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THE SOCIAL QUESTION—III

LABOR AND INDUSTRY
By

Dom Virgil Michel, O.S.B., Ph.D.

St. John’s Abbey , Collegeville, Minn.

1935

Wanderer Printing Co.

St. Paul, Minn.





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All Rights Reserved

Imprimi potest: £« Alcuin Deutsch, O.S.B., Abbot

Nihil obstat: Alexius Hoffmann, O.S.B., Cens. Dep.

Imprimatur .* £« Joseph F. Busch, Bishop of St. Cloud

May 16, 1935



THE SOCIAL QUESTION

Series Three

LABOR AND INDUSTRY
By

Dorn Virgil Michel, O.S.B., Ph.D

.

St. Johns Abbey , Collegeville , Minn.

OUR SUNDAY VISITOR LIBRARY

HUNTINGTON, INDIANA

1935

Wanderer Printing Company—St. Paul, Minnesota



CO N T E N T S

Page

1. Labor as a Title to Ownership 5

2. Labor and the Right to Own 9

3. Economic Value and Human Labor 13

4. Productive Factors of Ecnomic Value.. 17

5. Relations Between Productive Factors.. 21

6. Distribution of Industrial Profits 25

7. Theory of Causes and Effects 29

8. Causes and Industrial Factors 33

9. Brain and Brawn in Industry 37

10. The Machine in Modern Industry 42



L Labor as a Title to Ownership

THERE is no doubt that many writers in

modern times have said very little about labor

as a title to ownership. This is also true of

writers on ethics that have followed the general

tradition of thought of the past centuries. Other

titles, such as occupation, prescription, heredity,

and the like, received much more consideration

than that of human labor. If the latter was

treated at all, it was usually granted a minor or

secondary role as a title to ownership.

Is labor really only a secondary title to own-

ership of properties? Karl Marx took the bull

by the horns when he turried things quite

around. He opposed traditional thought by

claiming that labor is the sole title of just own-

ership. By labor, Marx meant only the labor

of the wage earner of modern industry. He said

that all the economic or the exchange value of

industrial products is due to such labor. But ac-

cording to the “iron law of wages” the laborers

get only a minimum wage at all times and con-

sequently only a part of the economic value

that their labor has produced. The value that is

over and above what is covered by this minimum

wage Marx called “surplus value.” Now, this

“surplus value” in modern industry, he says,

goes into the pockets of the capitalists whereas

5



it belongs rightfully only to the laborers. There-

in lies, for him, one of the gross injustices of

our present capitalistic system.

In his famous 'Tabor Encyclical” Pope Leo

XIII said that the results of labor shall belong

to the laborer as the effect follows its cause. The

words might almost be said to have a Marxian

ring in them. The Pope of the laboring man

and the prophet of Communism—do they say
and mean the same thing?

We shall here use the term labor in a wider
sense than that used by Marx. Any discussion

of principles will end in failure if the field of

discussion is narrowed too much beforehand.

By labor we shall for the present mean any ex-

penditure of human energy that produces any-

thing of increased value to men. Labor in this

sense will include not only the use of muscular

strength but also the use of directive thought.

Since we are dealing with rational men, we

cannot separate the two types of human energy.

True human labor, no matter how much muscu-

lar energy it requires, is also thought-directed.

If the guiding thought is absent, the expenditure

of energy becomes haphazard, and does not tend,

except by accident, towards the production of

values. We are not now concerned with the
question of whether the human factors of brain

and brawn are separable. Our point of emphasis

is that productive human labor always contains

both factors, brain and brawn together, and

6



that it is false to restrict the term to one of them

alone.

The problem arising out of human labor is

in many ways a modern one. Yet it confronted

the mind of man for ages, and Christian thought

long ago worked out a principle that is funda-

mental to it and that has been accepted in theory

all down the centuries of Christian civilization.

The principle has at all times found expression

and application in regard to the title of owner-

ship that was referred to in the end of our last

article, that of industrial accession.

It cannot but be interesting to note that the

principle seems to be one of common acceptance

in law. It is stated very clearly in Webster's New

International

,

which should be, if anything, a

mirror of accepted ways of thought. One can

only wonder how this common acceptance of

a principle can be so glaringly ignored in mod-

ern industrial life.

Webster's gives the legal meaning of "acces-

sion" as follows: "That mode of acquiring

property by which the owner of a corporeal

substance becomes the owner of an addition by

growth, increase, or labor. In general, additions

or improvements made by one person or by the

forces of nature to the property of another be-

long to the owner of the property. It occurs in

case of gradual increase. . . . Where, however,

the thing worked upon is changed to something

of a different species, as grapes to wine, grain

to beer, etc., the worker becomes the owner,

7



provided he was not a willful trespasser or did

not know the materials belonged to another.

The laborer also becomes the owner in some

cases where the value of the property is so in-

creased that a different rule would be unjust,

as where pig iron is made into watch springs,

or a picture is painted on another's canvas, the

laborer being liable for the value of the other's

materials."

Here we have a clear statement of the tradi-

tional Christian view. Both labor and raw mate-

rial are factors in the finished product of in-

creased value. Apart from conditions of fraud,

and the like, Christian philosophers agree that

the product must be divided among the factors

as follows:

1 )
If the value of the product is due mainly

to the labor, then the product belongs to the

laborer but he must pay the owner for the ma-

terial.

2) If the value of the product is due mainly

to the original material the product belongs to

the owner of the latter but he must pay the

laborer for his work.

