This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
But the level of the general scale of wages is a part of a general economic situation and is dependent on the relation of population to all material resources, artificial and natural, on the progress of education, of science, and of the industrial arts, and on many other factors. The foregoing theory of wages therefore is only provisional, not that it must be essentially changed, but that it must later be materially enlarged and completed. The study of the value of labor is not a thing apart from that of the value of other agents. Each succeeding chapter from this point on will supplement the foregoing treatment of labor and wages. Especially in the last part of this volume (Chapters 32-39) will be discussed the great underlying conditions on which depends the general economic situation in which and by which the level of labor-incomes is determined.
Notes The labor-theory of value. Things go thus in the real world, however the student or the generous-minded social reformer at times may be tempted to shut his eyes to the truth, feeling that value ought to be in proportion to labor-time or to the unpleasantness of labor. There is a close correspondence, even identity, between the value of the goods and the value of the labor that produced them, but it is the value of the goods that is reflected to the labor, and not the reverse. For, if labor having a high value reflected from one product be applied to another product that has a low value, the value of that labor is in so far thrown away. As we saw, the values of goods resulting from equal labor-time of an isolated laborer are often unequal; and a fortiori the values of equal labor-times are sure to be still more unequal when the products result from the labor of different men of varied abilities and natures, trading in a community. There is therefore no unit of labor-time which can serve as a standard of the values of goods or which is embodied in equal proportions in goods of equal value. Rather, it appears that labor services are compared as to value only through the values they derive from their products. We thus speak of equal quantities of labor not as equal in time, but as equal in value, as so many dollars' worth.
It would be unnecessary to dwell on this truth were it not for the very common illusion that labor may be taken as the standard of value, and were it not for the frequent recurrence of the fallacious idea that goods in a market embody so-called labor-units in exact proportion to their values.
This idea that the value of goods is determined and measured by the quantity of labor put into them, is the "labor-theory of value" (not to be confused with the theory of the value of labor). It assumes that there is such a thing as a common standard unit of labor, a definite quantum, measurable antecedent to the value of the products. The labor-theory of value appears in manifold disguises both in popular doctrines and in systematic treatises on economics. The error in the theory is evident, first, because various kinds of labor differ in quality (or kind) not merely in quantity (or time) and, in truth, it is only through the values of their products that the different qualities of labor can be compared (singing with wood-chopping) ; secondly, because the values of goods differ not only with the labor applied (even if it were all of one quality) but with the amount of complementary agents used; thirdly, because of the differences in time elapsing between the application of labor, and tho ultimate valuable results of the productive process. (Of this more below, under time-value.)
Various methods of remuneration. Many methods are employed to measure the services of wage workers, the main ones being by time and by the piece. In time work (by the hour, day, week, month, or year) a general average output is assumed, and the workman must come up to that standard if he is to hold his place. In piece work, the price per piece must be enough to make possible the prevailing time wage to workers of that grade if the supply is to be maintained in that industry. The piece price method is combined with time work, and is varied in many ways by giving premiums or bonuses for larger outputs within a given period. The conveniences of the different methods of payment vary from industry to industry, and even from task to task within the same factory, so that now one, now another method is followed. In any case, however, the aim is to find some convenient unit of service for the measurement of the amount of labor to be paid for, and to give a motive for efficiency to the worker. The wages paid by the various methods of remuneration - as by time, by the piece, by premium for output - all conform in a general way to the value of the service imputed through bidders in the market.
Real wages in Europe and America. Bearing in mind the limitations mentioned in sec. 7, the results of a study made by the British Board of Trade as to the conditions of the working classes in the cities of five different countries (about the years 1908-11) are here given. The further caution must be given that only certain groups of trades were investigated, those in building, engineering, and printing; and that the cost of living was taken only for food and rent (figures of rent here given are the average for two to six room apartments). The cost of living is calculated by assuming that food cost represents half of the cost of living and rent the other half. In fact food constitutes something less than half, rent only about one fifth; but it will be observed that rents vary pretty closely in accord with money wages, and that the cost of things bought with the rest of wages, after paying for food and rent, consists very largely of the cost of labor. The figures are merely proportional (taking England as a base) and do not express any particular unit of money.
Cost of living
U. S. as
The indication is that money wages in the United States were from about two and a third times to nearly four times as high as those of other countries; but that the workingman's cost of living was from nearly two to two and a third times as high in the United States. As a result the day's wage in the other countries would buy from 40 to 22 per cent less than it would in the United States.
In considering these statistics it must be remembered that the wages in skilled trades (such as those here included) are higher relatively in the United States than are the wages of unskilled labor (especially in Germany) and also that far better provision had at that time been made in the continental countries of Europe than in either England or the United States for insurance against sickness, accident, old age pensions, etc.
Value versus utility of labor. Observe that all our discussion here has related to the value and not to the utility of labor. The explanation of value is found in the desires and choices of men, with all their folly and blunders of judgment. More often perhaps in the case of human services than elsewhere, value is found to be in conflict with utility, properly conceived (see ch. 3, sec. 4) and properly estimated. Many of the kinds of labor that are indispensable to the very existence of men have small value (e.g., common labor used in producing food, clothing, shelter, protection from the elements, for the rescue or preservation of human lives). The qualities needed in such work vary from man to man it is true, but they are common, found in large measure in nearly all men. Such callings require merely the physical strength that most men have, a modicum of intelligence to understand and obey orders, and the moderate degree of skill that can be acquired by brief practice. Almost every one (unless weakened by years of sedentary, non-physical occupation) can, in case of need, take up such work at once. Labor thus plentiful in relation to the demand whether it be used for useful ends (such as flowers or food) or for harmful ends (such as opium made from flowers or whisky made from corn) bears a low value.
On the other hand it is the getting out of such an occupation, not the getting into it, that requires a little more than commonplace intelligence, forethought by one's self or by one's parents, persistence, and other qualities. The serious lack of any one of these disqualifies for most occupations that yield large labor-incomes. Many of the services valued highly are of a sort distinctly not of utility. Some services are highly rewarded for gratifying the esthetic tastes of a few (luxurious decorations, operatic singing, epicurean tastes in food, etc.), others for pandering to the vices of the many (drinking, gambling, licentiousness). But always the value is set and the price is paid by some one or more buyers who choose such services at the higher value in preference to lower valued services having true utility for themselves and for society. Here as elsewhere it is true that forces are always at work to keep value in some measure of accord with utility in the world as a whole and in the long run.