” on the labor market. (Compare p. 412, Third Edn. and p. 336, Seventh Edn.) This also suggests a change of attitude. But his amendment to the “Note on Barter” was such as amounted to a tacit renunciation of the whole previous argument. Instead of contending that indeterminateness “does not depend on the fact that one commodity is being bartered for another instead of being sold for money,” he seemed completely to reverse his previous content, and said that it “depends indirectly on the fact that one commodity is being bartered for another instead of being sold for money . . . the steadying influences which hold together a market in which values are set in money are absent” (Seventh Edn., p. 793). All the amended argument of the later editions comes to is this; that where there is buying and selling through the agency of money there is more likely to be an effective market. Absence of money economy is one factor which may cause market forces to be ineffective.
• 63With Jevons the theory developed in a rather different way. Like Edgeworth he seems to have been influenced by Thornton and Jenkin. The latter had corresponded with him on the subject of the mathematical treatment of economics before publishing his second article, and it was partly in consequence of Jenkin’s essays that Jevons decided to put his own Theory of Political Economy into print as early as 1871. The idea emerged in his treatment of the theory of exchange. He put forward the proposition that “the equation of exchange will fail to be possible when the commodity or useful article possessed on one or both sides is indivisible . . .” as, for instance, in the case of a house, “because we cannot contemplate the existence of an increment or decrement to an indivisible article. . . . The theory seems to give a very unsatisfactory answer, for the problem proves to be, within certain limits, indeterminate.” Such a bargain, he said, “must be settled upon other than strictly economic grounds.” What would determine the result was “the comparative amount of knowledge of each other’s position and needs (our italics) which each bargainer may possess.” The only meaning we can suggest for this phrase is that the seller will endeavor to find out how the utility to be derived by the prospective buyer from the house compares with the utility he can derive by spending an equal amount in available alternative ways. What one is prepared to give for any commodity (or increment of a commodity) is a function of alternatives or alternative sources of supply. But Jevons was tacitly assuming that there were no alternative sources of supply of houses. The case is similar to the theoretically isolated transaction which we saw Longfield had dismissed as of no practical importance. It rests on three assumptions—largeness of unit, uniqueness and monopoly. The general unimportance of the idea is further brought out in his elaboration of it. He held that indeterminateness existed even when commodities were divisible, if their divisibility was not into infinitely small quantities. As an illustration, he took bottles of ink. A fixed price (presumably competitive) of one shilling each was given, and the indeterminateness thrown on to quantity—that is, the number of bottles purchased at that price. Would the last and doubtful one be purchased? Here, again, these hypothetical transactions are isolated both in space and time. Putting aside the absence of competing ink supplies, or supplies available in different-sized units, when we take the factor of time into account, we see that the size of the unit purchased at a particular transaction loses all its relevance and importance. We can only imagine the size of the bottles affecting the interval between purchases—not the amount of ink consumed. This has an obvious parallel, as we shall see, in the case of the supply of some kinds of capital equipment.
• 64With Jevons the theory developed in a rather different way. Like Edgeworth he seems to have been influenced by Thornton and Jenkin. The latter had corresponded with him on the subject of the mathematical treatment of economics before publishing his second article, and it was partly in consequence of Jenkin’s essays that Jevons decided to put his own Theory of Political Economy into print as early as 1871. The idea emerged in his treatment of the theory of exchange. He put forward the proposition that “the equation of exchange will fail to be possible when the commodity or useful article possessed on one or both sides is indivisible . . .” as, for instance, in the case of a house, “because we cannot contemplate the existence of an increment or decrement to an indivisible article. . . . The theory seems to give a very unsatisfactory answer, for the problem proves to be, within certain limits, indeterminate.” Such a bargain, he said, “must be settled upon other than strictly economic grounds.” What would determine the result was “the comparative amount of knowledge of each other’s position and needs (our italics) which each bargainer may possess.” The only meaning we can suggest for this phrase is that the seller will endeavor to find out how the utility to be derived by the prospective buyer from the house compares with the utility he can derive by spending an equal amount in available alternative ways. What one is prepared to give for any commodity (or increment of a commodity) is a function of alternatives or alternative sources of supply. But Jevons was tacitly assuming that there were no alternative sources of supply of houses. The case is similar to the theoretically isolated transaction which we saw Longfield had dismissed as of no practical importance. It rests on three assumptions—largeness of unit, uniqueness and monopoly. The general unimportance of the idea is further brought out in his elaboration of it. He held that indeterminateness existed even when commodities were divisible, if their divisibility was not into infinitely small quantities. As an illustration, he took bottles of ink. A fixed price (presumably competitive) of one shilling each was given, and the indeterminateness thrown on to quantity—that is, the number of bottles purchased at that price. Would the last and doubtful one be purchased? Here, again, these hypothetical transactions are isolated both in space and time. Putting aside the absence of competing ink supplies, or supplies available in different-sized units, when we take the factor of time into account, we see that the size of the unit purchased at a particular transaction loses all its relevance and importance. We can only imagine the size of the bottles affecting the interval between purchases—not the amount of ink consumed. This has an obvious parallel, as we shall see, in the case of the supply of some kinds of capital equipment.
• 65Most of the erroneous deductions which have sprung out of the indeterminateness conception appear to have arisen from the expansion to a generalization of the results of a particular isolated case. Mr. Flux, in reviewing Mr. J. A. Hobson’s Economics of Distribution, based on ideas similar to those which we have just discussed, remarked: “That the gradations of any actual supply or demand schedule do not proceed by the infinitesimal changes assumed in the mathematical treatment of the problems of value may be granted. It need not follow that the gradations, though finite, are of a magnitude requiring as much attention as demanded in the book under discussion.” The important consideration, however, is not the size of units or gradations of supply and demand as affecting the size of transactions, but the influence of the time element, which causes the normal competitive economic forces to be effective.