Modern industrial production is immensely

complex. Does the above fundamental principle

of labor still apply or must Christian tradition

change its view? Because of the complexity of

the problem today, we can hope to come to

some kind of answer only gradually. We shall
try to proceed step by step.

8



2. Labor and the Right to Own

The duty to work is based in part on the

need to work for a livelihood. At all events,

where men have not the bare necessaries of life,

it is an absolute duty of theirs to set to work in

order to acquire what they need for the support

of their lives and those of their dependents. The

natural instruments by which man can attain for

himself the necessaries of life are his own per-

sonal energies, his mental and physical powers.

Human labor is man's ordinary means of sup-

port; it supports life through the results it

achieves. Only through these results, the prod-

ucts of labor, can it function at all as a means

of support. Hence the results of such labor nat-

urally belong to the individual that performs

the work.

The conclusion is strengthened by a further

examination of the nature of human personality.

Man's energies and abilities need exercise, not

only for the support of his life, but also for the

proper development of his life and his personal-

ity—to prevent stagnation of body and mind.
Human activity, or the exercise of human ener-

gies, is growth, perfection of the human per-

son. It is the personality that is naturally ex-

pressing itself in the work, or putting itself into

the work, and human work is a fuller realiza-

9



tion of human personality. When the energies

of man achieve economic values, then something

of the man has been used up in the production

of the result, something of the man has gone

into the economic product—not only physical
energy but also a subtle mental quality.

Whenever human energy produces something,

that thing is by nature intimately connected

with the person who expended the energy. It is

in part an extension of his personality. The

product of the work therefore naturally belongs

to the person or persons who expended their

energies upon it. It is an outgrowth of the liv-

ing persons. This follows from the very nature

of human labor as an exercise of living personal

energies. In principle this is universally acknowl-

edged. And it furnished the basis for the tradi-

tional views on industrial accession expressed in

the preceding article.

Labor thus appears to be not merely one title

among others to ownership, but the fundamen-

tal natural title thereto. It is the one title that

links up material goods in a personal way with

an owner. It can properly be called an intrinsic

title to ownership over against all the others,

which are by comparison extrinsic. All the other

titles, in fact, seem to get their true value from

the primary title of labor. The one exception

might be that of inheritance, which, however,

rests on the very natural bond existing between

father and son and on the duty of parents to

care for their children. Even here the ownership

10



that is transferred to the heirs was originally-

acquired by someone in connection with the ex-

penditure of human energies.

Occupation, even, needs some exercise of hu-

man energy, or at least the full intent to exercise

energy on the thing occupied, before it becomes

a convincing title to ownership. Mere occupa-

tion without labor, or without intent of labor,

cannot be defended as a valid title to ownership

on any considerations of nature. Occupation is

made certain in fact by actual labor expended

on whatever is occupied; only such labor, it

would seem, puts the final seal of validity on it.

To what extent can labor be considered a
valid title to ownership? Only to the extent of

providing the necessaries of life? From above

considerations it must be evident that labor's

title to ownership is not limited in that way.

First of all, man needs more than the bare

necessaries of life, and every man has a full right

also to enough goods to fulfil the secondary

needs of a decent and comfortable living for

himself and his dependents. Hence he has also

the full right to acquire these by his labor.

Moreover, the duty to work is not limited to

providing the necessaries of life. Man has the
moral duty to unfold his activities and to de-

velop himself. Hence he has the corresponding

right to do so, and the right to all he really

produces thereby. The only limit set to this right

is the one that is set to all rights—the moral
law. All exercise of rights must remain within

11



the aims and bounds of general moral law under

pain of ceasing to be legitimate.

Labor's title to ownership, as developed in

these paragraphs, has taken no account of the

great complexity of the industrial situation in

our own day. The complexity arises chiefly out

of the fact that the different factors entering into

industrial production are varied and numerous,

and that the factor of human labor itself is

multiple and complex. The product of the mod-

ern factory is the product of a complicated sys-

tem of factors, both human and physical, all of

which contribute their share to the combined

enterprise, and all of which play their part in

the creation of the economic values of the prod-

uct.

In actual practice, the factor of human labor,

both brain and brawn, has been pushed into the

background by the customary viewpoint that

both wages and salaries are agreed upon in free

contracts between employers and employees. To-

day the ordinary laborer works on materials

not owned by himself and with tools that are

not his own—a condition that repeats itself
endlessly in any large industry because of the

different specialized actions that combine to

manufacture a single product. Can a discussion

of fundamentals shed any light on the confusion

of ideas resulting from the complexity of the

modern industrial enterprise?

12



3. Economic Value and Human Labor

In a former series on the Social Question, we

discussed at length the fundamental principle

underlying all right conception of ownership,

viz., that the goods of earth have the purpose

of serving the needs and interests of man. Just

insofar as any goods can serve human needs and

interests they have value for man. The term

value here means nothing but serviceability of

any kind.

The term economic value when applied to

goods is restricted to a special type of serviceable

goods. It refers to such goods-value as can be

had only through economic activity of some

kind, to value that can be had only through ex-

change of some kind, through exchange for other

goods, for money, or for work. When goods

can be had for the asking or the taking, they

have no economic value, no matter how service-

able they are for man. Thus the air, despite its

great necessity for man, can be had freely and

so has no economic value. Nor has water when

it is abundant and accessible. In some countries

water is so scarce that it is sold in small quanti-

ties on streets and railway stations; it then has

economic value. Should the air ever become

equally scarce, there is no doubt that it would

become economically very valuable. Hence a

13



prime characteristic of the economic value of

goods is their relative scarcity or inaccessibility.

