In regard to the actual policy of adjustment to be pursued in periods of rising and falling prices, here also, save in one important respect, the same policy that was sketched out for living wage adjustments should be followed.

3.—The one point in which it may be advisable to depart from the policy laid down for living wage adjustments is in regard to the amount of wage change that should be undertaken for movements in the price level.

In the earlier discussion it was suggested that wherever wages were adjusted to price changes, the adjustments should be on the basis of equal percentages. If this basis were to be used in adjusting the wages of all other groups of workers it is evident that during periods of changing prices there would be a different set of wage differentials for every position of the price level. And, furthermore, during periods of rising prices, the lowest paid classes of workers—those who could do least to meet the rise in the cost of living by changing their consumption habits—would receive the smallest wage increases.

A great diversity of practice characterized the attempts at adjustment which were made during the period of rapid price increase inaugurated by the war. No two agencies of adjustment used the same basis. Possibly the most widespread practice has been to increase all wage levels by the same absolute amount—which amount has been ordinarily calculated as a percentage of some basic wage (frequently the living wage). The advantages of that method are firstly, its simplicity, and secondly, the fact that if it favors any groups, it favors those whose needs are greatest. Justice Higgins has justified it as follows: "When the Court has increased the basic wage because of abnormal increase of prices due to the war it has not usually increased the secondary wage. It has merely added the old secondary wage, the old margin, to the new basic wage. It is true that the extra commodities which the skilled man usually purchases with his extra wages become almost as indispensable in his social habits, as the commodities purchased by the unskilled man, and have no less increased in price; but the Court has not seen fit to push its principles to the extreme in the abnormal circumstances of the war, and the moderate course taken has been accepted without demur."[144]

Still as a permanent policy, the suitability of this method is not beyond question. The problem to be faced in the choice of method is, after all, this. Given a scheme of wage differentials, which are in accord with certain defined principles, at a given position of the price level, what method of adjustment is best calculated to produce such differentials as will be in accord with these principles, at all positions of the price levels? That sounds like a problem in astronomy. But it is not. It can be more understandably, but less accurately, put by asking, what system of adjustment is best calculated to maintain the same relative position of the various groups of wage earners throughout all price movements?

Under either of the two methods touched upon—that of change by equal percentages, and that of change by the same absolute amount for all groups—the differentials cannot be held in close accord with any such original principles of wage relationship as have been suggested. It cannot be helped. We have come to another point at which the aims of policy can only be imperfectly realized.

It seems to me that the best method would be some sort of compromise between the two alternatives that have been presented. A compromise would make allowance, firstly; for the fact that in times of rising prices, those groups whose wages are lowest cannot meet the rise in the cost of living by changing their consumption habits as easily as can the more fortunately placed groups, and secondly; in times of rising prices, the movements of the wage earners from industry, or from occupation to occupation are governed, within limits, by calculations of the absolute change in the wages paid for different kinds of labor, rather than by calculations of relative change. It nevertheless would prevent the relative position of different grades of labor from changing so radically as to lead to great discontent and possibly to derangements in the distribution of the labor supply.

It can be claimed, in addition, for this compromise method that its results would be in accord with the general trend of changes in the differentials that have occurred in the past in periods of rapid price movement. An inspection of the available material seems to show that in times of rapidly rising prices the relative differentials between the lower grades of wage earners and the upper grades decrease, while the absolute differentials increase—and the reverse in times of rapidly declining prices. They are in accord, for example, with the results obtained by analyzing the course of differentials during the war (1914-1919) in the industries for which wage data was gathered by the National Industrial Conference Board—"Report Wartime Changes in Wages." The data extends over the Metal, Cotton, Wool, Silk, Boot and Shoe, Paper, Rubber and Chemical Manufacturing Industries. If the wage earners are classified into five groups according to their pre-war wages, it is found that the relative wages of the least paid groups (pre-war standards) increased most, and so on in order to the best paid groups, the relative wages of which increased least; the absolute increases, however, are in exactly the opposite order.[145] They are borne out also by Mitchell's studies of price movements in the United States.[146]

In conclusion, it may be said, that no matter which of the above methods is adopted, it should be applied with as much consistency as can be attained. The process of wage adjustment to movements of the price level cannot be left in the field of guess work, where it now rests, without giving rise to much quarreling and discontent.

FOOTNOTES:

[144] H. B. Higgins, "A New Province for Law and Order," Harvard Law Review, Jan., 1919. The Commission acting under the Canadian Industrial Disputes Act, carried this line of reasoning to its further logical consequences by awarding in some cases higher absolute increases to the lowest paid men, and so on up the scale to the highest paid men who received the smallest increase. The large increases granted to the lowest paid men were justified by the Commission as necessary to bring their wages up to a living wage level. See, for example, the Report of the Commission on Disputes in Coal Mining and Other Industries in Nova Scotia. Canadian Labor Gazette, July, 1918. For a similar policy based on the same grounds, see the "Arbitration Award in Certain Packing Industries in the United States." U. S. Monthly Labor Review, May, 1918.

[145]

The figures are:

—————————————————————————————- (Wage groups) (Group average) 1914, wages Relative increase Absolute increase, earnings per hour of wages earnings per hour —————————————————————————————- .15-.20 208% .193 .20-.25 187% .188 .25-.30 185% .230 .30-.35 184% .266 .35-.40 174% .268 —————————————————————————————-

Such figures as these are not, of course, sufficient ground for confident generalization, but they support an imputation that the compromise method does furnish the best solution of the difficulties the problem presents.

[146] See W. C. Mitchell, "Business Cycles," page 134. Also W. C. Mitchell, "History of the Greenbacks," pages 33-37, 123-145.



CHAPTER XII—THE REGULATION OF WAGE LEVELS—(Continued)

WAGES AND PROFITS

Section 1. The profits return in industry, under any policy of wage settlement, will be closely scrutinized.—Section 2. The possibility of measuring a "fair" profits return for all industry discussed. A method suggested.—Section 3. Would the principles of wage settlement worked out so far, produce a fair profits return? An open question.—Section 4. The scope and form of any measure designed to assure the desired distributive outcome can be discerned.—Section 5. The various steps in the formulation of such a measure reviewed. A measure tentatively suggested.—Section 6. The difficulties of calculating wage changes called for under the suggested measure.—Section 7. The chief practical weaknesses of the suggested measure examined.—Section 8. It would be open to theoretical criticism also. The alternatives even less satisfactory.

1.—We can now enter upon the further question of whether the principles so far formulated, if used in wage settlement, would produce such distributive results as would justify them to the wage earners and the community in general. It need hardly be said that the criterion of justice which will be applied by public opinion to any policy of wage settlement will not be a simple and clearly defined rule, but will be, rather, one joint in a loosely articulated social philosophy.

