Home Stock Buying Money Basics Banking Wealth Nature of Rent Economic Theory

Most Viewed

The Law Of Population
The Limits Of An Economic Society
Perpetual Change Of The Social Structure
Value And Its Relation To Different Incomes
The Law Of Accumulation Of Capital
Effects Of Dynamic Influences Within The Limited Economic Society
Organization Of Labor
Boycotts And The Limiting Of Products

Least Viewed

Production A Synthesis Distribution An Analysis
Leading Facts Concerning Money
The Foregoing Principles Applied To The Railroad Problem
The Measure Of Consumers' Wealth
Capital As Affected By Changes Of Method
Conditions Insuring Progress In Method And Organization
Land And Artificial Instruments
Further Influences Which Reduce The Hardships Entailed By Dynamic Changes
Summary Of Conclusions
The Socialization Of Industry

The Basis Of Wages As Fixed By Arbitration

The state needs an authoritative mode of determining what rate of pay
is "reasonable." This duty is often imposed on boards of arbitration,
for whose guidance no definite principle of justice has as yet been
prescribed. Such a board has to depend on its own intuitions. It
approaches its difficult work, having no legal rule for reaching a
decision, and yet compelled, if possible, to reach one which will
actually settle the dispute referred to it and enable production to go
on. It must try, in the verdict it pronounces, to satisfy its own
sense of equity. What such a tribunal has, in most cases, actually
done has been to make compromises, and this has measurably
accomplished both of these ends. A verdict that "splits the
difference" between the men's demand and their employers' is most
likely to cause work to be resumed; and on the ground that each party
is probably claiming too much, and that justice lies between the
claims, it insures a rude approach to fairness. This action has caused
unfavorable criticism of the whole system of arbitration, on the
ground that it abandons the effort to reach absolute justice and tries
chiefly to end the quarrel on any terms, and also that by giving
strikers a part of what they demand, it encourages them to strike
again and secure more. We have to see whether a court can do better
than this and whether such a crude procedure has tended at all toward
putting wages on a normal basis.

Why a Court cannot reduce Wages in Favored Fields to the Rate
prevailing at the Margin of Employment

A tribunal of arbitration,
which has to deal with consolidated capital and organized labor, acts
in a field where both profits and wages are higher than they are in
most departments of industry. Should a court then take as its standard
of just wages what unorganized labor gets when it works for
independent employers? That would usually level the pay of the class
of laborers it is dealing with to the standard set by a much more
poorly paid class.

Should the court, on the other hand, take as the just rate the one
that generally prevails where employers are organized in trusts and
workmen in exclusive unions? That would be legalizing the result of
monopoly. The court, in such a case, knows that the profits of the
business are increased by the employers' monopoly and wages by the
workmen's; and yet it will not pull down the rate of pay to the level
prevailing where no combinations exist. On the other hand, to legalize
any high rate of wages, which is made possible only by a double
monopoly, would seem to be equally unjust.

The Power of Monopolistic Trade Unions under Different

Arbitrators have to deal with trade unions which appeal
to some kind of force in defending their right of possession of a
field of labor. They make their own demands, strike, and compel rivals
to stay out of the positions they vacate. When this policy is
tolerated, they secure an exceptionally high rate of pay.

We may represent the product of labor and its pay in the different
occupations by the accompanying diagram.

The heavy line AA' represents, by its height at different points
above the base line EE', the product that is specifically imputable
to labor in different employments. The part of the figure where the
line is far above EE' represents the condition where, on the
employers' side, monopolies are established; while on the right of the
figure, where the line has descended and is slowly approaching the
base, the condition is represented in which employers are competing
with each other, and many of them are selling their products at prices
that only cover the cost of creating them. A unit of labor working for
a monopoly creates as large a physical product as it does elsewhere.
It turns out as many tons of steel or cases of cloth, etc., as though
no monopoly existed, and the price of the goods is high because less
labor is employed than would be employed under competition and fewer
goods are produced. The actual product of the unit of labor, as
measured in dollars, is enhanced by the employers' monopoly. BB'
represents, by its varying distance above EE', what organized labor
can get under the different conditions. On the left it forces the
trusts to share gains with it, and gets a high rate of pay; while on
the right, where employers are not in combination and there are no
such great gains to draw on, it gets less, although at the extreme
right it gets all that it produces. DD' represents what unorganized
labor can get under the different conditions, and it is usually
somewhat more where trusts employ it than it is elsewhere. The dotted
line CC' represents the product of labor as it would be if it were
equalized in the different fields.