The element of scarcity having *>een men-

tioned, we shall not concern ourselves further

with it. Nor are we concerned with the market

price of objects, the conventional measure of

economic value in terms of money. The practical

question of a just price is a further question

that can arise only when goods already possess

an economic value as defined above.

The economic value of goods, then, derives

from two main factors. One is the serviceability

of the goods themselves. This depends on the

nature of the objects in question, and can be

called the objective factor or aspect of their eco-

nomic value. The other factor is a subjective

one; that is, it is rooted in human minds, in the

actual desire men have for the goods in question.

This is something over and above the objective

serviceability as such. For it may well happen

that some goods may be very serviceable for hu-

man needs or interests but that men simply do

not want that kind of goods under any circum-

stances. Despite their serviceability, such goods

would have no economic value. Again goods

may have been desired by men out of mere

curiosity or idle vanity, although they can serve

no real need or interest of man. Such goods may

attain even a very high economic value. The

last two instances indicate what an important

part fad or fashion may play in determining

the economic value of goods. They also indicate

14



what a prominent part modern advertising has

sometimes played in artificially creating human

desire and demand for certain kinds of goods.

When the subjective factor is purely the result

of a passing fad, it cannot contribute to social

stability, or to continued economic activity, such

as is necessary for the common well-being of

mankind. The latter depends on a more perma-

nent and reliable scale of economic values, which

must be based in more permanent human needs

and interests. Such values will obtain only when

goods possess qualities that are fitted naturally

to serve these more permanent needs and inter-

ests. In other words, permanent economic values

ultimately depend on objective qualities found

in goods themselves. While the subjective ele-

ment of economic value cannot be ignored or

considered irrelevant, it is in the proper order of

things that the subjective factor be dependent

on and based in the objective qualities of goods.

The objective factor of economic value is the

basic one in the economic life of man; we may

call this the objective economic value of goods.

This objective value of goods is therefore the

actual aptness or fitness of an object to satisfy

human needs. It rests in the fact that an object

is adapted to serve man just because the object

is what it is—because it is in itself fit for ful-
filling certain purposes in human life. Whence

do objects attain this fitness and the consequent

economic value?

15



The objective economic value of things comes

from two sources: nature and human labor. It

is only in rare instances that nature is the ex-

clusive source of economic value; e.g fruits or

other edible plants that grow wild, medicinal

herbs, and the like. Even these must be plucked

by man and partaken of at the right time. If

such action of man can be called labor, then it

can be truly said that the two factors of nature

and labor always combine to produce goods of

economic value.

However the proportionate contribution of

the two factors is anything but definitely deter-

mined or identical for all cases. On the contrary,

the proportionate contribution of each of the

two factors varies for almost every kind of arti-

cle. Coal, for instance, is immediately service-

able to man the moment it is extracted from

the ground and brought to the surface of the

earth. Granite on the other hand must be sub-

jected to considerable human labor before the

rough block is turned into a foundation stone

or a pillar or a monument. In fact the rough

block of granite has value only insofar as it is

a possible object for the expenditure of much

labor towards its transformation into an object

of definite form and purpose. In modern indus-

trial manufacture there is considerable labor (hu-

man and mechanical) expended before the final

product of economic value is attained.

16



4. Productive Factors of Economic Value

LABOR may be called economically produc-

tive whenever it transforms goods from a less

useful state or condition to one that is more

useful. Productive labor then would include

not only farming and mining, but also the

transportation of goods from a place of greater

abundance to a place of lesser abundance, where

because of their scarcity the goods would have

more exchange value than in the place in which

they abound. Naturally they can also fulfill

their purpose of serving the needs of men better

in the new place.

The activities of mining and of farming are

still relatively simple in comparison with the

prime productive activity of man today, that of

industrial manufacture. The activity of trans-

portation of goods, too, is simple in compari-

son with manufacturing, although it has re-

ceived its increased importance today from the

manner in which manufacturing industries are

concentrated in select centers from which they

serve an unlimited market area. It is modern

industry, in fact, which dominates the entire

economic or social situation of our day, even as

it has dominated our civilization ever since the

beginning of the so-called industrial revolution.

Industrial activity was much more simple be-

fore that time. Any process of manufacture in

17



olden days entailed the three factors that are

still indispensable today: Brain, brawn, and

capital. But these three factors were then ordi-

narily combined in one and the same man, or in

a very small group of men whose relations to

each other were of the nature of members of

the same family or household. The cabinet

maker of those times used his own capital in

buying tools and raw materials. He did his own

planning from beginning to end, and realized

his plans through his own skill and energy. At

most he delegated some of the rougher work to

apprentices while continuing to direct their ef-

forts in person.

With the development of the industrial revo-

lution the home process of manufacture (mak-

ing by hand) was gradually transformed to the

gigantic process of machine production. The

homelike atmosphere of the workshop gave place

to the rigid organization of the modern indus-

trial plant. The workshop itself yielded to the

huge factory in which individual men are me-

chanical non-entities. The skilled artisan of old,

who was a sort of jack-of-all trades within the

limits of his profession, disappeared under pres-

sure of the technical division of labor. By reason

of the latter each individual laborer now per-

forms but an infinitesimal part of the entire

manufacturing process.

The modern industrial plant is a most com-

plex organization. While it is still true that the

different productive factors can be subsumed un-

18



der the three headings of brain, brawn, and

capital, such a simple statement does not do ade-

quate justice to the real state of affairs.

The guiding brain of a modern business or

industrial venture is known as the entrepreneur.

