HF 2611 E4 LIBRARY UNIVERSITY OF CAUPORNiA SAN 0I6®# iHt Ui ..!(Y LIbUAKI tJN^VCRSnY CF L;,.iFORNiA; SAN OlEGO LA JCLLA. CALIFORNIA -^ TARIFF AND WAGES. PAUL AND HIS FATHER HAVE A DIALOGUE DISCUSSION OF THESE VITAL QUESTIONS. How Far and on What Basis a Protective Policy is Justifiable. RELATION r.ETWEEN PRdTECTtON AND PRODUCTION AND PRODUCTION AND WAGES. IF A PROTECTIVE TARIFF DEVEI.dl'S PRODUCTIVE POWER, IT DEVELOPS THE SOLKCE OF WAGES. By GEORGE W. ELLIOTT, A. M. BUFFALO, N. Y. : MOULTON, WENBORNE AND COMPANY. 1888. COI'VNK.HT, lS8o, 11 V GEORGE W. ELLIOTT. v. "" t T TO H. H. AVARNER, OF Rochester, N. Y., WHO LAID THE FOUNDATIONS OF HIS FORTUNE IN A STANDARD TRADE, THUS ILLUSTRATING THE ADVANTAGES AND AWARDS OF LIFE UNDER THE AMERICAN COM- MERCIAL Policy, who has ever been ONE OF the most LIBERAL PATRONS OF WAGES EARNERS, and an ardent advocate of the american Protective Policy, ^te Q^ooft IB ©ebtcafeb, WITH THE PERSONAL REGARD OF Rochester, N. Y., June 25, 1888. THE AUTHOR. NOTE. Moulton, Wenborne & Co., Buffalo, N. Y., have just published " Tariff and Wages," by Geo. W. Elliott, of Rochester, N. Y. Mr. Elliott has had, as manager of advertising and publications of the immensely successful house of H. H. Warner & Co., who have branches all over the globe, unusual advantages in the study of international trade policies. He withdrew from active journalism ten years ago for the purpose of making a study of trade problems. He was originally a freetrader, and is one now theoretically, but he believes, as an Ameri- can, one must sustain a genuine protective tariff policy. He treats his theme in dialogue manner with his son Paul, and makes a book so simple that the perplexing problems ol the taritf can be readily under- stood by the wage-worker. He holds that there is no such thing as a fixed wages fund apart from protection, which is the source of all wages. He shows that protection does foster production in many respects that would not obtain were we in open competition with free trade England, and hence protected production, by furnishing diversity of employments, maintains a better rate of wages than could prevail were varieties of employments less numerous and were more labor forced into agricultural pursuits. ^ -VSfl uHw ,.03 i'^ (:• .. s;« 3(1 Jii, • floui on a; j..-: ;i r.. . ~i.jsjiuo>: •Jilt i'i ffairij' ,r. ■ ,bn>;!;j,i>-! .-jijj.-IJ-39Tl (lliv/ ll:- io zri';3:ii;v oiaw Jir.vriiq bi;i^)j ii£ CONTENTS. I'AGE. TiiF. Author's iNTRDorcTioN, .... vii PART FIRST. CHAPTER. I. The True Theory of Protection-, . . g II. TirE Limitations of the Theory of Pro- tection, ...... 2f) III. When Money Saved in Foreign Contracts IS a Loss, 34 IV. The Evils of Over-Protection, . . 40 V. The Problem of Over-Production, . . 47 VI. What is Money and Wh.\t Money is Not, 52 VII. The Modern Colossus of Trust, . . 56 PART SECOND. WAGES. VIII. Wages 60 IX. The Doctrine of a Fixed Wages Fund, . 66 X. What is Meant by Dlminishlng Returns, 71 XI. The Two Theories Demonstrated, . . 81 I. Wages, According to the Wages Fund Theokv, Independent of Production. II. Wages as Dependent on Productio.v. XII. The Tariff, Subsidies and Bou.nties, . 85 PART THIRD. CAPITAL, LABOR, STRIKES, ARBITRATION, PROFIT SHARING, ETC., ETC. XIII. Relations Between Capital and Labor, . 91 XI\^ Labor and Capital Shari.ng Profits, . 102 XV. Comparative Statistics, .... 106 IN TROD UCTION. While as a theoretical free trader I cannot justify an exorbitant tariff, I do believe in a judicious tariff, and in the pages which follow I have tried as simply as possible to explain in homelike conversation some of the reasons why a properly regulated protective tariff is justifiable from an American point of view. I recognize it as a policy, not as a principle of universal application, and admit that while it may be justifiable as a policy for the United States, it may not in the present state of her development, be the best economic policy for Great Britain. I hold that wages begins and ends in production, dissenting emphatically from the theory that there is such a thing as a fixed wages fund apart from production. If the former theory prevails, there is a universal stimulus to an increase of production ; if the latter be true there must be constantly a tendency to restrict the number of workmen so that each one may have a larger part of this so called fixed fund. Under one theory there must be, other conditions being favorable, a vast increase of pros- perity; under the latter, a constant repression of production with consequent stunting of growth. I admit that a protective tariff is an apparent taxation of the many for the seeming benefit of viii INTRODUCTION. the few, but show that in reality, under a properly regulated tariff, the benefits derived by the many are greater than those derived by the few and exceed by many fold, in the long run, the general taxation imposed by a protective tariff. I do not discuss individual cases. I try to con- fine myself to the general principles of the policies under examination, and to state principles briefly without extended elaboration. I do not believe that a protective policy is justifiable simply on the ground that it maintains what is called the high rate of American wages, — that is merely one of the many general benefits which it distributes among the masses and is an argument against the theory that a protective tariff is ' ' taxation of the many for the benefit of the few." Whatever helps to dis- tribute the profits of production among the greatest number of people is a salutary anti-socialism tonic. The papers forming the chapters of this little book were first written in 1885, and published serially in the American Rural Home of Rochester, N. Y. They have been rearranged and extended and are published in this form in the hope that they will attract the interest of young men, on whose clear understanding of the simple principles of the questions now so generally absorbing the attention of the American people so much of our political future depends. Rochester, N. Y., June 25, 1888. PART I. CHAPTER I. THE TRUE THEORY OF PROTECTION. Natural Law does not Prevail in the Commercial World — A Theoretical Free Trader, as an Ameri- can IS A Protectionist from Force of Circumstances — Selfishness the Law of the Commercial World — Human Institutions developed by individual Self- sacrifice — A Protective Policy, based on mutual Self-sacrifice, for the Greatest Good of the Na- tional Community is Justifiable — The Growth of Society, the Development of Trade and Manufac- tures, AND the Demand for Protection — Limitations. Scene: Sitting-room of a thoughtful^ studious far- mer. Paul, the son, having been graduated from college where he has been filled tvith unqualified free trade notions. Paul: Father, I heard a man in the post-office department at Washington talking very excitedly with another gentleman last week and he emphati- cally exclaimed: "I tell you sir that free trade is natural, protection is artificial and should be condemned by all intelligent people. " Is free trade "natural" and is protection a restricting of what may be called natural laws of trade? Father: Well, my son, your questions are rather sweeping but both can be answered with Yes. lo TARIFF AND WAGES. Paul: Then why hamper so-called natural laws with human restrictions? Father: With true Yankee characteristic, Paul, I will answer your question by asking others: Is land free? Paul: No, sir. Father: Is water free? Paul: No, sir. Father: Are human impulses free? Paul: No sir, not among civilized people. Father: Is bread free? Paul: No, not bread but many fruits and forms of food are free. Father: Entirely and universally? Paul: Perhaps not. Father: Can one do as he pleases even under the freest democracy? Paul: No, I think not. Father: Are political actions free from the control of law? Paul: No, sir. Father: Are religious impulses free from legal limitations? Paul: No, sir. Father: Are social impulses free from the restraints of law and custom? Paul: No, sir. Father: Are commercial affairs exempt from the restrictions of law? TARIFF AND WAGES. ii Paul: No, sir. Father: Is it not true then that almost nothitig is exempt from restrictions imposed by tlie selfishness, by the mutual interests and self-sacrifices or by the self- defensiveness of cojumunitiesl Paul: Well, sir, your questions are pretty hard for me to combat but it would seem as if you were right. Father: Well, my son, the existing restric- tions are imposed as the result of human experi- ence and though perhaps some of the restrictions are too stringent sometimes and too long enforced occasionally, in the main they are wholesome and necessary. Free trade, as the gentleman so em- phatically observed, may be "natural" but it does not follow therefore that it is best for every people under all and any circumstances. On the contrary free trade, in the present state of society, is more an end to be reached by processes of growth and preparation than it is a condition precedent to growth and commercial perfection. Paul: Don't you think that the world would be better off commercially if there had never been any restrictions on trade? Father: A rather extensive question, my son, which might require volumes for a complete answer, but I may say that a protective tariff has been the rule, — that selfishness is the mainspring of all com- mercial enterprises, a?id that a tariff is a true out- 12 TARIFF AND WAGES. growth of human selfishness. It is therefore an open question if the world would have been as well off — that is to say, if as satisfactory conditions would have been as well distributed as they now are — had there never been any artificial restraints on trade. It also seems to be a law XhdX progress is from a tariff more or less high tinto free trade. Paul: Then why not help along the car of progress by at once urging the free trade theory? Father: Understand me, my son, I am THEORETICALLY A FrEE TrADER but PRACTICALLY, as an American, giving full consideration to onr com- mercial a7id industrial circumstances., I MUST be AND AM A Protectionist. Free trade is the keystone of the arch of commercial development, and you must raise your arch before the keystone can be set ifito its place. Paul: According to your theory, father, only the oldest and best-equipped commercial powers can be free traders. Father : In general terms that is my belief, unless the whole world practices free trade. Paul: If that is the fact you have the floor, father, for a full explanation of your theory. SOCIETY results FROM SELF-SACRIFICE. Father: Very well, my son ; now for my ideas. Society is an association of men who obtain by mutual self-sacrifice what would otherwise be TARIFF AND WAGES. 