The Parties interested in a Dispute in which Both Labor and Capital
are Organized

We can best deal with the problem of the adjustment
of wages by arbitration if we approach it in a region where
organization is strong, both on the side of labor and on that of
capital, and disturbances of the natural system are greatest. The
struggle that here goes on is, in a way, triangular. Organized labor
contends against its own employers, on the one hand, and against
unorganized labor, on the other; and the part which develops the
greatest bitterness of feeling and the most violence is the strife
between labor and labor--between the trade unionists who strike and
the men who attempt to occupy their positions. The union is more
tolerant of the employer's action in driving a hard bargain than it is
of the "scab's" action in "taking another man's job."

The Public a Fourth Party in the Case

The three parties just
named--employers, organized employees, and applicants for places--are
not the only parties whom the dispute affects. The public has a vital
relation to it, and in a true sense its interest and rights are
supreme. The public has a right to demand that production should not
be interrupted, and that the supply of necessary articles should not
be cut off; and it is in line with this demand that arbitrators seek
first for an award that the contending parties will be willing to

Two Issues needing Settlement

In the immediate contest over the
adjustment of pay, the three parties first named are the ones
primarily involved. In discharging its duty as the preserver of
justice, the court finds two issues which need to be settled rightly.
The dispute between entrepreneurs and workmen must be rightly
adjusted, and the issue between the workmen and other labor must be
so. The power of the state cannot properly be used (1) to force from
employers more than they can afford to give, or (2) to exclude from
any field of employment free laborers who are able and willing to do
the required work. Arbitrators make their awards with an eye to
conditions within the business and to the state of the labor market.
Instinctively an arbitrator, in trying to satisfy his sense of
justice, thinks first of the amount that the business yields. The men
must not take the whole income from the business, leaving to the
entrepreneur nothing wherewith to meet the claim for interest.
Without doing this, however, they may ask for much more than other
laborers will accept, and the question arises whether this should be
conceded to them. In merely putting the relation of workmen to
employers on a proper footing, the tribunal may leave the relation of
the strikers to other workmen as unsatisfactory as it has been. It
appears that the tribunal of arbitration cannot by one act settle the
two issues that are presented to it. If it gives to the men what seems
like a fair share of the product of the business which employs them,
it gives more than most workers get and more than the law of final
productivity of labor would afford. Yet without a ruthless cutting
down of the pay of favored laborers it cannot apply the standard of
final social productivity of labor. If it applies this standard and
cuts down the men's actual pay, they will refuse to abide by the
decision; and if it tries to obtain a power of compulsion and make the
men accept its decisions, they will try--probably successfully--to
defeat the attempt. A system of compulsory arbitration that should go
to the length of forcibly equalizing the wages paid to men of like
ability in different occupations, would not be tolerated in a
democratic community.

The Difficulty of Applying the Test of Final Productivity

The law
of final productivity works most efficiently when it works
automatically, as it does when competing employers make the best
bargains they can with locally organized laborers. The results, then,
approach the theoretical standard, though they do not entirely
coincide with it. The law, however, cannot be rigorously applied by a
tribunal which is fixing a rate of pay by its own conscious act. How
can the judges directly ascertain how much a final increment of social
labor produces?

Employers, indeed, do make such tests. An estimate of how much a few
additional laborers would add to the product of a business often has,
in some way, to be made, and employers manage to make it; but
subsequent experience is necessary for verifying their judgment. A
rule of pay, governed by marginal productivity, results from the
action spontaneously taken by a myriad of employers, who enlarge their
working forces when they find that they gain thereby, and reduce them
when they lose. Of course no court could do anything of this kind. No
department of industry will turn itself into a laboratory for testing
the productive power of labor. It is clear that the procedure must be
much simpler and cruder; and a vital question is whether a board of
arbitration, proceeding as it must do, is under any influence that
impels it to render decisions which, in any degree, conform to the
theoretical standard of pay. Does the economic law of wages operate at
all when civil law steps in to the extent of creating any tribunal of
arbitration? We shall see.