• 66Although obviously influenced by Thornton and Jenkin, Jevons did not indicate in his Theory of Political Economy that he thought the conception of indeterminateness was particularly applicable to the problem of labor’s remuneration. That the idea may have been in his mind is suggested by the interpolation (almost as an afterthought) of the phrase: “It may be that indeterminate bargains of this kind” (e.g., over the sale of a house) “are best arranged by an arbitrator or third party”—an idea which is interesting in view of the later development of this idea by himself and others in particular reference to labor. It was only after the appearance of Mathematical Psychics, however, that Jevons ventured to follow Edgeworth in arguing that the existence of combinations in trade disputes usually reduces them to a single contract bargain of the same indeterminate kind. He made the application to labor in his State on Relation to Labour, a treatise which appeared in April, 1882, a very short time after the publication of Edgeworth’s book. The idea appears in the last chapter and seems rather in contradiction to the argument of the earlier chapters. There are, therefore, some grounds for a suspicion that it was hurriedly inserted. We certainly never get the impression from Jevons as from Edgeworth, that the creation or magnifying of such indeterminateness by combinations was “favourable to the unionists,” or that owing to the neglect by economists of like considerations “the untutored mind of the workman had gone more straight to the point than economic intelligence.” On the contrary, he had concluded “that it is quite impossible for trades unions in general to effect any permanent increase in wages,” and that there were “two possible modes of increasing earnings: the one being to increase products, so as to have more to sell, and the second to decrease products in order to sell them at a higher price.” Moreover, it followed “inevitably that if many or all people pursued the latter policy it would fail altogether period” “Obviously . . .,” he said, “the rate of wages which workmen can demand will depend upon the relation of supply to demand of such particular kind of labour.”
• 67Although obviously influenced by Thornton and Jenkin, Jevons did not indicate in his Theory of Political Economy that he thought the conception of indeterminateness was particularly applicable to the problem of labor’s remuneration. That the idea may have been in his mind is suggested by the interpolation (almost as an afterthought) of the phrase: “It may be that indeterminate bargains of this kind” (e.g., over the sale of a house) “are best arranged by an arbitrator or third party”—an idea which is interesting in view of the later development of this idea by himself and others in particular reference to labor. It was only after the appearance of Mathematical Psychics, however, that Jevons ventured to follow Edgeworth in arguing that the existence of combinations in trade disputes usually reduces them to a single contract bargain of the same indeterminate kind. He made the application to labor in his State on Relation to Labour, a treatise which appeared in April, 1882, a very short time after the publication of Edgeworth’s book. The idea appears in the last chapter and seems rather in contradiction to the argument of the earlier chapters. There are, therefore, some grounds for a suspicion that it was hurriedly inserted. We certainly never get the impression from Jevons as from Edgeworth, that the creation or magnifying of such indeterminateness by combinations was “favourable to the unionists,” or that owing to the neglect by economists of like considerations “the untutored mind of the workman had gone more straight to the point than economic intelligence.” On the contrary, he had concluded “that it is quite impossible for trades unions in general to effect any permanent increase in wages,” and that there were “two possible modes of increasing earnings: the one being to increase products, so as to have more to sell, and the second to decrease products in order to sell them at a higher price.” Moreover, it followed “inevitably that if many or all people pursued the latter policy it would fail altogether period” “Obviously . . .,” he said, “the rate of wages which workmen can demand will depend upon the relation of supply to demand of such particular kind of labour.”
• 68Although obviously influenced by Thornton and Jenkin, Jevons did not indicate in his Theory of Political Economy that he thought the conception of indeterminateness was particularly applicable to the problem of labor’s remuneration. That the idea may have been in his mind is suggested by the interpolation (almost as an afterthought) of the phrase: “It may be that indeterminate bargains of this kind” (e.g., over the sale of a house) “are best arranged by an arbitrator or third party”—an idea which is interesting in view of the later development of this idea by himself and others in particular reference to labor. It was only after the appearance of Mathematical Psychics, however, that Jevons ventured to follow Edgeworth in arguing that the existence of combinations in trade disputes usually reduces them to a single contract bargain of the same indeterminate kind. He made the application to labor in his State on Relation to Labour, a treatise which appeared in April, 1882, a very short time after the publication of Edgeworth’s book. The idea appears in the last chapter and seems rather in contradiction to the argument of the earlier chapters. There are, therefore, some grounds for a suspicion that it was hurriedly inserted. We certainly never get the impression from Jevons as from Edgeworth, that the creation or magnifying of such indeterminateness by combinations was “favourable to the unionists,” or that owing to the neglect by economists of like considerations “the untutored mind of the workman had gone more straight to the point than economic intelligence.” On the contrary, he had concluded “that it is quite impossible for trades unions in general to effect any permanent increase in wages,” and that there were “two possible modes of increasing earnings: the one being to increase products, so as to have more to sell, and the second to decrease products in order to sell them at a higher price.” Moreover, it followed “inevitably that if many or all people pursued the latter policy it would fail altogether period” “Obviously . . .,” he said, “the rate of wages which workmen can demand will depend upon the relation of supply to demand of such particular kind of labour.”