13 unattainable by the mass. From a politico- economical standpoint society can exist only on the basis of self-sacrifice for the greatest good of the greatest number. There are very many ways in which individual concessions make for the public good and no argument is needed to emphasize the importance of such concessions. Society is neces- sarily a curb. It is a hedging about of individual impulse by public will. The liberty it affords is in the direction of those things which the public will has determined are for the best interests of the greatest number of people, and this liberty, its amount and kind, depends upon the widest intelli- gence for determining what shall be the public will. Society, furthermore, may be described as diver- sity in lenity. That is to say, there are all sorts of men and interests concerned in the formation of society and the greater the diversity of mutually harmonious interests and the stronger the economic unity the more advanced and prosperous, as a rule, will the society be. THE GROWTH OF SOCIETY. Take, for instance, one hundred families first landed and settled in rude cabins in a new and strange country. Fertile Land abounds on every side and willing Labor pays hopeful homage to its generous patron. Agriculture — productive labor on land — is the basis of all wealth and in a new 14 TARIFF AND WAGES. community most of the people become agricultur- ists from necessity. In a few years if prosperity attends them the labor spent upon the land yields more than the necessities of life call for, and then the people are able to exchange their surplus, if trans- portation means be at hand, with older communi- ties, getting in return therefor better articles of household comfort, better clothes, better homes, richer carpets, libraries, papers, than they could produce. With increase of the products of labor comes the desire for a betterment of the condition. The sons and daughters of the farmer are given an educa- tion, and to the gratification of their parents seem qualified by natural and rudely-cultivated gifts to excel as mechanics, artisans, musicians. They return from school to the farm but they find farm life both irksome and uncongenial. Bear in mind that at this time nearly every one is a farmer, and, indeed, the tilling of the soil is the only means open for the gaining of a livelihood. DEVELOPMENT OF TRADE AND MONEY. What now is most needed in order to introduce that diversity of employments and vocations so essential to a substantial society? It is as impossible that all can be farmers as that all can be preachers, or artists, or lawyers, or merchants or mechanics. Natural and cultivated ingenuity gives one man TARIFF AND WAGES. 15 excellence in some one branch of rude manufacture, and eventually we find him depending for his living on what he can gain in grain from the farmer in exchange for his products of the soil, or for the mechanism of his hands. This is Barter — an exchange of commodities for other commodities. ' Eventually some go-ahead wandering sort of Arab discovers precious metals and in the course of commercial evolution this metal is run into what is called Money; then the mechanic in deal- ing with the farmer does so not directly face to face but he takes his wares to a third party who rewards him, not in wheat, corn, and oil, but in this article called "money." It, too, is a com- modity — the product of labor expended on land — but it is more convenient than wheat, corn and oil because it can readily and universally be exchanged not only for wheat, corn, and oil, but for clothing, shoes, "gospel privileges," and other necessities and luxuries of body and soul. The merchant originally exchanged commodity for commodity but when valuable metals were pro- duced and, of certain size, fineness and weight, became a measure of value, it is plain that the value of all exchangeable articles in a community could be rendered to buyers and sellers much better by means of this metal than by trading wheat for corn, or corn for oil, etc. That is, if wheat equals X. and corn equals X., X. could always command 1 6 TARIFF AND WAGES. at the will of the one having it whatever of wheat and corn might be wanted. In this way what we now call " money " became both an alphabet for the expression of what vari- ous producers wanted for their products, and what those products thus "price-marked" were really worth in other commodities — in other words, money became a measure of commercial values ajid a medium through which products tvere exchanged. THE MERCHANT CLASS. With the introduction of " money " into society sprang up what we call the middleman — the one who takes in wheat, corn, oil, etc., from Tom, Dick and Harry, giving them money therefor, and disposes of them to others, taking money or its equivalent in exchange. This middleman is the grocer, dry goods dealer, marketman — Merchants. Now our primitive society originally composed of soil tillers has developed the mechanic and the merchant. In the same evolutionary manner, out of the necessities of the developing civilization come with proper encouragement all the other divisions of labor and diversities of employments until finally 7ve have that variety in miity which is so essential to a prosperous society. SELF-SACRIFICE TAXES. With constantly growing development the county is divided into towns, the town develops into the TARIFF AND WAGES. 17 village, the village into the city ; then for the com- mon defense and protection come sanitary improve- ments, good roads, well-graded schools, public parks, gas, water, sidewalks, fire and police watch- care; every property-owning citizen sacrificing a certain amount of his income which he deposits in the common treasury for the greatest good of the greatest number. The element of self-sacrifice etiters into commercial relations as soon as barter commences. When the merchant is developed each producer apparently sacrifices a little and is willing thus to do because he appreciates the convenience of a middleman in the transaction of business. He makes this self- sacrifice unwillingly at first because he thinks that he could just as well as not save what the middleman makes for acting as the intermediary, but a little experience teaches him that in the end he gains more by using the middleman's skill and special training than he would by ignoring them. Like- wise, equitable taxes judiciously expended, he learns by experience are a blessing and they are at length willingly paid though they never reticrn to him in kind. DEVELOPMENT OF CAPITAL. By and by as a result of prosperous labor and a fertile soil there is an accummulation of money in the community — Capital it is called, the surplus or unconsumed product of labor on land. This is 1 8 TARIFF AND WAGES. laid by and they who possess it seek opportunities so to employ it that it shall return them an increase — Interest. But opportunities are scarce. Abund- ance of unemployed capital is not a blessing. In many cases they who have this accumulation are too old or are otherwise unfitted for manual toil and unless they can invest this capital so that it will return a revenue, they will soon consume it and become dependent upon the public. Capital like land is valuable only as it is productive. But the resources of the community have been devoted chiefly to grain raising and the rude manufacture of what is needed by the people of the community. With its greater development better things are wanted. Coal and iron are discovered and there is a desire to establish a foundry and a plow works. One hundred thousand dollars are raised and oper- ations are begun. In a few years every cent is lost for other and older communities richer in men and means capital and skill, and having cheaper as well as better labor have been able to produce iron manufactures cheaper and better than they can be made in our young community, and the venture is a failure! What shall be done? A PUBLIC MEETING. Must wc always be tillers of the soil? Is there not some new form of self-sacrifice that we can make TARIFF AND WAGES. 19 for the greatest good of the greatest number? Is it possible that wc cannot develop and maintain a Iionie market ? A pubhc meeting to discuss ways and means is called, and is largely attended. John Gooddeed makes the following address to the interested audi- ence: THE TRUE THEORY OF PROTECTION. Fellow Citizens: I am a married man. I have a thrifty wife and three children. Twenty years ago this entire country was a bleak wilderness and was as unpromising apparently as is our ill-starred foun- dry. We worked hard, sacrificed every unnecessary comfort and many desirable ones so that we could accumulate something for old age, but it has all gone up in that venture! As I said before, I have three children. Some one may say, "Why did you have children? They are a burden and expense? " Certainly they are an expense but I deny that they are an unrequited burden because the comfort one takes with them, the love with which they repay all our sacrifices infinitely recompenses every other consideration! Children are a necessity and self-sacrifice for them is a necessity ; every member of my family counts it a joy to deprive himself or herself of whatever will contribute to the happiness and well being of the dear children. This is in accordance with the laws of nature, and, God bless you, nature rewards 20 TARIFF AND WAGES. US for every sort of self-sacrifice made to feed, clothe, nurse, educate and prepare these children so that when they become independently-equipped men and women, they will be able to fight their way through life on an equality with other men and women. They enter society and are governed by the laws as they find them — they are free only within the law. Until they are of age and able to look out for themselves we look after them, always having in mind that the aim should be lo prepare the child for independence when the age of responsibility is reached. Now then, with this familiar sort of illustration I beg leave to present this plan of Community Self- Sacrifice by which I believe our manufacturing industries can be sustained during the developing period until they are able to bid defiance to all outside competitors. After that point they have no right to exact a tax from the community for their own benefit ; if such tax is then imposed it is legalized robbery. I think that it is not only perfectly justi- fiable but also absolutely necessary that we should meet the advantages possessed by our older and better equipped foreign conunercial rivals by some sort of protective tariff, and my plan is this : It costs us, say, ten dollars to make a plow. We want 25 per cent, for profit and contingencies, and we sell the plow for $12.50. But England is able because she has the skill and means to make a TARIFF AND WAGES. 