The Necessity for Some Standard on which Arbitrators may base

When a board of arbitration tries to do anything more than
to end a quarrel, it must seek for some principle of justice. If it is
dealing with a favored class of laborers, it finds two extreme limits
between which its awards must fall, namely (1) the product which the
business yields in excess of simple interest on the capital, and (2)
the wages that unorganized laborers may offer to accept. It is
possible that the workmen may demand the former amount and the
employers may offer the latter; and if so, compromising is a
rule-of-thumb mode of doing justice. In the case of a strong union and
a highly profitable business the employers may offer more than the
minimum amount, and the award that is a compromise between the terms
of the contending parties will then be well above that which is a fair
mean between the possible extremes; yet it does not appear that it
really conforms to any ethical principle.

Average Wages as a Standard

Another possible basis of an award is
the average rate of wages prevailing; but it has no claim as a
standard of exact justice and is very far from being workable. Wages
vary from a very high rate to a very low one; and the highest rate is
that which prevails where a trade union which is strong enough to keep
men out of its field of employment deals with a trust which is strong
enough to keep rival producers out of its field of business. Under
such conditions shall a court average this rate and a very low one,
and reason that a mean thus arrived at is a legitimate standard of pay
or one that would be realized if no monopolies existed? There is no
evidence that this is the accurate fact, and there is every evidence
that a verdict attained in this way would be rejected. It would cut
down the pay that the favored workers have been getting, not to
mention denying them the increase they are striking for. On the other
hand, the lowest rates prevail where no permanent organizations exist;
and if a strike should arise here, should the tribunal take an average
rate of pay as its standard? That would greatly increase the rate that
prevails in the region where it is acting, and would give the men more
than most of their employers could afford. It would discard the
necessary rule of keeping within the limit of what an industry can pay
without seeing many of its shops and mills closed. Yet a court which
refused to raise the pay of the lowest class at all would seem to
accept the bad results of monopoly; for it would ratify the hard
arrangements which workers who are excluded from the better fields are
forced to accept.

A Court of Arbitration not the Agency for Rectifying General Evils
due to Monopoly

It will be seen that the difficulty we discover in
the way of a wholly satisfactory action by the court is caused by a
tacit demand that it shall undo the results of monopoly itself. We
instinctively say to ourselves that the court must insist on doing
ultimate justice, and that all rates perverted by monopoly are unjust.
The arbitrators should pull down the high rates, raise the low ones,
and create such an approach to uniformity as would be realized if
labor were as perfectly mobile as a static assumption requires. To do
this would give some laborers much less than their employers can
afford to pay and less than they often do pay; while it would be
giving to others more than their employers can pay without bankrupting
themselves. If such levelling is to be done, it must be done by some
other agency than a board of arbitration.

The Attitude of the Public toward a Strike by Employees of a

If we turn from a formal tribunal to the court of public
opinion, we find a like state of affairs. There is no danger whatever
that the public will justify cutting down the wages now received by
men in the employment of a monopoly to a much lower level. That in
itself would not right the wrongs of the poorly paid workers or those
of the public itself. The employer would go on getting high prices for
his products and would pocket the new gain which the reduction of
wages gave him. If a great corporation is now taxing the public, even
those who suffer would rather see the proceeds of the grab shared with
the men than see it all held by the employing corporation. It is,
indeed, true that if a tribunal were to give the men an increased
share of what the monopoly is getting, the employing company would try
to recoup itself from the public by raising prices still higher; and,
if it were to give a reduced share, the company might enlarge its
business and make its prices a shade lower. Giving to the men a share
of the grab made by their employer does indirectly cause a certain
increase of the injury done to others, and withdrawing a share might
slightly lessen the injury. The public would rather see the higher
wages paid, and take some chance of this minor and indirect injury,
than see the employing company pocket all that it exacts from the