• 69Although obviously influenced by Thornton and Jenkin, Jevons did not indicate in his Theory of Political Economy that he thought the conception of indeterminateness was particularly applicable to the problem of labor’s remuneration. That the idea may have been in his mind is suggested by the interpolation (almost as an afterthought) of the phrase: “It may be that indeterminate bargains of this kind” (e.g., over the sale of a house) “are best arranged by an arbitrator or third party”—an idea which is interesting in view of the later development of this idea by himself and others in particular reference to labor. It was only after the appearance of Mathematical Psychics, however, that Jevons ventured to follow Edgeworth in arguing that the existence of combinations in trade disputes usually reduces them to a single contract bargain of the same indeterminate kind. He made the application to labor in his State on Relation to Labour, a treatise which appeared in April, 1882, a very short time after the publication of Edgeworth’s book. The idea appears in the last chapter and seems rather in contradiction to the argument of the earlier chapters. There are, therefore, some grounds for a suspicion that it was hurriedly inserted. We certainly never get the impression from Jevons as from Edgeworth, that the creation or magnifying of such indeterminateness by combinations was “favourable to the unionists,” or that owing to the neglect by economists of like considerations “the untutored mind of the workman had gone more straight to the point than economic intelligence.” On the contrary, he had concluded “that it is quite impossible for trades unions in general to effect any permanent increase in wages,” and that there were “two possible modes of increasing earnings: the one being to increase products, so as to have more to sell, and the second to decrease products in order to sell them at a higher price.” Moreover, it followed “inevitably that if many or all people pursued the latter policy it would fail altogether period” “Obviously . . .,” he said, “the rate of wages which workmen can demand will depend upon the relation of supply to demand of such particular kind of labour.”
• 70Although obviously influenced by Thornton and Jenkin, Jevons did not indicate in his Theory of Political Economy that he thought the conception of indeterminateness was particularly applicable to the problem of labor’s remuneration. That the idea may have been in his mind is suggested by the interpolation (almost as an afterthought) of the phrase: “It may be that indeterminate bargains of this kind” (e.g., over the sale of a house) “are best arranged by an arbitrator or third party”—an idea which is interesting in view of the later development of this idea by himself and others in particular reference to labor. It was only after the appearance of Mathematical Psychics, however, that Jevons ventured to follow Edgeworth in arguing that the existence of combinations in trade disputes usually reduces them to a single contract bargain of the same indeterminate kind. He made the application to labor in his State on Relation to Labour, a treatise which appeared in April, 1882, a very short time after the publication of Edgeworth’s book. The idea appears in the last chapter and seems rather in contradiction to the argument of the earlier chapters. There are, therefore, some grounds for a suspicion that it was hurriedly inserted. We certainly never get the impression from Jevons as from Edgeworth, that the creation or magnifying of such indeterminateness by combinations was “favourable to the unionists,” or that owing to the neglect by economists of like considerations “the untutored mind of the workman had gone more straight to the point than economic intelligence.” On the contrary, he had concluded “that it is quite impossible for trades unions in general to effect any permanent increase in wages,” and that there were “two possible modes of increasing earnings: the one being to increase products, so as to have more to sell, and the second to decrease products in order to sell them at a higher price.” Moreover, it followed “inevitably that if many or all people pursued the latter policy it would fail altogether period” “Obviously . . .,” he said, “the rate of wages which workmen can demand will depend upon the relation of supply to demand of such particular kind of labour.”
• 71“The men, for instance,” he wrote, “ask for fifteen per cent advance of wages all round. Rather than have a strike, it might be for the interest of employers to give the advance or for the men to withdraw their demand; a fortiori any intermediate arrangement would still more meet their views.” As in the case of the house transaction in his Theory of Political Economy he argued that there may be “absolutely no economic principle on which to decide the question.” The disutilities of strikes and lock-outs can, of course, be paralleled with the loss from delay in that illustration, but a comparison is misleading. In the case of labor there is no inability to test the market through the absence of small increments; and the continuous refusal to contract in this case seems to be a delay with an entirely different motive. Even if we neglect “motives,” we still cannot make a parallel, for in the former case the passage of time reveals the market or alternatives, whereas in the latter the very factors which normally reveal the market are suppressed. The object of the strike or lock-out when initiatory seems to be to obtain a price higher or lower than available alternatives to both parties would determine, and the power to do so ultimately rests upon control of alternatives—that is, upon the power to exploit monopoly. There are many elements of uncertainty in the determination of price in such circumstances. Apart from those which we have already noticed, the factors determining the extent of control or limitation in any case may be complex and uncertain, and hence the result unpredictable from this cause. The prices resulting may favor one party or the other, but there is no reason why we should say that economic principle fails to work; or as economists so careful as Sidgwick and, following him, Mr. L. L. Price, have held, that “where two combinations meet one another, political economy is perforce silenced.” Prof. Macgregor has pointed out in his Industrial Combinations that “. . . relative fewness tends to introduce elements which are more psychological than economic, though they can scarcely be called accidental to an economic analysis.” Judgment, of course, is less certain when transactions are few and potential demand and supply have to be estimated; and “bluff” may admittedly come in. These elements it seems are the only psychological ones which mere fewness necessarily brings in. Moreover, economic principle applies with equal relevance to conditions of relative monopoly as to conditions of relative competition. Not only is there no clear line of division between the two, but, to use Prof. Davenport’s words, “It may indeed be said that in the main competitive and monopoly theory do not diverge, that the supply and demand analysis applies without change to monopoly and that monopoly differs from competition only in the fact that in monopoly the volume of supply is under centralised control, while in competition the limit of supply is found in marginal cost of production.”