He may be a single individual or a group of

men. The entrepreneur's function has been that

of managing an enterprise and assuming all the

risks of the venture. He organizes the entire es-

tablishment, coordinates all the factors that go

to make up the entire organization, employs all

the labor that is needed, whether it be that of

wage earners or of salaried employees, and deter-

mines the uses to be made of the capital that is

invested. As Webster's New International says,

the entrepreneur's "function in itself includes no

working, and no owning of capital: it consists

entirely in the establishing and maintaining of

efficient relations between the agents of pro-

duction."

The agents of production themselves we may

divide, for the sake of proper distinction, into

the human and the physical. The human

agents include all the workers who contribute

any part to the total activity of the enterprise,

no matter how specialized or minute the con-

tribution of any one man may be in itself. The

human agents include all the manual labor, both

skilled and unskilled, and the different degrees

of mental labor, foremen, department managers,

office workers, etc.

19



The physical factors or agents include the

land, the industrial plant itself, buildings with

all their equipment, machinery, etc., and what-

ever capital is needed over and above these to

set the whole enterprise agoing.

For the sake of simplicity, all the physical

factors together may be summed up under the

term capital, which can then be defined as “the

total amount of property owned by an indi-

vidual or corporation at a specified time, as dis-

tinct from the income received during a given

period” (Webster s ) . The total capital of a

plant may itself be viewed in terms of money

invested, i.e., of the amount of money spent in

purchasing the land, erecting the buildings, fur-

nishing all the equipment, and for initial and

continued operating expenses.

Capital logically divides into two distinct

kinds: (1) Capital which is invested in the

enterprise by the owners who receive certificates

of ownership called stocks. The amount of stock

any individual holds in an enterprise measures

his share of ownership. (2) Capital which has

been borrowed from others. Those who loan

their money to the enterprise receive in turn in-

terest-bearing certificates, indicating the amount

the enterprise owes them, rate of interest and

time when principal plus interest is due for re-

payment to them.

20



5. Relations Between Productive

Factors

In the preceding article there was some dis-

cussion of the different factors of production;

the entrepreneur, labor, and capital. It was there

also stated that the development from earlier

manufacture to industrial production was

marked by a division of labor and a separation

of the various factors of production.

Before proceeding with a further develop-

ment of this phenomenon, it may be well to call

attention to the fact that even today several

productive factors may combine in one individ-

ual, whether he be entrepreneur or laborer. To-

day there are many workers in industry who

own some shares of stock in the company for

which they are working. They are then at one

and the same time laborers and capitalists. Yet,

even in their case the two functions of labor

and capital are rigidly kept apart as separate

factors, insofar as the laborers still get their

stipulated wage for their work and quite inde-

pendently of that also their percentage of return

as owners of stock.

In spite of the fact that employee ownership

of stock increased considerably in the twentieth

century, it remains true that the chief character-

istic of modern industry has been an increased

21



division or separation of the various productive

factors into more specialized contributory func-

tions of the whole enterprise.

In the earlier period of our industrial develop-

ment the entrepreneur still combined in himself

the functions of promoter of the industrial ven-

ture and manager of the enterprise; that is, the

functions of relating the industry to the gen-

eral market and of co-ordinating the various

factors of the industry towards a maximum ef-

ficiency of production. At the same time, the

entrepreneur was the chief if not exclusive owner

of the plant, so that he was also the main capi-

talist. His ownership was thus a very active one.

During this stage of industrial development,

however, other separations had already taken

place to an almost complete extent. In former

days the handicraftsman owned his own work-

shop and his tools. With the advent of the fac-

tory the workman was completely separated

from any control over his tools as well as his

workshop. Both plant and machinery became

the exclusive property of the owners. In relation

to his labor the workman owned nothing but

his personal energies and ability.

With this separation of labor from ownership

also came the separation of the laborer from all

voice in the management of the industry. For-

merly he was not only boss of his tools but also

his own manager. Now he became little more
than a mechanical extension of a highly or-

ganized machinery of production.

22



For some time this division of functions

showed itself chiefly in regard to the industrial

laborer. But in recent decades it has also over-

taken the entrepreneur and has made quite rigid-

ly separate factors out of his former unified

function of owner, promoter, and manager.

Today the promoter of any industrial scheme

may organize an enterprise without putting any

large amount of his own money into it. One of

his functions as organizer is the gathering of the

requisite capital by the sale of stocks and bonds.

Again, the promoter may never lift a hand in

the internal management of the industry. The

management will be in the hands of other per-

sons whom he hires for that purpose at a stipu-

lated salary.

Both promoter and manager may then con-

tinue to direct the enterprise without owning

any appreciable shares themselves, while the

owners of the shares may live miles away from

the industry and never go near it. Naturally

such owners are in no way actively engaged in

the industrial enterprise. Their ownership is

purely passive; and they are often considered

silent partners of the corporation. Legally such

passive ownership includes some directive or

managerial rights; but whenever the ownership

is widely scattered over a large number of per-

sons, it becomes quite impracticable for the own-

ers to exercise their control in any telling man-

ner.

23



Thus the separation or division of the indus-

trial factors seems to have reached its limit, be-

yond which further development in the same

direction is hardly possible. This development

went hand in hand with an ever-increasing

growth both in size and in complexity until we

have the gigantic business corporation of our

own day.

One of the consequences of this development

of industry is the increasing difficulty of center-

ing the responsibility for the entire project in

any one place. This was relatively easy when

the entrepreneur combined in himself the func-

tions of owner, promoter and manager. It was

still more easy in the earlier day when the work-

er owned his own tools and shop.