Monopoly Prices as affected by an Increase of Wages

often authorizes a rate of pay based on the profits of an employers'
monopoly; and yet a tribunal of this kind must not, and will not, make
itself the accomplice of any monopoly by making its position more
secure. The policy of every public institution must, and will, be
designed to help make an end of every such outlaw that now has a
foothold in the field of business. Yet any plan which would force a
monopolistic employer to give to his men an increased share of the
"grab" which he makes from the pockets of consumers tends to increase
the amount of the grab if the employer is entirely secure in his
position. A monopoly that is thus safe from interference tries to put
the price of each of its products at the point where the largest net
revenue is afforded. If distance along the line AG measures the
supply of a commodity and vertical distance from it measures price,
DF will be the price curve of a commodity, as it is offered in
increasing amounts. AD will be the price when one unit is offered,
and GF will be the price when the full amount represented by the
line AG is produced. The price will then stand at the cost of
producing the article. When a monopoly is firmly established, it will
seek to get the largest net profit that can be had, and a consistent
execution of the plan would reduce the output from the amount measured
by AG to that measured by AH. The price would then become HE
and the net profit the amount of the area EB. If wages are so raised
that the cost becomes G'F', the net profit becomes EB'. This
profit can be increased by further reducing the product to the amount
AH', putting the price at H'E', and the net profit E'B', which
is larger than EB'. If an independent producer can employ non-union
labor and create the goods at the cost GF, and market them without
reducing the price much below the level indicated by H'E', he can
make on each unit of product a profit nearly equal to I'E'. This
fact makes the monopoly cautious about raising its price to the level
H'E'. A tribunal of arbitration may somewhat raise wages without
fearing such an increase of prices. By a crude and instinctive
judgment the court will hit upon some level of wages which falls well
within the limit of what the monopoly can pay and is above the amount
which marginal social labor gets.

The Probable Result of a Strike as a Standard for an Award

Let us
see what would happen if a board of arbitration should abandon all
effort to level out the general inequalities in wages, and try chiefly
to end quarrels and avert long-continued strikes. With this in view it
might aim to give the men whatever they would be likely to gain by
means of the strike. In a true sense this mode of procedure is more
nearly scientific than either of the others. Any tribunal of voluntary
arbitration will aim to content both parties sufficiently to prevent
an interruption of business. The men may consent to take somewhat less
than they hope to get by a successful strike; and the employers may be
willing to pay somewhat more than they would at the end of a
successful lockout. The probable outcome of the struggle may be
differently estimated by the contending parties, and if so, an actual
struggle will end by making employers pay more and the workmen take
less than they had severally expected to do. If this amount can be
awarded at the outset and the struggle precluded, all parties will be
gainers by the continuance of business, unless the employers desire a
strike for the sake of making their products scarce and dear.

When the Probable Results of a Strike afford an Unfair Standard of

Where monopolies exist and trade unions rely on violence in
carrying their point, it would not be fair to establish a permanent
rule of wages based on the amounts that strikes so conducted secure.
Such strikes depend for success on the violent exclusion of non-union
men; and actually to give permanence to rates so gained would be to
fasten on the majority of workers the disabilities under which they
now labor, and to perpetuate the gains of a twofold monopoly. On the
other hand, if the court should make its award conform to the probable
result of a strike which should be general in the trade, but should
not resort to any violence, the procedure would be natural and would
base itself, in an unconscious way, on the true standard of wages.
Such a general strike, by its mere magnitude, would preclude the
possibility of any immediate filling of the vacated places by men at
the time out of employment; and yet the fact that non-union men were
not forcibly kept out of the trade would be an all-important feature
of the situation. If, when no strikes were pending, men could gain
admission to this field, there would be no true monopoly on the men's
side. The rule of giving, by arbitration, what a strike would secure
would remove the chance of cutting down the rate to that which
prevails in the more ill-paid employments, and would insure to the men
the rate that marginal workers in actual employment get plus the two
additional amounts spoken of at the beginning of the preceding
chapter. The marginal product of labor plus an amount for personal
superiority plus an amount for good organization would be the standard
to which wages in favored employments would conform; and it is as
nearly normal as any practicable standard would be. A free application
of it would reduce the wages of unions that thrive by the use of force
and would be opposed by such unions. If it were adopted, there is a
prospect that the awards would be rejected by the men until hard
experience should teach them to relinquish gains secured by violence.
Yet a tribunal that should adopt this standard would allow workmen to
retain every advantage that organization can afford without a
violation of the criminal law. Its guide in making awards would be the
pay which the best unions lawfully get in trades akin to the one in
whose case they were acting.