The distributive justice of any set of wage principles will be judged by the shares of the product of industry which take the form of wages and profits, respectively. It is true that general satisfaction with them will be largely governed by the course of real wages after they have been in force a while. If real wages tended to increase in the period following their adoption, they would receive far greater approval and much sturdier defense than if real wages fall during that period. Most witnesses of the Australian experiments in wage settlement make that point clear.[147] But in either case, if the organizations of the wage earners in the United States become as powerful as they are in England to-day, and if the class-consciousness of the wage earners becomes as acute, any policy of wage settlement will be severely scrutinized in regard to the profits return prevailing throughout industry also. If, with the principles in force, the general level of profits throughout the field of industry consistently and considerably exceeded what was deemed to approximate a fair return, it will be held that they give the wage earners too small a share in the product of the industry. If the general level of profits throughout the field of industry tended to approximate a return thought to be fair, the principles will recommend themselves to the wage earners and to the community in general, as just. It may be added that the opinion held in regard to the justice of the principles of wage settlement may also be influenced, in some degree, by the distribution of the profits return in industry. If a comparatively few great industrial corporations earn very great profits, it is likely to arouse greater dissatisfaction than if the same amount of profits are earned by a larger number of enterprises. It is beyond the scope of any policy of wage settlement, however, to control the distribution of profits among the enterprises engaged in an industry.

There are some groups who would argue that no division of the product of industry is fair unless it gives to the wage earners the whole of the product. Such a view, of course, amounts to a desire to revise the whole of the present economic system fundamentally. No policy of wage settlement akin to that put forward in this book could win favor in their eyes. And if their opinion should become dominant, industrial peace would have to be sought by arrangements far different from those under discussion. For those arrangements rest on the supposition that the country will continue to desire to depend, in the main, upon private accumulation for capital, and individual ambition for business leadership.

2.—It is possible by bringing into balance a numerous set of factors, to give a reasonably definite meaning to the idea of a fair profits return. That is to say, by weighing all relevant considerations, it is possible to define a general level of profits for industry as a whole, which would represent a just and sound division of the product of industry between wages and profits. The relevant considerations are those which will be likely to hold an important place in the better informed sections of public opinion during the period for which these proposals are intended; and which are admissible as sound and pertinent, on the supposition that the industrial system is to continue to depend mainly upon private initiative and private accumulation.

The most important of these considerations are, in my opinion, as follows: First: that the ethical ideas of reward according to need, or reward according to sacrifice, would call for the elimination of the greatest present inequalities of reward; and that these ethical ideas must be given rank among the factors which deserve real consideration when arrangements affecting the distribution of the product are being made. Secondly: the service of capital in effective production, the sacrifice involved in much accumulation, and the risk involved in much investment; the great need of assuring continued capital accumulation and investment. Likewise, the importance to industry of active and enterprising leadership. Thirdly: the social and economic evil effects of great inequality of wealth. Fourthly: the fact that the health, energy, spirit, and intelligence of the wage earners are factors of high importance in the creation of a stable and effective industrial regime, and that the development and display of these qualities by individuals are affected by their economic conditions and surroundings, here and now. Likewise, the importance of giving the best possible opportunity to all to develop their natural ability.

The general level of profits that would be settled upon by comparing and weighing these considerations could be defended as just and sound. The figure (which would be expressed in the form of a percentage, e.g. 12 per cent.) derived from the balance of these factors could be put forward as the mark of just distribution. The distributive goal for the policy of wage settlement would be to achieve a division of the product between wages and profits, such that the general level of profits throughout the field of industry (the basis of calculation of which will be considered at a later point) would approximate the figure defined as just.

It is plain that if the suggested method is used to define a just level of profits, differences of opinion will manifest themselves in the process. The facts and circumstances that would have to be studied cannot be subjected to exact measurement. For example, the possible bad social and economic effects which may be produced by various degrees of inequality of distribution can only be guessed at in a general way. Or, to take another example, the motives and conditions which govern the bulk of private accumulation and the sacrifices involved therein are questions about which controversy continues to range. The profits return that one man may judge ample to assure an adequate flow of accumulation and investment will not appear to be so, in another man's judgment. Indeed, even differences in the general philosophy with which all men parade through life will lead to differences of opinion. For example, one man may believe a community to be better off if every man's income is increased somewhat, though the inequality of wealth within the community be thereby increased; while another man may believe that the poorer community, with the lesser inequality of wealth is likely to be more happy, and perhaps, in the end more prosperous.

In spite, however, of the existence of such extensive ground for differences of opinion, it seems to me that an agreement may be expected which will be fair and sound enough to be accepted as a serviceable criterion of the distributive consequences of the policy of wage settlement.

3.—What grounds, if any, are there for the belief that the principles of wage settlement so far proposed would bring about a division of the product between wages and profits that would meet the test of just and sound distribution suggested above?

The principles, so far proposed, leave the determination of the profits return predominantly to the action of industrial competition, reenforced by the action of public opinion in the direction of preventing the return from mounting to an obviously excessive point. They offer no safeguard against the reduction of the profit return below that point set as the mark of just and sound distribution, save the public will to continue the present system and a general knowledge of the motives and conditions upon which it rests. Nor could they very well.

It is true that the enactment of the principles suggested up to this point would mean the imposition of certain genuine restrictions upon the actions of those who direct industry, as for example, in connection with the living wage program. It would give all wage earners the benefits of organization. It would make for rapid and certain compensation for price movements. It would prevent wage reductions merely because of the poverty of any group. Nevertheless, if the analysis of distribution made earlier in the book is substantially correct, the answer to the question at the head of this section must be that there would be no very compelling tendency for distribution to result justly, under the enforcement of the wage principles so far proposed. The distributive result would still depend largely upon the reality and intensity of industrial competition, upon the strength, activity, and foresightedness of the wage earners' organizations, upon the will and spirit of the directors of industry, and upon the quality and liveness of public opinion. That admission can be made, even though it is believed that under the suggested principles the outcome of distribution would be nearer the desired outcome than it is at present; and that there would be a clearer perception of the public interest in the outcome of distribution than at present.

4.—If a measure could be devised which would help to bring about the desired distributive outcome, without greatly weakening in some other direction the policy as already conceived, such a measure would be a most worth-while addition to the policy. It is possible to discern clearly what the scope and form of such a measure must be.

Firstly: Such a measure should not single out the profits of particular enterprises for division or transfer to the wage earners, if the profits of these particular enterprises are in excess of what is conceived to be a just profit level for industry as a whole. For, in the first place, if the principle of standardization is enforced throughout industry, the excess profits of particular enterprises may frequently be the result of superior business ability, and to take them away would be to discourage the development and use of that ability. And, in the second place, even if it is acknowledged that this is not the true explanation of the great profits of very many enterprises, but that these are accounted for rather by the possession of special privileges or the weakness of competition, nevertheless, to adopt a policy under which these profits are transferred to the wage earners would lead to wastefulness and extravagance in business operation. And lastly, there is the fact that to make wages in any enterprise contingent upon the profit returns of that enterprise is contrary to the ordinary trade union policy.

Nothing in this conclusion is meant to imply that the wage earners should not be free to enter into wage agreements calling for more than the standard wage. Or that profit sharing arrangements should not be permitted—on the contrary, such arrangements should be encouraged, provided the standard wage and the right of the wage earners' organization to be fully represented in such arrangements are not brought into question.

