Control or Economic Law

Control or
Economic Law
Control or
Economic Law
ugcn von 8ohm8awcrk
2010 by thc Ludwig von Miscs !nstitutc and publishcd undcr thc Crcativc Com
mons Attribution Liccnsc 3.0. http://crcativccommons.org/liccnscs/by/3.0/
Ludwig von Miscs !nstitutc
518 Vcst Magnolia Avcnuc
Auburn, Alabama 36832
www.miscs.org
!S8N: 9781933550718
Control or conomic Law rst appcarcd in thc Zeitschrift fr Volkswirtshaft,
Sozialpolitik und Verwaltung, \olumc XX!!! (1914): 20571, translation is by John
Richard Mcz, Ph..
Contcnts
!. Tc Scicntic Foundation ol a
Rational conomic Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
!!. Conlormity or Contradiction: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
!!!. Tc xamplc ol thc Strikc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
!\. Tc \arious Altcrnativcs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5
!. Tc Scicntic Foundation ol a Rational
conomic Policy
coxo:ic :nvovv, vvo: i:s vvvv nvcixnings, n~s vxbv~vovvb :o
discovcr and lormulatc thc laws govcrning cconomic bchavior. !n thc carly
pcriod, which was undcr thc inucncc ol Rousscau and his doctrincs ol thc
laws ol naturc, it was customary to apply to thcsc cconomic laws thc namc
and charactcr ol physical laws. !n a litcral scnsc, this charactcrization was,
ol coursc, opcn to objcction, but possibly thc tcrm physical or natural
laws was intcndcd mcrcly to givc cxprcssion to thc lact that, just as natural
phcnomcna arc govcrncd by immutablc ctcrnal laws, quitc indcpcndcnt ol
human will and human laws, so in thc sphcrc ol cconomics thcrc cxist ccrtain
laws against which thc will ol man, and cvcn thc powcrlul will ol thc statc,
rcmain impotcnt, and that thc ow ol cconomic lorccs cannot, by articial
intcrlcrcncc ol socictal control, bc drivcn out ol ccrtain channcls into which
it is incvitably prcsscd by thc lorcc ol cconomic laws.
Such a law, among othcrs, was considcrcd to bc that ol supply and demand,
which again and again had bccn obscrvcd to triumph ovcr thc attcmpts ol pow
crlul govcrnmcnts to rcndcr brcad chcap in lcan ycars by mcans ol unnatural
pricc rcgulations, or to conlcr upon bad moncy thc purchasing powcr ol good
moncy. And inasmuch as in thc last analysis, thc rcmuncration ol thc grcat
lactors ol productionland, labor, and capitalin othcr words, thc distribu
tion ol wcalth among thc various classcs ol socicty, rcprcscnts mcrcly onc casc,
although thc most important practical casc ol thc gcncral laws ol pricc, thc
cntirc allimportant problcm ol distribution ol wcalth bccamc dcpcndcnt upon
thc qucstion ol whcthcr it was rcgulatcd and dominatcd by natural cconomic
laws, or by thc arbitrary inucncc ol social control.
Tc carly cconomists did not hcsitatc to dccidc this qucstion with lcarlcss
consistcncy in lavor ol thc cxclusivc prcdominancc ol natural laws. Tc most
7
Control or Economic Law 8
lamous, or rathcr notorious, illustration ol this intcrprctation was thc wagc
lund thcory ol thc classic and postclassic school ol cconomists, according
to which thc amount ol wagcs was dctcrmincd by a natural rclationship ol
almost mathcmatical accuracy thought to cxist bctwccn thc amount ol capital
availablc in a country lor thc paymcnt ol wagcs, thc socallcd wagc lund,
and thc numbcr ol workcrs. All workcrs jointly wcrc considcrcd incapablc
ol cvcr rccciving morc than thc cxisting wagc lund, and thc avcragc was
thought to rcsult with mathcmatical accuracy lrom thc division ol thc wagc
lund by thc numbcr ol workcrs. No articial outsidc intcrlcrcncc, including
strikcs, could changc thc opcration ol this law. For il, through a succcsslul
strikc, thc wagcs ol onc group ol workcrs wcrc to havc bccn raiscd articially,
a corrcspondingly smallcr portion ol thc wagc lund would bc availablc lor thc
rcmaining workcrs, whosc wagcs would thcn havc to comc down accordingly.
A gcncral or avcragc incrcasc ol wagcs abovc thc total ol thc wagc lund was
hcld to bc out ol thc qucstion.
Latcr gcncrations havc adoptcd a dicrcnt vicw ol this mattcr and ol
cconomic laws in gcncral, and havc dcvclopcd dicrcnt ncw lormulas in
accordancc with thcir changcd vicws. Following thc cxamplc ol Rodbcrtus
and Adoll Vagncr, a distinction was drawn bctwccn purcly cconomic catcgo
rics and historic lcgal catcgorics. Tc lormcr wcrc to includc all that was
pcrmancnt, gcncrally valid, and rccurrcnt in cconomic phcnomcna undcr any
conccivablc social ordcr, thc lattcr wcrc to rcprcscnt thc historically varying
typcs, brought about by changcd lcgal systcms, laws, or social institutions.
Hcncclorth, a dctcrmining, or at any ratc larrcaching inucncc upon thc
laws ol distribution was ascribcd to this lattcr or social catcgory, a tcrm uscd
lrcqucntly cvcr sincc, cspccially by Stolzmann.
1
Tis may havc bccn right or wrong, but it was ccrtainly not without somc
justication. 8ut how larrcaching was thc inucncc ol control to bc, and how
and whcrc was it to bc dclimitcd against thc inucnccs cmanating lrom thc
othcr catcgorics: Tcsc qucstions wcrc not, and havc ncvcr bccn, dcnitcly
scttlcd to this day. A lcw ycars ago, at anothcr occasion, ! wrotc, Nowadays
it would bc idiotic to try to dcny thc inucncc ol institutions and rcgulations
ol social origin on thc distribution ol goods.
!t is obvious that distribution undcr a communistic ordcr would havc to
bc matcrially dicrcnt lrom that in an individualistic socicty, bascd on thc
principlc ol privatc propcrty. Nor could any scnsiblc pcrson dcny that thc
1
ic Sozialc Katcgoric in dcr \olkswirtschaltslchrc, 8crlin 1896, cr Zwcck in dcr
\olkswirtschalt, 8crlin 1909.
Eugen von Bhm-Bawerk 9
cxistcncc ol labor organizations with thcir wcapon ol strikcs has bccn ol
pronounccd inucncc on thc xation ol wagcs ol labor. 8ut, on thc othcr
hand, no intclligcnt pcrson would claim social pricc rcgulation as bcing
omnipotcnt and dccisivc in itscll alonc.
ltcn cnough onc has sccn govcrnmcntal pricc rcgulations to bc incapablc
ol providing chcap brcad in lcan ycars. vcry day wc may scc strikcs lailing,
whcn thcy arc dircctcd towards thc attainmcnt ol wagcs not justicd in thc
cconomic situation, as it is commonly cxprcsscd. Tc qucstion, thcrclorc, is
not whcthcr thc natural or purcly cconomic catcgorics on thc onc hand,
and thc social catcgorics on thc othcr, do cxcrt any apprcciablc inucncc on
thc tcrms ol distribution, that both do, no intclligcnt pcrson will dcny.
Tc solc qucstion is this: how much inucncc do thcy cxcrt: r, as ! havc
cxprcsscd myscll scvcral ycars ago, in rcvicwing an oldcr work by Stolzmann
cntitlcd ic Sozialc Katcgoric,
Tc grcat problcm, not adcquatcly scttlcd so lar, is to dctcrminc thc cxact
cxtcnt and naturc ol thc inucncc ol both lactors, to show how much onc
lactor may accomplish apart lrom, or pcrhaps in opposition to, thc othcr.
Tis chaptcr ol cconomic thcory has not yct bccn writtcn satislactorily.
! should likc to go almost so lar as to say that, until quitc rcccntly, not cvcn
a scrious attcmpt has bccn madc to claboratc this problcm by cithcr onc
ol thc two grcat schools that compctc with cach othcr in thc pcrlccting ol
our scicncc: thc thcorctical school, rcprcscntcd primarily by thc wcllknown
marginalutility thcory, and thc historic or sociological school, which, in
its strugglc against both thc old classicists and thc modcrn marginalvaluc
thcorists, likcs to placc thc inucncc ol control (Macht) into thc vcry hcart
ol its thcory ol distribution.
Tc marginalvaluc school has not ignorcd thc problcm conlronting us hcrc,
but so lar, it has not claboratcd it cxtcnsivcly, it has conductcd its invcstigations
up to thc conncs ol thc wholc problcm, so to spcak, but so lar, has stoppcd at
thcsc conncs. So lar, it has principally occupicd itscll with thc dcvcloping ol
thc laws ol distribution undcr thc assumption ol lrcc and pcrlcct compctition,
pcrlcct both in thcory and in practicc, thus prccluding thc prcdominancc ol
onc party, as would bc implicd in thc tcrm inucncc ol control.
Undcr this, and thc othcr modilying assumption ol thc cxclusivc prcvalcncc
ol purcly cconomic motivcs, thc marginalvaluc thcory has comc to thc con
clusion that, in thc proccss ol distribution, cach scparatc lactor ol production
rcccivcs approximatcly that amount in paymcnt lor its contribution to thc total
production that, according to thc rulcs ol imputation, is duc to its coopcration
in thc proccss ol production. Tc shortcst lormulation ol this idca is containcd
in thc lamiliar conccpt ol thc marginal productivity ol cach lactor.
8ut in making this contribution, thc marginalvaluc school had lurnishcd
only an incomplctc skclcton ol thc thcory ol distribution as a wholc, and it
was wcll awarc ol this shortcoming. !t ncvcr prctcndcd to havc lully covcrcd
thc complcx rcality with that conccpt, on thc contrary, it ncvcr lailcd to
cmphasizc, again and again, that its past ndings had to bc supplcmcntcd by
a sccond scrics ol invcstigations, whosc task it would bc to inquirc into thc
changcs that would bc produccd in this lundamcntal conccpt by thc advcnt
ol changcd conditions, particularly thosc ol social origin.
2
Tc rcason why thc marginalvaluc school took up that part ol its invcstiga
tion rst was only that it sccmcd to rcquirc priority in mcthodical trcatmcnt,
that primarily onc should know and undcrstand how thc proccss ol distribu
tion, or morc gcncrally, that ol pricc lormation took placc in thc abscncc ol
all outsidc social intcrlcrcncc.
3
First ol all, a starting point, or point ol comparison, had to bc rcachcd
lrom which thc changcs might bc mcasurcd that would bc produccd by
thc advcnt ol spccial outsidc lactors ol a social origin. Tc marginalvaluc
thcory, thus, as a wholc, rst laid down a gcncral thcorctical lramc lor thc
problcm in lormulating its gcncral valuc and pricc thcorics, and, within that
lramc, it claboratcd in dctail only thc thcory ol lrcc compctition, whilc until
now it had lclt a gap whcrc thc inucncc ol social control should havc bccn
studicd and dcscribcd.
Tis impcrlcction has always bccn lclt as such, with cvcry ncw dccadc it is
bcing scnscd morc bccausc in our modcrn cconomic progrcss, thc intcrvcntion
ol social mcans ol control is continuously gaining in importancc. vcrywhcrc
trusts, pools, and monopolics ol all kinds intcrlcrc with thc xation ol priccs
and with distribution. n thc othcr hand, thcrc arc thc labor organizations
with thcir strikcs and boycotts, not to mcntion thc cqually rapid growth ol
articial intcrlcrcncc cmanating lrom thc cconomic policics ol govcrnmcnts.
2
! may rclcr, lor instancc, to my statcmcnt in rcgard to two complcmcntary parts ol thc
pricc thcory, publishcd as carly as 1886.
Scc my Foundations ol thc Tcory ol conomic \aluc, in Conrads Jahrbcher, N.F. 1886,
8d. X!!!, pp. 486, and my Positive Teory of Capital, Chap. !\.
3
l coursc, thcrc must always cxist a ccrtain minimum ol outsidc intcrlcrcncc, as shown
in dctail lurthcr on, bccausc thcrc always must cxist a social ordcr ol somc kind.
!n thc cycs ol thc classical cconomists, thc thcory ol lrcc compctition could
claim to bc thc systcmatic loundation ol thc cntirc problcm, as wcll as thc
thcory ol thc most important normal casc. 8ut at prcscnt, thc numbcr and
importancc ol thosc phcnomcna that no longcr nd an adcquatc cxplanation
in thc thcory ol lrcc compctition probably alrcady cxcccd thc numbcr ol thosc
cascs that may still bc cxplaincd by that onc lormula.
Nor has this gap lclt opcn by thc marginalvaluc thcory cvcr bccn llcd by
that othcr school ol cconomists, thosc who placc thc inucncc ol thc social
catcgory in thc lorcground.
4
Tc rcason lor this is that thcy again ovcrcstimatcd
thc cxplanatory powcr ol thcir lavoritc lormulas. Vhcn, with an air ol convic
tion, thcy proclaimcd that undcr this or that condition, lor instancc, in thc
xation ol wagcs, it was powcr that ultimatcly dccidcd mattcrs, thcy thought
to havc givcn a contcnt to thcir cxplanation, which, il applying at all, was to
supplant or cxcludc cxplanations on purcly cconomic grounds. Vhcrc powcr or
control cntcrcd into thc pricc, thcrc was no cconomic law, thcy thought, and
thus thc mcrc mcntion ol control was both thc bcginning and thc cnd ol thc
cxplanation to bc givcn. !t was accompanicd morc oltcn by a crcc dcnuncia
tion ol thc cconomic laws dcvclopcd by othcr thcorctical schools, than by a
carclul invcstigation ol thc qucstion ol whcrc and how thc two catcgorics
rclatc to cach othcr. Morcovcr, thc tcrm two catcgorics was mcrcly a phrasc
ol a rathcr vaguc and illdcncd mcaning, and thus by no mcans vcry suitablc
to thc conducting ol clcar and pcnctrating invcstigations.
At thc prcscnt timc it is probably Stolzmann who may bc considcrcd as thc
typical rcprcscntativc ol that school ol thought. thcr authors ol a similar
typc, likc Stammlcr or Simmcl, may havc bccomc morc widcly known and
inucntial, but Stolzmann has thc mcrit ol having tricd to lollow up, onc by
onc, and to claboratc systcmatically thc suggcstions madc by oldcr cconomists,
sincc Rodbcrtus and Vagncr, and thcn hc has thc additional assct ol having
shown himscll morc lamiliar with cconomic thcory than many authors start
ing lrom dicrcnt approachcs. Hc is thus, ! think, thc onc rcprcscntativc ol
his school bcst qualicd to discuss thcsc basic principlcs.
Now, Stolzmann dcclarcs as thc lundamcntal idca in his thcory ol dis
tribution that it is not, as taught by thc marginalutility thcory, thc purcly
cconomic conditions ol imputation, i.c., not thc contribution ol cach lactor
4
A lcw gratilying attcmpts to ll this gap havc bcgun to appcar in rcccnt nglish and
Amcrican litcraturc, particularly in thc lorm ol a carclul study ol thc thcory ol monopoly
priccs. 8ut thcsc attcmpts do not succ to rcndcr supcruous thc prcscntation ocrcd
in thcsc pagcs.
ol production to thc total, that dctcrminc thc distribution ol thc producc
among landowncr, capitalist, and laborcr, but rathcr that it is social control.
!t is powcr alonc that dctcrmincs thc sizc ol cach lactors sharc.
Vhat dctcrmincs its distribution is not what cach lactor ol production con
tributcs to thc total producc, but what thc mcn standing bchind thc lactors ol
production arc ablc, by virtuc ol thcir control, to command lor thcmsclvcs as
rcmuncration according to thc social powcr cxcrtcd by cach. Tcsc and similar
statcmcnts arc couplcd with an inccssant attack on thc marginalvaluc thcory
bascd on this vcry samc considcration, that in its thcory ol distribution it
had lailcd to givc any placc to thc dccisivc lactor ol powcr, and instcad had
rcvcrscd into thc old naturalistic intcrprctation, thc thcory ol thc ctcrnal
and unchanging laws ol naturc.
8ut obviously this was not a corrcct mcthod ol pcnctrating into thc
intricacics ol thc problcm bclorc us. To havc powcr alonc dctcrminc thc
manncr ol distribution was just as oncsidcd. !t was all too obvious that
powcr could not dctcrminc cvcrything in distribution, and that thc purcly
cconomic lactors mcant somcthing too. Nor could this dilcmma bc solvcd
by a compromisc in assigning dctcrmining and dccisivc inucncc to control,
and only a vaguc and rcstrictcd inucncc to natural lorccs. A truc solution,
it sccms to mc, is still to bc sought, in spitc ol Stolzmanns 800 pagcs, and
by othcr mcans than cvasivc dialcctics.
Lct us thcn rst statc what is rcally bclorc us in this controvcrsy much
ncglcctcd in cconomic scicncc: ncithcr morc nor lcss than thc scientic foun-
dation of a rational economic policy. For it is obvious that any articial outsidc
intcrlcrcncc in thc cconomic sphcrc will bc without scnsc, unlcss thc prc
liminary qucstion ol whcthcr anything can bc accomplishcd through thc
inucncc ol powcr in opposition to thc natural cconomic laws can bc
answcrcd in thc armativc. Tc problcm is to gain a clcar and corrcct insight
into thc cxtcnt and naturc ol thc inucncc ol control against thc natural
coursc ol cconomic phcnomcna. Tis is what wc must see, or wc shall grope
in thc dark! ! do not think that this sccing can bc lacilitatcd or rcplaccd by
simply intcrchanging two tcrms lor thc dicrcnt causal inucnccs, or by
ascribing a mcrcly conditional inucncc to thc lormcr and a dctcrmining
onc to thc othcr.