In dealing with a union which is not a true monopoly and does not
depend on force, arbitrators may safely award what an actual strike
would probably secure, and the simple plan of compromising gives an
approximation to this amount. What the men will accept and the
employers will give is about what a strike would extort. Where a
monopoly of the field of labor exists and force is used to protect
it, a compromise which anticipates the probable result of a strike
concedes what could not otherwise be lawfully secured, and we have to
see whether this is a plan that a board of arbitration can properly

Arbitration as affected by Employers' Monopolies

We confine our
attention, for the present, to arbitration that has no power of
coercion behind it. A board may be formed which is compelled by
statute to investigate quarrels and announce fair terms of settlement,
but the contending parties may be allowed to do as they please about
accepting the awards. The most difficult case with which such a
tribunal would have to deal is that in which the employer has a
monopoly of a department of production, and a trade union has an
exclusive possession of its field of labor. The mere removal of the
employer's monopoly would so greatly simplify the situation as to
leave no ground for serious difficulty. With that out of the
way,--with potential competition doing the perfect work that under
good laws and good policing it ought to do,--the pay of laborers in
other employments would be somewhat higher, and extortionate profits
would be altogether absent. Profits based on special economy would
exist, as they should, but those which are filched unjustly from any
one's pocket would not exist. There would be likely to be, in most of
the subgroups, independent employers efficient enough to hold their
positions, but without any means of getting abnormal gains. These
would be marginal employers in their several subgroups, and their
returns would range about that static level at which the wages of
labor and the interest on capital would absorb them all. An award
based on what such employers could pay would express what other
employers would naturally pay, and it would be all that the subgroup
as a whole could concede without ruining some of its members, but it
would allow others to make something by special economies in
production. Productivity profits they would get and no others, and
these it is in every way expedient that they should be allowed to
enjoy. Suppressing employers' monopolies would remove much of the
difficulty connected with arbitration, and putting an end to violence
on the men's part would remove almost all the remainder.

With monopolies in the field it is quite otherwise. Their gains are
not of the kind that it is for the interest of the public to let them
keep. The public claims these sums on grounds of equity and
expediency. It is a perverted distribution that gives them to their
present recipients; and this fact threatens to involve more and more
the processes of production themselves. Centralization, without
monopoly, increases the product of industry; but the monopolistic
feature that often attends it partially paralyzes the producing
forces, and must be gotten rid of before there can be a normal income
to divide and a normal way of dividing it. The court of arbitration
itself cannot get rid of it, and it would do harm if it should try to
do so. Drastically to cut down wages that have been raised by the
power of monopoly would injure some workmen without materially helping
others, and it would benefit chiefly the monopolistic employers. Such
a policy would bring the entire system of arbitration to an end; for
it is partly a fear that arbitration would not leave to favorably
situated unions as much as they can now get by strikes and boycotts
that prevents the system from coming into vogue. The state can end
the monopoly, but it must do it by other measures than installing
courts of arbitration. In the interim--long or short, as the case may
be--before these measures will have their effect, it is necessary to
proceed on a plan of securing by awards something like what would
result from actual trials of strength. The effects of adjudication
will not, in this interim, be ideal, but it is necessary to accept
this fact and struggle the harder to obtain conditions that will
improve them.