2i plow better than ours, transport it hither, and put it on our market for $io. Is it any wonder that we cannot maintain our plow works? [No, no]. Now I hold that this plow works sustains the same relation to this community that the dependent child does to its parent, and under all the circum- stances we cannot be prepared to compete with the older and better foreign plow works unless we as a people take our own works to our hearts and sacrifice something on its behalf, a sacrifice, how- ever, that is more apparent than real, for self-sacri- fice is a duty %ve owe the family and the community, and the reward is as a rule greater than the sacrifice. My plan therefore is this : Compel the foreigner to pay such a sum for the privilege of bringing his plow to our market as will make it possible for us to establish and maintain our plow works at a reasonable profit. In other words a tariff gives us advantages that otherwise our foreign rival would possess to our detriment. [Applause]. I therefore recommend that a tariff of thirty per cent, be laid on the foreign plows. This will give us an advant- age of five per cent, and in a few years we shall have prosperous plow works and, continuing the policy to other industries, in the diversity of em- ployments thus secured we will find openings for capital and all sorts of work for all sorts of skilled workmen. Understand me, / would not have this tariff a 22 TARIFF AND WAGES. perpetual one. As our capital, skill, resources and experience increase, and we can produce plows cheaper and better, I would have the tariff correspondingly and gradually decreased, and when we could safely do so I would remove it entirely and say to the plow manufacturers, as I say to the fully-equipped man or woman — ^'- Paddle your oivn canoe. " This is what I call the true theory of a protective tariff. [Prolonged applause]. Thomas Doubtful addresses the people, say- ing; "down on the tariff robbery." Fello7V Citizens: I am a farmer. Eight hundred of the i,ooo men in this settlement are farmers. We have wrested wealth from the soil by hard labor and for one I am opposed to this tariff. I can now buy plows from abroad for %io each. Sup- pose that every one of us 800 farmers wanted a new plow. Under this tariff we would have to pay at least $12.50 each for them, or $200 more than they would cost without a tariff, and I am totally opposed to it — // is robbery of the soil-tillers for the benefit of the manufacturers. I prefer never to have manufactures in this town rather than to be com- pelled to contribute $2.50 for the privilege of hav- ing plows made here. How much richer is the town under such a plan? Suppose that we cannot make more than enough plows to supply our own town. TARIFF AND WAGES. 23 Suppose too if we could that all other markets were closed to us by local tariff, thus cutting off our sur- plus market, each plow buyer has given $2.50 for the maintenance of a plow factory and nothing has been added to the total wealth of the com- munity. Away with this tariff delusion, I say! It is "robbing Peter to pay Paul." [Applause.] James Insight rises and says: Mr. Chairman: I like Mr. Gooddeed's plan. Now then suppose that there were $100,000 in this town, and of the thousand people ten persons were worth, all told, $90,000. Let me ask the last speaker if he would not consider that scheme beneficial to all the peo- ple which would help to a more eveii distribution of this money? Now, I hold that wealth in the hands of the few is not the benefit to a community that wealth is in the hands of the many, and / l)e- licve that manufactures ivould facilitate the distribu- tioti of our wealth by keeping it more constantly in cir- culatio7i. Certain persons have what is called capi- tal. We are raising now all the grain and vegeta- bles we need, and more capital invested in farm work will overstock the market and the agriculturist will soon be unable to effect exchanges at a profit. Every farmer has all the help he needs now. What, then, is to become of the fifty mechanics amongst us? Shall they become town poor to be sustained from the poor tax? It will cost at least two dollars 24 TARIFF AND WAGES. a week to support them in idleness. If they can earn no money for bread they may become desper- ate with hunger, and from want plunge into crime. If our plow works can give them employment and we do have to contribute $2.50 for every plow made it would be cheaper in the end than to care for them out of the poor fund, for that would cost $5,250. Whereas, if every one of the 800 farmers here bought a new plow this year, at $12.50, they would be contributing a total of $2,000 to the sustaining of an independent manufactory in the town. The wooden material for the 800 plows would cost, say $1,000; the iron work, $2,500; the wages, $6,500; total, $10,000. By this divi- sion the fifty mechanics get $2.50 each a week. Without this tariff they get nothing whatever, our local exchanges are limited, and we have to put our hands in our pockets and pay out at least $2 a week for their support. For one I am in favoi- of the tariff and shall vote for it because it promises to keep the sixpence nimble, to furnish employment for the mechanic, investment for the capitalist, and an equitable distribution of wealth, without, so far as I can see, doing any one any unrequited harm. Robert Freetrade — Mr. Chairman: I insist that you are robbing the soil tiller for the benefit of the manufacturer without any adequate return and I protest against it. If I give $2.50 more for TARIFF AND WAGES. 25 an American plow than for a foreign one, where am I to look for my $2.50 from the manufacturer? It is stated by my friend here that I get it back. How? When? Where? Does the mechanic pay me any more for my grain and truck? Not a cent. If he works and earns $2.50 he pays $2 for what he eats. If the town takes care of him, it costs, it is said, $2 to care for him, or about the same thing, so in either case there is the same demand for what I raise, and I am, under this tariff, out my $2.50. Mr. Chairman., said Mr. Cogitans, my friend is in error in expecting returns in kind. We are taxed for gas, walks, roads, schools, fire and police protec- tion, and our taxes are money. We do not get money back, but we do get (what we esteem as better than the money; we vote for it or we would not consent to be taxed) light, good walks, good roads, schools, protection from fire and criminals. Because we do not get directly, like for like, it does not follow that we do not get full satisfaction for all our self- sacrifice for the public good. As I look upon this tariff, it is in general like our taxes, a part of wealth or income which each one pays to the state or society for that which otherwise he could not have. As for robbing the agriculturist for the benefit of the manufacturer, I may say that on precisely the same grounds we may affirm that every industry in the world has been built up out of money wrested from 26 TARIFF AND WAGES. land and labor ^ for land and labor are the original factors of all wealth, and if the plow works tariff is a robbery, men have been robbers almost from crea- tion's dawn. If I may quote precedent, all human history justifies the position we take, that every advance in human progress has been made on the selfish plan so far as the rest of the world is con- cerned^ and on the self-sacrificing plan so far as each community is concerned. Paul: Well, sir, what was the result of the discussion? Father: A canvass was had on the 30 per cent, tariff proposition and it was carried -by a vote of 700 to 300, every male inhabitant in the com- munity being visited, and his position recorded. Within three months the blast furnace fire was relit and the manufacture of plows was begun. The foreign manufacturers made desperate efforts to compete successfully and for some time offered their plows at less than cost to crush out our works, but they finally gave up the contest. During the first year the furnace and plow works gave lucrative employment to all our skillful mechanics in iron and wood, and a fair profit accrued to the capital invested. After a few years the company found itself able to jjroduce plows successfully against competition with a 20 per cent, duty and the tariff was knocked off 10 per cent. Eventually iron and coal were found in the neighborhood and this fact TARIFF AXD WAGES. 27 coupled with the other one that, as the community grew in age the facilities for providing the necessi- ties of life increased, the necessities therefore being reduced * in price, the labor of skill mechanics was cheaper, and the cost of production was so much reduced and the experience and skill were so much advanced that finally the duty was entirely removed from foreign plo7ie must covipare., but the relative purchasing power of wages. Demagogues and one- sided politicians carefully evade such a comparison when by so doing they can "make a point" before an unthinking crowd. Paul: You say reducing wages and profits below a certain point would force American work- men and capital into farming, cattle raising and other employments. What effect would such destruction of American manufacturing interests have on these other employments? WHERE THE ENGLISH FREE TRADER WOULD PUT US. Father : // would make us dependent upon the foreign manufacturer^ anid we would have to con- tent ourselves with pastoral and agricultural life and such manufacturing specialties as we could create (Cairnes 396, istp. ) This would reduce diversity of interests, there would soon be a sur- plus of farmers and farm products, and, exchanges TARIFF AXD WAGES. 65 being free, the balance of trade., or the difference, which has to be settled in money, would probably always be against its, atid that joould not be a happy circumstance. Paul: Why not? You do not think it an injury to a country that it has to send its money abroad, do you? WHEN THE EXPORTING OF MONEY IS AN INJURY. Father: The settling of exchange balances in money is not objectionable provided that it is done with some sort of equality by all intcrtrading nations. For instance, if America and England are traders, and England sells to us year after year more than she buys, we will be continually paying her a money- balance, and after awhile, provided we do not in trade with other countries sell them more than we buy and thereby reimburse our money coffers, we should eventually be drained of our circulating medium. Like as the farmer who owns 10,000 acres of land and has no surplus capital is "land poor," so, — even though having the equivalent of the money sent abroad, — we would be embarrassed for want of funds with which to transact business. A man who is ahuays exchanging money for goods will eventually be reduced to barter or financial embarrassment of goods. But we are digressing from the subject of wages and must return. c CHAPTER IX. THE DOCTRINE OF A FIXED WAGES FUND. One Formulated in Countries where the Period of Diminishing Returns has been Reached — A Dismal AND Unphilosophical Doctrine — The Theory Stated and Combated — Wages Begins and Ends in Pro- duction. Paul: What do you think of the so-called wages fund theory once held by J. S. Mill and afterward abandoned by him and now advocated by Prof. Cairnes? Father: 1 have read Cairnes with a good deal of interest, and before discussing the wages fund theory it will be best to state it as briefly as possible. THE THEORY STATED. The wages fund theorists hold that wages is paid out of capital — not out of the products of present industry. Hence they say that entering into pro- duction are capital, fixed (that is, the amount put into buildings, machinery, etc.) circulating — (that used for purchasing raw material and labor), and labor; if a man has $100,000 to invest in manu- facturing, he finds that $60,000 must be fixed in buildings, machinery, etc., leaving $40,000 free or TARIFF AND WAGES. 