This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 12. Labor-incomes and wealth-incomes. The fundamental principles of value and price apply fully to labor, as we have said. (See above, Chapter 18, section 1.) But the sale of the services of human beings is marked by important conditions—moral, political, social, and consequently also economic—which distinguish it from the ordinary sale of material wealth. The distinction between men and things is from all these standpoints both of theoretical and of practical importance. It will not do to say: "The law of wages? Labor is a commodity, that's all." Taking one point of view, and seeing only the value element common to all economic agents, we may be tempted to merge all in one category, and to say that men also are a form of wealth.10 In a democratic society where there is no chattel slavery and each worker must be deemed to be a free political agent, this distinction between men and things is largely what gives political economy any significance. In the social applications of economics, wealth is always but a means to an end, whereas man is both a means (as laborer) and the end itself (human welfare).
Men and wealth, the two great classes of economic agents, are severally and in combination the sole source of all economic incomes. The corresponding classes of incomes are labor-incomes and wealth-incomes.11 The former of these makes a greater aggregate amount, made up, however, of many incomes, nearly all small. The great majority of the people of any country live mostly on labor-incomes, their own or from members of their family. This is true even if all the psychic incomes of personal service for one's self and family be overlooked, and only the more material forms of income, such as are ordinarily regarded in income statistics (material products and money wages) be reckoned. At the same time there is no family so destitute that a part of its psychic income is not obtained from the usufructs of durable wealth (uses of clothing, cooking utensils, furniture), and there are millions whose labor-income in the form of goods and money is supplemented to a considerable degree by incomes from some wealth or claim upon other men. There are the agricultural workers, some of them land owners or partly land owners, and nearly all of them to some extent tool owners. There are many city dwellers owning their stores and manufacturing establishments in whole or in part, and many more owning houses; there are in America nearly nine million depositors in savings banks (many persons and families being duplicated). Millions of other persons hold, through mortgages, bonds and shares, claims on real estate, small businesses, or on corporations (later treated more fully under "capital"). There are the accumulated funds of insurance companies, fraternal orders and societies, owned collectively by members and policyholders. There are the psychic incomes shared by the masses of the people in the use of schools, museums, libraries, buildings and all other enjoyable public property. The labor income is thus in the case of individuals or families but the part of income which is due and attributable to the valuable efforts they have rendered to themselves or others. This form of income stops when the man dies or fails to perform his work; the income from wealth goes on. Thus families with equal stood is of course unsuitable for a more general economic application, and even in its special use, it unfortunately opens the way to some misunderstanding of the results of the surveys.
1 As has been done by many economists. Very commonly, also, men are spoken of in popular discussion as capital or as wealth—a very questionable terminology.
10 See definition of labor-incomes, ch. 18, sec. 1. It is well to observe that this term has, in certain interesting and valuable rural surveys, been used in a peculiar and restricted sense, that of the amount of clear gain that a farmer may fairly attribute to his own services (after making due allowance for the usual rate of return on his total investment) in addition to the personal usance of his house, yard, and other wealth (horses, carriages, etc.) and to all the products of farm (food, fuel, etc.) that are consumed by himself and family. The term as thus under incomes may receive them from sources of very different stability and duration.
§ 13. The wage system. A large part of the labor-incomes in society as it is at present are received in the form of wages. Indeed our present economic organization is often called "the wage system." By this is meant: an organization of industry wherein some men, in control of the material agents, buy at their competitive price the labor of other men. The wage system implies a contract between employer and employed. The relation or bond between them is that of a wage payment, either in money or in kind. The wage system is a method of organization never found completely realized. A community made up entirely of independent small farmers, living each on his little patch of ground, could not have any essential feature of the wage system. "Wherever are found considerable numbers of independent small farmers and other self-employing laborers, as is everywhere in large measure the case, the wage system does not exist in complete form.12 Some men with more or less wealth in every community are working for wages, while others are independent producers and are their own employers. Society is not sharply divided into two classes, one controlling all the material equipment, the other with only their bare labor to sell. The wage system may be spoken of as prevailing to-day not as the exclusive, but as the typical, dominant, and slowly increasing form of industrial organization, while side by side or along with it is found independent production.
§ 14. Wages and the general economic situation. Our statement of the theory of wages has now been brought to a provisional stopping point. But the reader should be aware of the limitations of our treatment. We have outlined a theory of wages assuming a certain economic situation; we have passed in review the various motives and characteristics of men which help to explain the ratio in which the various kinds of services are valued in terms of each other. "While we have recognized the presence and effect of material resources and of manifold instrumental goods as being indispensable to the use of labor, we have said little of the effects that changes in their amount would have on the whole economic situation. "We have, in other words, outlined only a static (or equilibrium) theory of labor-incomes, and not a dynamic theory.
12 In fact, of all those over 10 years old engaged in agriculture, forestry, and animal husbandry (in 1910, a total of about 12,700,000 persons) about one half were operating owners, one fourth were laborers on the home farm, and only one fourth were farm laborers "working out," that is, for wages outside the family. In manufactures, however, wage-workers average 25 per establishment; and in mining and in transportation the average proportion of wage-workers to enterprises is much larger.