The conclusion just reached is meant to apply also in the opposite case—that is, in the case of the profits of particular enterprises falling below the level defined as just and sound industry as a whole. The wages of the workers engaged in these enterprises should not, for that reason, be reduced. This conclusion, it is believed, is amply explained by what has been written in various other connections.

Secondly: Even if almost all or all of the enterprises engaged in a particular industry should be in receipt of profits considerably in excess of what is conceived to be a fair profit return for industry as a whole, no attempt should be made to transfer the extra profits to the wage earners engaged in it by increasing their wages. Or to state the matter so as to include both this case and its opposite, the wages in any particular industry should not be adjusted by reference to the profits in that industry. It is clear that here we are upon difficult and very hotly disputed ground.

At present, wages in different industries or occupations are not settled in accordance with any principle which includes them all and which is the basis of an ordered scheme of wage relationship. The existence of a very high profits return throughout a particular industry is an almost prima facie justification for a wage demand on the part of the wage earners employed in it. So too in the opposite case. And as long as wages are settled, as at present, it must be so; for the wage earners in each industry or occupation are dependent upon their own activity to make good their claims as against the other participants in distribution.

It is this very state of affairs, however, that it is sought to supersede. In an earlier chapter it was argued that in order to maintain industrial peace, wages in different industries and occupations will have to be brought into relation with each other, which relation should rest upon defined principle. It is plain that, if any other principle were also to be adopted, under which wages in particular industries were adjusted by reference to the profits return in these industries, that scheme of relationship would be constantly disturbed. If wages in particular industries were adjusted with reference to the profits return in those industries, the result would be a series of uncoordinated wage movements in different parts of the industrial field, and the re-creation of a state of affairs not much different from the present.

Then, too, if wages were to be adjusted with reference to the profits return in particular industries, the method that has been advocated of settling upon a criterion of just profits would not be suitable. A separate mark of fair profits would have to be set up for each industry; for different industries involve different degrees of risk and have different initial periods of little or no profits. What might correctly be considered an excessive profit for one industry might be but a fair profit for another. The task of setting up different criteria for the different industries would be extremely delicate, if it were possible at all.

The same conclusion holds true in the opposite case wherein the profits in most all or all of the enterprises engaged in a particular industry are considerably below what is conceived as a fair profits return for industry as a whole. Cases will arise in which it may be to the interest of the wage earners in particular industries to accept wage reductions, because the industry is doing poorly. In such cases, however, the wage earners may be expected to agree—perhaps, only after a while—to wage reduction, in the course of wage bargaining. If, however, the wage earners will not agree that their interests are served by reduction, it will probably be sound policy to back them up.

It must be admitted that this conclusion as to the inadvisability of adjusting wages by reference to the profits return of particular industries is not set down without hesitation. It is plain that if that idea is to be rejected, the policy of wage settlement as a whole must give some other guarantee of distributive justice to the wage earners. And, indeed, if after a certain period of operation and education it was found that very large profits were accruing steadily in certain industries, and if it did not seem likely that these profits would be reduced to what is conceived to be a fair level either by the forces of competition or public opinion, it might be found wiser to pursue the opposite course—that is, grant wage increases in those industries even at the risk of breaking down the scheme of wage relationship. Much will depend upon the way in which the employers respond to the purposes embodied in the policy of wage settlement. And upon the success of the wage earners and employers in reaching, by collective bargaining, agreements satisfactory to both.

Justice W. Jethro Brown of the Industrial Court of South Australia has stated the problem with great clearness. He writes, "With respect to such an issue, one is on the horns of a dilemma. (1) If unusually high profits are being made in an industry, ought not the employees to have a right to share therein? (2) If one does award high rates of wages, is not one inviting discontent amongst other classes of workers in allied industries or industries generally? Employees are so apt to judge themselves well or ill treated by a comparison of nominal wages without any reference to conditions of industry. In various judgments I have held that it would be quite permissible, if not appropriate, for the Court to take into consideration the fact that an industry is prosperous. On the other hand, as a matter of practice I have tried to work towards an ordered scheme of wages throughout the industry of the community as a whole."[148]

If the above conclusions are accepted, it must be agreed that the scope of any measure designed to help in the attainment of the desired distributive outcome must be the whole field of industrial enterprise to which the policy of wage settlement applies. The question that remains is, whether it is possible to devise a principle of wage settlement by which wages as a whole can be adjusted by reference to the profit situation in industry as a whole. That is to say, whether any measure can be elaborated by which all wages could be adjusted, according as profits in industry as a whole exceeded, approximated, or fell below the profits level that is taken to mark just and sound distribution of the product of industry.

5.—It is plain that if the measure is of such a character that no great harm can result from the possible error involved in the process of calculation, it can be adopted with less hesitation than if the opposite were the case. That is one of the considerations prompting the following proposals.

Let us presume, in order that the proposals may be put in definite form, that the profits return for industry as a whole which is agreed upon as just is a 12 per cent. return. The next step would be the invention of some method by which the profits return of industry as a whole at any given time can be measured. This would be a matter of considerable difficulty; yet it is, in my opinion, not beyond the range of practical attainment.[149] The following method, for example, might not be too unsatisfactory. Let a certain number of enterprises be selected in each industry which comes within the field of wage regulation. The selections should be representative of the industry. If there is a variety of types of enterprises within the industry viewed from the standpoint of productive efficiency, the selected enterprises should tend to represent the more efficient sections of the industry. Then a valuation of these enterprises should be made. A standardized method should then be devised for keeping account of the profits of these selected enterprises. That might necessitate the inauguration of standard methods of accounting throughout all industry—which is a result to be favored. The profits return from the selected enterprises in all industries should be combined into an index number of profits. Possibly, in making up the index number, the figures for each industry should be weighted according to the number of wage earners employed in the industry. The resulting weighted average would be a reliable record of the profits return throughout industry at the particular time. The statistical method just described, however, is meant rather in the nature of a suggestion than as a declaration that it is the best method.

Suppose the index number of profits so calculated for a given period of time proves to be, for example, 18 per cent.—6 per cent. higher than the approved level of profits. On the basis of this profit showing, the wages of all classes of wage earners could be increased for the subsequent period, with some hope of effecting a transfer to the wage earners of at least part of the product of industry represented by the 6 per cent. extra profit. That is to say, that whenever the index of profits showed a profits return in excess of this conceived just return, wages throughout industry should be increased to such an extent as is calculated to bring the profits return down to the approved level.

Whenever the index of profits showed a profits return approximately equal to or less than the approved level, no wage change should be undertaken. For if the profits return was approximately equal to the approved level, it can be concluded that the distributive result is approximately that which is desired. And if the profits return is under the approved level, it would probably be both impracticable and inadvisable to reduce wages throughout the industry. For since no direct control is exercised over profits, the falling of the profits return to a point below the appointed mark of just and sound distribution, would be but the outcome of industrial competition. While it is conceivable, in particular cases, that the community would be better off if the profits return was greater than the return thereby produced, the contrary presumption is more likely to be correct under present conditions. For it is both desirable and likely that the figure that would be set as the mark of just and sound distribution will err on the side of being higher than the profits return required to assure adequate accumulation and investment.