Another consequence of the development has

been the transfer of the financial risk to one of

the segregated factors of the entire enterprise. In

the earlier days of industry it was manifestly the

entrepreneur who took the financial risk for the

enterprise; it was because of this risk that he

was considered to have a clear title to all profits.

Today the risk is considered to rest altogether

with the owners of stock, who for that reason

are given a sole right to all profit even though

they in no way contribute actively to the pro-

ductive process. This brings us to the question

of distribution of industrial profits.

24



6. Distribution of Industrial Profits

Much has been said in recent years of the mal-
distribution of wealth in our country* There are

many persons today who attribute this general

maldistribution of wealth directly to the mal-

distribution of industrial profits. Whether this

latter claim is true or not will not concern us

here. We shall not discuss the relation of indus-
trial distribution to the economic depression at

present. It is the distribution of industrial profits

as such that we are investigating.

The term profits

,

as used here, will mean the

gross profits, the total income prior to the pay-

ing off of running expenses. Whenever the term

is to be used in the narrower sense we shall use

the qualified term net profits .

Distribution of profits in modern business

enterprises is about as follows

:

1) To the laborer goes the wage agreed upon
in advance.

2) To the promoter and manager go the
salaries agreed upon in advance.

3) To the holders of bonds goes a fixed sum
as interest.

4) To the owners of the stock a fixed inter-
est and dividends or dividends only, z.e., shares

of the net profit.

5) To the land goes rent.

25



6) Another part of the income must be used

for general upkeep, replacements of worn out or

out-of-date equipment, taxes, raw materials, etc.

Insofar as land, plant and equipment, and

raw materials are originally procured from the

capital invested these factors might be included

under that category. Hence the program of dis-

tribution can be simplified by reducing it to the

three heads of workers, managers, and providers

of capital.

After all expenses for replacement, tax and

the like are paid, how is the remaining incomt

actually distributed among these different hu

man elements?

There are then wages for the common worn-

ers, salaries for the managers, interest for the

holders of the bonds, and net profits for the

owners of the stocks. The distribution of some

of the net profits in terms of bonuses, we are

here ignoring, because this is not an accepted

part of the general mechanism of distribution.

According to the latter, then, all the human

agents of production as such receive a fixed re-

turn for their labor, and the net profits go to

one group of the providers of the capital, the

owners of the stock, who are said to take all the

risk of the enterprise, but who do not raise a

finger in the actual productive activity.

This general system of the distribution of

profits has been violently attacked today. There

are two extreme positions taken by attackers.

One denies that the capitalist has a right to a

26



share of the profits and the other denies to the

laborer a share in the net profits.

Those who deny all right of return to the

capitalist argue that the human labor is the sole

source of economic values. They must practically

deny that the materials, equipment, land, etc.,

that are furnished by the capital play any role

in the production of goods. This is the stand

taken by the Marxists who consequently parade

as champions of the downtrodden workingman

who is said to be so unjustly deprived of the

surplus-value of his labor.

Those who deny to the laborers, that is, to

all the active human agents of production, all

right to a share in the net profits, do so in the

narfie of the just rights of the capitalist. In the

eyes of the latter, all human labor, whether that

of the ordinary worker or of the manager, is

merely a commodity that is to be bought or

sold like any other wares. Hence salaries and

wages are on the same level as cost of raw ma-

terials or new equipment. All of these are to

be bargained for in the open market on the

principle of getting the best in quality that is

obtainable at the lowest price.

In this view there is naturally no place for

any distribution of net profits to the human

agents any more than to those who sell the raw

materials to the company. Here again the gen-

eral argument is made that it is the owners alone

who take all the risk; hence it is they who are

entitled to all the net profits.

27



On what principle should the distribution of
profits take place? Should it be on the basis of

the law of needs or of the law of interests? The

piesent method of distribution is certainly based

on the law of interests and not of needs. The

word interest is here to be taken in the sense in

which it is used when one says:
‘

‘So-and-so

has an interest in that concern/' That is, “So-

and-so has money invested in the concern, he

owns some stock in it/' It is according to this

law that profits are distributed today.

According to the law of needs, distribution

of profits would take place, first of all, on the

basis of the primary needs of the human agents

concerned, and only after all such needs were

answered, would there be question of the fur-

ther distribution on some other basis. It is evi-

dent at a glance that this principle has been

totally ignored, if we remember what was said

in former articles of the primary and secondary

needs of men—and that, in spite of all the dis-
cussions of our time on the living family wage.

Objectively, it seems undeniable that all fac-

tors should receive their share of return in ac-

cordance with their contribution to the entire

enterprise. This is but a wider application of

the principle that the results of labor should

belong to the laborers as the effect belongs to

the cause. It is this aspect of our question that

we shall next examine.

28



7. Theory of Causes and Effects

INDUSTRIAL production is an outstanding

example of causal activity. This is so much so

that one can well say the underlying natural

philosophy of productive activity is the philoso-

phy of causes and of the relative contributions

of the different causes to the combined effect

they produce. If the present article is concerned

with fundamental notions of causality, it must

be understood that we are taking the term cause

in the traditional philosophical as well as every-

day sense of "that which occasions or effects a

result/'

Production of economic values is impossible

without the raw materials on which to work.

This is true wherever anyone manufactures a

material product. The final state of the product

moreover depends very much on the kind of

raw material with which one starts as well as

on the quality of material used. Thus for furni-

ture one needs wood or some modern substitute

for wood to start out with, and wood or its sub-

stitute having those qualities that make it apt

material for being turned into furniture. In

terms of causality, the material from which arti-

cles of economic value are made is called the

material cause of the final product.