67 circulating with which to purchase raw material and labor. Cairnes holds that a certain amount, regulated by the conditions of the labor market, of this free capital, will, according to the laws govern- ing supply and demand, go toward payment of labor; if the raw material costs $15,000, labor will get $25,000; if raw material costs $25,000, labor will get $15,000; that the average wages of each workman will be found by dividing the amount set apart for wages by the number of wages workers necessary to carry on the business. If 50 men are required they would each average 1-50 of $25,000, or of $15,000, $500 or $300 respectively. More they could not get without compelling the manufacturer to convert fixed into free capital, less they could not get without compelling the manu- facturer to convert free into fixed capital, provided in each case that the cost of raw material was rela- tively the same. Paul: What objections have you to this theory? Does it not seem plausible? Father: My objections to the theory are as follows: • • OBJECTIONS TO THE THEORY. First: I do not think wages is paid out of the free capital. I think wages begins with production and ceases when production ceases and is paid out of the product of current industry. 68 TARIFF AND WAGES. Second: When one has $100,000 to invest in manufacturing, he estimates that he must put so much into buildings, machinery, etc., and so much into materials to work up into the finished product, and so much as a reserve to keep his bank credit good, to meet unexpected losses, and to provide for the wear and tear of machinery, insurance on buildings, etc., and to advance from circulating capital for the payment of wages bet^veen the date at which an article is finished and the date at which it is sold. When he reckons on the article he is to produce, he includes in his cost of production, {a) the cost of the raw material, [b) the waste incident in manu- facturing, [c) the wear and tear of machinery, [d) the time labor will have to expend on the article to finish it, {e) the money that its time is worth to labor, (/) the interest on that money advanced from free capital for the satisfaction of labor's time for the period between the completion of the article and its sale, and {g) finally the interest and taxes, insurance and so forth, on the whole capital invested, except the amount advanced from free capital, interest on which has been looked after. His profits then are the amounts he gets for his perfected article over and above these seven speci- fied elements entering into the cost of production. Third: It will be observed that every function performed by free capital is performed only under TARIFF AND WAGES. 69 the expectation that full satisfaction for this work will be met when the cost of production is covered. If satisfaction is not rendered in this way, free capital must disappear. It acts simply as an agent, production being the principal. If production ceases, free capital cannot longer perform its func- tions. Hence it seems to me that present produc- tion is not only the source of present wages, but it is also the source, in the last analysis, of the present free capital associated in production. Under such circumstances it leads only to confu- sion to multiply terms on this subject, IT IS AN AFTER-EVENT. The manufacturer then considers what his build- ing and plant will cost him, what his product will net him, and what funds he would best keep in bank to maintain credit and to meet expenses between manufacture and sale. So far as there being any distinct wages fund, any more than there is any distinct wages fund, or any distinct raw materials fund, or any distinct interest and insur- ance fund, I cannot concede it. A certain amount of money created by production is expended on each account. It does not originate in capital though advanced by it, but does come from produc- tion. The wages of employees are woX. predetermined for a particular time by an absolute law, inevitable, irrevocable, which takes no account of circumstances. 70 TARIFF AND WAGFS. If production is profitable, and suitable labor is scarce, wages will be high. If production is profit- able and suitable labor is abundant, wages will be lower, but in that case the wages is determined for that time, not by the amount of circulating capital but by the goods labor can best produce under the existing demand. Wages in all respects depends upon production for what it is. A manufacturer cannot, outside the law of sup- ply and demand, "set apart" any definite portion of his circulating capital to the payment of wages. He cannot know what he will have to pay for wages until he either actually attempts to employ labor, or until he has made inquiry as to what he can get the required labor for. Therefore, it seems to me that if there is any "wages fund," it is the total amount of money that is paid, not what MUST be paid for labor; that this fund is an effect not a cause; that it is dependent on the supply and demand of labor; that it is large or small accord- ing to the condition of the market and of the labor, — that in short it is the cart aftet'^ but not before t/ie horse. As such it is not to be considered as an economic " law," for it is not a law of force, it is at most only an event. CHAPTER X. WHAT IS MEANT BY DIMINISHING RETURNS. A Demonstration by Tables of the Absurdity of the SO-CALLED Wages Fund Theory^ The Foolishness OF Applying Foreign Theories to American Condi- tions OF Life — Man's Productiveness Determines his Wages. Our circulating capital in this country does not begin to increase proportionately with our popula- tion, and yet wages is not reduced per man, either nominally or in purchasing power, in proportion to this relative increase of population over capital, and will not, before we reach the period of " dimin- ishing returns." In order to understand this matter thoroughly as respects a new country, I must explain to you what is called the theory of "diminishing returns." THE THEORY OF "DIMINISHING RETURNS. In such a country five men settle with their fami- lies upon fifty acres of land, clear it, plant it and live out of it. From time to time other men join them until ten men are operating these acres. These ten men will produce, if they are equally industrious and capable, and the land will as readily 72 TARIFF AXD WAGES. respond to labor, twice as much as the five men did, but by and by the Hmit of possible propor- tionate increase of production has been reached on this fifty acres. Then, owing to more or less exhaustion of the soil, if another man comes into the community he cannot add one-tenth to the pro- duction from this land, but he produces something. It may be one-fortieth or one-twentieth as much as one man equally industrious and capable could pro- duce in the earlier years of the farm's history; and in this case whatever he produces goes to the credit of the production of the farm. Let me illustrate by a- table, one hundred being the maximum that can be produced on this land : 5 men 50 acres production 40 10 men 50 acres production 80 12^ men 50 acres production 100 Now we have reached the maximum of the pos- sible proportionate production of these fifty acres by 12)^ men. Henceforward we meet with what we call "diminishing returns." 20 men 50 acres production 95 30 men 50 acres production 90 40 men 50 acres production 80 50 men 50 acres production 50 The point were the returns are said to diminish, — that is where one man can no longer produce one-fifth as much as five or one-tenth as much as ten, — is reached when the fifty acres of ground are TARIFF AND WAGES. 73 cultivated by 12^ men. Now then we can add more men to the community but we do not propor- tionately increase the production ; yet the produc- tion is increased to a certain amount, as will be seen by the table above, though it takes as the land grows older fifty men to produce about what originally five men produced. This is in brief the history of land cultivation in all countries. There is an increase in the labor force and decrease in the relative productiveness of the land, and of course an accumulating of capital to a certain point. If the population increases much faster than capital and productive opportunities do, there will come a time when the land will not sustain the people on it. In a new country where we find limited capital and abundant opportunities for labor, immigrants are invited ; if they have capital, so much the better. If they have none they are still welcome because the country is so fertile that in a short time they can become productive factors in the community, and after a time accumulate and add to the fixed and circulating capital of the land. If the wages fund theory is correct, every new immigrant would be looked upon with suspicion by the inhabitants unless he brought a large amount of capital with him. For he would increase the divisor, the divi- dend remaining the same, and consequently the average wages of every man in the community 74 TARIFF AND WAGES. would be cut down by his coming. If this rule is correct, this country has been developed directly in opposition to it. As I have stated a number of times in this con- versation, the circumstances controlling economic questions in this new country are entirely different from what they are in the old countries. This 7oages fund theory was spun under circumstances which prevail in the old 7vorld under circumstances of '■'' diminishing returns.'' Labor is in the market like any other exchange- able thing, and it fluctuates according to the same laws as the price of wheat does, and not according to its ratio with the circulating capital in the land. Paul: What are the " supply " and "demand" of which you speak with reference to labor? Father: Demand is desire for production, present or contemplated, inviting an exchange of labor and wages. Supply is labor inviting an exchange of wages for services in production. You do not fully understand how wages, accord- ing to the wages fund theory, is affected when the period of diminishing returns is reached? Well, listen. Bear this in mind: The luages fund theorists hold that all the circulating capital not devoted to raia material., divided by all the wages ^corkers, gi7'es 7is for the time being the fixed, average ivages. Now., then, for an examinafion of this theory: TARIFF AND WAGES. 