• 72“The men, for instance,” he wrote, “ask for fifteen per cent advance of wages all round. Rather than have a strike, it might be for the interest of employers to give the advance or for the men to withdraw their demand; a fortiori any intermediate arrangement would still more meet their views.” As in the case of the house transaction in his Theory of Political Economy he argued that there may be “absolutely no economic principle on which to decide the question.” The disutilities of strikes and lock-outs can, of course, be paralleled with the loss from delay in that illustration, but a comparison is misleading. In the case of labor there is no inability to test the market through the absence of small increments; and the continuous refusal to contract in this case seems to be a delay with an entirely different motive. Even if we neglect “motives,” we still cannot make a parallel, for in the former case the passage of time reveals the market or alternatives, whereas in the latter the very factors which normally reveal the market are suppressed. The object of the strike or lock-out when initiatory seems to be to obtain a price higher or lower than available alternatives to both parties would determine, and the power to do so ultimately rests upon control of alternatives—that is, upon the power to exploit monopoly. There are many elements of uncertainty in the determination of price in such circumstances. Apart from those which we have already noticed, the factors determining the extent of control or limitation in any case may be complex and uncertain, and hence the result unpredictable from this cause. The prices resulting may favor one party or the other, but there is no reason why we should say that economic principle fails to work; or as economists so careful as Sidgwick and, following him, Mr. L. L. Price, have held, that “where two combinations meet one another, political economy is perforce silenced.” Prof. Macgregor has pointed out in his Industrial Combinations that “. . . relative fewness tends to introduce elements which are more psychological than economic, though they can scarcely be called accidental to an economic analysis.” Judgment, of course, is less certain when transactions are few and potential demand and supply have to be estimated; and “bluff” may admittedly come in. These elements it seems are the only psychological ones which mere fewness necessarily brings in. Moreover, economic principle applies with equal relevance to conditions of relative monopoly as to conditions of relative competition. Not only is there no clear line of division between the two, but, to use Prof. Davenport’s words, “It may indeed be said that in the main competitive and monopoly theory do not diverge, that the supply and demand analysis applies without change to monopoly and that monopoly differs from competition only in the fact that in monopoly the volume of supply is under centralised control, while in competition the limit of supply is found in marginal cost of production.”
• 73“The men, for instance,” he wrote, “ask for fifteen per cent advance of wages all round. Rather than have a strike, it might be for the interest of employers to give the advance or for the men to withdraw their demand; a fortiori any intermediate arrangement would still more meet their views.” As in the case of the house transaction in his Theory of Political Economy he argued that there may be “absolutely no economic principle on which to decide the question.” The disutilities of strikes and lock-outs can, of course, be paralleled with the loss from delay in that illustration, but a comparison is misleading. In the case of labor there is no inability to test the market through the absence of small increments; and the continuous refusal to contract in this case seems to be a delay with an entirely different motive. Even if we neglect “motives,” we still cannot make a parallel, for in the former case the passage of time reveals the market or alternatives, whereas in the latter the very factors which normally reveal the market are suppressed. The object of the strike or lock-out when initiatory seems to be to obtain a price higher or lower than available alternatives to both parties would determine, and the power to do so ultimately rests upon control of alternatives—that is, upon the power to exploit monopoly. There are many elements of uncertainty in the determination of price in such circumstances. Apart from those which we have already noticed, the factors determining the extent of control or limitation in any case may be complex and uncertain, and hence the result unpredictable from this cause. The prices resulting may favor one party or the other, but there is no reason why we should say that economic principle fails to work; or as economists so careful as Sidgwick and, following him, Mr. L. L. Price, have held, that “where two combinations meet one another, political economy is perforce silenced.” Prof. Macgregor has pointed out in his Industrial Combinations that “. . . relative fewness tends to introduce elements which are more psychological than economic, though they can scarcely be called accidental to an economic analysis.” Judgment, of course, is less certain when transactions are few and potential demand and supply have to be estimated; and “bluff” may admittedly come in. These elements it seems are the only psychological ones which mere fewness necessarily brings in. Moreover, economic principle applies with equal relevance to conditions of relative monopoly as to conditions of relative competition. Not only is there no clear line of division between the two, but, to use Prof. Davenport’s words, “It may indeed be said that in the main competitive and monopoly theory do not diverge, that the supply and demand analysis applies without change to monopoly and that monopoly differs from competition only in the fact that in monopoly the volume of supply is under centralised control, while in competition the limit of supply is found in marginal cost of production.”
• 74The problems we have just been considering are perhaps made clearer if we regard strikes and lockouts (whether aggressive or defensive is immaterial) as coercive devices. Like a similar coercive weapon, “the boycott,” they may be employed for a variety of motives and for the attainment of many different ends. They are a deliberate interference with the free and continuous flow of the services of the workers, capital equipment, or other factor of production in response to a given economic condition, competitive or monopolistic. Their object is generally either to force another party to acquiesce in a price other than the competitive or to resist such a price which another party seeks to impose. As we have already seen, the mere grouping in combinations of the owners of co-operant resources such as “property” and “labor” would not necessarily cause indeterminateness, provided transactions were made in small units. It is the joint determination by one group not to let another make contracts with individuals among them, which, judged by their available alternatives, would be most favorable to them, that creates the range of indeterminateness and the conditions in which a strike is possible; the determination that all transactions shall be made at a certain price (or more favorable ones) or there will be no transactions at all. For this reason we have additional grounds for saying that there is definitely a “coercive” element in such actions. The institution of property gives all monopolists the power to prevent access by other factors of production to the resources that they control. By that means the formation of a true socially determined price is prevented and a private coercion is substituted for a social coercion. (The meaning of “social coercion” is given below.) In the absence of monopoly, the institution of property may be held to be the very institution which causes the various factors of production to move to the most profitable channels as determined by society. In its presence, that view cannot be held.