The human agents of production must exer-

cise thought in the very selection of proper ma-

29



terials. This same exercise of thought must ac-

company every step of the productive process.

Nay, it must precede production as well as guide

it. To be of economic value the products of
industry must serve a definite purpose in life;

they must be such as men want and are willing

to pay for. Thus the whole industrial activity

from beginning to end must be guided by

thought: brawn directed by brain. This condi-

tion is a characteristic of all human activity. The

guiding thought exercises a most important in-

fluence on the result of the productive activity.

It is known as the final cause, i.e., causal action

as leading consciously to a definite end or goal.

In their transition from their original state

to the final product, the raw materials have un-

dergone some kind of change in their being. In

the language of the traditional philosopher a

form has been added to the matter. Sometimes

this form is little more than what we now mean

by shape, as when a rough block of marble is

turned into a pillar; but usually this added

form is more than merely a change of shape,

as in the making of caps, shoes, and the like,

out of the original cotton or animal skins. This

change of being that is made to occur in the raw

materials is called the formal cause .

The change that occurs in the raw materials

is the result of what is done to the latter. It is

the result of human action working with or

without tools. In our day the work is practically

always done with tools, usually with a complex

30



type of machine. The agent who causes the ma-

terials to be transformed into finished products

is called the efficient cause . It is the efficient

cause that draws the form out of the matter.

Ordinarily the efficient cause produces its re-

sults by means of tools or machines, commonly

called instruments. Without proper instruments

man can do very little. His great productive

ability is due to the complex instruments of

production he manipulates. Hence these are

known as instrumental causes . In ordinary hu-

man life it has always been true that the instru-

mental cause (e.g., hammer, saw) operates only

insofar as actually employed by the efficient

cause. Hence instrumental causes in their basic

nature have been little more than extensions of

the efficient cause.

How are these causes related to one another?
We have just mentioned that the instrumental
cause is an extension of the efficient cause. For

the present we shall let that over-simple state-

ment be. In regard to the four major causes,

material, formal, efficient and final, it is evident

at once that the first two enter into the inner

make-up of the product. For that reason they

are called intrinsic causes.

By contrast the other two causes are extrinsic,

insofar as they are causal influences that are out-

side the product as such; they are transitive ac-

tions that reach the material product from with-

out, that is, from the human agents in which

they have their origin.

31



The relation of the efficient and the final

causes should be obvious. Without the guidance

of mind the efficient cause would act at random

and to no purpose. It receives its value as a

productive cause by reason of its being under

the guidance of mind. In the scale of values it is

therefore the final cause that gives true value to

the efficient cause.

We now have the following general relation
between the causes. The material cause is as

such independent of the human agents of pro-

duction, i.e of the particular productive activity

in question. The formal cause is the result of the

action of the efficient cause, while the latter gets

its value from the fact that it is under the dom-

ination of the final cause.

Lowest in the scale of causality is the material

cause; it is passive rather than active, although

it contributes materially to the final product.

The formal cause is entirely the result of the

extrinsic causes. And among these the final cause

is the higher because the efficient cause receives

its value for man from its being guided by the

final cause.

Does the philosophy of causes shed any light

on the proper relation of the contributing fac-

tors of industrial production?

32



8. Causes and Industrial Factors

In any type of industrial production the four

causes discussed in the preceding article naturally

all play a role. In any evaluation of this role

the formal cause may be left out of considera-

tion, since it is itself the product of the activity

of the efficient cause on the material. There are

then left the material, efficient and final causes,

which approximate the three chief industrial

factors that we mentioned above, capital, brawn

and brain, or, in our present set-up, ownership,

labor, management.

As a factor separated from brain and brawn,

it is evident that the capital does not itself per-

form any direct causal action at all. The capital

is necessary for the plant or factory, it buys

the raw materials, the requisite equipment, and

furnishes at least the initial running expenses.

But in These operations it is not the capitalist

who is doing anything beyond consenting to the

use of his capital for this purpose. The actual

work is done by the entrepreneur and the labor-

ers. The capital is thus an indirect causal factor.

It exercises its causal function only through the

activity of the human agents who are directly

at work. It is the human agents at work and

only these really exercise any active causality.

This is true not only of the setting up of a

factory but also of its continued operation. Here

33



again capital functions only through the opera-

tion of the human agents that are directly en-

gaged in various ways in the total productive

action. This is but a further reflection of the

general nature of capital, which is itself never

an independent factor in this world of ours,

but always a derived one. Ultimately all capital

reduces in its origin to nature and human labor.

To a great extent it is always the product of
human labor, and it can itself be called pro-

ductive only indirectly. It is never productive by

itself but only through being applied to enter-

prises by human energy.

What, then, is the true role of capital in in-

dustrial production? When the capital is merely

borrowed by the company nothing of the plant

or the materials belongs to the lenders of the

capital. In that case the sums borrowed function

rather as a necessary condition than as a cause.

The lenders of such capital are entitled only to

a final return of the sum loaned plus a moderate

rate of interest. This is what actually happens

in regard to investment bonds. Is the role of

owned capital more strictly causal?

The causal function of owned capital would

seem to be twofold. It functions first of all as

material cause insofar as it confers on the capi-

talist ownership of the raw materials. Now in
the hierarchy of causes the material cause is the

lowest. Outside of exceptional cases, this causal

role is quite inferior to the others in its contri-

bution to the economic value of the product.

34



Capital ownership from this standpoint exercises

only a passive causality.