75 I. Let me present a table in which cack man brings an equal amount of Ability and Capital: 5 men, 50 acres, production 40, capital $100.00 10 men, 50 acres, production 80, capital 200.00 12^ men, 50 acres, production 100, capital 250.00 We have reached the fullest possible production, with 12^ men on 50 acres of land, and the capital each man has put in is $20, or $250. Supposing $100 of the $250 is fixed — in implements, horses, bonds, etc., we have $150 to divide as wages. Dividing $150 by 12I/2 we have $12 as the wages each averages. Clear, so far, is it not? II. Well, let me present a table in which part of the men bring no capital, though the Skill and Ability of each are Equal: 5 men, 50 acres, production 40, capital $100.00 10 men, 50 acres, production 80, capital 180.00 12^ men, 50 acres, production 100, capital 210.00 If the same part of the capital becomes fixed as before, there is left $110 to divide into wages for 12)^ men, giving an average of less than $9 to each. The man without capital ought surely not to be welcomed into a community under such cir- cumstances if the wages fund theory is true, ought he? But, you notice, the 12)^ men still get the full production from the land, although, by the table, there is $20 less of capital than in the first case, but the same labor. 76 TARIFF AND WAGES. Instead of getting less, however, the history of this country will show, I think, that until the point of diminishing returns is reached, labor gets more rather than less when its productive power is increased by added strength. III. Another table now, showing Equal Capital to each and unequal ability and skill /;/ labor: 5 men, 50 acres, production 40. capital $100.00 10 men, 50 acres, production 75, capital 200.00 I2_^ men, 50 acres, production 92, capital 250.00 Now we have 12^ men with $250 capital, fall- ing short 8 points of the full production of the 50 acres. Five men make a production of 8 each, but 12^ men are averaging only 7-36 or what wY-z men ought to do. Here production is reduced by incompetency distributed among the last 7^ men, and yet, according to the wages fund theory, the same amount of wages is averaged — /. e. $12 per capita., because the number of wages workers (12^) dividing $150, makes an average of $12 each! / insist, to the contrary, that each man's produc- tiveness as a works' fixes his wages, not the amoutit of capital he does or does not contribute to the community. IV. Again: 5 men, 50 acres, production 40, capital $100.00 10 men, 50 acres, production 75, capital 210.00 12^ men, 50 acres, production 92, capital 275.00 TARIFF AND WAGES. 77 Here we have less Industry and more Capital. According to the wages fund theory, we shall have $175 instead of $150 to divide, giving 12^ men — the last 7/^ of whom are inefficient compared with the first 5, — $14 each! Is not this a reduction of the theory to an absurdity? Less Industry (not less labor) more Capital and greater average of wages! Permit me to renew my somewhat iterated remark : I dissent from this dismal theory, insisting that wages arises from production and not from any part of capital. V. Let the table be continued from 12^ on to show the effect in the period of ' ' diminishing returns., ' ' in which, notwithstanding the decreased propor- tionate returns there is an increase of capital, both because it is necessary in order to do the best farming, and because, by long practice of economy there is a greater saving every year. 20 men, 50 acres, production 95, capital $ 400.00 40 men, 50 acres, production 80, capital 1,000.00 50 men, 50 acres, production 50, capital 2,000.00 60 men, 50 acres, production 40, capital 5,000.00 Now among 60 men having a capital of $5,000, of which $3,000 is devoted to wages, we have an average of $50 per capita in wages, and yet these sixty men do not get out of the land any more in the aggregate than the five men got from it. Their wages, however, is over four times as much as was averaged by the first five settlers. I hold that 78 TARIFF AND WAGES. each man working the 50 acres would be robbing capital if he took more as wages from the land than he produces on it. In this condition each man adds something to the production of the sixty, and his coming does not of necessity cut down by one-sixtieth the wages of all the rest, VI. If we have 50,000,000 people, 500,000,000 acres, each producing to full capacity, and a circu- lating capital of $20,000,000,000, of which $12,- 000,000,000 constitutes this so-called wages fund, then the average wages will be $1,400. VII. If the population and capital are the same, and production has diminished one-half, the aver- age wages is still $1,400, according to the fixed fund theory, VIII. If population doubles and capital remains the same, whether production increases or decreases, according to this theory the average is but $700! The wages fund theorists as stated above hold that the population (wages workers) is the divisor, that the part of circulating capital left after the raw material is purchased is the dividend, and by dividing the latter by the former the average of wages for the time being is found. They do not give production any representation in this example in common division. The thing seems absurd to me, very! I believe the sound theory is the one TARIFF AND WAGES. 79 that I have stated, that wages begins in, rises, falls and ceases with production. IX. The rule in a progressive country is, increase of population and capital, decrease of wages and interest, and decrease in the proportionate (but not in the aggregate) productiveness of land. What a man can earn by labor on land, in the last analysis, is the base line of the current rate of wages, for, if free to act, he will not accept as wages less from any industry than he can wrest from nature by tillage of the soil. Hence, we find in old coun- tries, wages, having a lower base line to start from, average lower, other things being equal, than in a new country, where nature is very generous to requite even easy toil, and where, consequently, the standard of wages is high. Here again, you see, it is what a man can produce in this, that or the other industry that determines his wages, and not any so-called wages fund. CHAPTER XI. THE TWO THEORIES DEMONSTRATED. The Fallacy of the Wages Fund Theory Set Forth in A Table — How Wages, Dependent on Production, VARY with it. Father: I have put what I think is a demon- stration of the fallacy of the wages fund theory into tabular form. In looking over this table please remember that whenever I have doubled the labor on the 50 acres, I have had to add something to the fixed capital, as more implements, etc., are required for say ten men than five, presumably twice as many provided they are all used at the same time ; but by doubling the labor we are able the better to subdivide the work so that all shall not be doing the same kind of work at the same time, and hence will not want double the imple- ments. For this reason, where labor is doubled I add only 50 per cent, (see VI. table I.) to the amount of capital fixed in farm implements. When five men, however, double production, I increase by 50 per cent, the capital fixed in implements (see II. in table I.), for it is evident that five men can- not double production without increasing facilities somewhat. TARIFF AND WAGES. 8i I include, in fixed capital on the farm, the imple- ments, tools, teams, wagons, etc., and then as only seed is raw material, it is so small an item that I do not separate it. Furthermore, for the sake of simplifying the discussion, I assume that title to the 50 acres has been secured by conquest, pre- emption or squatter sovereignty. Therefore all capital is used for implements, etc., and for advanc- ing wages. In the first exhibit wages is a sort of dog u?idcr the master s table which takes what is left after every other demand is satisfied. In the exhibit I propose, wages eats at the table with the master and shares the best of every course ! Now study these two exhibits. They will bear a good bit of comparison and investigation in con- nection with our previous discussions of this matter: 82 TARIFF AND WAGES. I. WAGES, ACCORDING TO THE WAGES FUND THEORY, INDEPENDENT OF PRODUCTION. u d •0 c •0 c 3 b£ U c • — c [iH u ^ ^ U) 1 4) p ■0 a 5 "a •a X u bo S u > c V a; hJ < Oh Dh u E < fe Ph I 5 Men 50 40 8 100 40 60 12 12 20 ~ II 5 " 50 80 16 100 60 40 8 8 20 T3 T III 5 " 50 40 8 200 40 160 32 16 20 IV 5 " 50 80 16 200 80 120 24 12 20 V 10 " 50 40 4 100 60 40 4 4 10 3 VI 10 " 50 80 8 100 60 40 4 4 10 ^^3 VII 10 " 50 40 4 200 60 140I14 7 10 J VIII lO " 50 80 8 200 60 140 14 7 10 3 IX 10 " 50 40 4 150 60 90 9 9 10 SS X 10 " 50 40 4 go (750 40 4 4 10 < n XI I2>^ 50 100 8 250 100 150 12 5 8, • XII 50 " 50 50 I 1000 400 600 12 11 XIII 50 " 50 50 I 1000 600 /'400 8 XIV 5§ (7. With deficiency of capital I assume they could put less into implements, etc. />. The further one gets from the period of maximum production, the more of capital must go into machines, implements, etc., to secure even the production that is obtained. TARIFF AND WAGES. 83 II. Now for a demonstration, by table, of the counter theory : WAGES AS DEPENDENT ON PRODUCTION. •d £ c .0 ° 2 _: C iJ 11 . u t/5 3 % aj ?^ b£ u n] •a 2 i-i ■5. ha ^^ J < Ph CL, u 0-, <; I 5 Men 50 40 8 100 75 30 $6. ■ 2 5 " 50 80 16 100 65 52 10.40 Progressive 3 5 " 50 100 20 100 60 60 12. Production. 4 10 " 50 80 8 200 60 48 4.80 5 10 " 50 100 10 200 60 60 6. 6 I2>^ 50 100 8 250 50 50 4- .Max. Prod'tion 7 8 20 " 40 " 50 50 95 80 4.75 2 400 1000 45 40 43 32 2.1S .80 Dim. Returns. 