• 75Before going further we need to devote some attention to the phrase “at the expense of.” Any monopolist-gain by a single monopolist among co-operant producing groups is necessarily accompanied by loss to certain of the other groups, for one reason because at the higher price asked by the monopoly factor there is, even in the absence of direct exclusion, some fall in the number of units of it demanded, and a consequent fall in the number of units of work or service demanded from the factors of production which cooperate with it. Thus, a trade union exclusion of competing workmen from a particular job tends to make both the capitalist and the consumer worse off. We might therefore say that the trade union gains at the expense of excluded workers, capital and the consumer. Yet, in a discussion such as this, mainly concerned with the possibility of redistribution, it might be convenient to distinguish broadly between (1) the source of those gains to one party which are possible because of the nature or condition of a factor of production owned by some other party, that is, when it is “exploitable” or “excludable,” and (2) those losses to owners of other factors which are incidental rather than direct, although not necessarily unimportant. For instance, there is usually no point in a labor monopoly excluding directly a body of non-competing but co-operant workers (i.e., those engaged on an entirely different, complementary process), for they will be worse off by so doing. But any exclusion which pays them may, incidentally, exclude some non-competing workers. We can distinguish here between the loss to those whom it has paid to exclude and the loss to those who also happen to be kept out by that policy. The gain may be said to be obtained by the exclusion of the former (although also accompanied by loss to the latter, but not by their exploitation, for it would be impossible to gain at their expense alone). And, again, monopoly profits which are obtainable by any factor solely because of inelasticity of demand for the commodity by the consumer, may be said to exploit him, although the other factors of production as a whole may be worse off as a result of the exploitation of that monopoly. Monopoly profits to a factor which are possible solely owing to immobility of other factors may be said to be obtained by exploiting them, although as a result of their exploitation the consumer is worse off. This use of the term “exploit” is purely for convenience; it makes no clear logical distinction, and it is not implied that these “incidental losses” as we have called them are not highly important. Almost invariably monopoly-gains, no matter to what factor, are accompanied by loss to the consumer.
• 76But does an examination of this hypothetical possibility enable us to say, as Edgeworth said in regard to the alleged disbelief of trade unionists in the wage-fund, that in the matter of the work fund “the untutored mind of the workman had gone more straight to the point than economic intelligence misled by a bad method, reasoning without mathematics upon mathematical subjects”? Does the road to plenty for the workers lie in restriction, work-sharing and “short time”?
• 77The widespread belief that monopoly-gains (or gains by wage regulation) are obtainable by labor and capital at one another’s expense seems to have arisen (1) from the belief that if any or all wage rates are raised artificially, workers as a whole will get more; and (2) from the habit of regarding “labor” and “capital” as in opposition rather than as co-operators in production.
• 78It is impossible in this essay adequately to indicate the significance in economic history of joint monopoly of this kind. All that can be done is to suggest grounds for the belief that its importance has been greatly under-estimated. It has already been pointed out that practically all the combinations among employers that were revealed by the inquiries in England in 1824 and 1825 were either retaliatory against unions exploiting “the strike in detail” or else the employers’ side of joint monopolies operating with the encouragement and connivance of the workers. Francis Place merely wanted the Combination Laws repealed, and had no interest in bringing out the true significance of the evidence which was brought forward. His comment on an obvious case of joint monopoly was: “Employers advised the men to combine. Thus it appears the law is so iniquitous that those in whose favour it was made encourage the men to break it.” (Note written on his copy of the Report of the 1824 Select Committee on Artisans and Machinery, p. 279). Even in the days when combinations were illegal there is much evidence of employers encouraging their men to combine. There seems to have been a good deal of it among the Framework Knitters, directly fostered by the masters. And we find just as frequently cases of organized workmen petitioning their employers and urging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to get their masters to organize. The rules of the Journeyman Paper-Makers of 1823 included a doggerel verse beginning with the ominous words: “May masters with their men unite.” Other cases of joint monopoly (or attempts to protect the “honourable masters” as they were called), before 1824 were found among the Rochdale weavers, the Stockport Cotton Spinners, the Dublin Saddlers, the Hosiers, the Shipwrights, the Calico Printers, and many other established trades of that day. It was always the “honourable employers” whom they sought to protect; and the same phraseology remains today. In those early times they had even conceived of the utility of the device known today as “extension of agreements” which is found in conjunction with legislation concerning industrial councils and arbitration courts in so many parts of the world. In 1824 the Lace-Makers petitioned Sir J. Hobhouse to introduce a bill “for regulating wages by the decisions of a board composed of selected masters and men, and making the scale thus agreed upon binding on the trade. . . .” He refused.