!n thc lollowing ! shall thcrclorc try to raisc a lcw qucstions and suggcst
thcir answcrs through which ! think thc way to undcrstanding must lcad.
Vhat ! am ocring hcrc arc nothing but humblc suggcstions, lor ! am wcll
awarc ol thc lact that a lull systcmatic trcatmcnt would rcquirc much morc
than what is prcscntcd hcrc. And morcovcr, in making thc suggcstions, ! shall
havc to mcntion things most ol which havc not thc lcast claim to novclty or
originality. For thc most part, ! shall havc to start with scllcvidcnt trivialitics
that arc closc at hand. ! shall mcrcly prcscnt thcm in a ccrtain conncction
and lcad thcm into ccrtain conclusions, cqually so manilcst that thcy mcrcly
nccd to bc lormulatcd with lull clarity and purposc.
!!. Conlormity or Contradiction:
As ! bo xo: wisn :o vvvv~: onvious :nixcs, ! bo xo: s:ov :o ixquivv
whcthcr control is an inucntial lactor in thc dctcrmination ol priccs, gcn
crally spcaking, and morc particularly in distribution. Tis ! considcr to bc
an acccptcd lact, scttlcd long ago among all modcrn cconomists. My rst
qucstion, thcrclorc, is whcthcr this inucncc ol control asscrts itscll in con
lormity with, or in contradiction to, thc cconomic laws ol pricc, or whcthcr
it countcracts and invalidatcs thc thcorctical laws ol pricc, or whcthcr it
harmonizcs with thcsc.
Tis qucstion is analogous to onc that had to bc askcd, oncc upon a timc,
in thc cld ol production ol cconomic goods:
!s thc admittcd ability ol man articially to incrcasc thc production ol goods
a powcr that asscrts itscll apart lrom and in contradiction to thc natural
laws, or somcthing that can takc ccct only within and in compliancc with
thc natural laws ol production:
As is known, cvcrybody agrccs, in rcgard to this qucstion, that thc powcr
ol man ovcr naturc can bc cxcrtcd only in harmony with thc laws ol naturc
and in strict conlormity to thcm. And ! am convinccd that oncc thc qucstion
bclorc us is cxplicitly and clcarly statcd, an analogous conscnsus ol opinion
will bc casily arrivcd at: namcly, in thc problcms ol pricc and distribution,
powcr (Macht) is cvidcntly not asscrtcd apart lrom or in contradiction to
but within and in conlormity with thc cconomic laws ol pricc. Lct us rst
clucidatc this with a lcw lamiliar illustrations in which thc clcmcnt ol powcr
is particularly patcnt.
Tcrc is rst thc casc ol usury: Vhat is it that givcs to thc usurcr that
control ovcr his victims which is at thc bottom ol thc lamiliar cxtortionatc
usury priccs: Nothing clsc than thosc vcry samc lactors which thc allcgcdly
15
purc cconomic thcory ol marginal utility lurnishcs us in its pricc lormula:
it is thc urgcnt want ol thc borrowcr, which, but lor thc usurcr, would go
unsatiscd, it is thc satislaction ol thc most prcssing wants that dcpcnd on
thc scrviccs obtaincd lrom thc usurcr.
As a rcsult ol this, morcovcr, thc subjcctivc valuc, dctcrmincd by thc cor
rcsponding utility, and thcrcwith thc uppcr limits ol thc possiblc priccs, arc
bcing movcd up. And sincc thc borrowcr nds no aid lrom any compctition
among thc supplicrs ol moncy who would havc to undcrbid cach othcr, thcrc
arc cqually abscnt all thosc morc subtlc priccrcstricting clcmcnts which, in
thc casc ol lrcc compctition, dctcrminc thc valuation ol thc compctitors to bc
contcndcd with on thc supply sidc.
5
Tc usurcr, through his incxibility, thus
obtains thc powcr to raisc his pricc to almost thc cxtrcmc uppcr limit, which
corrcsponds to thc high subjcctivc valuation ol thc hardprcsscd borrowcr.
r thcrc is thc typical casc ol monopolics. ach owncr ol a complctc
monopoly has thc powcr to x thc pricc ol his product at any point hc
plcascs. Hc again owcs that powcr to thc cxistcncc ol ccrtain classcs ol
dcmand ol thc highcst intcnsity on thc part ol pcoplc whosc urgcnt wants
and high purchasing powcr combinc toward crcating a corrcspondingly high
intcnsity ol dcmand, togcthcr with thc lactor just cxplaincd, that thc abscncc
ol compctitors docs not cstablish any lowcr limits likcly to intcrlcrc with thcir
taking advantagc ol thc most intcnsc dcmand among thc buycrs.
8ut thc lact that thc monopolists powcr is rootcd in thcsc vcry cconomic
lactors will also dctcrminc ccrtain lamiliar and oltcxplaincd limitations: thc
monopolist can, altcr all, ncvcr x thc pricc at a point highcr than that closc
to thc valuation ol thc highcst, most intcnsc class ol dcmand, and, morcovcr,
what is still morc important, hc must always rcckon with thc rcstriction ol thc
quantity that can bc sold at thc highcr pricc. Hc can, in othcr words, ncvcr
cscapc thc cconomic law according to which thc pricc is xcd at thc intcrscc
tion ol supply and dcmand, at that, point whcrc cqual quantitics arc ocrcd
and takcn. Sincc hc can arbitrarily dctcrminc amount and intcnsity ol thc
supply which hc may wish to ocr, hc may sclcct that point ol intcrscction at a
low or at a high point on thc scalc ol possiblc priccs, but thc highcr that point
is, thc smallcr will bccomc thc numbcr ol thosc rcmaining on thc dcmand
sidc, and thc smallcr will bc thc quantity to bc disposcd ol at that point.
Tc monopolist thus ncvcr has unlimitcd control, hc mcrcly has thc choicc
within thc laws ol pricc ol dicrcnt cconomically possiblc pricc lcvcls. Hc
5
Scc Positive Teory, 3d d. Chaptcr !\.
can sclcct that pricc at which thc combination ol prot lor cach articlc,
and thc numbcr ol articlcs to bc sold at that pricc, arc likcly to promisc thc
grcatcst total prot, but hc cannot cxcrt his powcr in any othcr way than in
conlormity with thc laws ol pricc, lor it is his bchavior that cstablishcs thc
pricc law, namcly thc conditions ol thc amount ocrcd at a givcn pricc lcvcl,
but ncvcr can hc countcract thc laws ol pricc.
Tc samc as shown in thcsc typical illustrations will probably always bc truc,
whcncvcr any kind ol socallcd cconomic powcr is applicd, lor it is this kind ol
powcr only that conccrns our problcm, not physical lorcc or dircct compulsion.
Highwayrobbcry or cxtortion, lorcc ol arms or cnslavcmcnt would, ol coursc,
bclong to an cntircly dicrcnt catcgory. 8ut thc cxcrtion ol cconomic control
ncvcr introduccs any ncw clcmcnt into thc dctcrmination ol pricc that had not
prcviously lound a placc in thc purcly thcorctical laws ol priccs.
Vhat conclusions arc to bc drawn lrom thcsc lacts in rcgard to our problcm,
! shall discuss latcr. For thc prcscnt, lct mc rclcr to an important distinction
that should bc madc in this conncction bctwccn thc inucncc ol cconomic
control and noncconomic motivcs.
For, whilc thc cccts ol thc lattcr may bc contrary to, or conicting with, thc
cconomic laws ol pricc, thc cxcrtion ol control must always bc in conlormity
with thcm. Vhcrc noncconomic motivcs, such as gcncrosity, philanthropy,
class or racchatrcd, national sympathics and antipathics, vanity, pridc, and
so lorth play thcir part in thc xing ol priccs and distribution, thcy may lcad
to priccs at variancc with, or contradictory to thosc to bc cxpcctcd accord
ing to thc pricclaw lormula. Vhocvcr is movcd by noncconomic, outsidc
considcrations likc lricndship or humanitarian impulscs to makc a gilt to thc
othcr party ol thc bargain, may as a buycr conscnt to a pricc that will cxcccd
his subjcctivc valuation and as a scllcr bc contcnt with a pricc lar bclow his
own valuation ol thc goods, or who, lrom patriotism or national prcjudicc,
wishcs to buy only lrom his compatriots, may conscnt to priccs highcr than
thosc ocrcd by thcir compctitors in lorcign countrics.
Tis disturbing ccct ol noncconomic motivcs conicting with thc pricc
laws is bascd on thc lamiliar lact that thc cconomic laws ol pricc apply and
claim validity only so long as thc conditions on which thcy arc bascd rcally
prcvail by thcmsclvcs alonc, without outsidc intcrlcrcncc, analogous to thc
physical law ol gravitation which holds truc only undcr thc assumption ol
thc cxclusivc ccct ol gravitation, as cxists lor instancc in a vacuum, whilc
any intcrlcring disturbanccs, such as lriction or buoyancy as cxcrciscd by a
balloon loadcd with gas, would causc phcnomcna ol motion contradictory to
thc law ol gravitation. As distinct lrom that, thc priccdctcrmining inucnccs
cmanating lrom cconomic control, or prcpondcrancc ol powcr, always
rcmain within and in conlormity with thc lormula laid down by cconomic
thcory: thcy ncvcr lorm an cxccption to, but always an application ol thc
cconomic law ol pricc.
From this thcrc lollow two things that arc ol signicancc to our problcm:
rst that wc ncithcr should nor cvcn can makc any rcscrvation as to thc
validity ol thc cconomic laws ol pricc and distribution, whcn thc inucncc ol
powcr comcs into play. Vc nccd not, in rcgard to thcm or thc noncconomic
motivcs, rcsign oursclvcs to thc vicw that out cconomic laws arc valid only so
long as no such inucncc intcrvcncs, as in thc casc ol noncconomic motivcs,
that thcy hold good only in an imaginary world in which such inucnccs arc
abscnt, but not in thc world ol rcalitics in which social powcr plays a rolc morc
pronounccd day by day. Nor should wc takc that rcsigncd vicw, which would
grcatly diminish thc usclulncss ol our thcorctical laws and rcducc thcir gcncral
validity, that our cconomic laws nccd not cxplain this or that casc at all.
And thcn, this lcads to thc sccond conclusion: whocvcr wishcs adcquatcly to
sct lorth thc inucnccs ol social control in thc cxplanation ol pricc dctcrmina
tion should not casc asidc thosc laws opcrating with socallcd purcly cconomic
lactors, but hc should acccpt and dcvclop thcm. Hc must not accusc thcm, as
docs Stolzmann in rcgard to thc laws ol pricc and distribution dcvclopcd by
thc marginalutility thcory, ol considcring thc cccts ol natural lactors only,
so that thcsc thcorics would havc to bc discardcd or rcjcctcd bclorc onc could
adcquatcly prcscnt thc cccts ol social inucnccs, no, indccd not, wc should
acccpt thcsc laws and dcvclop thcm through a carclul analysis in thosc dircc
tions in which social lorccs actually bccomc opcrativc, whcn wc try to lormulatc
thcir cccts on pricc xation and distribution. ur task is not to discard but
to dcvclop thcsc allcgcdly purcly cconomic laws ol distribution. Tc lact that
cconomic control cannot acct thc conditions ol distribution in any othcr way
than through thc mcdium ol thc catcgorics ol marginal utility and subjcctivc
valuc is indccd not a rcmotc conclusion, and has bccn cxplicitly statcd hcrc
and thcrc in thc past, thus lor instancc, not so long ago by Schumpctcr, who
attackcd a vaguc statcmcnt by Prolcssor Lcxis in his thcory ol distribution,
rclcrring to thc inucncc ol powcr, with thcsc words:
Tc rclcrcncc to thc rclativc strcngth ol cconomic powcr in itscll docs not
cxplain anything. For il onc asks what constitutcs cconomic powcr thc
answcr can only bc: thc control ovcr ccrtain goods. And it is only lrom thc
cconomic lunction ol thcsc goods and thc subscqucnt lormation ol valuc
that a rcal cxplanation can bc dcrivcd.
6
!s this not just as il somcbody wcrc to arguc that thc spccd ol a stcamship
dcpcnds not upon thc powcr ol hcr cngincs in rclation to thc rcsistancc to
bc ovcrcomc, or thc wcight to bc propcllcd, ctc., but on thc numbcr ol rota
tions ol thc propcllcrs, which, in turn, ol coursc, dcpcnds cxclusivcly upon
thc powcr ol thc cngincs:
Nor docs that cxplanation do justicc to what Stolzmann has statcd at scvcral
othcr placcs in his writings to bc thc rclation bctwccn thc natural and thc
social catcgory, namcly, that natural lactors opcratc as conditions or prcm
iscs, mcrcly dctcrmining thc possiblc limits, whcrcas within thcsc limits and
prcmiscs it is thc social lactors that rcally dctcrminc and dccidc mattcrs.
Now it is quitc truc that, at rst, thc ccct ol cconomic lactors is csscntially
that ol dclimiting thc margins ol thc pricc, thc subjcctivc valuations ol buycrs
and scllcrs mcrcly dctcrminc thc uppcr and lowcr pricc limit. 8ut cvcn this
sctting ol limits may sticn into actual xing ol priccs, whcncvcr and
whcrcvcr thc limits lrom abovc and bclow bccomc so numcrous and so closcly
placcd that thcy rcducc thc intcrval to a small zonc or cvcn to onc distinct
point, as is gcncrally thc casc with intcnsc and at thc samc timc pcrlcct com
pctition among many individuals. Nor docs control, on thc othcr hand, cvcr
dctcrminc anything. !t can at bcst cxcrcisc a constraining inucncc, whcrc
cconomic dclimitations cstablish thc margin.
Hc who dcals with a nccdy purchascr, in thc abscncc ol compctition, has
thc powcr to x thc pricc at any point ol thc probably widc rangc locatcd
bctwccn thc valuc ol thc urgcntly nccdcd goods to thc anxious buycr as
thc uppcr limit, and thc valuc ol thc samc articlc to thc notanxious scllcr
as thc lowcr limit. 8ut at what cxact point ol this cxtcnsivc rangc thc pricc
will ultimatcly bc xcd is not dctcrmincd by thc rclativc powcr alonc, lor
with cqual powcr thc philanthropist will makc an cntircly dicrcnt pricc
to thc poor man than with thc usurcr. r thcrc may bc dicrcnt dcgrccs
ol skill in bargaining, or in sizing up thc position ol thc othcr sidc, ol pcr
scvcrancc, ol paticncc, ol disrcgard lor public opinion, ol dcancc or lcar,
cvcn in casc ol cqual objcctivc powcr, which will movc thc pricc to a vcry
dicrcnt point ol thc scalc.
6
Rcvicw in \ol. 21 ol Zeitschrift fr Volkswirtschaft, Sozialpolitik und Verwaltung, 1912, p.
284, similarly also swald vcrsus Liclmann in Zeitschrift fr Sozialwissenschaften, N.F.
8ut whcn thc rclativc powcr ol thc two partics sccms to x thc pricc at a
quitc dcnitc point ol thc scalc, it ccrtainly has again bccn nothing clsc than
thc coincidcncc ol a majority ol rcstrictivc inucnccs that narrow down thc
limits lrom both sidcs to such an cxtcnt that thc pricc lcvcl itscll appcars to
bc dctcrmincd thcrcby. Nor is any othcr outcomc to bc cxpcctcd, lor sincc,
as shown bclorc, cconomic powcr can bccomc ccctivc only through thc
intcrmcdiary dctcrminants ol thc thcorctical pricc lormula, and sincc thcsc
dctcrminants can again x thc pricc only through a consccutivc delimitation,
it is obvious that powcr can cqually dctcrminc priccs in no othcr way than
through thc xation ol limits, it docs not posscss any indcpcndcnt pricc
xing capacity, as distinct lrom this rcstricting or limiting ability.
From this it will bccomc clcar why, in thc discussion ol thcsc qucstions, thc
old tcrms ol purcly cconomic or lcgalhistoric catcgorics, as Rodbcrtus callcd
thcm, or ol natural and social catcgorics, as applicd by Stolzmann, arc not
sucicnt. Tcsc tcrms may havc scrvcd a purposc in thcir timc. At lcast thcy
havc, roughly spcaking, indicatcd ccrtain distinctions which should also bc kcpt
in mind, and thcy havc bccn particularly hclplul, towards thc climination ol thc
old, oncsidcd vicw that thcrc arc only natural laws opcrativc in our cconomic
lilc. 8ut in thc thcorctical cxplanation ol thc phcnomcna ol pricc and distribu
tion thcy do not play that rolc which thcir authors ascribc to thcm.