9 50 " 50 50 I 1000 30 15 •30 ) This exhibit is true, relatively, whatever the con- ditions of supply and demand for goods or grain may be. I have graduated the per cent, of wages to production from 75 per cent, to 30. I fancy that I have put it too high — but this is immaterial — the table illustrates relations. In this table you can very readily see how pro- ductive power, regardless of capital at cofnmand^ plays hide and seek with wages. For instance ( No. 4), labor -is abundant, and so is capital, but it is not the most productive kind of labor, hence wages 84 TARIFF AND WAGES. is low, $4.80. Again ( No. 3), labor is scarce, but it is of the highest grade, producing the maximum, and we have, as might be expected, the highest wages. In No. 9, labor is abundant, very abundant, capital is very plentiful, production is at the lowest ebb, and, as seems proper, wages is on the rock. My son, I leave these tables with you for your consideration. I have spent more time on this subject than I intended, but the wages fund theory makes such a dismal science of political economy that I feel as if I ought to expose its fallacies to you. CHAPTER XII. THE TARIFF, SUBSIDIES AND BOUNTIES. Tariff Duties Paid by the Well-to-do — Internal Rev- enue Paid by the Wages Earners — Power to Tax Unlimited — Tariff more Direct and Preferable to Subsidies and Bounties — Growth of " Fair Trade" Sentiment in Great Britain — Ruinous Belgian Com- petition — Comparative English and Massachusetts Wages. Paul: The protective tariff is a tax, plus interest thereon, which is eventually paid by the consumer. This you admit? Father: Yes, and our internal revenue taxes axe paid by the consumer^ though many of them are so disguised that the consumer is not conscious that he is contributing unto Ccesar. Paul: Has the government the right to levy taxes except for revenue? Father: That right has been exercised since 1789 in this country as a function of the general government. Paul: Can government tax a thing out of existence? Father: The theory is that the power to tax, if it exist at all, is unlimited. I do not like this view of it. It is a dangerous prerogative, this 86 TARIFF AND WAGES. power to tax unto death, but it must be admitted that when you concede that the government has a right to tax for other purposes than for revenue, you place no limitation to that power — the only limitation, if it may be so called, residing in the discretion of the law-making and law-confirm- ing powers. WHY A TARIFF IS PREFERABLE TO SUBSIDIES AND BOUNTIES. Our government from the first was committed to protection and it adopted a tariff therefor instead of subsidies and bounties, and I am inclined to think that a judicious tariff distributes advantages better than would bounties and subsidies such as Great Britain extends to many of her favorite industries. These too are taxes paid by the con- sumer and theoretically are open to quite as many objections from a free trade standpoint as are protective duties. The more direct taxation is, the less inequalities prevail. A protective tariff is paid by tJie tueii-to-do classes who will import what they want at whatever cost; whereas internal rev- enue is an indirect tax which is paid by the 7uages earners as a matter of necessity. In this country we get the bulk of our revenue from the tariff; * in Great Britain there is no tariff except on spirits, * For year ending July i, 1887, the customs duties receipts were $217,286,893 and the internal revenue receipts $118,823,391. TARIFF AND IV AGES. 87 tobacco, tea, coffee, and a few such articles, the bulk of the expenses of government being raised by the indirect inland revenue tax which almost nothing escapes. As the tariff therefore comes out of the pockets of the rich and extravagant and is more direct than would be sub- sidies and bounties, to which all the people would, by the indirect taxation of internal revenue, con- tribute, and which would be much higher were this form of governmental assistance the rule, I think the true protective tariff works less injustice and is easier borne than any other accepted form of assistance. FAIR TRADE SENTIMENT. Great Britain, you see, is not an absolutely free trade country because she levies duties on certain articles and always puts a higher duty on the manu- factured article than on the raw material^ thus practicing the very essence of protection ; and there is a strong sentiment developing among her manufacturers in favor of what they call "fair trade," that is, trade protected by duties when necessary, for the English manufacturer is often underbid in his own territory on work in which he has been reputed to excel, by Bel- gian manufacturers, who can compete with him successfully because wages are lower in Belgium than they ari in England. Sir George Elliot, M. P., one of the largest coal miners and iron manufac- 88 TARIFF AND WAGES. turers of Great Britain, told me that his own class of manufacturers was underbid by Belgian iron men on the contract for one of the largest railway stations in England, and secured the job, and such instances are multiplying every day. They empha- size the lesson that there is reason and common sense in a fair trade or protective policy when in an unqualified free trade policy there may be ruin- ous competition from abroad. I did not intend to quote any statistics, but to show you how much lower relative wages are in England and Massa- chusetts let me read you the following: "In the fall of 1883," says Carroll D. Wright, Commissioner of Massachusetts, "we started upon an original investigation through personal agents of the bureau, in Massachusetts and Great Britain, and through these agents we have gathered from original sources (meaning by original sources the pay-rolls of great manufacturing establishments, the official wages lists agreed upon in England, so far as Eng- land is concerned, between trade societies and employers, and from other reliable sources) the rate of wages paid in the following twenty-four industries which are common to Massachusetts and Great Britain : TARIFF AND WAGES. 89 KATE OF WAGES PAID IN INDUSTRIES COMMON TO MASSACHUSETTS AND GREAT BRITAIN. Industries, 18 Agricultural implements Artisans' tools Boots and shoes Bricks Building trades Carpetings Carriages and wagons Clothing Cotton goods Flax and jute goods Food preparations Furniture Glass Hats — fur, wool and silk Hosiery .... Liquors, malt and distilled Machines and machinery Metals and metallic goods Printing and publishing Printing, dyeing, bleaching, and finishing cotton textiles Stone Wooden goods Woolen goods Worsted goods All industries average General Averapc Weekly Wages Paid to all Em- ployees Massa- Great chusetts. Britain. $10.25 $8.85 11.80 4.89 11.63 4-37 8.63 4.16 14.99 7.21 6.08 4.11 13.80 4.89 10.01 6.71 6.45 4.66 6.46 2.84 9.81 2.72 1 1. 04 7.96 12.28 6.94 II. 01 5-51 6.49 4.67 12.87 12.66 11.75 6-93 11.25 7.40 11.37 5-52 8.67 4.94 14-39 8.58 12.19 5.67 6.90 4.86 7-32 3.60 $10.31 5.86 By this comparison you will observe that were free trade established between Great Britain and go TARIFF AND WAGES. Massachusetts, the former, in the matter of the wages alone of the industries named, would have a tremendous competing advantage over the old Bay State, noiun't/istaiidiiig the fact that American labor is from 25 to '^■^Yi per cent, more productive than any foreign labor. As wages are somewhat lower in Massachusetts than they are in the entire United States, the result would be more disastrous to the entire country than with Massachusetts. PART III. Capital, Labor, Strikes, Arbitration, Profit Sharing, etc., etc. CHAPTER XIII. RELATIONS BETWEEN CAPITAL AND LABOR. Definitions — Trade Organizations Justifiable — "Takes Two TO Make a Bargain" — Alienations that are Foolish — A Duel — Material Interests are Safe in THE Hands of Honest Workingmen. Paul: If you are so disposed, father, I would like to discuss the question of the relations of capi- tal and labor. We hear a good deal about antago- nism existing between them — a sort of " irrepres- sible conflict," and many people look forward, I am told, to the future of these relations with no small apprehension. Father: What is capital? What is labor? These questions first require an answer. Financial capital is profit of production reserved for future production. Labor is the service which capital must have in order to secure further production. EXPERIENCE, ETC., NOT CAPITAL. Some writers and thinkers use the term capital somewhat loosely, I think, when they speak of a 92 TARIFF AND WAGES. literary man's intellectual ability and the expert's acumen as capital. I do not so regard them. They probably belong to the department of skilled labor — their possession enhances the value of the literary man's work and the expert's services, but they can scarcely be called capital because they are not tangible ; they cannot be taxed ; they cannot be loaned to another for monetary consideration ; they are not impaired or enhanced by changes in com- mercial conditions. They are of no value without the stimulus of financial capital. Like labor, unless demanded by capital, they do not yield any return to the possessor. In all economic discussion, we greatly simplify matters by simply defining our terms, and there- fore I exclude intelligence, skill, experience, etc., from the domain of capital and place them in the category of labor CAPITAL THE CHILD OF LABOR AND INTELLIGENCE. Capital is an accumulation of property or funds resulting from past labor and intelligence — liter- ally a son of sorrow and toil. It is the organiza- tion of commercial force. The purpose of its organization is to increase itself. As it is born of intelligent labor, it cannot grow without the assist- ance of labor. Capital that is unproductive soon disappears — it feeds on its own vitals. Further- more we must not forget that capital is organized TARIFF AND WAGES. 93 on the purely selfish basis like every other human commercial force. It is always looking out for " Number One," and must necessarily do so else it would soon disappear from the earth. Paul: Would this be a calamity? Is not the organization of capital a menace? Father: It would indeed be a calamity if capital were swept from the earth because then labor would be reduced to beggary — and beggary which would cry aloud in vain, for there would be no hand to help, no arm to save. Better the deluge, wherein all might perish at once, than such a catastrophe! Yes, the tendency of capital, just as the tendency of democracy, is towards centralization of power, and irresponsibility, but it is amenable to public opinion and can be held in check. ORGANIZATIONS OF CAPITAL AND LABOR. Now then, for illustrations: In our primitive community, a capital of $100,000 was collected for the plow works and negotiations were opened for services of needed labor. It is plain that capital must pay labor fully as much as labor could obtain from any other employment it could find. If the only other occupation of the people was agricul- ture, capital must reward the services of labor to the same extent, — either by money or its equiva- lent in more agreeable kinds of work — that the 94 TARIFF AND WAGES. same amount of intelligence and skill devoted to agriculture would produce. If the demand for the labor it wanted exceeded the supply of such labor, capital would have to pay a larger amount in order to induce labor to offer desired service. If such service was very scarce, of course the extra wages inducement would increase the cost of production, which must be met either by charging, if possible, a higher price for the plows, or capital must be content with a smaller per centum of profit. In the earlier history of capital associated for manufacture, labor is scarce and is able to drive a better bargain for its services, and unless later on labor organizes itself as capital has done, the tendency of time is to make labor more dependent and capital more dictatorial. Mark me, my son, neither labor nor capital can, by organization alone, increase its relative value. Organization can simply render them more certain against imposition for one reason: "// takes hvo to make a bargain "y and I insist upon it that the capi- talist alone is not to be trusted alivays to do exact justice by labor. Furthermore, labor is not qualified to estimate exactly its value to capital. We cannot take it for granted that without some sort of compul- sion men will be just and square witJi their fellows, whether they are capitalists or laborers. Paul: Then I suppose you believe in the thou- sand and one organizations of workingmen? TARIFF AND WAGES. 