6.—So much for the basis of the proposed measure. It is desirable to examine briefly its chief advantages and disadvantages. But first note must be taken of another problem that would arise in the attempt to enforce it. If the wages of all classes or groups of wage earners are to be increased when the profits return in industry as a whole is above the approved level, the question arises as to the best way to calculate the wage increases, and the most satisfactory basis for distributing them among the different groups of wage earners. If both of these calculations can be kept simple, it will be a distinct advantage. Possibly the most simple and satisfactory way is to determine the absolute amount of the extra profits, and of the total wages bill for the representative enterprises—putting one in terms of a percentage of the other. For example, if it be calculated that the profits of these enterprises in excess of the approved level be one hundred million dollars, and the total wages bill of the same enterprises two billion dollars, the amount of wage increase to be awarded should be stated as 5 per cent. That is, the wage increase to be awarded should total 5 per cent. of the total wages bill.

And here the second problem arises. How should this wage increase be distributed among the various groups or classes of labor? It is probable that the most satisfactory method would be to raise the wages of all groups or classes of labor, including those groups whose wages were determined under the living wage policy, by the same absolute amount. This method does not meet all the demands of our previous reasoning regarding wage differentials. It would, however, be the only way to avoid too much complication in the determination of wages for different groups or classes of labor.

7.—What would be the chief difficulties and disadvantages attendant upon the application of the measure just sketched out? And what are the chief advantages which it gives promise of? These are the questions which now present themselves. First of all, certain difficulties of a practical nature must be faced. For example, there would be difficulty of settling upon a satisfactory method of calculating the profits return of industry. The most satisfactory method of calculation would probably be in the form of a percentage earned upon capital. If that basis of calculation is chosen, however, some method must be decided upon for the measurement of the capital value of all those enterprises, the profits return of which is combined to form the index number of profits. Probably the best way of meeting the difficulties would be to have such a capital valuation of these enterprises as has just been completed for the United States railways. And thereafter standard methods of recording new capital investment should be enforced.

Such an evaluation would appear to be an unwelcome but inevitable preliminary to any attempt to measure and record business earnings. Experience has shown the vast labor and large margin of error involved in formal evaluations. Under the proposals made in this chapter, however, errors made in the evaluation of particular enterprises would be of no great consequence to these enterprises. Only the combined or general profits figure would be used in the course of wage adjustment.

Second among the difficulties of a practical nature is that which comes from the necessity of defining clearly what is to be considered profits.[150] Clearly the earnings put back into the depreciation account should not be counted as profits. Loss or gain from the change in the value of the stock held should not be taken into account. Nor should taxes paid before the distribution of dividends be so counted. Bonus stock dividends, representing reinvestment out of current earnings should be counted as profits, as well as being recorded as additions to invested capital. Capital borrowed from banks should not be considered as capital—and the interest paid on such borrowings should be considered as a business expense. The question of the treatment to be accorded salaries of direction could be settled by reference to arbitrary rules drawn up upon the subject—some allowance being made in the case of partnerships or of businesses operating under private direction to compensate for the salaries of direction that are paid in large incorporated enterprises.

Thirdly, provision would have to be made for the reconsideration, at stated intervals, of the profits return that is set as the mark of just and sound distribution. Thus heed could be taken of any significant changes in the price level, in the conditions of supply and demand for capital, or in any of the other relevant considerations. Likewise, provision would have to be made for the periodical revision of the list of enterprises and industries used in the computation of the profits return for industry as a whole. These matters, though vital, must be left without detailed consideration.

Nevertheless, it is idle to overlook the amount of labor that would be involved in any attempt to keep a record of the profits return in industry. It would be dreary, and of a type demanding specialized knowledge and disinterestedness. Furthermore, any such plan would probably have to be put through in the face of the resentment of most business men. That resentment, however, is likely to flash out against any proposals that look forward to securing industrial peace by giving the wage earners a more assured position in industry, and ready access to the facts of business operation. The standpat temper of those business men who argue that their business is entirely their own private concern would make impossible any policy of wage settlement that did not throw the balance of industrial power in their hands. Unless they visualize their position in different terms than these, little hope can be entertained that any proposals calling for a record of profits will be supported by them. But then it is the normal role of the peace-maker to seek concessions that contestants are not ready to make; to plead general necessity where contestants see only their own; to represent each side to the other in its best light.

8.—Besides these difficulties of a precise and practical kind, certain weaknesses of a more theoretical nature may be urged against the measure. First, it may be argued that since the policy exerts no direct control over profits, there is little reason to believe that profits will be kept down to an approved level. This criticism would or would not be justified by the event, according as industrial competition were effective; according as employers acted up to the purposes and spirit of the policy of wage settlement, and gave the general interest a place alongside of their particular interests; according as government regulation of industry was competently carried out; and lastly, according to the measure in which public opinion made itself felt on the subject. Any such plan as the proposed, by clarifying ideas on the subject, would do much in the way of making public opinion more decisive than at present. It would serve to inform the community that wages can be increased without equivalent price increase, whenever the possibility exists. It would provide employers with a code of honor in industrial relations. And lastly, it must be remembered that the alternative to some such policy of wage increase is a system of direct profits control (leaving out of consideration the possibility of more general and fundamental change).

It is conceivable that a policy of direct profits control for all industry can be worked out, which would not penalize and discourage productive capacity. But it would be an extraordinarily hard job and would necessitate a detailed study of the facts of each particular industry. No doubt a policy of direct profits control is to be strongly advised in particular cases. As, for example, on the American railways at present, where the rate-making power is in the hands of a public body; or in the case of the English coal mines, where the question of control is comparatively simple, and the occasion for control plain. But as a policy for all industries it would involve, in my opinion, an entirely impracticable amount of regulation, and it would be likely to lessen the effectiveness of production and to lead to the wasteful conduct of industry. Therefore, it must be concluded that some such attempt to control profits indirectly as has been proposed—depending upon the forces of competition, trade union activity, public opinion and government regulation—is to be preferred.

There is another possible criticism of a theoretical sort. It may be pointed out that it is proposed to increase wages on the basis of data derived from the whole field of industry. And it may be argued, therefore, that the increases undertaken by the reason of the showing of that data may be considerably greater than particular industries could stand, without an increase in the price of their products. On the other hand, they may be considerably less than the increase required in other industries to reduce the profits return to approximately the approved level.

As to the first possibility, it is entirely conceivable. A wage movement based upon the profits return from all industries and applied equally to all groups of wage earners might cause price increases in particular industries and possibly temporary dislocation and even some unemployment. Such price changes and dislocations, however, are constantly occurring in industry in the absence of any policy of wage settlement, due to the effect of wage increases in one industry on wage movements in other industries. There is little reason to believe that the measure advocated will add considerably to the frequency of their occurrence. It might in one respect serve to lessen the extent of such disturbances. It might make less frequent the recurrence of wage demands, originating in particular industries because of high profits in these industries, and spreading over a large part of the field of industry. For, as has been emphasized, organized groups of wage earners will not accept passively a change for the worse in their position in the economic scale. Finally, there is a safeguard in the fact that no wage increase need occur in any industry except upon the demand of the wage earners in that industry. Joint discussion might make it clear that wage increases could not be well afforded in particular industries, and joint agreement reached upon that fact. The self-interest of the wage earners, here as elsewhere, would prove to be some sort of a check upon unwise wage increases.