Tcy lail to draw a straight and clcar linc ol dcmarcation bctwccn social
phcnomcna, bccausc thcsc arc always pcrmcatcd by both lactors. A ccrtain
amount ol thc historicallcgal or social clcmcnt is surc to bc prcscnt in all
cconomic phcnomcna. Tcrc is no room lclt lor an oppositc, purcly natu
ral catcgory. Tcrc litcrally cxists no pricc nor any lorm ol distribution
(cxccpt pcrhaps highwayrobbcry and thc likc) without containing at lcast
somc lcgalistichistorical aspcct. For, in cvcry civilizcd community, thcrc must
always cxist somc social ordcr that will apply whcn two mcmbcrs ol that
socicty gct into contact with cach othcr, and thus dctcrminc thc naturc ol
that contact. !t is, thcrclorc, cithcr saying too littlc or too much, whcn anyonc
claims thc phcnomcna ol distribution lor thc social, as distinct lrom thc
natural, catcgory, or it is but an cmpty truism, which, in its vcry conccpt,
applics to cvcry singly cconomic or social phcnomcnon, lor obviously a Rob
inson Crusoc could not cvcn so much as bartcr with himscll.
nc mcmbcr ol a socicty can only tradc with anothcr il both can acquirc
owncrship ol thc goods to bc cxchangcd undcr thc cxisting social ordcr. Any
statcmcnt attcmpting to cxprcss morc than that truism is too larrcaching.
Tus Rodbcrtus shoots way bcyond thc mark, whcn with that pcculiar cmpha
sis hc dcncs intcrcst on capital as bcing thc typical lruit ol thc cxisting
social ordcr, and dcnics its purcly cconomic justication. And Stolzmann
cqually shoots bcyond thc mark, whcn hc holds that thc social catcgory
alonc dctcrmincs distribution, and whcn hc lalscly accuscs our thcory ol
distribution ol tcaching purcly natural laws ol distribution, bccausc it also
docs justicc to thc cconomic loundations ol social powcr. A closcr analy
sis ol social powcr, howcvcr, must incvitably lcad straight across thc linc ol
dcmarcation bctwccn thc social and natural catcgorics, powcr is prcscnt
on both sidcs ol thc linc.
Social control is not an abstraction or a distillcd product in which thc
inucncc ol thc purcly social catcgory is rccctcd as such. Nor arc thc cxplana
tions givcn by thc marginalvaluc thcorywhich Stolzmann calls cxtrcmcly
naturalistican unmixcd distillation ol only thc natural and purcly cconomic
inucnccs. !nstcad thcy always takc into considcration ccrtain charactcristics
ol thc cxisting, or an assumcd, cconomic ordcr. Vith propcr claboration thcy
will bc lound capablc ol cxprcssing thc cntirc inucncc ol social powcr, but
cvcn so, it rcmains truc that priccs arc dctcrmincd morc or lcss accuratcly by
thc subjcctivc valuations bascd on thc marginal utility. And it rcmains cqually
truc that thc valuc ol productivc goods dcpcnds on nothing clsc but thc valuc
ol thc products to bc obtaincd lrom thcm. !n thc last analysis, thcrclorc,
thc valuc ol thc lactors ol production dcpcnds on thc sharc ol thc product
attributablc to cach lactor in thc productivc proccss.
Social control and social catcgory arc thus not synonymous. Tc lattcr
tcrm, likc its antithcsis natural or purcly cconomic catcgory, has bccn so
conluscd and misconstrucd that ! would prclcr to dispcnsc with its usc alto
gcthcr in thc intcrcst ol a clcar prcscntation. Vhcrc ! did usc thcsc tcrms in
this or in prcvious writings, ! did so, not bccausc thcy lorm part ol my own
vocabulary, but rathcr bccausc ! could not wcll avoid altogcthcr thc usc ol a
gcncrally acccptcd tcrm. !n ordcr to makc myscll undcrstood, ! had abovc
all to usc thc languagc ol thosc whosc opinion ! was discussing. Nor havc !
lailcd at carlicr occasions to makc rcscrvations in this rcspcct.
And now ! shall try to submit a lcw thoughts conccrning thc dircc
tion in which thc old cconomic thcory will havc to bc dcvclopcd so as to
cmbracc systcmatically in its tcachings thc inucncc ol control (Macht,
or outsidc powcr).
!!!. Tc xamplc ol thc Strikc
Vn~: ! n~vv :o s~v :~v, ! :nixx, nvs: nv bvvviovvb nv iooxixc ~: ~
typical instancc that illustratcs pricc dctcrmination through social control in
a particularly noticcablc manncr: thc casc ol thc scttlcmcnt ol wagc disputcs
by mcans ol a strike.
According to thc acccptcd lormula ol modcrn wagc thcory, bascd on thc
marginalutility thcory, thc amount ol wagcs in casc ol lrcc and pcrlcct com
pctition would bc dctcrmincd by thc marginal productivity ol labor, i.c.,
by thc valuc ol thc product that thc last, most casily dispcnsablc laborcr ol a
particular typc produccs lor his cmploycr. His wagcs cannot go highcr, lor il
thcy did, his cmploycr would no longcr gain any advantagc lrom cmploying
this last laborcr, hc would losc, and conscqucntly would prclcr to rcducc
thc numbcr ol his workcrs by onc, nor could thc wagcs bc substantially lowcr,
in thc casc ol ccctivc compctition on both sidcs, bccausc thc cmploymcnt
ol thc last workcr would still producc a substantial surplus gain. As long
as this is truc, thcrc would bc an inccntivc to thc lurthcr cxpansion ol thc
cntcrprisc, and to thc cmploymcnt ol still morc workcrs. Undcr an ccctivc
compctition among cmploycrs this inccntivc would obviously bc actcd upon,
and could not lail to climinatc thc cxisting margin bctwccn thc valuc ol thc
marginal product and thc wagcs in two ways: by thc risc ol wagcs, causcd by
thc dcmand lor more workcrs, and by a slight diminution ol thc valuc ol thc
additional producc, duc to thc incrcascd supply ol goods. !l thcsc two lactors
arc allowcd to opcratc without outsidc intcrlcrcncc, thcy would not only
dclimit wagcs, but actually x thcm at a dcnitc point, owing to thc ncarncss
ol thcsc limits, lct us say lor instancc at 85.50 lor a days labor.
8ut lct us now assumc compctition to bc not quitc lrcc on both sidcs, but
that it bc rcstrictcd, or climinatcd, on thc sidc ol thc cmploycrs, cithcr bccausc
thcrc cxists only onc cntcrprisc ol that particular branch ol industry ovcr
a largc tcrritory, thus giving it natural monopoly ovcr thc workcrs sccking
23
cmploymcnt, or bccausc thcrc is a coalition ol cntrcprcncurs within that
industry, who mutually agrcc not to pay thcir workcrs a wagc highcr than,
lct us say, 84.50. !n cithcr casc, this coming into play ol control, a supcrior
powcr ol thc cmploycrs, will ccrtainly succ to lcad thc wagcs to bc xcd at
a point bclow 85.50, say at 84.50, othcr conditions rcmaining cqual.
How would this corrcspond with thc standard cxplanation ocrcd by thc
marginalvaluc thcory: Tc answcr is not dicult. !n lact, thc solution has bccn
rcpcatcdly statcd in thc lairly wcll dcvclopcd thcory ol monopoly priccs. ! shall
mcrcly try to rcstatc thc lamiliar argumcnts in a clcar and systcmatic manncr.
Vc havc bclorc us a casc ol buycrs monopoly. Tc widcst margin within
which thc monopoly pricc can bc xcd is limitcd, lrom abovc, by thc valuc ol
thc labor to bc purchascd by thc cntrcprcncur cxcrcising that monopoly, and
lrom bclow, by thc valuc ol unsold labor to thc laborcr himscll. Tc uppcr limit
is dctcrmincd by thc valuc ol thc producc ol thc last workcr, lor thc rcason that
thc cntrcprcncur will not assumc any loss lrom thc last workcr hc cmploys
and that thc samc amount ol labor cannot bc paid lor in uncqual amounts.
Tis uppcr limit ol thc possiblc wagc would, in our illustration, bc 85.50.
Morc is to bc said in rcgard to thc lowcr limit. Tc vcry lowcst limit is
dctcrmincd by thc utility that would bc lclt to thc workcr il hc wcrc not to
scll his labor at all. !t is thus, primarily, thc uscvaluc to thc workcr ol his own
labor, providcd hc can makc somc usc ol his labor lor himscll alonc.
!n thinly populatcd ncw countrics, with an abundancc ol unoccupicd land,
whcrc cvcrybody may bccomc a larmcr at will, this laborvaluc might rcprcscnt
quitc a considcrablc amount. !n thc dcnscly populatcd old countrics, howcvcr,
this limit is cxtrcmcly low, bccausc most ol thc workcrs lack capital, and can
hardly cvcr protably utilizc thcir own labor as indcpcndcnt produccrs.
A workcr who has accumulatcd somc savings may nd somc compcnsation
lor not sclling his labor in thc cscapc lrom discomlort and hard work, or in thc
cnjoymcnt ol rcst and lcisurc. Tosc who havc any such mcans ol subsistcncc
will gurc out just what minimum ol wagcs would compcnsatc thcm lor thc
cort ol working. To thosc who havc nothing to lall back on, thc marginal
utility ol a moncy incomc to bc gaincd by working is so cxtrcmcly high that
cvcn a vcry low wagc will bc prclcrrcd ovcr thc cnjoymcnt ol lcisurc.
!n ordcr to illustratc this with actual sums ol moncy, lct us assumc this
lowcst limit, thc uscvaluc ol labor and thc cnjoymcnt ol lcisurc, to bc vcry
low, say 81.50. Tis amount may bc cvcn lar bclow thc minimum ol sub
sistcncc, which, lor wcllknown rcasons, dctcrmincs thc lowcr limit ol thc
possiblc permanent wagcs without, ol coursc, dctcrmining tcmporary wagcs
or thosc ol cach individual casc.
8ut thcrc may also arisc othcr intcrmcdiatc wagc lcvcls. !n thc lorcgoing
illustration wc havc cxcludcd all compctition among thc cmploycrs in that
onc particular branch ol industry. !l such compctition wcrc cxisting, it would
incvitably lorcc up thc wagcs to thc uppcr limit ol 85.50, but cvcn in its
abscncc, thcrc would still rcmain a ccrtain amount ol outsidc compctition,
namcly with cmploycrs in all thc othcr branchcs ol industry. Tis mcans that
thc workcr in our particular industry still has thc altcrnativc ol cscaping thc
vcry low wagc ocrcd to him in his own linc, by switching ovcr into othcr
branchcs ol production, although a numbcr ol circumstanccs may grcatly
rcducc thc gains to bc cxpcctcd lrom this cxpcdicnt. To changc lrom onc
occupation, lor which onc has bccn traincd and adaptcd, into anothcr, is likcly
to rcsult in lcss productivity, and thc maximum wagc lcvcl attainablc in thc
ncw occupation will bc likcly to rcmain lar below 85.50.
Tc curtailmcnt in wagcs will vary lor cach workcr cntcring into a ncw
branch ol production according to his adaptability, or his ability to pcrlorm
a dicrcnt kind ol skillcd labor. Tc most painlul cuts in wagcs will bc sul
lcrcd by that probably largcst portion ol thc workcrs, who arc not adcquatcly
traincd to pcrlorm any othcr kind ol skillcd labor, and who will havc to switch
ovcr lrom skillcd into unskillcd tradcs, and acccpt a poorcr position in
somc typc ol common labor. Still anothcr slight lowcring ol thc wagc lcvcl
may rcsult lrom thc lact that thc inux ol ncw workcrs into that occupation
may lorcc down slightly thc marginal productivity ol thc last workcr, and thus
lowcr thc wagc lcvcl lor all.
Undcr thc inucncc ol all thcsc circumstanccs wc would now havc to
assumc that thc various workcrs sct lor thcmsclvcs a scrics ol individual
minimum limits, bclow which no onc would allow his wagcs to bc rcduccd
by thc monopolistic prcssurc ol thc cntrcprcncurs. To illustratc thcsc various
gradations ol minimum wagcs, lct us assumc thc minimum ol cxistcncc to
bc 83.00, which, as has bccn said, would rcprcscnt not thc tcmporary, but
thc pcrmancntly possiblc lowcst wagc lcvcl. Tc wagcs obtaincd by thc most
common typc ol labor would thus bc vcry ncar to 83, say 83.10. A smallcr
and smallcr numbcr ol workcrs could nd cmploymcnt in othcr occupations,
as thc wagc ratc incrcascd in thc lollowing asccnding scqucncc: 83.50, 83.80,
84, 84.20, 84.50, 84.80, 85. Notc, howcvcr, that thc uppcr limit ol this wagc
scalc would still rcmain bclow thc marginal product ol thc original occupa
tion, thus bclow 85.50.
Vhat cccts and limitations will rcsult lrom this statc ol aairs in rcgard
to thc monopolistic xation ol wagcs within thc original widcst zonc ol
81.50 to 85.50:
Lct us assumc, to bcgin with, that thc monopolistic cntrcprcncurs usc thcir
powcr in an unrcstrictcd, purcly sclsh policy, unacctcd by any considcr
ations ol altruism, or considcration ol public opinion, uninucnccd by any
apprchcnsion that thc workcrs might ght back through mcans ol a labor
union or strikc, and convinccd that thcy arc absolutcly assurcd ol an atomizcd,
ccctivc compctition among thc individual workcrs. Undcr such prcmiscs,
thc ratc ol wagcs would bc xcd according to thc gcncral lormula applying to
a purcly sclsh monopoly, alrcady mcntioncd bclorc in anothcr conncction:
thcy would bc xcd at that point which promiscs thc largcst rcturns, altcr a
carclul considcration ol all circumstanccs, and with duc rcgard to thc incvi
tablc lact that with changing priccs, thc amount ol goods to bc disposcd ol
protably will changc, only that in thc casc ol a buycrs monopoly thc rcsults
arc cxactly oppositc to that ol a scllcrs monopoly. r statcd concrctcly: thc
lower is thc wagc ratc xcd by thc monopolist, thc smallcr will bc thc numbcr
ol workcrs availablc, and lrom a corrcspondingly smallcr numbcr ol workcrs
will thc cntrcprcncurs bc ablc to collcct that incrcascd rcturn which might
accruc lrom pushing thc wagc scalc down bclow thc valuc ol thc product ol
thc marginal laborcr, i.c., bclow 85.50, in lact, this valuc might cvcn incrcasc
through a rcduction in thc output, which would causc a risc in thc pricc ol
thc nishcd goods.
l coursc, thcrc may again cntcr ccrtain countcracting tcndcncics, such as
incrcasing costs, with thc rcstrictcd cxpansion ol thc cntcrprisc, thc growth ol
ovcrhcad cxpcnscs, ctc. Vith an incrcasc in wagcs (which, howcvcr, wc always
assumc to rcmain bclow thc marginal product ol 85.50) thc gain pcr laborcr
would dccrcasc, but, to osct this, thc numbcr ol workcrs lrom which that
gain can bc madc will incrcasc, or cvcn bc brought back to normal. From thcsc
considcrations, it would bc most unlikcly that thc monopolists could x thc
wagc ratc at 81.80 or 82.00 or at any point bclow thc minimum ol cxistcncc ol
83, both bccausc this ratc would not bc likcly to rcmain in lorcc, and bccausc
it would bc lowcr than thc wagc paid outsidc lor common labor, and thcrc
lorc would at oncc causc thc majority ol thc workcrs to withdraw into thosc
unskillcd occupations which, in our illustration, rcccivc 83.10. Tis dangcr will
diminish gradually with cach incrcasc in thc wagc ratc, and disappcar almost
cntircly at somc point, say at 84.50, at which only a lcw cxccptional workcrs
might nd it possiblc to obtain highcr wagcs in othcr skillcd occupations, il
such bc opcn to thcm at all. Undcr thc assumcd circumstanccs, thc dangcr ol
mcn withdrawing would havc almost disappcarcd, and a succcsslul attcmpt
might bc madc by thc monopolistic cmploycrs to x thc ratc ol wagcs at
this point, without running thc risk ol any considcrablc rcstriction ol output
causcd through a shortagc ol workcrs.
Two othcr considcrations might inucncc an intclligcnt monopolist to
cxcrcisc his powcr with rcstraint. First, a wagc ratc rcmaining lar bclow that
ol othcr skillcd occupations may, il only in thc long run, lcad to a shortagc ol
workcrs, lor whilc thc laborcrs accustomcd to thcir occupation might hcsitatc
to changc thcir job owing to thc dicultics ol transition, thc ncw supply
would lall o. Sccondly, too high a ratc ol prot pcr workcr would cxcrt too
powcrlul a strain on thc cmploycrs union, and is likcly to lcad to a dissolution
ol thc coalition by thosc mcmbcrs wishing to cxpand thcir busincss, or to
thc lormation ol ncw cntcrpriscs outsidc ol thc coalition, thus crcating ncw
compctition, likcly to cut down priccs and to raisc wagcs. Gcncrally spcaking,
thc lcar ol outsidc compctition lorms pcrhaps thc grcatcst salcguard against
too unscrupulous a usc ol monopolics prcying on thc gcncral public.