95 TRADE ORGANIZATIONS LEGITIMATE. Father : Certainly I do so far as these organ- izations are formed for the purpose of resisting the tendency of capital to become unjustifiably dicta- torial and irresponsible. They have a good reason for existence but it requires a very great degree of wisdom in their management to restrain them from extreme atid unjustifiable proceedings — a tendency which is very great because there are many times when labor in adversity gets desperate, when it hears the howl of the wolf of hunger not afar off. Labor has rights which capital is bound to respect., and it is because capital has not respected these rights as tenderly as it ought to have done, it is because capital has organized sometimes for pro- tection and sometimes for aggression that organiza- tions of labor have sprung into being. Capital., too., has rights which labor is bound to respect. They have mutual interests inside and outside the bound- aries of their "inalienable rights," and when they both recognize and respect these rights, the appar- ent conflict between them becomes a sort of individual affair — not a positive hostility between the two great commercial divisions of mankind. The self-seeking meddlers on both sides are responsible, chiefly, for the wrangles that do occur. But to illustrate by a little — 96 TARIFF AND WAGES. FANCY SKETCH OF A DUEL. John Honest and Henry Caput had grown up together as boys. Both had sprung from obscure parentage, and neither was able to tell the fate of the father or mother. Occasional stories had come to their ears that they were related to each other, but the evidence was so cloudy that they paid no attention to it. As children they were devoted to each other, but as they grew up they showed a dis- position towards what was at first friendly rivalry in sports and employments. They were of equal height and people often remarked that " they look near enough alike to be brothers." John became a shoemaker in his native place and was as honest as the day. While his education was limited his common sense was strong and he was looked upon as a leader among his fellows and was at the head of the labor society of the town. Henry, when he became of age, sought his fortune in California gold mines, and after years of hardships and suffering returned to his native town a rich man. He soon acquired elegant tastes, drove nice horses, was fond of the good things of life, and yet withal was a generous friend of the charities and benevolences of his native town and gave large amounts of money to beautify and adorn it. TARIFF AXD WAGES. 97 He had many fawning courtiers about him, un- thinking, unreasonable men, one of whom sought to poison his mind against his old friend John Honest, who he said was circulating evil reports about him and organizing his friends to prevent him from gaining any success in his future financial efforts. Busybodies on the other side poisoned John's mind against Henry, and these old friends became sworn enemies. One day they met on the public street, hot words were exchanged — John calling Henry a thief and a robber and Henry intimating that John was a coward and a sneak. A challenge followed. To nerve each man for the contest, the seconds shaved off their beards, and daubed their faces with lampblack, fearing that the old associations of friendship would unman them unless they were disguised, and prevent the ''satisfaction" each sought in gore. The fatal day came. The men stood before each other for the word, great beads of sweat pouring down their faces obscuring their sight. Each simultaneously wiped with his arm his sweaty face, — the daubs went with the sweat! The beardless faces thus uncovered were the faces of the boys of twenty years ago — boys who had loved each other. The duel incontinently ended. 98 TARIFF AND WAGES. The next week an old and toil-worn man came to the town and through him it was learned be- yond a doubt that John and Henry were brothers! And so it is the busybodies, the lazy good-for- nothings, the scandal-mongers, the incendiaries, who are seeking to involve John Labor and Henry Capital in conflict — they who are sons of the same parents, who spent their youth together, and whose manhood, whatever their circumstances, should be one of amity and mutual respect. Evils move along the line of least resistance, and because capital has so long been organized and labor has so long scattered its forces, capital has gradually begun to think itself greater than everything else in society and irresponsible — an error which the organization of labor will undoubt- edly correct by a counter influence on public opin- ion. To get this influence, labor must be wise, conservative and just in all its doings and demands. Paul: Are the relations between organized capital and organized labor amicable ? Father: I think each is suspicious of the other. For years labor was in abject subjection unto capital, and is so in some of the older coun- tries to-day. In England when labor began to combine into trades unions against the influence of dictatorial capital, the organizations were out- lawed. This was a false step — it was overreach- ing and of course it drove the members of the 7\4KIFF AXD WAGES. 99 unions to excesses which probably would never otherwise have been committed. The very fact of the organization, of these unions would be proof to the social economist that there was a good reason for their evolution, but like all checks to tyranny, they met with a baptism of fire and persecution. Their function was desired, and their excesses would not have been committed had they not been confronted with a hostile public opinion created in a large measure by organized capital. A HEALTHFUL EVOLUTION. Since 1870 trades unionism has flourished in the United States. In 1877, some fiery spirits brought some discredit on the organizations, but I believe when they cling simply to their "inalienable rights" of self-defense against oppression ; when they over- come any tendency to interfere with those who do not act in unison with them ; when they rely entirely upon the justness of their cause rather than upon the un-American "boycott," they are in har- mony with the spirit of American institutions; that, conducted with prudence, they have and deserve public countenance, and that they can be of very material benefit to the trades whose interests they seek to serve. SAFEGUARDS AGAINST ANARCHISTS. In my opinion they are the very best safeguards we have against anarchists who threaten such dire- loo TARIFF AND WAGES. ful things. Our interests can be in no safer hands than in the hands of the honest, intelligent, liberty- loving American workingmen. I do not believe that they can be used by plotters against the public peace. Their membership is made up of the bone and sinew of the country, of the strong, common-sensible people, who have the wisdom to resist as well the attempt of terrorists to use them, as of the other extreme to abuse them and traduce their motives and acts. I have no fear of them — I have infinitely more fear of the out-of-sight organizations of men who despise public opinion and who by bribery and corruption seek to ride roughshod over the rights of the people. The process of evolution has not yet given us, perhaps, an ideal trades unionism, but the future will disclose it, and when all present crudities and malformed features are removed, we shall find in these organizations an element of very desirable politicg-social strength. Confidence and mutual respect will succeed suspicion, and organized capi- tal and organized labor will be rivals but not of necessity enemies. Each will get all it can out of the bargain which it negotiates. ULTIMATE GC^OD FROM STRIKES. Paul: Then I suppose you approve of strikes? Father: Not necessarily. The spirit which has caused strikes has its root in a defense of rights, TARIFF AXD WAGES. loi but unless one knows all the circumstances of the case, one can pronounce no definite opinion on the merit of individual proceedings. It cannot be denied that fear of a strike against injustice has a salutary influence against undue greed on the part of capital, and though the pres- ent effect of a "strike" maybe disastrous, I do not doubt that needed material good is evolved from it. ARBITRATION COMMENDED. Yes, my son, I would strongly recommend arbi- tration. The same or a better result is reached by it and both labor and capital suffer less loss. CHAPTER XIV. LABOR AND CAPITAL SHARING PROFITS. Salutary Results of this form of Co-operation — Stimu- lating Manful Self-interest on Behalf of Capital. Paul: What further can you suggest in the way of bringing capital and labor into more inti- mate relations? I have no doubt, as you say, that their interests are mutual, but they do not seem to be at all tender of each other. I may be young and shortsighted, but I rather like the manufacturer so closely described in "John Halifax, Gentle- man." It seems to me that more such characters ought to be met with in daily life. Do you not think well of co-operation? Father: Co-operation in the purchase of the necessities of life seems to be satisfactory when fully tried. Individuals are thus given the benefit of wholesale rates plus the expenses of manage- ment, and I approve it. Co-operation in manu- facturing is not so simple, nor is it I fancy so satisfactory. If fifty men put together all the capital they can raise and go into the manufacture of plows I doubt very much if they will succeed as well as would a single firm of one or two per- sons in the conduct of the business. TARIFF AND WAGFS. 