Owned capital also functions as instrumental

cause, since it confers ownership of the instru-

ments of production. But again, the instrumen-

tal cause is idle except insofar as it is set into

action by the efficient cause. The causal activity

of the mechanical instruments of production is

always a derived activity, or an extended one.

This is especially true in the simple case of hand

tools. It is also true in part even in the case of

the most complicated and most efficient labor-

saving machinery. Machinery must always in

last analysis be set a-going and tended and cared

for by human agents. When something goes

wrong a machine cannot readjust or rebuild it-

self.

The only direct causal factors of production

are the human agents. They and they alone

play the role of efficient and final cause in the

industrial production of economic values. They

alone, therefore, contribute directly to the crea-

tion of these values. And all the other causal

factors are derivative or indirect; they contribute

causally only through their subordinate relation

to the efficient and final causes.

We are now ready to view the contributions
of the factors as to their share in the distribu-

tion of the resultant value. We are here viewing
the problem exclusively from the standpoint

of the causal relation of the various factors.

35



As material cause capital should get a moder-

ate and set return for the value of the raw ma-

terials and the use of the instruments. The effi-

cient and final causes, the human agents, should

get their stipulated wage and salary as the case

may be. If there are profits over and above, then

from the standpoint of causal contribution, these

profits should certainly go to the human agents

who alone are the direct causes of the economic

value of the product, and to no other causal

factors. Only thus do we realize the principle

that the product belongs to the laborer as the

effect does to the cause, or, the returns go to the

productive factors in proportion to their causal

contribution to the whole product.

In the present system the profits all go to the

passive owners, who may also get a salary as

active managers or workers. And the reason as-

signed for this is that the capitalists take all the

financial risk. This naturally leads to further

questions. Should not the workers also assume

financial risk? Yet how can they do so in our

present industrial system? Yet, again, is our

present financial system itself what it should

be, so that we can use it as a point of departure?

We can only proceed gradually in our dis-
cussion, and it will be some time before we can

grapple with this all-important aspect of the

social question.

36



9. Brain and Brawn in Industry

In the previous article on the causal status

of the factors of industrial production, no at-

tempt was made to separate the factors corre-

sponding to the efficient and final causes, the

factors of brain and brawn. The two factors

are distinct in abstract thought, but are they

also in concrete cases? That is, in any actual

case of industrial organization can we divide

the human agents into those who do all brain

work and use no muscular energy, on the one

hand, and those, on the other, who use only

muscular energy and do no thinking at all?

When the question is put so baldly, it is evi-

dent that we cannot. In the pre-industrial work-

shop the two factors were intimately combined.

Since the industrial revolution the trend has

been towards the ever greater separation of all

factors concerned, towards the ever greater divi-

sion of labor. Today it is true that if we range

all the human agents of an industrial plant in a

graded series, we may have on one end those

who do only brain work, and on the other end

those whose work is quite purely mechanical and

physical. But these two extremes by no means

include all the human agents. Most of the man-

ual workers must also use their minds in some

degree at least.

37



We therefore find pure brawn, as it were,
only at the lowest end of the scale. Here are

the workers who in endless repetition perform

some single operation in connection with a ma-

chine which was set in definite motion by others

and which dictates to the worker the pace of

his monotonously dull repetition of specialized

action. Here the manual laborer functions with-

out a hitch only if he becomes purely mechani-

cal. He dare not think for himself at all, for

that may throw him out of gear with the mech-

anism of which he is a part; he may not lapse

into mechanical unconsciousness for any length

of time, for he would soon cease to function in

conjunction with the machinery. Here brawn

is separated from brain to the utmost extent

possible in active human beings. Here alone we

have a separation of functions that is as com-

plete as in the case of passive capitalism or ab-

sentee ownership.

Efficient and final causes, brain and brawn

will always remain distinct in their functions;

thought as such is never use of muscular energy,

and use of muscles is never as such an act of

thinking or mental guidance. However, outside

of the above extreme case, the two functions

are always actually united in all the human

agents; there is only a difference in the pro-

portion in which the two functions are com-

bined in any one person into two aspects of a

single operation.

38



With a slight modification arising out of the

extreme cases, it would be correct to say that

all the human agents in any productive indus-

try, laborers as well as managers, are the effi-

cient cause of the product. The activity of both

worker and manager is that of a free personality;

it is in either case a direct contribution to the

total productive action; in each case something

of the person, of his own life's energy, is put

into the resulting product. That is why we

stated before that all the human agents, as effi-

cient causes, should share in the profits, and

that their sharing in profits should prevail over

all other factors. No other conclusion can be

arrived at, when we view the whole matter

from the standpoint of causality.

Within the series of human agents, again,

those stand highest whose action is more im-

portant for the proper functioning of the entire

productive enterprise, who contribute the most

indispensable element to its efficient operation.

From this standpoint those whose contribution

contains more of the element that is characteris-

tic of human nature, viz ., rational mind, should

have a right to a larger share of benefit out of

the enterprise. The higher the contribution of a

person in terms of final causality is, or the more

creative, the less easily is he replaceable by other

persons; the lower a person's contribution is, or

the more mechanical, the more easily is he re-

placeable by others. Hence the former ranks

higher in the scale of contributory factors than

39



the latter. Hence, too, capital ranks lowest, be-

cause the personal element is entirely eliminated.

The capital as such functions exactly the same

no matter who the owner or what his personal

abilities.