Abnormal Conditions which Arbitrators must Accept

Crude force of
one sort or another would sometimes give to organized labor twice or
thrice as much as free labor can earn at the social margin of
production, and the public approaches the problem of adjustment while
this condition exists. It may be that a trust has crushed competition,
made large gains for itself, and made it possible to pay employees at
a high rate; while, on the other hand, a trade union has made itself
strong, put pressure on the employers, excluded free laborers, and
secured a share of the monopolistic spoils. Arbitrators, then,
whenever a strike is pending, may divide the spoils as a strike would
do, between masters and men. This will leave a few workers in
possession of a rich field and many hungry ones outside of it; and we
have asserted that the board should confirm the workmen's tenure of
place on the sole condition that they accept a rate of pay which it
shall authorize. In this case the arbitrators authorize a high rate,
while needy men stand ready to take a lower one. They confirm wages
based on the profits of monopoly, but look to the state as the power
which will get them out of their anomalous position, by making an end
of monopoly.

Why Sharing a "Grab" already made is not an Aggravation of the

While plunder is to be had, it is at least by one point fairer
that workers should have a share of it than that employers should have
it all. We have said that the court of arbitration finds two issues
needing settlement, namely, the relation of employers and employed
within the business, and that of laborers outside of this department
of industry to those within it. Only one of these issues is it capable
of settling, and it is by a true instinct and not merely from
expediency that arbitrators permit workmen to share in some degree the
gains of the monopoly that employs them. This is legitimate, however,
only on the condition that, by further measures, the gains of monopoly
be reduced.

How Arbitration will be facilitated by the Suppression of

In studying monopolies we discovered that the prices of
their goods do not entirely part company with their natural standards,
even when governments do not at all interfere with them. Potential
competition keeps these prices from rising above the standard of cost
by more than a certain margin. We shall see that if governments do
nothing in the way of controlling the contests over wages, the rates
that these yield will not be wholly unnatural. They will be held
within a certain distance from the standards. If too high wages are
exacted, the barriers will be broken down and competing laborers will
come into the favored fields. The potential competition of idle men
hangs as a menace over the heads of the too exacting trade unionists,
and enforces a measure of prudence in the wages demanded. If the
unions ask too much and strike in order to get it, the competition
which is now latent will become active, other men will take the
vacated places, and the struggle of force will begin. Slugging may
ensue and may go to the limit of a weak government's toleration. The
more complete is the exclusion of free labor, the higher is the rate
which organized labor secures; but this rate always falls within a
certain distance of the normal one, as that is fixed by the final
productivity of social labor. Even the pay secured by violent strikes
is, as we have already shown, governed by the law of final
productivity, though it does not coincide with that rate. Actual pay
and standard pay are like a vessel and a tug attached to each other by
a hawser, which allows one to drift far from the other but does not
let them part company. In the long run the tug takes the tow with it.
Even the wages which a trust gives to a fighting union--wages paid by
a monopoly to a monopoly--are governed by the law of final
productivity, since there is a limit on what the trust can extort from
the public, and there is a limit on what the union can extort from the
trust. Potential competition, by limiting both the producing
corporation and the trade union, vindicates the natural law of wages,
though its results are made inexact by monopoly.

How Potential Competition affects Organized Labor

We have seen
that potential competition keeps within limits the prices of goods
made by trusts. If they become too high, new mills are built. In a
like way potential competition puts a check on the wages a strong
union can secure; for if these are too far above the level of
non-union men's pay, such men will find their way into the business.
Open shops will be established, either by the present employers or by
new ones. There will be much to be gained by an independent shop
manned by non-union labor, and the danger of this makes a trade union
more conservative than it would otherwise be. The chief potentiality
in the case is that of the new and independent shop, and if the way is
open for this to appear, the range of difference between the pay of
favored laborers and that of others is greatly reduced. The trade
union may be able to carry its point and keep free labor from its
field, so long as it has only its own employers to deal with; but if
new employers will appear whenever there is an inducement to do so,
the case is quite otherwise. The new mills make the greater gains if
they are manned by non-union men.

With the field open for all producers, the danger of free shops with
free men will impend always over the union that demands too much for
its members. This is now true even where consolidated companies exist,
and it would be doubly true if there were no such companies. The
rivalries which would then appear would keep wages, as well as prices,
near to their natural standards.