! hardly nccd to rccmphasizc thc lact that il, undcr such conditions,
through thc control ol thc monopolists thc wagc lcvcl wcrc to bc rcduccd
lrom 85.50 to 84.50, this would, lrom rst to last, happcn by virtuc ol and in
conlormity with thc clcmcnts ol thc pricclaw, as lormulatcd by thc marginal
valuc thcory. !t is in considcration ol thcsc clcmcnts that both contcnding
partics would x thc pricc at that lcvcl, by dclimiting it lrom abovc and
lrom bclow. 8y such action, no xcd pricc would bc dctcrmincd, but mcrcly
a widcr priccrangc, as distinct lrom thc casc ol pcrlcct compctition on both
sidcs. Tc monopolists might just as wcll dccidc upon 84.20 or 84.80 than
upon 84.50. Tis situation is cxplaincd by thc lact that scvcral lactors cntcring
into thc calculation, such as thc numbcr ol workcrs likcly to drop out at a
ccrtain wagc lcvcl, or thc probability ol outsidc compctition, arc not dcnitcly
known, but only to bc conjccturcd. Tc monopolists would naturally try to
sclcct thc most lavorablc point ol thc wagc scalc, but, owing to thc unccrtainty
ol so many clcmcnts cntcring into thc xation ol this optimum point, thcrc
rcsults a ccrtain morc or lcss clastic zonc lor its approximatc location, just as
in ordinary markct compctition lor priccs, whcn ncgotiations arc carricd on
with covcrcd cards, tradcrs lcss cxpcricnccd or lcss shrcwd commit crrors in
sizing up insidc markcd situations, so that actual priccs arc causcd to uctuatc
ovcr a widc rangc around thc idcal markct pricc.
Lct us now turn to thc othcr casc, cqually intcrcsting and complicatcd,
thc inucncc ol control cxcrtcd by labor unions, through thc usc ol thcir
instrumcnt ol powcr, thc strikc. Lct us rctain all prcvious assumptions with
thc samc gurcs as abovc: 85.50 lor thc valuc ol thc product ol thc last
workcr, 81.50 as thc pcrsonal valuation to thc workingman ol his unsold
labor, 83 as thc minimum ol cxistcncc, ctc., and introducc into our assumcd
casc only onc novcl clcmcnt, namcly that thc workcrs ol thc industry undcr
discussion do not compctc against cach othcr, but that thcy bc unionizcd,
and thus bc in a position to cnlorcc thcir joint dcmand lor highcr wagcs by
mcans ol a strikc.
Now ! do not lor a momcnt dcny that this coming into play ol powcr
on thc part ol thc workcrs may proloundly inucncc thc pricc ol labor. !t
might cvcn raisc it not only abovc thc lcvcl ol 84.50, rcachcd in thc casc ol
rcduccd compctition among thc monopolists, but cvcn bcyond thc lcvcl ol
85.50, which would havc bccn attainablc undcr pcrlcct compctition. Tis
last lact is particularly notcworthy and striking, lor hithcrto wc had rcgardcd
thc valuc ol thc marginal product ol labor, precisely that $5.50, as thc uppcr
limit ol thc cconomically possiblc wagc, and at rst sight it might look as il
powcr could actually accomplish somcthing in contradiction to thc pricc
lormula ol thc marginalvaluc thcory, somcthing that did not conlorm to this
law, but disprovcd it.
Hcrc now cntcrs into our cxplanation thc distinction bctwccn marginal
utility and total utility, i.c., thc lact that thc valuc ol a total aggrcgatc ol goods
is highcr than thc marginal utility ol cach unit, multiplicd by thc numbcr ol
units containcd in thc total. Tc lundamcntal qucstion in thc cvaluation ol
a commodity or an aggrcgatc ol goods is always how much utility may bc
dcrivcd lrom thc command ovcr thc good to bc valucd. Undcr thc assump
tion ol compctition among all thc workcrs, thc thing to bc cvaluatcd by thc
cmploycr is always thc laborunit ol cach workcr. !l thc cmploycr had in his
cmploy, lor instancc, 100 workcrs, his ncgotiations with cach onc ol thc 100
workcrs ovcr his wagcs would mcrcly hingc upon thc qucstion ol how much
additional prots thc cmploycrs would makc by cmploying that onc additional
workcr, or how much hc would losc by not cmploying this onc last workcr.
!n that casc wc wcrc lully justicd in arriving at thc marginal utility ol cach
unit ol labor, that is, thc incrcasc in output which thc labor ol thc last onc ol
thc 100 workcrs adds to thc total output ol thc cntcrprisc, or 85.50.
8ut now this is dicrcnt: in thc casc ol a joint strikc ol all thc 100 workcrs,
thc point in qucstion lor thc cmploycr is no longcr whcthcr hc is going to run
his cntcrprisc with 100 or 99 workcrs, which to him would mcan a dicrcncc
in thc output ol 85.50, but whcthcr hc is to kccp his cntcrprisc going with
100 workcrs, or not at all. n this dcpcnds not 100 timcs 85.50, but obviously
much morc than that, il lor no othcr rcason than that labor is what is callcd a
complcmcntary good, a good which cannot bc utilizcd by itscll alonc, without
thc ncccssary othcr complcmcntary goods, such as raw matcrials, cquipmcnt,
machincry, ctc. !l only onc man out ol a hundrcd withdraws lrom thc cntcrprisc,
thc utilization ol thc complcmcntary lactors will, as a rulc, bc littlc disturbcd.
nc singlc opcrationthc onc which can bc dispcnscd with most casilywill
bc omittcd, or rcplaccd, as lar as possiblc, through a slight changc in thc divi
sion ol labor, so that with thc dcduction ol one man, not morc is lost than thc
marginal product ol onc days labor, namcly 85.50.
Tc withdrawal ol tcn mcn would causc a morc scrious disturbancc. 8ut
a changcd disposition in thc usc ol thc rcmaining nincty workcrs would
probably makc it possiblc to nd somc way lor at lcast thc most important
lunctions to continuc unhampcrcd, and thc loss again to bc shiltcd to that
placc whcrc it is lcast lclt. A continucd dcplction ol thc complcmcntary good,
labor, would makc itscll lclt morc and morc scvcrcly. Vhilc thc withdrawal
ol thc rst workcr would havc causcd a dccrcasc in thc daily production ol
only 85.50, that ol thc sccond might amount to a diminution ol thc output
by 85.55, that ol thc third by 85.60, and that ol thc tcnth by as much as 86.
!l, as would bc thc casc in a strikc, all thc 100 mcn walkcd out, thcrc would
bc causcd a loss, not only ol thc spccic labor product ol thosc 100 mcn, but
additional productivc goods would ccasc to bc utilizcd. Tc machincry would
havc to stand still, thc raw matcrials would lic idlc and dcprcciatc, ctc. Tc loss
in thc valuc ol thc product would incrcasc out ol all proportion, lar bcyond
a hundrcd timcs thc last laborcrs marginal product.
Tc loss, ol coursc, would bc subjcct to grcat modications, according to thc
actual conditions cxisting in cach casc. !l thc idlc machincry and capital do
not sucr any othcr damagc by bcing idlc, thc additional loss would mcrcly
consist in a postponcmcnt ol thc complction ol thc rcspcctivc products lrom
thc capital goods, tcmporarily not utilizcd on account ol thc lack ol thc
complcmcntary lactor ol labor. Tcir producc will bc obtaincd in an undi
minishcd amount only at a latcr pcriod, altcr thc rcsumption ol production.
Tis loss must at lcast cqual thc intcrcst on thc dcad capital lor thc pcriod
ol idlcncss. !t may amount to morc, il thc dclay should involvc addcd losscs,
such as thc inability to takc advantagc ol lavorablc busincss opportunitics,
whcrcby indircct dcprcciations may bc incurrcd.
8ut thc damagc would bc still lurthcr incrcascd il thc spccic charactcr ol
thc idlc capital goods should not only causc a tcmporary dclay, but a dcnitc
curtailmcnt in thc prots, as lor cxamplc in thc casc ol pcrishablc raw matcri
als, such as bccts in an idlc sugar rcncry, or agricultural products that cannot
bc harvcstcd owing to thc workcrs strikc, unuscd animal powcr, such as
horscs, or thc watcr powcr ol an clcctric powcr plant. Tc cnlorccd shutdown
may also thrcatcn thc xcd capital invcstmcnts, as in mincs, whcrc vcntilation
and watcr pumps must not stop, lcst thc cntirc plant bc dcstroycd.
How docs all this acct thc xation ol wagcs in thc casc ol a strikc:
Lct us rcalizc, rst ol all, that although thc wagc disputcs arc lormally
conccrncd with thc per capita wagcs lor each individual worker, to thc manu
lacturcr it is always a qucstion ol obtaining, or not obtaining, thc total labor
ol thcsc 100 workcrs. Hc will cithcr gct all ol thc workcrs, or nonc, according
to whcthcr thc ncgotiations lcad to an agrccmcnt, or to a brcak. Tc dcci
sion as to how much wagcs hc can pay at most will thus hingc on thc valuc
that thc hundrcd workcrs rcprcscnt to him jointly. Tc pcr capita wagc is a
sccondary itcm, and is dctcrmincd by dividing thc total valuc by thc numbcr
ol workcrs. To him, this quota rcprcscnts only an arithmctical conccpt, not a
valuc, to him it docs not rcprcscnt thc valuc ol a unit ol labor.
8ut how high is thc total value: Tis is cxplaincd by thc thcory ol imputation.
Tc valuc ol that aggrcgatc ol labor is dcrivcd lrom thc valuc ol that amount
ol products which may bc ascribcd to thc availability ol that particular total ol
labor, and this again is idcntical with thc amount ol thc product ol labor.
Hcrc comcs into play a rcmarkablc phasc ol thc thcory ol imputation, which
! rcccntly had to dclcnd in dctail against dicring opinions.
7
For il thc with
drawal ol that amount ol labor, whosc valuc wc arc trying to asccrtain, not
only prcvcntcd thc usc ol that labor itscll, but also stoppcd thc usc ol othcr,
complcmcntary goods, thc utility ol thcsc goods would havc to bc addcd to
that ol labor, rcgardlcss ol thc lact that undcr ccrtain circumstanccs thc usc
ol labor might havc to bc imputcd to its corrcsponding complcmcntary good,
without which thc products could not bc obtaincd.
! shall mcrcly rccapitulatc hcrc without dctailcd discussion thc various stcps
ol thc argumcnt lcading to this conclusion. Fundamcntally, thc total valuc ol
a wholc group ol complcmcntary goods is dcpcndcnt upon thc amount ol thc
(marginal) utility which thcy posscss jointly, and thus, in casc ol complcmcn
tary productivc goods, upon thc valuc ol thcir common product.
8
Tc distribution ol this total valuc among thc various units ol thc com
plcmcntary group may takc dicrcnt dircctions, according to thc dicrcnt
causation. !l nonc ol thc units admits ol any othcr usc than joint usc, and
7
Positive Teory of Capital, 8ook !!!, Chaptcr !X on thc Tcory ol \aluc ol Complcmcn
tary Goods (Tcory ol !mputation).
8
Positive Teory, 8ook !!!, Chaptcr !X.
il, at thc samc timc, no onc mcmbcr contributing toward thc joint usc is
rcplaccablc, thcn cvcry singlc mcmbcr has thc lull total valuc ol thc cntirc
group, whilc thc othcr mcmbcrs arc valuclcss. ach complcmcntary unit is
cqually capablc ol holding cithcr onc ol thc two valuations, and it is solcly
thc outsidc circumstanccs that dctcrminc which onc ol thcm shall bc worth
cvcrything, by bcing absolutcly csscntial in thc ultimatc complction ol thc
group, or which onc is worth nothing through its isolation.
!n our casc ol an impcnding strikc ol all thc hundrcd workcrs, thc cmploycr
is thrcatcncd with thc total loss ol thc joint gain arising lrom thc usc ol thc
two complcmcntary groups, labor and capital, to thc cxtcnt statcd abovc, and
this is why in that casc hc would havc to attributc to labor that total joint
utility, including that part which undcr othcr conditions might havc to bc
attributcd to thc complcmcntary capital goods. His subjcctivc valuation ol
labor must bc bascd upon all thcsc things.
9
Conscqucntly, thc uppcr limit lor thc highcst ratc ol wagcs will advancc. For
all thc hundrcd workcrs jointly it will risc bcyond thc hundrcdlold amount ol
thc singlc valuc ol cach days labor, that is, bcyond 100 timcs 85.50, at lcast by
thc amount ol thc intcrcst ol thc capital lclt idlc and pcrhaps cvcn abovc this,
by thc amount ol thc actual loss lrom pcrishing or dctcriorating complcmcntary
capital goods. Tus, lor instancc, in casc thcrc bc mcrcly a postponcmcnt or
loss ol intcrcst, it would risc abovc 8550, up to, say, 8700 lor cach day, in casc
ol a dircct loss in thc utilization ol thc complcmcntary goods, it would risc in
proportion to thc cxtcnt to which an actual loss takcs placc, pcrhaps to 81000,
pcrhaps cvcn to 82000 pcr day. And thc maximum ol thc cconomically possiblc
wagc lcvcl lor cach individual workcr would thcrcby risc lrom 85.50 to 87 or
cvcn to 810 or 820. Tis mcans that with any wagc lcvcl rcmaining bclow this
maximum, thc cntrcprcncur would, at lcast lor thc timc bcing, larc bcttcr than
il hc wcrc to ccasc cmploying all thc hundrcd mcn.
Tis laring bcttcr nccd, howcvcr, not imply actual prots to thc cntrcprc
ncur, but mcrcly a smallcr loss than hc would incur in thc othcr altcrnativcthc
lcsscr cvil, which is, ol coursc, to bc prclcrrcd to thc grcatcr onc. Tis risc
ol thc last possiblc pcr capita wagc to 87 or to 820, on thc othcr hand, docs
not rcprcscnt thc subjcctivc valuation ol onc days labor to thc cntrcprcncur.
Tis has alrcady bccn statcd in thc lorcgoing and it can hardly bc sucicntly
9
Naturally, ! cannot, in passing, rcvicw thc cntirc dicult and complicatcd thcory ol
distribution with all its dctails, and havc to ask thc rcadcrs who arc intcrcstcd in thc
complctc discussion ol thc lorcgoing conclusions to rcad thc lullcr cxplanation givcn
in my Positive Teory of Capital.
cmphasizcd. Tc cmploycr would ncvcr pay that wagc, il it wcrc a qucstion
ol cmploying one laborcr only. !t rcprcscnts thc hundrcdth part ol thc total
valuc ol 100 laborcrs, which is a vcry dicrcnt unit lrom thc individual valuc
ol cach unit ol labor.
!n thc wagc ncgotiations bctwccn an cmploycr and a labor union thc rangc
would thus bc limitcd by thc valuc to thc laborcr ol his unsold labor (i.c., thc
amount ol 81.50 as his lowcst limit), and by thc pcr capita quota ol thc total
valuc ol all 100 laborcrs at thc ratc ol 810 as uppcr limit, to takc onc ol thc
thrcc gurcs as an illustration.
!n our imagincd casc, dircct compctition bcing abscnt on both sidcs,
cntrcprcncur and workcrs would mcct cach othcr within thcir limits on
similar grounds, just as thc two partics ol buycrs and scllcrs mcct in thc
casc ol isolatcd cxchangc.
10
!n thcory, it would not bc unthinkablc nor impossiblc lor thc ratcs to bc
xcd at any singlc point within thc widc rangc bctwccn 81.50 and 810. Vc
havc, ol coursc, comc to know somc circumstanccs that makc it appcar rathcr
unlikcly, though not altogcthcr cconomically impossiblc, that thc wagcs bc
xcd within thc lowcst scction ol thc zonc lying bctwccn thc absolutcly lowcst
limit and thc minimum ol cxistcncc ol unskillcd labor, and lor rcasons ol
similar naturc, it is not vcry likcly that thc wagc ratc would bc raiscd up to a
point ncar thc uppcr limit ol 810. Tat it could not bc kcpt at such a point
lor any lcngth ol timc ! shall try to dcmonstratc in a luturc invcstigation
which ! considcr ol spccial thcorctical import. 8ut not cvcn tcmporarily
will it rcadily bc pushcd so high. For any wagc lcvcl substantially cxcccd
ing thc output ol thc last workcr would mcct with a strong and incrcasing
opposition on thc part ol thc cmploycrs as involving a loss to thcm. 8clorc
granting such a wagc ratc, thcy would probably prclcr to risk thc dccision ol
thc suprcmc trial, consisting in ghting mattcrs out in a lockout or strikc,
although an intcrmcdiatc wagc, approximating thc actual scrvicc ol thc last
workcr, might conccivably bc grantcd by thc cmploycrs, anxious to avoid thc
risk ol thc ccrtain losscs involvcd in a strikc, and thc addcd unccrtainty ol
its outcomc. Nor would workcrs nd it to thcir advantagc to push thc wagcs
up to lcvcl actually causing losscs to thc cntrcprcncur, lor this again might
thrcatcn thcm with a rcstriction, or suspcnsion, ol work, and lorcc thcm out
ol thcir jobs. Tus thcrc cntcrs thc qucstion about thc pcrmancncy ol wagcs,
which will bc invcstigatcd latcr.
10
Positive Teory, 8ook !\, Chaptcr !!.
n thc othcr hand, thc workcrs dicultics will bccomc all thc grcatcr by
thc strikc, thc morc cxccssivc wagc dcmands thcy makc. Tc thrcat lrom
strikc brcakcrs or scabs lrom othcr branchcs ol industry will incrcasc with
thc morc lavorablc tcrms which thc cntrcprcncur can still grant bclow thc
rcluscd ratc ol wagcs. !l thc striking workcrs should insist on a wagc ratc ol
89, a wagc ol 87 may pcrhaps alrcady contain a vcry tcmpting prcmium to
scabs and substitutcs, who in othcr occupations rcquiring similar qualica
tions may obtain only a wagc ol 85.50, corrcsponding to thc output ol thc last
workcr. And oncc substitutcs arc cmploycd, thc causc ol thc strikc is usually
lost, whcrcas, in thc othcr altcrnativc, thc outcomc is by no mcans ccrtain.