As to the second possibility—that wage increases undertaken on the showing of data derived from all industries may be considerably less than the increases required in particular industries to bring down the profits return in those industries to the approved level—that, too, is entirely conceivable. But against this disadvantage must be weighed those which would be attendant upon any measure by which wages in particular industries are adjusted by reference to the profits return in those industries, which subject has already been considered. The fact must be accepted. In any plan such as the one proposed, faith would have to be put in the power of indirect influences to keep the profits return in particular industries from greatly and consistently exceeding the approved level.

By way of conclusion, it may be made clear that any such plan as the proposed would call for the assent of the wage earners to the doctrine that, when the profits return in particular industries is greatly in excess of the approved level for industry as a whole, the community in general have the leading claim to those profits. It is plain that union assent to that doctrine would be forthcoming only if the community made effective its claims. The attainment of a just distributive outcome—one based upon considerations of the general interest—will be essential to the success of any policy of wage settlement for industrial peace.

FOOTNOTES:

[147] M. B. Hammond, "Wage Boards in Australia," Quarterly Journal of Economics, November, 1914, February, March, 1915. E. Aves, "Report on Wage Boards and Industrial and Conciliation Acts of Australia and New Zealand" (1908).

[148] Letter dated March 16, 1920.

[149] See pages 256-60, this chapter, for a further consideration of this question.

[150] W. J. Ashley, in an article in the Economic Journal, December, 1910, entitled "The Statistical Measurement of Profit," reveals the many serious problems involved in the measurement of profit—when no prior preparation (such as the compulsory standardization of methods of accountancy) has been undertaken. The question of profit measurement he aptly states as that of finding out "what the suppliers of capital to business concerns get in the long run over and above the capital they actually put in them" (page 549). Unless prior preparation is undertaken for the purpose in hand, it is probable that his conclusion does not overstate the difficulties much, if at all. He writes, "Modern 'trust finance'—the finance of great new industrial combinations, creates difficulties in the way of gain statistics that will tax the highest skill of the economist and accountant—if, indeed, they are not insuperable" (page 549). There would appear to be no good reason, however, why prior preparation, such as is suggested, could not be undertaken; nor would that task be one of extreme difficulty.



CHAPTER XIII—A CONCEPT OF INDUSTRIAL PEACE

Section 1. The hope for industrial peace in the United States.—Section 2. A policy of wage settlement composed out of the principles already set forth.—Section 3. What results might be expected from the adoption of these principles as a policy?—Section 4. The matter of economic security for the wage earners likely to be important for industrial peace. Hardly considered in this book. The question has been presented to the Kansas Court of Industrial Relations.—Section 5. Certain new ideas concerning industrial relationship have come to stay. They indicate the probable current of future change.

1.—The hope that a policy of wage settlement for industrial peace may be adopted by consent, rests upon the supposition that there exists in the United States to-day a considerable measure of agreement upon a practicable ideal of industrial society. To put the matter more expressly, if half of the community sincerely believed in a policy of the greatest possible freedom of individual enterprise, and the other half were ardent believers in the desirability of a socialist state, the hope of the adoption of a policy of wage settlement would be fatuous.

It may seem to many that this necessary measure of agreement upon a practicable ideal of industrial society does not exist in the United States to-day. And, therefore, that the process of debate and conflict in industrial affairs,—as we know it to-day—must continue for a much longer time before the country will be ready to agree upon any policy of wage settlement for industrial peace. In short, that more heads must be broken in order that reasonableness and light may enter into them.

Still, various reflections should encourage us to go ahead in the search for some policy of wage adjustment for which the necessary general consent can be won. First of all, there is the fact that there is urgent need for industrial peace; that great suffering, and the constant disruption of industry, will be an accompaniment of a continuation of industrial conflict. And it is essential to the settlement of most economic issues, as well as political, that the members of a society do take heed of the needs of the society. It is the origin and justification of the habit of political compromise.

Secondly, it is not easy after all to be cocksure as to what men will or will not agree to until they are directly faced with the task of decision. It is not easy to tell at what point in the conflict of "opposite convictions" an end may be made of the conflict.[151] It is usual that doubt be present in many men's minds when a grave decision is made by society. The constitution of the United States was adopted in the midst of a struggle of ideas, so violent that all agreement seemed to be precluded. The chances of agreement can rarely be certainly known until all possible grounds of agreement are explored.

Thirdly, the belief that the continued battle of ideas will ultimately lead to agreement, and eventuate into policy is an optimistic belief which is not always supported by the facts. Sometimes, indeed, it does, as in the case of woman suffrage. Sometimes, however, it ends in the resort to force. And frequently not even the resort to force produces a solution of the difficulty. The conflict goes on even after the use of open force is surrendered.

Lastly, it is possible, and indeed necessary so to frame policy, that even while it maintains peace and produces cooperation between conflicting interests and ideas, it does not stereotype forever the terms of peace and cooperation. Agreement is often obtained for an economic or political policy in the knowledge that it can be changed if different ideas come to prevail. A policy of wage adjustment, like any other measure, would have to be always subject to reconsideration and amendment. Indeed, it might carry provision in itself for such reconsideration; it might be adopted as an experiment for a definite period of years.

2.—In the preceding chapters the main problems that must arise in the course of any attempt to settle wages by official authority have been discussed. These problems were considered with reference to the possible formulation of a satisfactory policy of wage settlement for industrial peace. That policy may now be presented as a whole. Only in that way, indeed, can the significance of any particular principle of settlement be understood.

It is presumed that whatever policy is put into force will be administered by a government agency, with and by the consent and support of both the wage earners and the employers. It is also presumed that the method of collective bargaining is accepted throughout industry. Indeed, the existence of organized joint boards or councils of wage earners and employers would be almost essential to the success of any policy.

The central constituted agency for the administration of the policy should be a commission or court. The policy should then provide that whenever a dispute arises incidental to the settlement of wages in any industry included within the scope of the policy, which dispute is not settled by the ordinary course of collective bargaining, it should be referred to this commission or court. All sides should be permitted to submit evidence bearing upon the case. The court or commission should have its own expert staff, and its own record and statistical office; and it should be its duty to know the wage situation throughout industry.[152] Every possible effort should be made by the commission or court to render judgment without litigation. The commission or court should give in full the principles and the data upon which it bases its decisions.

The wage policy of the commission or court should rest upon the following principles:

First—The principle of standardization should be applied throughout industry. Wages should be standardized by occupations, despite minor differences in the character of the work performed by the same occupational group, or in the conditions under which the work is performed. Standard rates should be understood to be merely minimum rates; and the principle of standardization should be construed so as to permit of all methods of wage payment.