• 79It is impossible in this essay adequately to indicate the significance in economic history of joint monopoly of this kind. All that can be done is to suggest grounds for the belief that its importance has been greatly under-estimated. It has already been pointed out that practically all the combinations among employers that were revealed by the inquiries in England in 1824 and 1825 were either retaliatory against unions exploiting “the strike in detail” or else the employers’ side of joint monopolies operating with the encouragement and connivance of the workers. Francis Place merely wanted the Combination Laws repealed, and had no interest in bringing out the true significance of the evidence which was brought forward. His comment on an obvious case of joint monopoly was: “Employers advised the men to combine. Thus it appears the law is so iniquitous that those in whose favour it was made encourage the men to break it.” (Note written on his copy of the Report of the 1824 Select Committee on Artisans and Machinery, p. 279). Even in the days when combinations were illegal there is much evidence of employers encouraging their men to combine. There seems to have been a good deal of it among the Framework Knitters, directly fostered by the masters. And we find just as frequently cases of organized workmen petitioning their employers and urging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to get their masters to organize. The rules of the Journeyman Paper-Makers of 1823 included a doggerel verse beginning with the ominous words: “May masters with their men unite.” Other cases of joint monopoly (or attempts to protect the “honourable masters” as they were called), before 1824 were found among the Rochdale weavers, the Stockport Cotton Spinners, the Dublin Saddlers, the Hosiers, the Shipwrights, the Calico Printers, and many other established trades of that day. It was always the “honourable employers” whom they sought to protect; and the same phraseology remains today. In those early times they had even conceived of the utility of the device known today as “extension of agreements” which is found in conjunction with legislation concerning industrial councils and arbitration courts in so many parts of the world. In 1824 the Lace-Makers petitioned Sir J. Hobhouse to introduce a bill “for regulating wages by the decisions of a board composed of selected masters and men, and making the scale thus agreed upon binding on the trade. . . .” He refused.
• 80It is impossible in this essay adequately to indicate the significance in economic history of joint monopoly of this kind. All that can be done is to suggest grounds for the belief that its importance has been greatly under-estimated. It has already been pointed out that practically all the combinations among employers that were revealed by the inquiries in England in 1824 and 1825 were either retaliatory against unions exploiting “the strike in detail” or else the employers’ side of joint monopolies operating with the encouragement and connivance of the workers. Francis Place merely wanted the Combination Laws repealed, and had no interest in bringing out the true significance of the evidence which was brought forward. His comment on an obvious case of joint monopoly was: “Employers advised the men to combine. Thus it appears the law is so iniquitous that those in whose favour it was made encourage the men to break it.” (Note written on his copy of the Report of the 1824 Select Committee on Artisans and Machinery, p. 279). Even in the days when combinations were illegal there is much evidence of employers encouraging their men to combine. There seems to have been a good deal of it among the Framework Knitters, directly fostered by the masters. And we find just as frequently cases of organized workmen petitioning their employers and urging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to get their masters to organize. The rules of the Journeyman Paper-Makers of 1823 included a doggerel verse beginning with the ominous words: “May masters with their men unite.” Other cases of joint monopoly (or attempts to protect the “honourable masters” as they were called), before 1824 were found among the Rochdale weavers, the Stockport Cotton Spinners, the Dublin Saddlers, the Hosiers, the Shipwrights, the Calico Printers, and many other established trades of that day. It was always the “honourable employers” whom they sought to protect; and the same phraseology remains today. In those early times they had even conceived of the utility of the device known today as “extension of agreements” which is found in conjunction with legislation concerning industrial councils and arbitration courts in so many parts of the world. In 1824 the Lace-Makers petitioned Sir J. Hobhouse to introduce a bill “for regulating wages by the decisions of a board composed of selected masters and men, and making the scale thus agreed upon binding on the trade. . . .” He refused.
• 81It is impossible in this essay adequately to indicate the significance in economic history of joint monopoly of this kind. All that can be done is to suggest grounds for the belief that its importance has been greatly under-estimated. It has already been pointed out that practically all the combinations among employers that were revealed by the inquiries in England in 1824 and 1825 were either retaliatory against unions exploiting “the strike in detail” or else the employers’ side of joint monopolies operating with the encouragement and connivance of the workers. Francis Place merely wanted the Combination Laws repealed, and had no interest in bringing out the true significance of the evidence which was brought forward. His comment on an obvious case of joint monopoly was: “Employers advised the men to combine. Thus it appears the law is so iniquitous that those in whose favour it was made encourage the men to break it.” (Note written on his copy of the Report of the 1824 Select Committee on Artisans and Machinery, p. 279). Even in the days when combinations were illegal there is much evidence of employers encouraging their men to combine. There seems to have been a good deal of it among the Framework Knitters, directly fostered by the masters. And we find just as frequently cases of organized workmen petitioning their employers and urging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to get their masters to organize. The rules of the Journeyman Paper-Makers of 1823 included a doggerel verse beginning with the ominous words: “May masters with their men unite.” Other cases of joint monopoly (or attempts to protect the “honourable masters” as they were called), before 1824 were found among the Rochdale weavers, the Stockport Cotton Spinners, the Dublin Saddlers, the Hosiers, the Shipwrights, the Calico Printers, and many other established trades of that day. It was always the “honourable employers” whom they sought to protect; and the same phraseology remains today. In those early times they had even conceived of the utility of the device known today as “extension of agreements” which is found in conjunction with legislation concerning industrial councils and arbitration courts in so many parts of the world. In 1824 the Lace-Makers petitioned Sir J. Hobhouse to introduce a bill “for regulating wages by the decisions of a board composed of selected masters and men, and making the scale thus agreed upon binding on the trade. . . .” He refused.