!n a strikc, that party wins, as a rulc, which, popularly spcaking, can hold
its brcath lor thc longcst timc. To thc workcr, thc strikc mcans uncmploy
mcnt. For thc timc bcing thc workcr may mcct this loss by mcans ol savings
accumulatcd lor this purposc, by subvcntions lrom strikc lunds, by consuming
his propcrty, by sclling or pawning dispcnsablc goods, or by incurring dcbts
as lar as his crcdit will pcrmit. Vith thc longcr duration ol thc strikc, thcsc
savings will bccomc smallcr and smallcr until thcy arc uscd up. uring thc
pcriod ol gradual diminution ol savings, thc marginal utility ol thc rapidly
dccrcasing mcans ol subsistcncc gocs up, morc and morc ol csscntial wants
go unsatiscd, and morc and morc ol thc vital ncccssitics arc ncglcctcd, with
thc incrcasing shortagc ol lunds.
Finally thc point is rcachcd at which thc vcry maintcnancc ol lilc dcpcnds on
a rcncwal ol incomc through work, il only at a modcst wagc: at this point cvcn
thc most obstinatc rcsistancc ol thc strikcrs is brokcnprovidcd, ol coursc, that
thc rcsistancc ol thc oppositc party, thc cmploycr, is not crushcd bclorchand.
!n thc ranks ol thc cmploycrs thcrc arc thc samc phcnomcna. Vith thc
incrcasing duration ol thc strikc, thc dcsirc lor a scttlcmcnt bccomcs morc
and morc intcnsc. Tc idlc plant produccs no incomc. Somc ol thc costs ol
production and at lcast thc pcrsonal living cxpcnscs ol thc manulacturcr
continuc, and havc to bc mct. !l thc cntrcprcncur has a largc lortunc, thcsc
cxpcnscs may bc covcrcd lrom that. !l not, thcn thc prcssurc ol thc strikc will
bc lclt much morc rapidly and intcnscly. !n any casc, thcrc arc hcrc two vcry
distinct phascs ol thc cccts ol thc strikcs that should bc distinguishcd. Tc
succcssivc and incrcasing lack in thc mcans ol subsistcncc may rst thrcatcn
thc busincss ol thc cntrcprcncur, and thcn, il thcrc arc no lunds lclt lor thc
most urgcnt living cxpcnscs, his pcrsonal cxistcncc.
Tis lattcr, morc intcnsc ccct ol strikcs, will normally arisc only in thc most
cxccptional cascs. Nor is it likcly, lor thcsc and similar rcasons statcd bclorc,
that in a strikc wagcs will bc xcd at thc most cxtrcmcncithcr at thc vcry
lowcst nor at thc vcry highcstmarginal rcgions ol thc widc rangc cconomi
cally possiblc, at lcast lor thc timc bcing. !n our illustration this zonc was
assumcd to cxtcnd lrom 81.50 to 810, and a wagc ratc bclow 83 would bc just
as unlikcly as onc abovc 88, although, as ! want spccially to cmphasizc, such
cxtrcmc wagc ratcs arc not unthinkablc, nor altogcthcr cconomically out ol
qucstion lor a short period ol timc.
Most ol what has bccn said so lar is bascd on obvious and almost trivial lacts
and obscrvations which havc bccomc sucicntly lamiliar through common
cxpcricnccs with strikcs. ! havc mcrcly rcstatcd thcsc mattcrs, so to spcak, in
thc tcrms ol thc marginalutility thcory, in ordcr to makc plain thc csscntial
point ol thc thcorctical principlc undcr discussion, namcly, that thc inucncc
ol powcr in thc casc ol strikcs, so lamiliar to all cngagcd in industry, is not
altogcthcr distinct lrom, or opposcd to, thc lorccs and laws ol thc marginal
utility thcory, but wholly in conformity and in harmony with thcsc, and that
cvcry dccpcr analysis ol thc qucstion, through what intcrmcdiatc agcncics
and to what marginal points powcr may control thc coursc ol cvcnts at all,
must lcad into thc morc spccic cxposition ol marginal utility, in thc thcory
ol imputation, whcrc thc ultimatc cxplanation is to bc sought and lound.
11
Tcrc is anothcr lar morc intcrcsting qucstion: Vhcn will thc tcrms ol
distribution, obtaincd through mcans ol powcr, bc ol lasting ccct:
Tis qucstion is all thc morc intcrcsting, in that it is by lar thc most impor
tant onc. vcn thc most cphcmcral xation ol priccs or wagcs may havc
considcrablc importancc to that group ol individuals or lor that short span
ol timc that happcns to bc acctcd by it. n thc othcr hand, thcsc tcmporary
xations mcan littlc or nothing lor thc pcrmancnt cconomic wcllarc ol thc
various social classcs, just as thc classical cconomists havc hcld longtrcnd
priccs to bc lar morc important and challcnging than momcntary uctua
tions, thus Ricardo hardly touchcd upon thc lattcr, and lound it worthwhilc
only to claboratc thc thcory ol longtrcnd priccs. Similarly, in thc thcory
ol distribution, paramount importancc is attachcd to thc pcrmancnt trcnds
according to which thc sharcs ol thc various lactors ol production tcnd to bc
11
! nccd not call thc attcntion ol thosc lamiliar with thc thcory to thc lact that all ol what
! havc said hcrc is absolutcly in conlormity with thc socallcd thcory ol marginal util
ity, cvcn in parts whcrc ! had to dcal with thc conccpt ol total utility. For this is mcrcly
a tcrm introduccd into thc modcrn thcory ol valuc, chicy by thc Austrian School, as
onc ol its particularly charactcristic traits. Tis samc thcory, ol coursc, covcrs and cxplains
thosc cascs in which valuation is bascd on total utility as wcll as thosc lar morc lrcqucnt
cascs in which valuation takcs placc litcrally lrom a marginal utility. (Scc my Positive
Teory of Capital, 8ook !!!).
distributcd as distinct lrom all cphcmcral and tcmporary uctuations. vcn
thc most cphcmcral phcnomcna must also bc undcrstood and cxplaincd, il lor
no othcr rcason than that thc laws controlling thcm arc, in thc last rcsort, not
dicrcnt lrom thosc dctcrmining thcir pcrmancnt cccts, but it gocs without
saying, that that phasc ol our thcory which covcrs thosc cascs outlasting thc
othcrs in timc and spacc will bc lar morc important to us than thc cxplana
tion ol rapidly passing cxccptions.
8ut thcrc is a sccond rcason why it sccms to mc that thc considcration ol
thc inucnccs ol powcr dcscrvcs grcatcr attcntion lrom thc vicwpoint ol
thcir pcrmancncy, lor, as lar as my knowlcdgc ol cconomic litcraturc gocs, this
most important phasc ol thc subjcct has ncvcr bccn invcstigatcd.
Vhilc thc problcm ol thc inucncc ol powcr on priccs as such has hithcrto
bccn only scantily trcatcd, and ncvcr in a systcmatic manncr, in cconomic
thcory, lundamcntal invcstigations into thc pcrmancnt cccts ol such inu
cnccs ol powcr sccm to bc totally lacking, so that hcrc wc cntcr, in a ccrtain
scnsc, upon litcrary virgin land.
!\. Tc \arious Altcrnativcs
Lv: :v ~c~ix s:~v: vvo: ouv coxcvv:v iiius:v~:iox, ~xb biscuss,
onc by onc, thc various altcrnativcs. Vhat is typical and gcncrally truc in cach
individual casc will thus casily bccomc clcar, and, morcovcr, spccially strcsscd
and summarizcd at thc cnd.
Tcmporarily, as wc havc sccn in our assumcd conict bctwccn thc powcr ol
cntrcprcncurs and workcrs, any wagc ratc bctwccn 81.50 and 810 was cco
nomically possiblc, although it was not likcly to bc xcd, not cvcn lor a short
pcriod, ncar thc cxtrcmc uppcr ol lowcr limit possiblc, but rathcr somcwhcrc
ncar thc middlc ol thc total rangc ol wagcs. !n ordcr to makc our discussion
thcorctically cxhaustivc, wc shall havc to considcr both cxtrcmcs, as wcll as
cach onc ol thc possiblc ratc lcvcls within thc total rangc ol wagcs.
1. I need not waste any words about the fact that a wage rate below
the minimum of existencethus in our cxamplc bclow 83cannot
possibly bc pcrmancnt. Tis lollows lrom thc lamiliar rcasons statcd
oltcn and in dctail clscwhcrc, pointing to thc diminution ol thc
labor supply as thc incvitablc conscqucncc ol a wagc lcvcl no longcr
sucicnt lor thc support ol thc workcrs lamilics, and to thc sub
scqucnt incrcasc ol wagcs, ncccssitatcd by thc law ol supply and
dcmandallowing, ol coursc, lor lamiliar cxccptions in lavor, or
rathcr in dislavor, ol thosc cxccptional typcs ol occupations which
arc bcing lollowcd mcrcly as a sidclinc by pcoplc who draw thcir
rcal mcans ol subsistcncc lrom othcr sourccs.
2. Nor can wages be xed permanently below the rate of the most
common type of labor, in our illustration, bclow 83.10. Tis hardly
nccds any lurthcr cxplanation, lor thc rcason that all thc causcs
applying to point 3 which lollows, will cvidcntly apply hcrc too,
cvcn to a grcatcr dcgrcc. Tc cxccptions, lamiliar sincc Adam Smith,
lor occupations conncctcd with spccial attractivcncss or privilcgcs
37
and in which, thcrclorc, many pcoplc arc satiscd with a smallcr
rcmuncration than that availablc in othcr lcss attractivc or lcss hon
orablc occupations, will, ol coursc, also apply hcrc, without, howcvcr,
accting thc gcncral thcory ol distribution.
3. Wages higher than those of common labor, but below the marginal
product of the last laborer (in our illustration, wagcs bctwccn 83.10
and 85.50), will hardly bc ablc to rcmain in lorcc, il imposcd through
tcmporary prcpondcrancc ol powcr, ccrtainly not whcn thc usc ol that
powcr was limitcd to onc particular group, such as to thc workcrs ol a
singlc lactory, or to a singlc branch ol production, whilc in othcr occu
pations, rcquiring thc samc or a similar amount ol skill, wagcs prcvail
commcnsuratc with thc natural amount ol thc marginal product (in
our casc, ol 85.50). For although thc pcrsonal discomlort conncctcd
with a changc ol occupation may prcvcnt a largcscalc cxodus ol an
cntirc gcncration ol skillcd workcrs lrom a lcss rcmuncrativc branch
ol production into othcr, bcttcrpaid occupations, thc gradual ccct
upon thc sclcction ol occupation among thc youngcr gcncration ol
workcrs will bc all thc grcatcr. Tcy will naturally scck thc bcttcrpaid
occupations, and shun thosc with cxccptionally poor wagcs. Normal
dccicncics in thc original stock ol workcrs will no longcr bc mct, and
thc gradual dcplction ol cmployccs will ultimatcly lorcc thc cmploycrs
to ocr thcir workcrs a wagc ratc cqual to that obtainablc in othcr
industrics ol a similar typc.
A morc complcx analysis would havc to bc madc in thc casc ol
a univcrsal rcduction ol wagcs through articial lorccs accting all
lincs ol production. Such a contingcncy is, howcvcr, lar lcss likcly
cvcr to occur, lor thc rcason that a univcrsal coalition ol cntrc
prcncurs ol all branchcs ol industry which alonc could cxcrt such
control would bc cxtrcmcly hard to organizc, and still hardcr to
hold togcthcr. 8ut lct us assumc such a casc, at lcast lor a ccrtain
pcriod ol timc, lor our thcorctical analysis. bviously, thc workcr
would thcn no longcr nd it possiblc to cscapc into anothcr, morc
rcmuncrativc branch ol production, and thus thcrc would ccasc
to cxist that most inucntial lactor, which, in thc casc ol a partial
rcduction ol wagcs, would sooncr or latcr cnsurc thc rcstoration ol
thc original wagc ratc.
!nstcad, thcrc would now appcar somc ncw, although slowwork
ing, lactors within thc ranks ol thc cntrcprcncurs. A wagc lcvcl xcd
bclow thc marginal productivity ol labor rcsults in a spccial gain that
gocs to thc cmploycr, rst, in thc lorm ol an incrcascd prot, which,
howcvcr, in casc ol a prolongcd continuancc ol this condition, will
havc to bc surrcndcrcd in part to thc capitalist in thc lorm ol highcr
intcrcst, lor thc rcason that pcnding on and owing to this condition
othcr cqually protablc typcs ol invcstmcnt will bc opcn to capital.
Tc vcry lact ol an incrcascd cntrcprcncurs prot will in itscll alonc
work as an inccntivc to thc cxpansion ol cxisting cntcrpriscs (this
inccntivc might pcrhaps bc tcmporarily curbcd by binding thc old
cntrcprcncurs to coalition agrccmcnts) and also to thc lormation ol
ncw cntcrpriscs loundcd by outsidcrs, not bclonging to thc coali
tion, who, ol coursc, can attract thc nccdcd numbcr ol workcrs only
by ocring somcwhat highcr wagcs. Tc incrcascd intcrcst ratc,
morcovcr, will shilt thc margin ol prots among thc various morc
or lcss capitalistic mcthods ol production toward thosc with morc
machincry, laborsaving dcviccs, and so lorth.
An incrcascd intcrcst on capital and a chcapcr supply ol labor will
translorm thc smallcr prots into losscs among thosc produccrs ncar
thc margin ol protability, cspccially in thcsc cntcrpriscs whcrc a low
ratc ol intcrcst prcvails couplcd with highcr wagcs, so that whcrc
prcviously a slight advantagc had bccn lound to cxist in a morc capi
talistic mcthod ol production, it now bccomcs morc protablc to
rcvcrsc thc mcthods ol production through incrcasc in thc usc ol
manpowcr, and a lcss intcnsc usc ol capital cquipmcnt.
12
Naturally,
this inccntivc will not lcad to quick rcsults. Capital invcstcd in such a
manncr in instrumcnts ol production will not suddcnly bc abandoncd,
but rathcr tcnd to bc uscd up rst, or at lcast not bc rcplaccd, bccausc
human labor, having bccomc chcapcr, will bc prclcrrcd in its placc.
Tis again will lcad to an incrcascd dcmand lor labor which can only
bc mct by granting somcwhat highcr wagcs. Tcsc, ol coursc, must not
complctcly ncutralizc thc advantagcs ol thc lcss capitalistic mcthod
ol production. Tis motivc may bc opcrativc both within and without
thc cmploycrs coalition, and to a vcry dicrcnt dcgrcc among thc
various typcs ol produccrs. !t will bc hardly at all opcrativc among
thosc who had cmploycd vcry littlc xcd capital and much physical
labor, vcry littlc among thosc with whom capital prcdominatcs to
such grcat tcchnical advantagc that cvcn considcrablc changcs in thc
12
Tat, and how low intcrcst and high wagcs tcnd to makc lor thc lcngthcning, and high
intcrcst and low wagcs lor a shortcning, ol thc avcragc pcriod ol production, ! havc
shown in my Positive Teory of Capital, 8ook \!, Chaptcr X.
lcvcl ol wagcs or intcrcst will not bring about any transition towards
a lcss capitalistic mcthod, but lar morc among a third group ol pro
duccrs, whosc tcchnical cquipmcnt is such as to dividc thcir mcthods
ol production just cqually bctwccn machincry and labor. Tcsc grcat
individual dicrcnccs will not rcmain without prolound inucncc on
thc probablc coursc ol cvcnts.
!ndustrial coalitions comprising thc produccrs ol onc and thc samc
linc ol industry, or ol similar industrics will as a rulc bc bascd on a
harmony ol intcrcst, sucicnt to lavor a continuation ol thc coali
tion that bcncts all mcmbcrs cqually. 8ut il thc coalition should
includc ccrtain groups whosc intcrcst makcs thcm disagrcc in rcgard
to thc dcsirability ol a continuancc ol thc coalition, thcn in all human
cxpcricncc, harmony cannot bc maintaincd, particularly not whcn
thc incvitablc appcarancc ol outsidcrs picrccs a holc through thc
victorious phalanx ol cntrcprcncurs. All cmploycrs, ol coursc, stand
to gain to somc cxtcnt by kccping thc wagcs down, but thcsc gains
will dicr widcly in thc various industrics, according to thc physical
distribution ol capital and labor. !n thosc branchcs ol production in
which this gain is comparativcly small, it may bc ncutralizcd by thc
cnlorccd inability to cxpand or to introducc morc protablc mcth
ods ol production. Now, il an industrialist sccs that thc bcncts hc
has sacriccd in lavor ol thc coalition arc unscrupulously rcapcd by
outsidcrs and lccls thcir compctition morc and morc kccnly, thcn thc
psychological momcnt has comc lor his withdrawal lrom thc ranks ol
thc coalition, lor thosc industrialists whosc particular situation would
cnablc thcm to prot most lrom an cxpansion and a changc in thcir
mcthods, in violation ol thc rulcs ol thc coalition, will prclcr to rcap
thcsc advantagcs lor thcmsclvcs, bclorc thcir last chancc has bccn
dcstroycd by outsidcrs. And that is thc bcginning ol thc cnd ol thc
coalition: thc rcappcarancc ol a stcadily widcning strcam ol compcti
tors with thc nal ccct that thc wagc lcvcl will again bc raiscd lrom
that dictatcd by supcrior control to thc lcvcl ol lrcc compctition, i.c.,
to thc lcvcl ol thc marginal product!