When the introduction of standardization into a hitherto unstandardized industry or occupation is deemed to involve the possibility of doing more injury to certain sections of the wage earners and employers affected than it promises definite good, the application of the principle should be limited or varied so as to avoid producing such injury. Differences in the natural advantages possessed by various enterprises in the same industry, and relatively great and permanent differences in the cost of living in different localities—these are likely to be the chief grounds for limitation or variation in the application of the principle. The exceptions or variations admitted on these grounds would vary greatly in character and extent no doubt. It is to be expected that they would be numerous. Under certain conditions it might also prove advisable to grant "nominal variations" of the standard wage. Such "nominal variations" would ordinarily be established to compensate for differences of conditions of work governing output in piece-working trades, when such differences of conditions must be accepted as permanent, as in coal mining; or to cover payment in kind or to make up for irregularity of employment.

The process of wage standardization should be regarded as an independent process, as a process logically prior to the other principles of wage settlement (though they may all be applied at the same time). That is to say, the determination of the level of standardization should be fixed upon independently of all other principles of wage settlement. The principal data to be taken into consideration when fixing the level of standardization should be the actual variety of wage rates in the industry or occupation in question. Wherein the scale of actually existing wage rates, the level of standardization is set will be a matter of judgment and compromise. Usually the correct level will be at the higher range of the wage rates already being paid. If any of the existing wage rates in an industry or occupation are higher than the level of standardization which is fixed, the higher rates should ordinarily not be lowered to the level of standardization.

Secondly—The wages of those groups of wage earners who are at the bottom of the industrial scale should be regulated upon the living wage principle. That is to say, the policy of wage settlement for these groups should represent a consistent effort to secure to them a wage at least sufficient to permit them to satisfy their "normal and reasonable needs." These needs must be interpreted in the light of and by direct comparison with the standard of life of the wage earners in general, and of the middle classes in the community. In the determination of the living wage, the existing level of wages for the groups in question will also be an important consideration. The declared living wage—that wage which it is sought to secure for all industrial workers—should be assessed upon a different basis for male and female workers; but if, in particular cases, it is deemed best to safeguard the interests of male workers, or to keep women out of particular industries, this rule could be departed from in any one of a number of suggested ways. The most important of these possible departures from the ordinary basis of assessment is the enforcement of the same wage rates for men and women when they are employed upon the same work. The living wage in any industry should be a standard wage, subject to all the qualifications and limitations of other standard wage rates.

The success of the living wage policy will depend in a great degree upon the good judgment with which it is adapted to the conditions obtaining in each individual industry or occupation in which it is enforced. Therefore, the court or commission should proceed upon the advice of the joint boards or councils concerned. It should be the function of each joint council to give definite advice to the central authority upon every feature of the policy to be pursued in its field—particularly upon the subject of the wages to be prescribed. The central authority should give no ruling in any industry until after the report of the joint council of that industry. Each joint council should have the further duty of observing and reporting upon the effect of the living wage policy in its industry or occupation.

The living wage policy should be administered in such a way as to spread among the wage earners, the employers, and the public an understanding of the hope and purpose it embodies and a clear knowledge of the factors which will govern its success. Not the least of which factors will be the determination of all grades of wage earners to make good use of whatever new measure of participation in industry they may secure; and the recognition by the employers that the standard of life of their workers is one of their important concerns.

Thirdly—The wages of all groups of wage earners not included in the scope of the living wage policy should be settled by reference to principles which apply equally to them all. The wage decisions, at the inauguration of the policy, must rest upon the acceptance and protection of existing wage levels, and of existing wage relationships. However, as cases arise, which bring up the question of the relative positions on the wage scale of the workers engaged in different industries and occupations (and such cases will arise constantly), they should be settled as part of a general process of building up in industry an ordered scheme of wage relationship. This scheme should rest upon defined principles.

These principles should be two in number. They were set forth, both as theoretical and applied doctrines under the titles of the "principle of the unity of the wage income and of the wage earners," and the "principle of extra reward." Wage awards for different industries and occupations should be constantly related to each other. The underlying emphasis in the whole series of awards for different industries and occupations should be that the wages of each group are what they are, more because the total wage income is what it is than because of the special type of work performed by any group. The same wage should be paid throughout industry for different kinds of work which require approximately the same human qualities and which make approximately the same demands upon the individual. The wage differentials that are established should be such as will make it reasonably certain that industry will be provided with at least the existing proportion of the more skilled grades of labor, and to make it reasonably certain also that the more arduous, dangerous, irregular, and disagreeable work will command the service of as much labor as at present. The hopes for the establishment of any scheme of wage relationship will be realized or not, according as particular groups of wage earners are willing to accept a wage that may be less than that which they might secure by the continued use of their own group strength. This last remark applies in particular to those groups of wage earners, whose economic position, as organized groups, is very strong by virtue of the fact that the work they perform is essential to the economic existence of the whole community—such, for example, as the railway men, the bank clerks, the printers, and the miners.

Fourthly—With a view to preventing those changes in the distributive situation which may result from price movements, and which are undesirable—judged by reference to the distributive outcome that is sought—all wages including those prescribed under the living wage policy should be promptly adjusted to movements in the general price level. The measure of price change should be the movement of the index number of prices of all the important commodities produced within the country—the index number to be so weighted as to give a defined importance (50 per cent. was suggested) to the prices of those classes of foodstuffs, clothing, housing accommodation, and other commodities upon which the wage earners spend a very great part of their income. The policy of adjustment to be pursued in times of rising and falling prices and the amount of wage adjustment to be undertaken in response to price movements of different degrees and character—in short, all the rules by which the adjustment of wages to price movements should be carried out—were considered, at some length, in several of the earlier chapters, and can hardly be produced satisfactorily in summary form. Special care should be taken to protect the standard of life of the least favorably placed groups of wage earners during periods of a rising price level.

Fifthly—In order to bring about such a distributive outcome as will recommend the policy of wage settlement to the wage earners and to the community in general, some profits test should be devised. This profits test should be used to mark and measure the distributive situation in industry as a whole, indicating, as it will, the share in the product of industry that is taking the form of profits. Whenever the general range of profits in industry exceeds that profits return which is conceived to be just and sound, the wages of all groups of workers should be increased in an attempt to transfer the extra profits to the wage earners. The calculation of the wage increase to be awarded, when the profits test shows that the profits return in industry as a whole is greater than that conceived to be a fair return, and the basis of distribution of this wage increase among the various groups of wage earners, were dealt with at some length and cannot be described more summarily. In order to apply any profits test, such as the suggested one, it would probably be necessary to enforce standardized accounting methods throughout industry.

The most satisfactory policy would not attempt any direct control of profits. Nor would it make provision for the transfer of the extra profits that may be earned by particular enterprises or industries to the wage earners of those particular enterprises or industries. The forces of industrial competition, trade union activity, public opinion, and government regulation would have to be depended upon to keep the profits return of industry at approximately the level which may be set as the mark of just and sound distribution. A policy of direct control of profits may, however, be advisable in particular industries or on special occasions. The continued assent of the wage earners to any policy of wage settlement will be largely governed by the success of the community in making good its claim to a large part of the extra profits which may accrue to particular enterprises or industries.