• 82It is impossible in this essay adequately to indicate the significance in economic history of joint monopoly of this kind. All that can be done is to suggest grounds for the belief that its importance has been greatly under-estimated. It has already been pointed out that practically all the combinations among employers that were revealed by the inquiries in England in 1824 and 1825 were either retaliatory against unions exploiting “the strike in detail” or else the employers’ side of joint monopolies operating with the encouragement and connivance of the workers. Francis Place merely wanted the Combination Laws repealed, and had no interest in bringing out the true significance of the evidence which was brought forward. His comment on an obvious case of joint monopoly was: “Employers advised the men to combine. Thus it appears the law is so iniquitous that those in whose favour it was made encourage the men to break it.” (Note written on his copy of the Report of the 1824 Select Committee on Artisans and Machinery, p. 279). Even in the days when combinations were illegal there is much evidence of employers encouraging their men to combine. There seems to have been a good deal of it among the Framework Knitters, directly fostered by the masters. And we find just as frequently cases of organized workmen petitioning their employers and urging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to get their masters to organize. The rules of the Journeyman Paper-Makers of 1823 included a doggerel verse beginning with the ominous words: “May masters with their men unite.” Other cases of joint monopoly (or attempts to protect the “honourable masters” as they were called), before 1824 were found among the Rochdale weavers, the Stockport Cotton Spinners, the Dublin Saddlers, the Hosiers, the Shipwrights, the Calico Printers, and many other established trades of that day. It was always the “honourable employers” whom they sought to protect; and the same phraseology remains today. In those early times they had even conceived of the utility of the device known today as “extension of agreements” which is found in conjunction with legislation concerning industrial councils and arbitration courts in so many parts of the world. In 1824 the Lace-Makers petitioned Sir J. Hobhouse to introduce a bill “for regulating wages by the decisions of a board composed of selected masters and men, and making the scale thus agreed upon binding on the trade. . . .” He refused.
• 83It is impossible in this essay adequately to indicate the significance in economic history of joint monopoly of this kind. All that can be done is to suggest grounds for the belief that its importance has been greatly under-estimated. It has already been pointed out that practically all the combinations among employers that were revealed by the inquiries in England in 1824 and 1825 were either retaliatory against unions exploiting “the strike in detail” or else the employers’ side of joint monopolies operating with the encouragement and connivance of the workers. Francis Place merely wanted the Combination Laws repealed, and had no interest in bringing out the true significance of the evidence which was brought forward. His comment on an obvious case of joint monopoly was: “Employers advised the men to combine. Thus it appears the law is so iniquitous that those in whose favour it was made encourage the men to break it.” (Note written on his copy of the Report of the 1824 Select Committee on Artisans and Machinery, p. 279). Even in the days when combinations were illegal there is much evidence of employers encouraging their men to combine. There seems to have been a good deal of it among the Framework Knitters, directly fostered by the masters. And we find just as frequently cases of organized workmen petitioning their employers and urging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to get their masters to organize. The rules of the Journeyman Paper-Makers of 1823 included a doggerel verse beginning with the ominous words: “May masters with their men unite.” Other cases of joint monopoly (or attempts to protect the “honourable masters” as they were called), before 1824 were found among the Rochdale weavers, the Stockport Cotton Spinners, the Dublin Saddlers, the Hosiers, the Shipwrights, the Calico Printers, and many other established trades of that day. It was always the “honourable employers” whom they sought to protect; and the same phraseology remains today. In those early times they had even conceived of the utility of the device known today as “extension of agreements” which is found in conjunction with legislation concerning industrial councils and arbitration courts in so many parts of the world. In 1824 the Lace-Makers petitioned Sir J. Hobhouse to introduce a bill “for regulating wages by the decisions of a board composed of selected masters and men, and making the scale thus agreed upon binding on the trade. . . .” He refused.
• 84The nineteenth century is full of further examples of joint monopoly. Yet, as already pointed out, it has received singularly little recognition except by casual comment of unimportant writers. A pamphlet in 1867 recognized that “the means which secure the workmen the monopoly of labour, secure the masters also from any heavy pressure of competition.” In 1905, a writer on Employers’ Associations recognized that they were “but a logical step in, and the natural complement of, the trade-union movement,” and that they were “an essential feature (of it) without which it would be impossible for it to accomplish the purposes for which it exists.” But we seldom find so certain an understanding of this relation between employers’ and workers’ combinations. This is perhaps because formal combinations between capital and labor have been rare. In the late ’nineties of last century a number of open alliances of this kind were flourishing in England in certain hardware, furniture and china trades. The leading advocate of this form of organization was one E. J. Smith, who had no very clear idea of the economic implications of the developments he advised. His schemes received the cordial approval of the Economic Review and were by no means regarded as against the general interest by the Economic Journal. The injurious and monopolistic nature of such organizations was, however, pointed out by Prof. Cannan and by Prof. Pigou. About the same time similar organizations had grown up on the Continent—“Les Syndicats Mixtes” of France. None of these alliances resulted in very close bodies and they do not appear to have survived for long.
• 85The nineteenth century is full of further examples of joint monopoly. Yet, as already pointed out, it has received singularly little recognition except by casual comment of unimportant writers. A pamphlet in 1867 recognized that “the means which secure the workmen the monopoly of labour, secure the masters also from any heavy pressure of competition.” In 1905, a writer on Employers’ Associations recognized that they were “but a logical step in, and the natural complement of, the trade-union movement,” and that they were “an essential feature (of it) without which it would be impossible for it to accomplish the purposes for which it exists.” But we seldom find so certain an understanding of this relation between employers’ and workers’ combinations. This is perhaps because formal combinations between capital and labor have been rare. In the late ’nineties of last century a number of open alliances of this kind were flourishing in England in certain hardware, furniture and china trades. The leading advocate of this form of organization was one E. J. Smith, who had no very clear idea of the economic implications of the developments he advised. His schemes received the cordial approval of the Economic Review and were by no means regarded as against the general interest by the Economic Journal. The injurious and monopolistic nature of such organizations was, however, pointed out by Prof. Cannan and by Prof. Pigou. About the same time similar organizations had grown up on the Continent—“Les Syndicats Mixtes” of France. None of these alliances resulted in very close bodies and they do not appear to have survived for long.