Tis kind ol dcductivc rcasoning may pcrhaps bc lound to bc con
vincing only in part. 8ut it should bc rcmcmbcrcd that in problcms
ol this naturc thcrc arc no othcr than dcductivc mcthods at our
disposal. Vc shall ncvcr bc so lortunatc as to asscmblc rcliablc dircct
obscrvations, or to makc cxpcrimcntal tcsts. Tc assumcd cmploycrs
coalition cmbracing all industrics has ncvcr actually cxistcd, and il it
should cvcr comc into bcing, it would soon disappcar again, likc all
social groupings, and it could not cvcn bc considcrcd as an cmpiri
cal prool ol my dcductions. Tc qucstion might still bc, whcthcr
its dissolution was causcd by thc lactors citcd in my dcduction, or
by somc othcr, ncw lactors. Tc rcasons givcn in my argumcnt can,
by thcir vcry naturc, opcratc gradually only. And conditions would
hardly rcmain unchangcd lor so long a pcriod as might bc ncccssary
to producc thcsc cccts.
nc would ncvcr bc ablc to dctcrminc bcyond a qucstion through
purcly cmpirical mcthods, whcthcr thc ultimatc rcsult was duc to
thc gradual undcrmining inucncc brought about by thcsc alonc
within thc original statc ol aairs, or whcthcr, and to what cxtcnt,
it might bc ascribcd to thc advcnt ol ncw lactors. 8ut prcciscly
bccausc wc arc dcpcndcnt in thcsc qucstions upon dcduction as thc
solc sourcc ol our knowlcdgc, and bccausc thcy cannot bc vcricd
through dircct obscrvation, as is possiblc in othcr cascs, wc havc
no choicc othcr than to claboratc such dcductions, and thcsc, ol
coursc, must bc madc on thc basis and according to thc mcthods ol
cconomic thcory, which alonc altcr all, as wc havc sccn, will cxplain
thc inucnccs ol outsidc powcr. At thc samc timc, wc must obscrvc
that suprcmc caution and prccaution which thc usc ol thc dcductivc
mcthod always rcquircs, particularly whcrc thc lincs ol dcductivc
rcasoning arc long and complcx, and whcrc it is not possiblc to
chcck thcm up, stcp by stcp, through cmpirical obscrvations.
13
!t is lrom thcsc considcrations that ! wish to submit hcrc and in
thc lollowing pagcs a lcw suggcstions which, ! rcalizc, constitutc
only a rough, unnishcd skctch ol such dcductivc thoughts as may
lcad to a morc dctailcd invcstigation latcr on, and in a gcncral way at
lcast, may indicatc thc dircction in which, in my opinion, thc attain
ablc amount ol knowlcdgc and undcrstanding may bc lound.
Lct us thcn continuc our inquiry into thc wagc ratcs locatcd abovc
thc lcvcl ol thc marginal product (within thc rangc ol possiblc wagcs),
and bcginning lrom abovc, start with thc highcst conccivablc ratcs.
4. It is obvious without any further discussion that such extremely
high wages cannot endure, bccausc thcy would causc such grcat
capital losscs to thc cntrcprcncur that thcir pcrpctuation would lcad
13
Scc prclacc to my Positive Teory of Capital.
to bankruptcy, although tcmporarily thcy might rcprcscnt thc minor
cvil as against a prolongcd shutdown. (Scc abovc.)
5. Nor can the wage level following next, as is cqually obvious, rcmain
in lorcc pcrmancntly bccausc, though not thrcatcning thc cntrcprc
ncur with immcdiatc nancial ruin, it would still causc him actual
losscs, although ol a smallcr cxtcnt. !l continucd ovcr a long pcriod
ol timc, cvcn small losscs must also lcad ultimatcly to nancial ruin,
so that casc 5 would ow ovcr into casc 4, and without doubt, in
such cascs thc cntrcprcncurs would prclcr to liquidatc thcir unprol
itablc busincss, or at lcast givc up thc unprotablc branchcs.
6. Te greatest theoretical interest attaches to the next-following
level of wages: can that wagc ratc cndurc which, though not causing
any actual loss ol capital to thc cntrcprcncur, absorbs or rcduccs thc
intcrcst on his capital invcstmcnt:
Lct us rst answcr a prcliminary qucstion. Vould it bc possiblc
lor thc cntrcprcncurs prots propcr to disappcar or to bc pcrma
ncntly rcduccd, whilc in othcr branchcs ol busincss, such as in thc
loan markct or unproductivc invcstmcnts likc rcal cstatc (apartmcnt
houscs), thc ratc ol intcrcst rcmaincd unchangcd:
Tc answcr is cmphatically, No! ntrcprcncurs working with
borrowcd capital would sucr an actual loss lrom thc dicrcncc
bctwccn thc highcr ratcs ol intcrcst that thcy would havc to pay to
thcir crcditors, and thc lowcr ratc which that capital would bring
thcm in thcir busincss, and thus thc mattcr would lcad back into
thc situation prcscntcd undcr point 5 abovc.
Nor would thosc cntrcprcncurs who work wholly or in part with
thcir own capital bc ablc to stay in busincss undcr such a statc ol
aairs. ncc capital is invcstcd in an cntcrprisc, it may havc to contcnt
itscll with a lowcr ratc ol intcrcst, whcn and bccausc its withdrawal
would not bc lcasiblc nor possiblc without a grcat dcprcciation ol thc
capital stock itscll. Tcrc would bc littlc induccmcnt to rcplacc uscd
up capital lunds, il thc invcstmcnt should promisc a smallcr rcturn
to its owncrs than thc samc capital could producc in othcr kinds ol
invcstmcnts, such as in rcal cstatc or in thc loan markct. And thc
lamiliar and oltcndiscusscd causcs which, gcncrally spcaking, tcnd
to cqualizc thc intcrcst ratc in thc various markcts ol capital (not
articially isolatcd) would surcly also tcnd to prcvcnt a oncsidcd
diminution or climination ol thc cntrcprcncurs original capital gains.
Tcir rcduction would thus cithcr havc to cxtcnd all ovcr thc othcr
clds ol capital cmploymcnt, or thcy could not occur at all.
Tc qucstion undcr invcstigation thus assumcs thc lollowing
lorm: Can that wagc ratc rcmain in lorcc pcrmancntly which,
though not accting thc cntrcprcncurs capital stock, takcs away
capital intcrcst lrom busincss, or at lcast rcduccs thc natural ratc
ol intcrcst prcvailing undcr lrcc compctition: !n othcr words, can
a wagc incrcasc obtaincd by thc usc ol powcr pcrmancntly absorb
intcrcst on capital, or rcducc it bclow its natural lcvcl:
Tc rathcr dicult answcr to this qucstion will bc somcwhat lacil
itatcd il wc invcstigatc scparatcly thc two stagcs involvcd, namcly,
thc total and thc partial absorption ol intcrcst on capital.
! considcr it impossiblc that intcrcst could disappcar complctcly
lrom a nations cconomic lilc, with thc cxccption ol thc almost
unthinkablc casc, hardly applying hcrc, ol capital accumulation lar
cxcccding all dcmand. Tc disappcarancc ol thc inccntivc to thrilt,
containcd in intcrcst, would climinatc that most important por
tion ol capital, which is lormcd through savings madc only lor thc
sakc ol intcrcst. !t might happcn, ol coursc, that that othcr typc ol
savings, intcndcd as a rainyday pcnny, might thcn bc somcwhat
incrcascd, il pcoplc wcrc to providc lor thcir luturc by accumulat
ing capital alonc, without thc support ol intcrcst. 8ut it is gcncrally
bclicvcd that on thc wholc thcrc would rcsult a substantial diminu
tion ol capital stock, and thc subscqucnt shortagc ol capital supply
would probably cxcrt a strong prcssurc in thc oppositc dircction,
i.c., in thc dircction ol a rcncwcd incrcasc, rathcr than in that ol a
pcrmancnt disappcarancc ol intcrcst.
8ut cvcn though thc supply ol capital wcrc to bc rcduccd, thc
thing that would bc ol dccisivc importancc is thc dcmand sidc ol
capital. Lct us assumc lor a momcnt that intcrcst had actually disap
pcarcd lrom cconomic lilc, i.c., that prcscnt and luturc goods could
bc cxchangcd lor cach othcr on thc samc lcvcl without discount,
and that loans could bc obtaincd without intcrcst. Tc incvitablc
conscqucncc ol this would bc an incrcasc cxcccding all bounds in
thc dcmand lor prcscnt goods. Tc cmpirical law ol thc largcr pro
ductivity ol timcconsuming, morc highly capitalistic, roundabout
mcthods ol production, could not lail to makc itscll lclt, in thc scnsc
that industrialists would compctc with cach othcr in lcngthcning
thc pcriods ol production, and would adapt thcir cntcrpriscs to thc
tcchnically most cconomical, but at thc samc timc, most cxtcndcd
and timcconsuming mcthods ol production.
Tc automatic chcck that countcracts such trcmcndous lcngth
cning ol thc productivc proccss at prcscnt would havc ccascd to
cxist, that chcck is thc intcrcst paymcnt that automatically placcs
a progrcssivc tax on lcngthcncd mcthods ol production. 8ut oncc
thc lcngthcncd mcthod ol production wcrc lrccd lrom thc burdcn
ol intcrcst, and did not cost morc than thc shortcr onc, and at thc
samc timc, produccd morc than thc lattcr, a gcncral inccntivc to an
cnormous prolongation ol thc productivc proccss would bc callcd
lorth. !t would, howcvcr, nd its physical limitation in thc dimin
ishcd subsistcncc lund ol thc workcrs during thc incrcascd pcriod
ol waiting, imposcd by thc lcngthcncd pcriod ol production. From
thc cxisting, and possibly rcduccd, subsistcncc lund, it would bc
impossiblc to support thc samc numbcr ol workcrs lor an indc
nitcly prolongcd pcriod ol waiting.
!nstcad, thc trcnd ol wagcs will ncccssarily bc hcld down lrom
two sidcs within thc margins ol thc possiblc pricc rangc.
14
First, thc
duration ol thc pcriods ol production, although somcwhat longcr,
will bc rcstrictcd to thc shortcst possiblc timc through a proccss
ol sclcction which will bc madc undcr lrcc compctition in lavor
ol thc most protablc among thc various possiblc cxtcnsions ol
thc productivc proccss, and as this sclcction can only bc ccctcd
in rcgard to thc most ccctivc part ol dcmand by granting highcr
priccs, which mcans, in this casc, by granting a corrcspondingly
highcr prcmium on thc dcmandcd subsistcncc lund, thcn, at lcast
in rcgard to this phasc ol thc incvitablc dcvclopmcnt, intcrcst will
bc rcstorcd to busincssas ! havc dcscribcd morc lully in my Posi-
tive Teory of Capital.
15
8ut at thc samc timc somcthing clsc will happcn. Tc just
dcscribcd proccss ol sclcction lcads to a rcstoration ol intcrcst and
thc pcriods ol production will no longcr bc indcnitcly lcngth
cncd, although thcy will still continuc to bc somcwhat longcr. Tc
14
! do not wish to takc into account that thc assumcd incrcasc in wagcs would also incrcasc
thc standard ol living at which thc workcrs would havc to bc maintaincd, this, howcvcr,
may bc osct by thc lowcr ratc ol intcrcst with which thc propcrticd classcs would
havc to contcnt thcmsclvcs altcr thc climination ol intcrcst on capital.
15
8ook \!!, Chaptcr !!!.
cntrcprcncurs, who prot by paying thc highcst prcmium on prcs
cnt goods, will undcr normal circumstanccs bc lorccd to rcsort to
longcr pcriods ol production than thcy cmploycd originally. For
whilc bclorc thc advcnt ol wagc incrcascs, thc pcrmancncy ol which
wc arc invcstigating, thcy had to pay only as much lor intcrcst and
wagcs jointly as thcy now havc to pay lor thc incrcascd wagcs alonc,
now, morcovcr, thcy havc to pay lor thc rcstorcd intcrcst. Tis condi
tion can only bc mct through largcr prots than bclorc, and thcsc
incrcascd prots can bc madc only through a corrcsponding lcngth
cning ol thc pcriod ol production, unlcss wc should invokc thc
advcnt ol ncw invcntions with a subscqucnt incrcasc in thc output,
likc a deus ex machina, instcad ol concluding our argumcnt by stick
ing to thc original assumptions. 8ut thcn it would bc impossiblc lor
thc samc numbcr ol workcrs as bclorc to bc providcd lor throughout
this cxtcndcd pcriod ol production out ol thc cxisting rcduccd,
rathcr than incrcascd, subsistcncc lund. Tcrc must thcrclorc bc
a limitation in anothcr dircction, a rcstriction in thc numbcr ol
cmploycd workcrs, in approximatcly thc samc proportion in which
thc subsistcncc lund has bccn cxtcndcd. Tis physical ncccssity will
bc mct cconomically through thc motivc ol scllintcrcst, with high
wagcs and a low intcrcst ratc undcr a morc capitalistic mcthod ol
production, that is, thc cmploymcnt ol lcwcr workcrs in lcngthcncd
pcriods ol production is morc protablc.
16
As long, thcrclorc, as thc cnlorccd wagcs prcvail at that high lcvcl,
thcrc will comc about a provisional statc ol cquilibrium ol approxi
matcly this dcscription: Tc gcncral adoption ol thc lcngthcncd
pcriod ol production will tcnd to incrcasc thc workcrs pcr capita
output. Tc marginal product ol labor will thus bc incrcascd, as
also by a rcduction in thc numbcr ol workcrs, and it will now cor
rcspond with thc cnlorccd highcr wagc lcvcl that had riscn bcyond
thc marginal product ol thc prcvious stagc. !ntcrcst on capital that
has bccn rcstorcd is now lowcr than prcviously. Tc cntrcprcncurs
managc to survivc bccausc, with thc incrcascd marginal produc
tivity ol labor, cvcn thc last workcr in thcir cmploymcnt will still
16
n this subjcct, scc my dctailcd discussion in Positive Teory of Capital, particularly thc
comparison on thc tablc ol p. 451, to which ! mcrcly wish to add that thc assumption
ol a totally pcrlcct compctition has in this casc bccn climinatcd by our prcscnt assump
tion, at lcast on thc sidc ol thc workcrs who havc climinatcd undcrbidding by strictly
coopcrating with cach othcr.
producc to thcm thc highcr wagc to bc paid, and also bccausc thc
surplus productivity ol thc cntirc lcngthcncd proccss ol production
will lcavc thcm a sucicnt amount abovc thc wagc incrcasc to com
pcnsatc thcm lor thc intcrcst on capital. 8ut this ncw cquilibrium
is possiblc only at thc cxpcnsc ol cmploying a smallcr numbcr ol
workcrs. And it is lor this rcason that, in all probability this tcm
porary cquilibrium will again bc disturbcd.
For now, thc labor union will bc split in two, onc group cmploycd
at a high wagc, and anothcr group not cmploycd at all. Tc grcatcr
an incrcasc in wagcs has bccn cnlorccd and thc morc thc ncw mcth
ods ol production arc protractcd, thc biggcr will bc thc numbcr
ol uncmploycd. Two dcvclopmcnts arc possiblc. 8oth groups ol
workcrs may stay togcthcr within thc union, which implics that thc
uncmploycd mcmbcrs would havc to bc supportcd by contributions
lrom thcir cmploycd lcllow workcrs. !l thcsc contributions arc largc,
thcy will absorb thc surplus accruing to thc workcrs lrom thc wagc
incrcasc, lor it should not bc ovcrlookcd that thc total output that
can bc produccd by a rcduccd numbcr ol workcrs with thc samc cap
ital, must, cvcn with improvcd mcthods ol production, rcmain bclow
that obtainablc lrom a lull cmploymcnt ol capital and labor. Tus,
nobody would bc bcnctcd lrom thc ncw articially crcatcd ordcr
ol things, as against thc prcvious natural ordcr, many would indccd
bc at a disadvantagc, which lact would again bc distinctly unlavor
ablc to thc prolongcd maintcnancc ol a situation crcatcd through
a strong combincd prcssurc ol powcr. 8ut il thc standard ol living
ol thc uncmploycd workcrs wcrc to bc substantially rcduccd, thcsc
lattcr again would not allow such a condition to pcrsist, thcrc would
bc discontcnt, discord, and ultimatcly dissolution ol thc union. Tc
malcontcnts would sooncr or latcr bccomc outsidcrs, and compctc
by ocring thcir scrviccs to thc cntrcprcncurs, thc rcvivcd compcti
tion, with its undcrsclling, would put an cnd to thc monopolistic
dictation ol wagcs back to thc lcvcl cconomically justicd undcr thc
lull cmploymcnt ol all workcrs, i.c., to thc marginal product ol thc
last workcr cmploycd in an again rcduccd pcriod ol production.