Sixthly—Any policy of wage settlement of the type considered above should give encouragement to the organization of labor throughout industry. It would have to make use of joint councils or boards in many ways (there may be some craft joint councils also). The English and Australian experience seems to prove that. To quote Justice Higgins of the Commonwealth Court of Australia, "The system of arbitrations adopted by the act is based on unionism. Indeed, without unions, it is hard to conceive how arbitration could be worked."[153] Still, once a dispute has come up before the central authority, the final power to render decisions should rest intact in its hands.

All organizations of wage earners or employers should be compelled (if necessary) to agree to a policy of open membership. Such a policy of open membership should suffice to prevent monopolistic action on the part of the union in any industry or trade.[154] It would also be well if shop rules could be brought within the field of public supervision, but that may prove impracticable. Finally, it may be said that no part of the policy should interfere with the development of profit-sharing plans—provided such plans are the product of joint agreement between the employers and the workers engaging in them; and if the workers immediately concerned so desire, the labor organizations should be given full representation in the arrangements. Nor, indeed, should it discourage any movement towards the participation of the workers in the control of industry, whatever the scope of such participation. On the contrary, by creating mutual confidence between the wage earners and the directors of industry, and by giving both the wage earners and the employers training in the art of mutual agreement, it should prepare the way for the growth of such participation.

These principles of wage settlement would, it is believed, form a sound and forward looking policy of wage settlement for industrial peace. Nevertheless, they are not put forward with the idea that they, or any similar set of principles for the settlement of wages, would be workable in practice without many hitches, and without the need for constant adaptation to the facts encountered. Nor without a suspicion of the hard blows and unexpected eventualities which fate usually has in store for fine proposals.

3.—Ultimately, of course, behind any proposals for industrial peace there is a striving to catch sight of a future industrial society more content, more generous and creative than that of the present time. To the ordinary observer no such ultimate question appears to be involved in an ordinary wages dispute. Yet it is there. The trade union leader fighting for a wage increase does not always see his demand as a plain group claim for greater reward; it frequently appears as an act of justice to his class, a step towards improving their position and power in industrial society. To the employer more often the struggle is merely to protect his profits. But beyond that in many cases there is a fear lest industrial growth and extension be obstructed. Any policy of wage settlement that is more than a weakly supported truce must throw some rays of hope into the future. What type of future industrial society may be envisaged if any principles of wage settlement similar in substance to those discussed in this book should be adopted? What suggestions for the future are contained in them? It is not easy to see. Only a few features of the future can be discerned and those sketchily.

Industry would still be carried on in the main by private enterprise and competitive activity. Particular industries, as for example, the railroads, may become government owned or government operated enterprises. But even so, wages in those industries would be, in all probability, determined by the same principle as wages in other industries, and by the same agency. The function of capital accumulation would still be a private function. The tasks of industrial direction would still be carried out by the will of those who owned industry; although, in many industries the power and duty of deciding some of the important questions of direction, especially those which affect the wage earners most directly, might be in the hands of a council or board on which the wage earners are strongly represented.

It may be hoped that all wage earners, except those judged sub-ordinary, would be in receipt of a wage at least sufficient to enable them to maintain themselves (and in the case of men, their family) at a standard of life which did not compare too unfavorably with the standard of life of the rest of the community. By virtue of this, the way would be opened for even the lowest grades of the wage earners to take advantage of the opportunities that are provided for physical and mental life and education. The ideal would be to ensure that the whole of the industrial population had that original grant of health, security, and hope which is required to give reality to the idea of equality of opportunity.

It is vain, perhaps, to attempt to predict whether the level of production throughout industry would rise or fall; for that will be affected in a decisive measure by influences over which the policy of wage settlement will have little or no control. The proposals made would give adequate encouragement to the accumulation of capital, and to the carrying out of business ventures. It would succeed also, it may be hoped, in securing the active interest of the wage earners in a high level of production, by bringing about such a distributive outcome as appears just to the wage earners, and by giving adequate expression to the aspirations of the wage earners. In an industrial system, largely dominated by the single motive of personal gain, it is not likely that any one group or class will respond to a general need for high production unless its interests are thereby directly served. If the policy adopted brought about a broadening of the motives on which the system rests and operates, there is much ground for the belief that the level of production would be favorably affected. However, as was said above, the possibility of such a result will be largely governed by influences outside of the present field of study.

There remain the questions of the distribution of wealth and of opportunity. Here, also, any conclusions that are ventured must rest upon an insufficient knowledge of the events which will govern the future. One of the chief requirements that proposals made were designed to satisfy is the attainment of such a distributive outcome as may be judged to be both just and sound—weighing all relevant considerations. Yet it would probably be over-optimistic to believe that the result would satisfy the intention. For all that, the general desire for a high level of production will largely depend upon the fulfillment of that intention. The wage earners will only continue to subscribe to a doctrine of high production if they trust to the action of the distributive mechanism to bring them a fair share of the resulting product. Here we are at the very storm center of socialist economics. The question is, to what extent, as a matter of fact, do the wage earners share in the result of increased productive efficiency? To that question, the policy of wage settlement must furnish a satisfactory answer—though, of course, no answer will be satisfactory to all men.

The question of the prospective distribution of wealth, however, can hardly be considered apart from the question of the future course of growth in population. Even if the wage earners do receive that share of the product of industry which represents a just and sound distributive outcome, will that mean a gradual evolution of higher permanent standards of living among the poor, and give them a fair start in the struggle for opportunity? Or will it mean but a greater rate of increase in population, such as will more than keep pace with the ability of our natural resources and the advances in production and invention to provide the basis of a rising standard of life for all the population? In the latter case, groups will remain at the bottom of the industrial scale whose economic position will be so unfavorable under any social arrangements as to prevent the individual members of these groups to fairly develop and test their natural ability. In which case the handicap of inequality would be very real. The nineteenth century has left us with a hopeful outlook in regard to the possibility of maintaining a progressive standard of living throughout the community; but the events, purposes, and habits which will determine the outcome are too many, and their relative influence is too indeterminate to warrant any certain predictions.

However, even if the menace of population is avoided, even if the general level of production is raised, and if, besides, the distributive outcome laid down as a goal for the policy of wage settlement is attained, nevertheless, there would remain a considerable measure of inequality of wealth. For, it is to be anticipated, that in the course of the development of our industrial organization, the amount of invested capital relative to the number of wage earners will grow. This means that the absolute amount of the product of industry which takes the form of profits will increase, even if the relative share does not. As Professor Taussig has written, "In general, the very forces which make the total income of society high and the general rate of wages high cause the proportion of income which forms return on capital to be large."[155] And any continued increase in the absolute amount of the product of industry taking the form of profits will be likely to lead to a considerable measure of inequality of wealth; unless the amount of accumulation and investment on the part of the wage earners is largely increased.