Within the total series of factors that have a

right to share in the values produced, we there-

fore have two major clashes of interests. One

is between the human agents of production and

the capitalists. This clash must be decided in

favor of the humag agents. The other is be-

tween the human agents themselves. This is

much harder to decide than the former because

the decision depends on a set of criteria that are

difficult or impossible of accurate measurement;

such are, for instance, amount of energy ex-

pended, amount of intelligence coming into

play, initiative, inventiveness, technical skill,

professional ability, personal danger or risk, and

the like. It is a matter of moral certainty rather

than the certainty resulting out of exact me-

chanical measurement (physical certainty) ; and

for the closest approximation to such certainty

we must be satisfied to use Aristotle’s rule of

abiding by the best judgment of prudent men.

The present discussion is but a continuation

of that of the preceding article. Hence the same

caution obtains here as there: Our conclusions

are what they are because we have viewed the

industrial scheme purely from the angle of caus-

ality. Other cautions must also be kept in mind

before our conclusions can be made to apply in

40



the adjudgment of any concrete case. What, for

instance, if an industry does not obtain suffi-

cient profits at all to give each human agent a

living wage? Then, some would say, the par-

ticular industry should cease to exist. But what

if no other type of industry can be substituted,

so that the human agents cannot help them-

selves? Then there would indeed be something

fundamentally wrong with our whole economic

structure.

41



10 . The Machine in Modern Industry

In preceding articles we touched upon the

position of the instrumental cause in the general

scheme of causes. We spoke of it as an extension
of the efficient cause. This is evident enough for

the ordinary hand tools. But does this subor-

dinate position still hold in regard to the vast

development that has taken place in our in-

struments of production, our factory machinery?

They are the property of the capitalist, and for

that reason, in our present economic scheme,

their contribution accrues to the benefit of the

capitalistic owner.

Can we reject this view, and logically claim

that their contribution should accrue rather to

the laborers, since the machine is still but an

extension of the efficient, cause, i.e., of the hu-

man agents taking an active personal part in the

productive enterprise?

Certainly the modern machine is not a mere

extension of the man who tends it in the same

way in which a handsaw is an extension of the

carpenter. In the latter case the skill, accuracy,

etc., of the sawing are those of the carpenter

himself. In modern labor-saving machinery this

is no longer the case. A recent description of
such an instance runs as follows:

"In several industries the automatic factory

is already an actuality. For example, a paint

42



plant which formerly gave work to five hun-

dred employees has been replaced by an auto-

matic factory in which there are almost no men

—only a few engineers and repair workers.
There is also a bottle-making factory in which

only one machine tender is needed to watch each

bottle-making machine. Each machine replaces

from fifty to two hundred fifty men and boys.

Another example is a modern flour mill in Min-

neapolis, which, operated by one man, can pro-

duce as much flour in one day as eight thousand

millers using the ancient hand-tool methods”

(Rugg, The Great Technology . 1933. p. 70).

In such instances, the ordinary work of a

tender consists of little more than pressing a but-

ton or turning a switch to set agoing machinery

that will do the work of hundreds of men. It

would seem absurd to claim that the major por-

tion of the product of such a machine should

go to the tender because a machine is an exten-

sion of the person operating it. To what is the
productive efficiency of such machinery ultimate-

ly due?

Today we say in effect that it is due to the

invested capital of the absentee owner. Yet no

amount of pure capital as such can set up this

machinery, much less invent it from its simple

beginnings on. There is really no proportion be-

tween the qualities of mind and human per-

sonality that go to make up our modern ma-

chinery, and the passive capital that was used

in buying it and setting it up.

43



The more modern and efficient any piece of

machinery is, the more is it also the outcome of

a set of conditions and energies that extend over

a long period of time* Most new inventions are

improvements of previous inventions, or are

built up upon them* Literally hundreds of hu-

man agents in the course of history, some fa-

mous and the majority unheralded and un-

known, have gone into the perfecting of our

machines of today. Every invention is by itself

the result of acute personal abilities or genius

working on the accumulated social inheritance

of the race. As a reward to the inventor it is

but right that he should be given a protective

patent that is valid for a definite period of time.

But is it equally in the right order of things

for the patent rights to be bought up by some

company at the lowest possible figure for the

continued exploitation of it unto the personal

profit of the absentee owner?

The immediate causal factors that operate in

conjunction with the machine are the capitalist

and the worker. Hence they are entitled to their

share of the values produced by the machine.

Yet a most important causal factor in machin-

ery production is what one might call the social

inheritance of the race. And since we are inves-

tigating the situation exclusively from the stand-

point of causal contributions, we must conclude

that society in general is entitled to more of a

share in the values produced by the machine

than it is getting under present conditions. This

44



conclusion lends color to the Christian view that

industrial production should not be exclusively

guided by the motive of the highest possible

profit to owners, but also by the motive of so-

cial service or the benefit of the consumers in

general.

This conclusion seems the more justifiable if

we examine what the actual relation has been

of capital to scientific inventions. As long ago

as 1911 Woodrow Wilson wrote as follows: “I

am not saying that all invention had been

stopped by the growth of trusts, but I think

it is perfectly clear that invention in many fields

has been discouraged, that inventors have been

prevented from reaping the full fruits of their

ingenuity and industry, and that mankind has

been deprived of many comforts and conveni-

ences, as well as the opportunity of buying at

lower prices. Do you know, that there is no

hospitality for invention today’
’
(quoted on pp.

151-2 of Brandeis, Other Peoples Money).

Unfortunately any attack on modern condi-

tions is often taken as a moral accusation against

the chief actors concerned. This is often very

unjust. Much that occurs is due to our accepted

and traditional economic system itself, in terms

of which we all function and live. It is there-

fore high time to examine this system in its

totality—a task we shall commence in the next
series of articles.

45



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