17

17
! lully rcalizc that a lcngthcning and shortcning ol thc proccss ol production cannot
bc carricd out at a momcnts noticc, without troublc, in that it always accts thc cntirc
structurc ol xcd capital. 8ut, on thc othcr hand, it is hardly probablc that thc pcndulum
would swing to thc lull cxtrcmc ol a complctc disappcarancc ol intcrcst and back toward
thc original starting point. !t would bc lar morc likcly lor thosc cconomic lorccs that
!l, ultimatcly thc cmploycd workcrs should lail to providc lor thcir
uncmploycd lcllow workcrs, thcn thc samc proccss would takc placc,
cvcn morc rapidly. Tc mass ol thc uncmploycd would cntcr into
compctition and cvcn morc violcntly undcrbid wagcs.
nc might pcrhaps think ol an altcrnativc in anothcr dircction,
namcly, that thc unionizcd workcrs might cnlorcc not only highcr
wagcs, but also thc lull cmploymcnt ol all workcrs at that highcr wagc
ratc. 8ut cvcn though thc workcrs might havc thc powcr tcmporarily
to cnlorcc thcsc conditions, thcy could not bc pcrmancnt. For this
would ncccssarily lcad ovcr into onc ol thc two altcrnativcs considcrcd
abovc, undcr numbcrs 4 and 5. 8y bcing lorccd to pay thc workcrs
not only a wagc that in itscll is highcr than thc cntirc amount ol thc
original intcrcst on capital, and in addition to this a rcstorcd intcrcst
on capital (although somcwhat smallcr in thc aggrcgatc), thc cntrc
prcncur will nd that his costs havc incrcascd, and hc will sucr losscs
and sooncr or latcr abandon thc cntcrprisc, or go into bankruptcy.
Morcovcr, it is almost unthinkablc that any cmploycr could cvcr bc
compcllcd to cmploy all workcrs availablc at a givcn timc. At bcst, thc
labor union may, through violcncc, prcvcnt dismissals lrom thc lormcr
stock ol workcrs. 8ut any attcmpt to cnlorcc thc cmploymcnt ol addi
tional workcrs, in proportion to thc natural dccicncics in thcir ranks,
or cvcn that ol an incrcasing numbcr ol workcrs, corrcsponding to thc
natural growth ol population, would bc wcllnigh impossiblc.
From all thcsc considcrations, which could and probably ought to
bc claboratcd in lar morc dctail, ! bclicvc that a complctc absorption
ol intcrcst and capital through articial, cnlorccd wagc incrcascs
is out ol thc qucstion in thc cconomic lilc ol a nation. 8ut would,
pcrhaps, cvcn thc partial climination ol natural intcrcst on capital
bc pcrmancntly possiblc:
! do not scc any rcason lor assuming a coursc ol cvcnts dicring
lrom thc onc assumcd abovc. A smallcr incrcasc in wagcs at thc
cxpcnsc ol intcrcst on capital will causc cxactly thc samc rcactions and
swing thc pcndulum back lrom thc cxtrcmc towards thc starting point to intcrvcnc long
bclorc that point had bccn rcachcd, and to kccp thc swing ol thc pcndulum within much
narrowcr limits, thus rcstricting thc tcchnical changcs in production ncccssary in adapta
tion to thc rcspcctivc priccs ol thc lactors ol production. 8ut as ! did not wish to makc
any omission in thc mcthod ol prcscntation, ! was anxious to considcr also thc cxtrcmc
cascs, with thcir countcrcccts, just as il thcy actually occurrcd in practical lilc.
cccts, only in a corrcspondingly smallcr dcgrcc. A mcrc rcduction
in thc intcrcst ratc will at rst not dcstroy thc prcmium lor saving
containcd in intcrcst, but mcrcly diminish it, thc ccct ol this on thc
amount ol luturc savings cannot bc prcdictcd with ccrtainty.
18
Possibly thc amount ol savings would dccrcasc, and possibly not.
8ut this would not altcr thc gcncral trcnd ol cvcnts, as shown in thc
prcccding chaptcr ol this inquiry, whcrc ! havc purposcly mcntioncd
incidcntally only, thc probablc rcduction in thc supply ol capital,
without ascribing to it any dccisivc inucncc. Tc dctcrmining
lactor is to bc lound in thc dcmand lor capital, and in this phasc ol
thc problcm it is incvitablc that cach incrcasc in wagcs bcyond thc
actual marginal product, lollowcd by a rcduction in thc intcrcstratc,
will tcnd to causc a lcngthcning ol thc mcthods ol production and
thus a diminution in thc numbcr ol workcrs. !l thc cntrcprcncur is
not to sucr any actual loss, which hc could not takc lor any lcngth
ol timc, thc wagc incrcasc must bc covcrcd by an incrcascd marginal
productivity ol labor, which can bcst bc brought about through an
cxtcnsion ol timc lor thc various stagcs ol production. Tis again,
undcr othcrwisc cqual circumstanccs, can bc accomplishcd only by
a simultancous rcduction in thc numbcr ol workcrs, unlcss improvc
mcnts through invcntions, ctc., should happcn to bc introduccd,
or othcr dcvclopmcnts ol an accidcntal naturc should takc placc,
contingcncics which can bc lclt out ol account.
nlorccd uncmploymcnt ol a portion ol thc workcrs would also
tcnd to lcad toward thc dissolution ol thc labor union, only in a
lcss intcnsc dcgrcc, in accordancc with thc smallcr cxtcnt ol wagc
incrcascs attaincd by thc labor union, undcr this assumption. Tc
wcakcning ol thc lorccs countcracting thc continuancc ol such a
tcmporary condition docs not mcan a dicrcnt rcsult, but mcrcly thc
postponcmcnt ol ccct. !t cannot mcan that an adjustmcnt cxcccd
ing thc natural limits, il only by vcry littlc, could last, nor can it mcan
that thc suspcnsion ol a smallcr numbcr ol workcrs would not causc
thcm to compctc lor cmploymcnt. 8ut it does mcan that such a con
dition will continuc to cxist lor a longcr pcriod against thc prcssurc
ol minor inucnccs, so that, lor instancc, triing losscs causcd by
this tcmporary situation could bc bornc lor a considcrably longcr
18
Comparc this problcm with thc intcrcsting discussion in Casscls Naturc and Ncccssity
ol !ntcrcst, pp. 144 .
timc by thc cmploycrs, bclorc thcy would go into bankruptcy or go
out ol busincss, or clsc a small numbcr ol thc uncmploycd might bc
supportcd lrom union lunds lor a longcr pcriod, or, through moral
prcssurc, bc prcvcntcd lrom undcrbidding thc union mcmbcrs.
And this again may imply somcthing clsc. As ! havc alrcady
shown abovc, protractcd pcriods ol timc arc likcly to bring in thcir
wakc changcs in othcr dircctions. !l a proccss ol cconomic changc
is sprcad ovcr a ccrtain lcngth ol timc, its gcncral progrcss will, in
most cascs, bc acctcd by othcr incidcntal or indcpcndcnt outsidc
causcs, which almost spontancously will acct thc gcncral situa
tion. vcr a pcriod ol scvcral ycars, mcthods ol production, or thc
busincss cyclc, ncvcr rcmain unchangcd. Tc lattcr may movc up
or down, thc lormcr will most likcly progrcss, and il thc intcrval is
vcry long, thcrc may cvcn occur considcrablc changcs in thc gcncral
cconomic structurc, such as thc numbcr ol population, and thcir
rclation to thc capital stock.
8csidcs this, anothcr altcrnativc is possiblc. Tosc vcry impulscs,
whosc normal cccts ! am trying to obscrvc and invcstigatc, may
thcmsclvcs contain ccrtain additional, almost accidcntal cccts
on othcr cxtcrnal lactors. For cxamplc, thcy nccd not ncccssarily,
but may, acct thc tcchniquc ol production. Tcsc chanccs should
thus not bc lclt altogcthcr out ol considcration, but should not
bc inscrtcd as a lactor in thc scrics ol dcductions, as thcy cannot
bc lorctold with absolutc ccrtainty. !n our casc, lor instancc, thc
cntrcprcncurs may nd thcmsclvcs prcsscd by thc cnlorccd wagc
incrcasc, and this may lorm a powcrlul and ccctivc inccntivc lor
thc adoption ol tcchnical improvcmcnts in thc mcthods ol produc
tion, just as lrcc compctition is gcncrally crcditcd with lorming a
powcrlul inccntivc to industrial progrcss. r it may happcn that
thc pcrmancnt improvcmcnt in thc standard ol living attaincd by
thc workcrs by way ol an cnlorccd wagc incrcasc may rctard thc
growth ol population, as is commonly thc casc among wcalthicr
classcs, ctc. Now, should somc accidcntal or incidcntal dcvclop
mcnt occur that would dircctly or indircctly incrcasc thc marginal
productivity ol labor, thcn it may also happcn that thc initial wagc
incrcasc, cxcccding that marginal productivity, might subscqucntly
countcrbalancc thc uncxpcctcd incrcasc in thc marginal productiv
ity, and thus rcmain in lorcc pcrmancntly. Tis would bc all thc morc
lrcqucnt, thc lcss cxccssivc thc original cnlorccd wagc incrcasc had
bccn, i.c., thc lcss it had gonc bcyond thc marginal productivity ol
labor cxisting at that timc. 8ut ol coursc, in thc casc ol small wagc
incrcascs, it is impossiblc to cxpcct this with any dcgrcc ol ccrtainty,
bccausc such accidcntal cvcnts as thcsc may lail to takc placc, or
cvcn havc oppositc cccts. 8usincss cyclcs may show a downward
trcnd, population may incrcasc morc rapidly than capital supply, ctc.,
in which casc wagcs would bc rcduccd all thc morc rapidly.
Tosc cascs, howcvcr, in which a subscqucnt changc ol cconomic
cnvironmcnt may rcndcr pcrmancnt an originally cxccssivc wagc
incrcasc obtaincd through lorcc, might tcnd to conlusc thc thco
rctical analysis. Tcy appcar to givc cmpirical prool ol thc lact that,
through thc dictatc ol powcr, wagcs can bc raiscd abovc thc limits
laid down by marginal productivity, not only lor thc timc bcing,
but with a lasting ccct. n closc obscrvation, howcvcr, thcy do
not lurnish this prool. Tc original wagc incrcasc was thc ccct
ol a dictatc ol powcr. !ts pcrmancnt duration, howcvcr, is not thc
rcsult ol powcr, but ol outsidc inucnccs ol a third ordcr, which havc
incrcascd thc marginal productivity ol labor, and with that incrcascd
thc possiblc pcrmancnt highcr wagc lcvcl, quitc indcpcndcntly lrom
thc dictatc ol powcr, or at lcast without ncccssary conncction with
it. ! shall havc to rcturn to this point lurthcr on, in summarizing
thc rcsults ol this invcstigation.
8clorc that, howcvcr, lor thc sakc ol complctcncss, ! shall havc to
considcr a scvcnth possibility, so small, howcvcr, in practical impor
tancc, as to bc out ol all proportion to its thcorctical complcxity.
7. In the scale of the possible wage rates, thcrc cntcrs, bctwccn that
wagc that alrcady absorbs a part ol thc intcrcst and that wagc lcvcl
which coincidcs with thc marginal product ol labor, anothcr ratc ol
wagcs which, though cxcccding thc marginal productivity ol labor,
docs not cut into thc rcward ol capital with this cxccss amount, but
rcmains within thc total producc ol labor. For whcn an incrcasing
numbcr ol workcrs coopcratc with a givcn stock, cach additional
workcr cntcring thc cld will contributc only a dccrcasing addition
to thc joint product.
19
Tc last workcr cmploycd at a givcn timc adds
thc marginal product, cach onc prcviously hircd adds a littlc morc
to thc total product. Tat is why thc cntrcprcncur gains nothing
lrom thc last workcr cmploycdprovidcd his wagcs just cqual thc
19
According to a not cntircly uncontcstcd variation ol thc law ol diminishing rcturns.
marginal product, and succcssivcly morc and morc lrom cach prcvi
ous workcr, lcaving out ol considcration thc sharc to bc attributcd
to thc contribution ol capital. Now, il thc wagcs incrcasc abovc
thc marginal product, thc cntrcprcncur will sucr a loss lrom thc
cmploymcnt ol thc last workcr, or workcrs. Tis loss may, howcvcr,
bc osct to somc cxtcnt by thc gain lrom thc workcrs cmploycd
prcviously. So long as this is thc casc, so long as thc total amount ol
wagcs docs not consumc morc than is covcrcd by thc joint output
ol all workcrs togcthcr, thc sharc ol capital nccd not bc rcduccd.
20

Tc sharc ol wagcs cxcccding thc marginal product will thcn bc
paid at thc cxpcnsc ol thc rcal, purc prots which prcviously had
gonc to thc cntrcprcncur.
For thc purposcs ol this invcstigation wc must now ask whcthcr
such a wagc incrcasc, accting or absorbing, as it would, only thc
cntrcprcncurs prots, il achicvcd tcmporarily through a dictatc ol
powcr, could possibly rcmain in lorcc pcrmancntly. Tis qucstion
is, it sccms, cvcn hardcr to answcr through mcthods ol dcductivc
rcasoning than was thc casc in prcvious parts ol this inquiry, and it
is altogcthcr unsuitcd lor an cmpirical tcst. Tcrc would bc no lack
ol lorccs countcracting thc continuancc ol thc ncw wagc lcvcl, but
thcy would bc wcak, and only gradual.
Tc cntrcprcncurs sucring losscs lrom thc last workcr cmploycd
will cndcavor to rcorganizc thcir cntcrprisc at an carly opportunity,
so as to rcducc thc numbcr ol workcrs by climinating thosc causing
losscs. Tcrc may bc somc opposition madc to such a rcorganization
on thc part ol thc workcrs who will not tolcratc any dismissals, this
may postponc thc climination ol thc cxccssivc numbcr, until natural
vacancics occur that arc no longcr llcd. Morcovcr, thc bcst possiblc
organization ol thc cntcrprisc with a rcduccd numbcr ol workcrs will
rcquirc a changc in tcchnical cquipmcnt. !l cxtra losscs through thc
suddcn climination ol capital cquipmcnt arc to bc avoidcd, this can
also bc ccctcd only gradually, by using up thc old cquipmcnt.
20
! wish to statc that, in rcasoning thus, ! purposcly omit all such losscs as may bc
causcd by thc partial climination ol workcrs through intcrlcrcncc with thc cxisting
organization. ! assumc, as it wcrc, an cntcrprisc that can bc rcorganizcd without dil
culty, as indicatcd abovc, whcn ! said that thc capital cmploycd was to bc constant
in its amount, although not in its physical composition.
uring thcsc protractcd pcriods, howcvcr, which thus would coun
tcract thc ccctivcncss ol thc othcr inucnccs, wcak in thcmsclvcs,
all sorts ol changcs in thc gcncral situation may arisc that will acct
thc upward and downward trcnd ol wagcs lar morc violcntly, or
countcract thcm altogcthcr, thc small wavcs cmanating lrom thcsc
inucnccs will mclt away unnoticcd and impcrccptiblc undcr thc
much highcr wavc ol ncw cconomic lactors. To tcst this in practicc
would bc practically impossiblc, all thc morc sincc changcs in wagcs
accting mcrcly prots, without accting thc othcr lactors ol pro
duction, must ol ncccssity bc ol vcry limitcd naturc. A gcncral wagc
incrcasc cnlorccd ovcr thc cntirc nation would acct both grcat and
small, strong and wcak cntcrpriscs, and a wagc incrcasc that is to bc
lully mct out ol thc nct prots ol cntrcprcncurs, cvcn in thc wcak
cst typcs ol cntcrpriscs with thc lowcst prots, can hardly cxtcnd
vcry lar. For as soon as it bccamc apprcciablc, it would cut into thc
capital gain ol at lcast somc ol thc cntrcprcncurs, or into capital
itscll, whcrcby thc mattcr would lcad ovcr into onc ol thc cascs
discusscd abovc. A conclusivc thcorctical invcstigation, thcrclorc,
should not pass by this scvcnth casc without at lcast an attcmpt at a
morc dctailcd invcstigation, which would mcct cvcn grcatcr dicul
tics thcn thosc indicatcd hcrc. Howcvcr, thc grcatcst practical and
thcorctical intcrcst docs not attach to this, but to thc prcvious casc,
numbcr six, which is conccrncd with thc qucstion as to whcthcr any
articial inucncc ol powcr may or may not bc ablc pcrmancntly to
incrcasc thc sharc ol labor at thc cxpcnsc ol that capital.
As thc rcadcr has sccn, ! was not ablc to answcr this qucstion armativcly. !
know quitc wcll that this part ol my bclicl will probably mcct with vcry strong
opposition, and that ! will bc accuscd ol rclapsing into thc old, outgrown
thcory ol purc natural laws in cconomics. ! also know that many will nd a
strong cmpirical contradiction ol my vicws in thc undcniablc lact that during
thc last dccadcs countlcss strikcs havc lcd to an improvcmcnt in thc workcrs
cconomic status ncvcr abrogatcd altcrwards, and that almost univcrsally and
cvcrywhcrc thc standard ol living ol organizcd labor, which is ablc to apply
thc lcvcr ol powcr, is highcr than that ol unorganizcd workcrs.
8ut ! bclicvc ! am ablc to mcct both thcsc objcctions. !t would ccrtainly
ncvcr occur to mc to attcmpt a rcvival ol thc old conccpt ol purc natural laws
in our cconomic scicncc and thcrcwith to opposc thc bclicl in thc ccctivcncss
ol thc inucncc ol control. n thc contrary, ! do bclicvc in thc ccctivcncss,
in lact in a considcrablc and larrcaching ccctivcncss, ol powcr, but ! do not
bclicvc in its omnipotcncc, and sincc a carclul analysis has shown mc that
thcsc cconomic inucnccs ol powcr arc in thcmsclvcs bascd on motivcs ol
cconomic scllintcrcst, ! cannot closc my cycs to thc lact that any situation
brought about by mcans ol powcr may in itscll again bring into play motivcs
ol scllintcrcst, tcnding to opposc its continuancc.