• 86The nineteenth century is full of further examples of joint monopoly. Yet, as already pointed out, it has received singularly little recognition except by casual comment of unimportant writers. A pamphlet in 1867 recognized that “the means which secure the workmen the monopoly of labour, secure the masters also from any heavy pressure of competition.” In 1905, a writer on Employers’ Associations recognized that they were “but a logical step in, and the natural complement of, the trade-union movement,” and that they were “an essential feature (of it) without which it would be impossible for it to accomplish the purposes for which it exists.” But we seldom find so certain an understanding of this relation between employers’ and workers’ combinations. This is perhaps because formal combinations between capital and labor have been rare. In the late ’nineties of last century a number of open alliances of this kind were flourishing in England in certain hardware, furniture and china trades. The leading advocate of this form of organization was one E. J. Smith, who had no very clear idea of the economic implications of the developments he advised. His schemes received the cordial approval of the Economic Review and were by no means regarded as against the general interest by the Economic Journal. The injurious and monopolistic nature of such organizations was, however, pointed out by Prof. Cannan and by Prof. Pigou. About the same time similar organizations had grown up on the Continent—“Les Syndicats Mixtes” of France. None of these alliances resulted in very close bodies and they do not appear to have survived for long.
• 87The nineteenth century is full of further examples of joint monopoly. Yet, as already pointed out, it has received singularly little recognition except by casual comment of unimportant writers. A pamphlet in 1867 recognized that “the means which secure the workmen the monopoly of labour, secure the masters also from any heavy pressure of competition.” In 1905, a writer on Employers’ Associations recognized that they were “but a logical step in, and the natural complement of, the trade-union movement,” and that they were “an essential feature (of it) without which it would be impossible for it to accomplish the purposes for which it exists.” But we seldom find so certain an understanding of this relation between employers’ and workers’ combinations. This is perhaps because formal combinations between capital and labor have been rare. In the late ’nineties of last century a number of open alliances of this kind were flourishing in England in certain hardware, furniture and china trades. The leading advocate of this form of organization was one E. J. Smith, who had no very clear idea of the economic implications of the developments he advised. His schemes received the cordial approval of the Economic Review and were by no means regarded as against the general interest by the Economic Journal. The injurious and monopolistic nature of such organizations was, however, pointed out by Prof. Cannan and by Prof. Pigou. About the same time similar organizations had grown up on the Continent—“Les Syndicats Mixtes” of France. None of these alliances resulted in very close bodies and they do not appear to have survived for long.
• 88The nineteenth century is full of further examples of joint monopoly. Yet, as already pointed out, it has received singularly little recognition except by casual comment of unimportant writers. A pamphlet in 1867 recognized that “the means which secure the workmen the monopoly of labour, secure the masters also from any heavy pressure of competition.” In 1905, a writer on Employers’ Associations recognized that they were “but a logical step in, and the natural complement of, the trade-union movement,” and that they were “an essential feature (of it) without which it would be impossible for it to accomplish the purposes for which it exists.” But we seldom find so certain an understanding of this relation between employers’ and workers’ combinations. This is perhaps because formal combinations between capital and labor have been rare. In the late ’nineties of last century a number of open alliances of this kind were flourishing in England in certain hardware, furniture and china trades. The leading advocate of this form of organization was one E. J. Smith, who had no very clear idea of the economic implications of the developments he advised. His schemes received the cordial approval of the Economic Review and were by no means regarded as against the general interest by the Economic Journal. The injurious and monopolistic nature of such organizations was, however, pointed out by Prof. Cannan and by Prof. Pigou. About the same time similar organizations had grown up on the Continent—“Les Syndicats Mixtes” of France. None of these alliances resulted in very close bodies and they do not appear to have survived for long.
• 89If open and deliberate alliances like these have been rare, cases of tacit mutual support of each other by capitalist and labor groups have been widespread, and are typical of modern economic society. They have been encouraged and developed by tariff and industrial legislation—especially by arbitration, conciliation, and wage regulation acts. In joint monopoly, the writer believes, we have the real clue to the understanding of “anti-sweating” movements, which have not yet, in his opinion, received adequate impartial study. In the present stage of development, when the size of the monopoly unit is tending to become larger, and when capitalist monopoly tendencies are made respectable by the adoption of the propagandist euphemism “rationalization,” the same relationship is there on a larger scale. Dr. Robert Liefmann’s proposal that trade-union representatives should be admitted to cartel directorates and that employers should have permanent representatives on trade-union executives is a good manifestation of it.
• 90The above analysis has sought to show that the ultimate gains of trade unions as well as monopolies of capital are obtained either by the “exploitation” of the consumer or the exclusion of competitors (although in the latter case, of course, the consumer also loses). In regard to gains at the consumers’ expense, the effect upon distribution will depend upon the extent to which the owners of different factors of production are the final consumers of the product concerned. In fact, we find that the greater part of the demand for consumers’ goods is exercised by relatively poor people, and most of the commodities in whose manufacture the working-class are employed are consumed by themselves as a class. This is a question of fact which has often been commented on. Hence, apparent gains by workers at the expense of the consumer are likely, in general, to cause a more than proportionate real loss to them. If trade unions had, and exercised, the power to break down capitalists’ monopolies they would benefit the workers of the community as consumers, but in practice their effect is to bolster up the capitalist’s exclusiveness and to erect a dike (against potential competition) covering an even larger area.