103 Business like an army must have a head and competent subordinates to take advantage of all the points which an ever-changing market presents. Of course a co-operative concern can put its affairs into the hands of one or two or three executives but even then I doubt if there is the element of stability and continuity of a prudent policy in them that we expect to find in private centralized firms and companies. PROFIT SHARING AMONG WAGES EARNERS. Personally I think very highly of the plan of capital giving labor a per centum of its profits over and above a certain stipulated figure. This plan enlists one's self-interest as no other known plan does, and you will find, my son, that there is noth- ing which so interests a workingman in his employ- ment as the idea or hope of a proprietary share in the success of his employers. Under such a plan the men are more hopeful; they look forward to a future of some promise; they feel — they know — their employer's interests are also their own. I wonder why this plan is not more generally adopted. Paul: Is this plan successful when tried? Father: I am told that it is. Many large job- bing houses in the country have adopted it, and even when they have put their desired profit at a high figure, it is said that the zeal inspired in the beneficiaries of the plan has been so great that this I04 TARIFF AND WAGES. profit has been realized and a large amount in addition secured for division among the percentum employees. Under this plan the employees share in the profits above a certain figure — say 15 per cent. — but they do not bear their share of the losses which are sometimes heavy and inevitable spite of the wisest management. But I dare say that the firm practicing this sort of business will seldom — it ought never to — meet with any opposition if a reduction of wages or a cessation of production is found necessary. Paul: Do you think that all the labor employed should be a beneficiary under this plan? Father: I think an interest in profits should surely be given to those whose fidelity and worth have been shown in extended service. I am satis- fied, however, that if the plan were extended even to all the labor employed, it would yield the most satisfactory returns, and establish relations between capital and labor that would be in the highest degree beneficial. Paul: But would not this plan necessarily pre- suppose a lower rate of wages in an establishment conducted on the division of profits? Father: Not necessarily. Paul: Would not the part divided with labor necessarily come out of the pockets of capital? Father: No, not unless you can show beyond a doubt that without such a division or distribution TA RIFF A ND I VA GFS. i o 5 capital would gain as much as or more than it does under it. I think this could not be proved, for the reason stated above. Better and more faithful ser- vice is stimulated by the limited partnership plan ; capital gets the degree of profit it desires and the employees secure all the surplus their energy can gain for the concern. Wages, moreover, being paid for from the products of present industry, if this plan promotes productiveness of labor, and the market for the wares made remains good, wages ought to be higher and better assured under what I may call this limited partnership plan. CHAPTER XV. COMPARATIVE STATISTICS. The United States Leads all Competitors in Manu- factures, Wealth, etc. — Sixty-six Per Cent, of Population Diverted into Productive Industries — Under a Free Trade Policy England would use us as a Surplus Market — Tariff Matters Must be Regulated by Good Business Sagacity and Common Sense. Father: Figures sometimes are more eloquent than all theories. It may be well, therefore, to show some of the results of economic policies prac- ticed by different nations. I give first the total manufactures of the leading nations, in 1880: United States $4,440,000,000 Great Britain 3, 790,000,000 France 2,425,000,000 Germany 2, 135,000,000 Russia 1,145,000,000 Austria 1,030,000,000 Italy 575,000,000 The United States leads the world in manufac- tures, with free trade (free trade since 1846) Eng- land her next competitor, the other nations prac- ticing a protective policy. The value of the total industrial or manufactured products is : United States $10,395,000,000 Great Britain 10,120,000,000 France 6,625,000.000 TA RIFF A A 'D I VA GES. 107 German}- 6,345,000,000 Russia 4,300,000,900 Austria 3,285,000,000 Italy 1,895,000,000 Here, too, the United States leads all the rest. The following table shows how splendidly, up to 1880, the United States had forged ahead: S ^ S u c Debt. Net Wealth. United States Great Britain France Germany 847,475 43,600 40, 300 31,615 21,715 18,065 11,755 $7,100 6.235 4,852 4,250 3,800 3,010 1,450 $1,842 3,845 4,555 1,145 2,765 2,095 2,610 $45,633 39,755 35.745 30,470 18,940 15,970 9,145 Russia Austria Italy These figures represent billions. Here, too, the United States leads all the rest of the world in wealth and income. The average wealth a head in the United States, in 1880, was about $8.70; in Great Britain it was about $9. 70. To show how our laboring force has been dis- tributed: we had in 1880 a total laboring popula- tion of 17,392,099, divided according to vocation as follows : In agriculture 7,670,493, or 44 per cent. In professional and personal. .. .4,074,238, or 23^ " In trades and transportation. . . .1,8x0,256, or 10^ " In manufacturing, mining and mechanics 3,837,112, or 22 " " loS TARIFF A AD WAGES. This shows that under the economic poHcy — the protective — 66 per cent, of our worlcing people have been diverted from the tillage of the soil to other industries. RESULTS, NOT PROOFS. None of these tables prove that protection is a better policy for the United States than free trade, but they do show that under a protective policy we lead the world in total manufactures, in total wealth, in the value of total manufactured or in- dustrial products, and that wonderful and desirable diversity of employments have attended us in our national development. The free trader may say that it does not follow that even better results would not have followed had the free trade policy been pur- sued, which I may admit, though I doubt it. Eng- land has always been an aggressive commercial power and has always usurped every local market the world over as her own by a sort of divine right unless the local market has resisted her assumptions. So aggressive has been her crowding usurping func- tion in this particular that her own colonies all over the world have been compelled to bar her out of their markets by tariffs that she has not been able to override. She always pursued this policy towards this country when we were in the colonial period, and if she had had her own way in shaping our economic policy after we gained our independence. TARIFF AXD WAGES. 109 she would bave robbed us of the substantial fruits of self-reliant commercial and industrial independ- ence by insisting that this country was naturally an agricultural and pastoral country, that it should cling to its "heaven-designed mission" and buy its manufactures of her own natural and best equipped artisans and mechanics. In the period from 1784 to 1790, without protection, the balance of trade against us and in favor of England was over $50,000,000. From 1795 ^o 1801, under a protective policy, the balance of trade in our favor and against Great Britain was about $90,000,000, a reversal of $140,000,000. Paul: Yes, but did not this extra taxation of our own people check our own material progress ? Father: Not demonstrably. We paid the ex- tra price, and thanks to the stimulus given to the erection of new industries, we were able to do so and have a handsome margin, in the bargain. Paul: If free trade were made the American policy to-day and we had for example 1,000 inde- pendent industries and 250 dependent industries, all having competitors in England, could England probably undersell us in our own markets after bringing her products 3,000 miles? Father: Yes. Paul: As respects our independent industries? Father: Yes, sir, as respects all of them if she was disposed so to do. no TARIFF AND WAGES. Paul: Then what is the use of protection, if, as you say, she could undersell our manufacturers that we had protected to the point of so-called independence? A SURPLUS MARKET FOR ENGLAND. Father: That's a close question, and well asked. It brings up just the very point that I want to discuss for a few minutes. It doesn't follow that she could always undersell our manufacturers that had been protected up to the point of inde- pendence. But if her home and Indian and other exclusive markets were good, she would use the United States if need be for a dumping ground for her surplus products in this way: She could manu- facture $2,000,000 worth of steel rails, say, cheaper than she could $1,000,000 worth. If she could dispose of $1,500,000 worth or more at a good profit, say 10 per cent, in all her other accessible markets, she could afford to sell her surplus in the United States at one per cent, profit, or even at cost, yes and a trifle below cost, for in that event she would make an average profit of 10 per cent, less what she might throw off the surplus in the American market. Of course this would paralyze any American steel rail manufactures. Carry this mere imaginary illustration through the entire line of competition, and you can readily see how the American market would soon be in utter depend- TAKJFF AND WAGES. iii ence upon the schemes of the British manufacturer. The result would be an immediate destruction of production, a vast superabundance of labor, a low- ering and cutting off of wages and the prostration of the country. Paul: But couldn't our manufacturers play the same game and carry the war into the English markets? Father: No, not unless we had the same capacity for cheap production, the same rate of wages, were content with the same scale of profits and had the same means of ready and cheap transportation. Most of these elements we would never possess until like her we had passed the point of diminishing returns, and labor ex- pended on land produced no greater results here than there, for what labor expended in the cultiva- tion of land can produce is the standard of wages the world over. It produces most in the newest and least densely-settled country, and hence wages must be higher in the United States than in Eng- land, the profits of business must therefore be higher unless we can gain compensating advan- tages in greater industry and better machinery. This possibility however would be cut off if Great Britain were allowed to use us for her surplus market. A TARIFF FOREVER? Paul: Accordingly, you would always have to 001 120 471 6 '^ irAGES. maintain a tariff if there were any probability tiiat we would become the surplus market? Father: We must always regulate our econ- omic policy by the rivalries which we have to meet. It would never do to adopt any sort of economic policy that ignored destructive competition. As a nation we must exercise the same sagacity that we do as individuals, shape our policy to the circum- stances in which we are placed, and in every emergency see to it that if we cannot gain in other respects compensating or retaliatory advantages, we must not open our ports indiscriminately to foreigners. Paul: If the whole world were practicing free trade would we not still be in danger of becoming the surplus market? Father: The field of free operation being so much larger, and the older countries of Europe possessing so many coequal advantages with Great Britain, she would not command undisputed so many markets, and her average profits would be so reduced that she could not afford to sell to us at such low prices. " Each industry is entitled to protection for what it is worth to the community, for if Louisiana, for instance, cannot produce sugar of suf- ficient quality and quantity to supply the country, the price of what she can produce would be a check upon the price of the foreign product, which would not sell at a higher figure than what the Louisiana sugar could be produced for.'' 1