So much for the question of the distribution of wealth. Is it possible to venture any definite conclusions, at all, regarding the distribution of opportunity? The idea of equality of opportunity is not an easy one to define in terms of facts. It can be said that it would be realized, in the economic sphere, if such economic conditions prevail, as gave all individuals an approximately equal chance to follow their inclinations, and to make whatever use of their natural abilities they desire. If that definition is near the heart of the matter, it is evident that in a society in which there is considerable inequality of wealth it will not be possible to secure equality of opportunity. As Mr. Tawney has remarked, "Talent and energy can create opportunity. But property need only wait for it." Under almost all circumstances there is a tendency for the distribution of opportunity to conform to the distribution of wealth. Still it is not to be concluded that this tendency is unconditional. If it proves possible to secure to every industrial family (except perhaps the most incapable) such a minimum standard of economic life, and such a degree of economic security as will bring it about that these families are not gravely handicapped in their efforts to utilize the existing opportunities for education and for economic advancement, an important step towards equality of opportunity will have been accomplished. It is true that a small section of the population will be strongly favored from the start. But, in an environment which encourages individual effort, the most important step in the process of securing equality of opportunity is to get rid of the serious obstacles to the development and active use of the natural ability of those born low in the industrial order.

4.—One important factor in industrial peace, which might well be given consideration in the formulation of a policy of wage settlement for industrial peace, has received but scant mention in this effort to formulate the terms of policy. It is the question of economic security for the wage earners. It is argued by some students of our industrial troubles that the fundamental desire of most workers is not for advancement, or even for high wages, but rather for secure and steady employment at customary rates. That this desire is often uppermost in the struggles of individuals and organizations is undoubtedly true; though the relative ease with which work was to be found in normal times in the United States has prevented the question of insecurity from being as acute a problem as in Great Britain, for example.

The principles of wage settlement that have been put forward contain but one measure which might prove useful in an attempt to modify the insecurity of the wage earner in a modern industrial community. They provide for the establishment of joint boards or councils in each industry which are intended to have those phases of industrial activity which effect the welfare of the wage earners under constant observation. These councils might conceivably work out plans in different industries intended to steady the employment of the wage earners, and methods of insurance against the worst vicissitudes of their employment. In the pottery trade of England, for example, the industrial council has been giving consideration to the question of an Unemployment Insurance Fund for the industry. The possibilities of cooperation between employers and employed in that direction are genuine. The realization of any such plans will depend, of course, upon the growth of mutual trust, and upon the ability of all parties to work for a common end. They require that every important business man and labor leader be a statesman in the sphere of business.

In the act establishing the Kansas Court of Industrial Relations, and governing its operations, there is a provision which gives the Court a power which might enable it to deal with the question of irregularity of industrial activity. It is new in the history of industrial regulation in this country. It provides that the establishments covered by the act "shall be operated with reasonable continuity and efficiency in order that the people of this state may live in peace and security and be supplied with the necessaries of life"; it makes it unlawful for any establishment "wilfully to limit or cease operations for the purpose of limiting production or transportation or to affect prices for the purpose of avoiding any of the provisions of the act."[156] It further provides that such industries as are affected by changes in seasons, market conditions or other conditions inherent in the business may apply to the Court for an order fixing rules and practices to govern its operations.

This provision may mean a great deal or very little, according as the Court and the higher courts interpret the idea of "reasonable continuity." If it is taken to mean simply that the enterprises covered by the act should not limit production in accordance with some agreement with each other in order to increase profits, or to fight the unions, it will have little or no importance as regards the question of security of employment. And that is probably the interpretation that will be given to it. It will be hardly possible to work out a plan for regularity of operation by mandate of a court, and under penalty. Such rules and practices as the Court may lay down will probably take cognizance of the laws of the market which ordinarily govern business operations. To rule otherwise would mean embarking upon a comprehensive reform of business operations; it would necessitate the development of some other gauge of business operation than business profits.

Only one case which has come before the Court has brought up this question of continuity of operation. The Court investigated a complaint that the flour mills at Topeka were reducing production. It found that the mills were running at sixty per cent. capacity; and that the cause of this reduced operation was a falling off in the flour market, due to world-wide economic changes beyond the control of the industry and the Court. The Court found this limitation of production not unreasonable. It gave no sign of making any radical use of its powers to control the regularity of production, nor of interfering with the ordinary processes of business operation. This policy it tempered with concern for the workers—suggesting to the millers that they put their "skilled and faithful" employees on a monthly pay system. It appointed a committee to draw up rules and regulations to be observed in the operation of the industry, and to keep it informed.

5.—In the coming years there will take place in the United States much controversy and a great variety of experiments in wage settlement. To the realists of all parties, this course of controversy and experimentation will appear to be only a struggle for power. To the rest, it may appear that there are ideas at work; ideas springing partly from the example of political change, and partly from the fact that the industrial world has undergone such a rapid revolution. It is impossible to predict the ideas which will have the most abiding force. It is impossible even to assert that society will make a satisfactory choice among them.

In the present confusion of counsel, two relatively new ideas, in particular, appear to me to be likely to endure and be accepted by society. The first is the idea that the welfare of the wage earners in each particular industry is one of the major questions in the conduct of that industry; and that the wage earners should participate effectively in those activities of direction by which the conditions of labor are determined. The second idea is that the whole body of wage earners in industry should possess the means of checking the action of private enterprise, when they can prove clearly that the methods of production that are being pursued are wasteful either of human or of material resources. An example of such a protest is that of the English coal miners against the organization of their industry—which was one of the grounds for the appointment of the Coal Commission. It would not appear to be impossible to reconcile the action of private investment and private enterprise with this concept of the right of the wage earners to exert control over the policy of production, in so far as they can establish the fact that human or material resources are not being well applied—the general interest being the test.

The main current of industrial change will be, in my opinion, in the direction indicated by these two ideas. And change in that general direction is, it seems to me, essential to the peaceful conduct of industry, for only in some such way will a sense of common interest be established—which sense alone can hold together an undertaking so dependent upon a division of function as is modern industry. Through all changes, it will remain true that effective production depends upon the willingness to work hard for the sake of working well, and upon the existence of strong habits of self-dependence.

FOOTNOTES:

[151] "As law embodies beliefs that have triumphed in the battle of ideas, and have then translated themselves into action, while there is still doubt, while opposite convictions still keep a battle front against each other, the time for law has not yet come; the notion destined to prevail is not yet entitled to the field," "Law and the Court," address by Justice Oliver Wendell Holmes, Jr., before the Harvard Law School Association.

[152] In this matter the Kansas Industrial Court law sets a good example by authorizing the Court to build up a staff of accountants, engineers and such other experts as it may need for the proper conduct of its operations.

[153] H. B. Higgins, "A New Province for Law and Order," Harvard Law Review, March, 1915, page 23.

[154] "Where the union admits all qualified workers to membership, under reasonable conditions, such a rule cannot become the basis of monopoly." U. S. Ind. Comm'n. Report (1915), Vol. I, page 116. Report signed by Commissioners Manly, Walsh, Lennon O'Connell and Garretson.

[155] F. W. Taussig, "Principles of Economics," Vol. II, page 205. Revised Ed.

[156] Sections 6 and 16 Act Creating Court of Industrial Relations, Kansas, 1920.

THE END