!l an cntrcprcncur is induccd, through thc motivc ol scllintcrcst, to sclcct
thc minor cvil, and pcrmits a wagc incrcasc cxactcd lrom him, thcn an analo
gous motivc ol scllintcrcst will urgc him to rcorganizc thc various lactors ol
production by mcans ol which hc produccs his goods. !l thc lactor ol produc
tion callcd labor has bccomc morc cxpcnsivc than bclorc, in comparison
with thc othcr lactors ol production, through an cxtortcd wagc incrcasc, thcn
it is almost unthinkablc that thc samc rclativc apportionmcnt ol thc various
lactors ol production would rcmain thc most rational in an cconomic scnsc.
!l thc cntrcprcncur nds his hands ticd by thc pricc ol labor, but not in
rcgard to thc physical cquipmcnt ol his lactory, and hc dcsircs to adopt thc
prcscntly chcapcst combination ol lactors ol production, hc will prclcr a
combination dicrcnt lrom thc onc uscd bclorc, onc that will cnablc him
to makc savings in thc now morc costly lactor ol labor, just as, lor cxamplc,
an incrcasc in thc cost ol land may causc thc transition lrom cxtcnsivc to
intcnsivc mcthods ol cultivation. !l, ultimatcly, this saving in thc now morc
cxpcnsivc lactor ol labor continucs to lcad to thc rcduction in thc dcmand lor
labor dcscribcd bclorc, which will ultimatcly rcndcr thc cnlorccd wagc ratc
untcnablc, thcn it is no longcr naturc that has won a victory ovcr powcr, but
it is mcrcly a ncw motivc ol scllintcrcst, produccd by changcd conditions,
that has prcvailcd ovcr anothcr motivc ol scllintcrcst opcrativc at anothcr,
no longcr cxisting condition, or, statcd morc corrcctly, thc samc motivc ol
scllintcrcst that has lcd to thc sclcction ol thc rclativcly most lavorablc
combination ol mcans ol production will, undcr changcd conditions, havc
madc itscll lclt in a dicrcnt dircction.
Tis is not a bclicl in natural cconomic laws, but mcrcly thc rcbuttal ol thc
shortsightcd idca that il, altcr a prolound changc in thc costs ol thc various
lactors ol production, thc trcnd ol cconomic scllintcrcst continucd to work in
thc samc dircction as bclorc, that thcrclorc, onc had to submit to thc dictatcs
ol powcr as il thcy wcrc imposcd by providcncc, and to ccasc to dclcnd oncs
scllintcrcst. ! cmphatically rcpcat that ! do rccognizc thc ccctivcncss ol thc
inucncc ol outsidc powcr in distribution, both in thcory and, to a consid
crablc cxtcnt, in practicc. And ! might also mcntion thc lact that it makcs
no dicrcncc whcthcr thcsc articial inucnccs ol outsidc control cmanatc
lrom monopoly, such as cmploycrs coalitions ol labor unions, or lrom a dircct
intcrvcntion by govcrnmcnt authority. Tc rcason why ! havc not spccially
mcntioncd or discusscd this lattcr casc is mcrcly that it sccms to mc to dicr
in motivc rathcr than in mcthod ol application lrom thc lar morc lrcqucnt
casc ol control cxcrtcd by contcnding partics. ! bclicvc, lor instancc, that thc
lcgal xation ol a minimum wagc will havc to bc intcrprctcd in its cccts in
thc samc way as thc dictatc ol wagcs by a wcllorganizcd labor union.
8ut in ordcr not to lcavc any room lor misundcrstandings, ! shall oncc morc
summarizc thc rcsults ol my invcstigation: Tcmporarily at lcast, thc inucncc
ol outsidc control may producc intcnsc and larrcaching, in lact vcry pro
lound, cccts. Undcr ccrtain conditions thcsc cccts may bccomc pcrmancnt,
particularly whcn thcy arc mcrcly applicd to ncutralizc an oppositc inucncc
ol control that prcviously had dccctcd thc dividing linc away lrom its natural
position. Tus, lor instancc, a strikc may achicvc an incrcasc ol wagcs up to
thc point ol thc marginal product, whcncvcr thc cntrcprcncurs had prcviously
hcld thc wagcs down below thc product by lorcc ol their monopoly powcr.
Furthcrmorc, whcn a subscqucnt cconomic dcvclopmcnt suddcnly translorms
thc original, articial dividing linc into a natural onc, thcn thc advcnt ol powcr
simply mcans a tcmporary anticipation ol a dcvclopmcnt that would cqually
havc takcn placc without such intcrvcntion, only latcr. Finally, control may
tcmporarily bc cqually succcsslul whcn it lcads to ccrtain lasting cccts, and to
corts among thc dclcatcd party to improvc its cconomic status, so that this
improvcd condition may again bccomc thc natural condition. Tis contin
gcncy, howcvcr, will always occur only as an cxccption to thc gcncral rulc, and
can ncvcr bc cxpcctcd with ccrtainty to takc placc, but it docs rcprcscnt thc
most lavorablc and outstanding combination lor ccctivc dictatcs ol powcr:
For in this casc, and probably in this casc alonc, can wc claim with a ccrtain
amount ol justication that not only thc advcnt, but also thc continuancc ol
a ratc ol distribution clcvatcd bcyond thc natural ratc has, cvcn though only
indircctly, bccn causcd through thc inucncc ol powcr.
8ut apart lrom thcsc spccial cascs statcd bclorc, thcrc is, in my opinion, not
a singlc instancc whcn thc inucncc ol control could bc lasting as against thc
gcntly and slowly, but inccssantly and thcrclorc succcsslully, working coun
tcrinucnccs ol a purcly cconomic ordcr, callcd lorth through that articial
intcrlcrcncc and thc ncw situation crcatcd thcrcby.
And, ! hopc to havc madc clcar, thcrc is onc morc thing that not cvcn thc
most imposing dictatc ol powcr will accomplish: It can never eect anything in
contradiction to the economic laws of value, price, and distribution; it must always
be in conformity with these; it cannot invalidate them; it can merely conrm and
fulll them. And this, ! think, is thc most important, and thc most ccrtain,
conclusion ol thc lorcgoing industry.
8ut how about thc sccond objcction ! anticipatc, namcly thc allcgcd cmpiri
cal countcrprool that thc practical cxpcricnccs with strikcs and wagc strugglcs
sccm to havc supplicd during thc past gcncrations:
Vcll, il thcsc arc intcrprctcd corrcctly, thcy do not supply such a coun
tcrprool. For whcncvcr a strikc has lcd to an cnduring succcss, thcrc always
appcars to havc prcvailcd onc or thc othcr additional circumstancc by which,
in my opinion, thc pcrmancncy ol this rcsult can bc cxplaincd. !n most ol
thcsc succcsslul cascs, thc labor organizations havc vcry gcncrally lound a
condition lavorablc to thcir corts, bccausc compctition among thc cntrcprc
ncurs to thc dctrimcnt ol thc workcrs had bccn abscnt. Undcr such conditions,
whcn cmploycr organizations cnjoy a grcat advantagc ovcr thc unorganizcd
workcrs through thcir monopoly or quasimonopoly, thc inucncc ol powcr
is applicd, in thc scnsc ol our thcorctical assumption, mcrcly to ncutralizc
and climinatc lor all timc an opposcd inucncc ol powcr. Tis is probably at
lcast a plausiblc cxplanation lor thc actually improvcd condition ol organizcd
labor ovcr unorganizcd labor.
A sccond rcason lor this may bc lound in thc lact that, whcrcvcr an incrcasc
ol wagcs in thc cconomic world is about to takc placc, organizcd labor may
accclcratc its advcnt by using thcir powcr, and thus always kccp a stcp ahcad
ol unorganizcd labor. And, nally, onc should not ovcrlook thc lact that
somctimcs it only appcars as il conditions among organizcd labor had bccn
improvcd. For as thc skilllul or morc highly qualicd typcs ol workcrs arc
morc oltcn and morc gcncrally in thc advantagcous position ol organizing
than arc thc common or unskillcd workcrs, thc contrast bctwccn organizcd
and unorganizcd labor may oltcn coincidc with that bctwccn skillcd and
unskillcd labor. Tc lormcr, by virtuc ol gcncral cconomic laws, havc in thcm
sclvcs a claim to highcr wagcs than thc common workcrs. Tc highcr wagc
lcvcl ol labor unions as comparcd to unorganizcd labor must not, or at lcast
must not unrcscrvcdly and cxclusivcly, bc ascribcd to thc inucncc ol powcr
cxcrtcd by thcir unions.
Morcovcr, our gcncration has passcd, and is passing, through a pcriod whcn,
omitting cphcmcral uctuations, thc gcncral trcnd ol cconomic progrcss was
and is continuously highly lavorablc to a wagc incrcasc. Tcrclorc, it has
ncvcr bccn rcally possiblc to tcst by way ol cxpcrimcnt or actual obscrvation
whcthcr an cnlorccd incrcasc in wagcs, achicvcd by mcans ol a strikc, might
not pcrhaps havc bccn gradually dcmolishcd again by thosc gcntly and slowly
working countcrlorccs, thc undcrmining cccts ol which ! havc rclcrrcd to
abovc. !n cvcry casc thcrc always is a grcat amount ol countcracting and modi
lying outsidc inucnccs which, in thc majority ol cascs, in thcir nct rcsults
wcrc lavorablc to thc clcvation ol thc productivity ol labor and thc incrcasc
ol its marginal product, which alonc ultimatcly dctcrmincs thc wagc ratc.
And thus thc grcat part ol thc considcrablc and lasting wagc incrcascs ol thc
past gcncration may casily bc cxplaincd by thc combincd lactors rclcrrcd to in
my analysis: At rst, thcsc wagc incrcascs wcrc causcd by thc labor unions and
strikcs. 8ut thc rcason why thcy could bc maintaincd without bcing rcscindcd
was that thc stupcndous progrcss ol our timcs continuously produccd such
grcat tcchnical improvcmcnts, improvcd mcthods ol utilizing human labor,
and coincidcd with a substantial incrcasc ol population, and an cvcn largcr
incrcasc ol capital. 8ut wc havc no way ol showing how things would havc
turncd out, or what thcy would bc at prcscnt, il thosc succcsslul strikcs had
lcd into a pcriod ol dcprcssion, or ol modcratc, slow progrcss, instcad ol
coinciding with a pcriod ol thc most stupcndous progrcss, so impctuous that
many a blind cnthusiast has scriously bcgun to qucstion thc iron loundations
ol Malthuss law ol population.
And nally thcrc is hcrc too a scnsc in which mcrcly thc imprcssion ol a last
ing wagc incrcasc is bcing crcatcd, whcrc in rcality no incrcasc has takcn placc
at all. Many a wagc incrcasc obtaincd through strikcs has bccn ncutralizcd,
not through any lormal wagc rcduction, but through thc incrcasc in thc cost ol
living. To what cxtcnt a subscqucnt risc in priccs ol ccrtain important mcans
ol subsistcncc, togcthcr with a gcncral indircct incrcasc in thc cost ol living
through dcprcciation ol moncy, has dcprivcd wagc incrcascs ol thcir rcality
and translormcd thcm into quitc immatcrial nominal moncy incrcascs at bcst,
is a much contcstcd qucstion. Pcrsonally ! do not by any mcans agrcc with thc
contcntion oltcn madc by socialists that thc wagc incrcascs obtaincd during thc
past prcwar dccadc havc altogcthcr disappcarcd in this manncr. ! rathcr bclicvc
that a considcrablc part ol thcm havc bccn gcnuinc and pcrmancnt in charactcr,
but this is truc only in part, and as rcgards thc othcr part, that proccss ol absorp
tion through quict and impcrccptiblc countcrlorccs, to which ! havc rclcrrcd
alrcady, has actually takcn placc, it is thc samc story in a dicrcnt lorm.
!t may bc that my analysis, which ! pcrsonally do not considcr cxhaustivc
by any mcans, may havc to bc amplicd, claboratcd, and corrcctcd in many
points. To mc, thc csscntial thing is that in thc problcms discusscd hcrc wc
nccd, in any cvcnt, a ncw mcthod ol approach, lrcc lrom thc prcconccivcd
notion that this cntirc qucstion has bccn dccidcd long ago. Tc strugglc
bctwccn thc natural and thc social catcgorics has bccn lought ovcr twicc
alrcady in cconomic scicncc, and in both instanccs dccidcd by an crror ol
judgmcnt: thc rst timc by thc classicists in a oncsidcd manncr in lavor ol
thc natural laws, thc sccond timc in thc modcrn thcorics ol social distribu
tion, with a similar partiality in lavor ol social control. Vhat is nccdcd is to
institutc thc wholc proccdurc again, and to nish it, without prcjudicc, on
thc basis ol thc trivial truth, not sucicntly acknowlcdgcd so lar, that thc
inucncc ol social control docs and must harmonizc with thc lormulas and
laws ol purc cconomic thcory.
!n ordcr nally to avoid ncw misundcrstandings, lct mc add a last word
that should not rcmain unsaid at this placc. John 8atcs Clark, whom ! had to
opposc polcmically on scvcral occasions on important qucstions, and whom
! look upon as onc ol thc most original and dccpcst authoritics ol our sci
cncc, has, on a ccrtain occasion, sct up a vcry important and distinctivc linc
ol dcmarcation, with thc lclicitous and charactcristic tcrms ol lunctional
and pcrsonal distribution.
21
Functional distribution dctcrmincs thc ratc according to which thc indi
vidual lactors ol production arc to bc rccompcnscd lor thcir sharc in production,
irrcspcctivc ol thc pcrson who has madc that contribution, and without rcgard
to thc qucstion ol whcthcr any singlc pcrson has contributcd much or littlc.
Functional distribution thus cxplains thc division ol thc total national dividcnd
into thc grcat catcgorics ol wagcs, rcnt, capital, and prots.
Pcrsonal distribution, howcvcr, cxplains thc sizc ol thc sharc that cach individ
ual obtains lor himscll lrom thc national dividcnd without rcgard to thc lunction
lrom which hc obtains it, and particularly rcgardlcss ol whcthcr hc rcccivc his
sharc lor onc singlc, or lor scvcral, lunctions contributcd simultancously.
Functional distribution cxplains high and low wagcs, high and low ratcs ol
intcrcst, ctc., pcrsonal distribution cxplains largc and small incomcs, indicat
ing how onc and thc samc incomc ol 8100,000 may just as wcll rcsult lrom
wagcs ol a wcllpaid bank prcsidcnt, or lrom rcnt, or lrom high or low intcr
cst, or lrom a mixturc ol scvcral lunctional typcs ol incomc, or how a modcst
incomc ol 81000 may just as wcll bc that ol a workcr without capital or that
ol a small capitalist or landowncr.
Functional distribution cxplains rclativcly lcw and simplc lacts ol a gcncral
naturc, pcrsonal distribution givcs us highly colorcd, mosaiclikc picturcs, rcsult
ing lrom thc application ol thosc simplc and gcncral laws ol distribution to a
vast varicty ol data, and cxplains thc lunction, amounts, and qualitics that havc
bccn contributcd by cach individual to thc total production. Tc primary objcct
21
Distribution of Wealth, p. 5.
ol all scicntic thcory ol distribution, and thus also thc objcct around which
havc ccntcrcd thc old disputcs rclcrrcd to abovc, is functional distribution.
22
Tcsc statcmcnts ! havc madc rcgarding thc limitations ol outsidc control
ol distribution apply only to lunctional distribution. As to thc inucncc ol
control on pcrsonal distribution, thc limits arc innitcly morc clastic, both as
to intcnsity and as to thc lasting ccctivcncss ol that inucncc. Sincc outsidc
control may also pcrmancntly changc thc othcr lactors to which thc laws ol
lunctional distribution apply, it may happcn that ccrtain cccts in thc sphcrc
ol pcrsonal distribution may bc brought about without tcmporal limitation.
Vhcn thc govcrnmcnt ol a country turns prolctarians into landlords through
distribution ol land, thcy and thcir dcsccndants may, lor all timc, nd thcir
incomc incrcascd by rcnt lrom land, quitc rcgardlcss ol how thc linc ol divi
sion bctwccn rcnt lrom land and wagcs ol labor may bc drawn in lunctional
distribution. And il a socialist statc should introducc common owncrship
ol all mcans ol production and translorm all capital and all land into social
propcrty, in thc producc ol which cach mcmbcr ol socicty sharc in onc way or
thc othcr, thcn lor all luturc, or at lcast as long as such socialistic ordcr may
continuc, all pcrsonal sharcs would, in thc samc or similar way, bc composcd
ol thc producc ol cach oncs own labor, and an cqual contribution lrom thc
producc ol thc social propcrty, in a manncr widcly and pcrmancntly dicring
lrom our prcscnt systcm ol pcrsonal distribution.
22
Tc scicncc ol distribution docs not dircctly dctcrminc what cach pcrson shall gct.
Pcrsonal sharing rcsults lrom anothcr kind ol sharing, only thc rcsolving ol thc total
incomc ol socicty into wagcs, intcrcst, and prots, as distinct kinds ol incomc, lalls
dircctly and cntircly within thc cld ol cconomics. Clark, Distribution of Wealth, p. 5.

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