In the absence of monopolies on the part of employers, and of
"slugging" on the part of workmen, arbitrators may accept as standards
what the actual dealings of employers and employed yield. In most
cases they will ratify no wrong by doing so. The court may act as it
now does and announce a rate based on a mere compromise or on the
probable result of a strike. If the men accept the award, let them
keep their places; but if not, let the positions be open to whoever
will take them, and let the state repress every form of violence that
would interfere with their doing so. The sentiment of even a local
community will sustain such a maintenance of order.

The Case of Trades not affected by the Potential Competition of
Non-union Men with New Employers

Building trades are peculiarly
situated in that their products have to be made in the locality where
they will stay, and no competition from labor living at a distance is
to be feared. If the local unions can protect their field by force,
they can establish a high rate of pay, even though the employers have
no unions. Arbitration that merely gives what a strike will yield will
here deviate greatly from the natural standard of wages.

Labor in mining is somewhat similarly situated, and so is labor in
transportation. In these, and in some other fields, new men do not
weaken the position of strikers unless they are brought to the places
where the strikers have been working; and that exposes them to
assault. It is in the making of portable goods for a general market
that the new and independent shop manned by non-union laborers is an
important factor.

It is easy to answer the question whether, in such fields, the board
of arbitration should confirm the workmen's tenure of place while his
pay is sustained by force. All slugging is inherently criminal and
should be always and everywhere repressed. In the cases that we first
examined, a safe course would be to hold it in repression, announce a
rate of pay based on what a strike would then yield, and trust to
other measures for destroying monopoly on the capitalist's side. The
chief danger of violence begins when the men reject the award and
others take their places, and at this point the fact of arbitration
will make the duty of the state easier though hardly clearer.

The case of such trades as building and mining differs from the
others only in the fact that there is not present the check that is
elsewhere afforded by the danger of new mills, and the pay secured by
crude force is high. To announce a rate based on the result of a
strike, if slugging is to be permitted during the strike, is to
accept, for the moment, what violence will secure; and nothing will
remove this feature of the adjudication but a manful assertion of
sovereignty by the state and a complete ending of the tolerance now
accorded to anarchy. By no means, however, does this deprive union men
of the advantage that organization gives them. They may be secured in
the possession of every advantage which collective bargaining, without
violence, can secure. Great numbers enlisted in a union will give to
it a prospect of success in enforcing any reasonable demand. Voluntary
arbitration, that aims to preclude a strike, will have to respect this
fact of organization and give the men about what a legitimate strike
would yield. As a rule, this will result in compromises of opposing
claims, and if violence is not in sight as a resource, the compromises
will fall near to the natural standard of wages.

Why Conciliation is preferred to Arbitration

Both among organized
laborers and corporate employers there is a dread of state action for
the positive adjustment of wages. There is a preference for
conciliation over any kind of arbitration, and there is a preference
for voluntary arbitration over that which has any trace of authority
behind it. For tribunals which have full coercive power, most
employers and strongly organized laborers have an insurmountable
repugnance. If such tribunals were introduced, it would be against
their strongest opposition, which is saying that a measure designed
to secure industrial peace would have to be put into operation while
the parties directly interested in it opposed it with might and main.

The reasons for this attitude are not difficult to discover.
Conciliation aims solely to secure internal peace in a department of
industry. To avert strikes or reduce their duration is all that it can
do and all that the parties directly interested wish to have it do.
From the point of view of employers and employed in a highly
profitable industry, the averting of strikes is enough to aim at, and
even the public sometimes accepts this easy-going view and thinks that
everything desirable is gained merely by averting strife or ending it
when it occurs. Uninterrupted production--the saving of the great
wastes that strikes entail--does, indeed, promote the public welfare.
When conciliation does this, it indirectly does something for the
public. The essential thing about conciliation, then, is that it does
not consciously try to do anything but to make the two parties in the
dispute over wages contented enough to go on producing. A board which
aims only to do this is careful not to introduce any one who
represents an outside interest. The procedure must be kept "within the
family." As is often said, "those who understand the business" must
settle disputes within it. What is really desired is that only those
who are interested in the business should have anything to say about
it, and there is a dread of giving representation, either to the
general public or to independent labor. Moreover, when the defects of
conciliation are spoken of, what is mentioned is the uncertainty as to
its working, the probability that in many cases it will not bring the
disputants to an agreement and cause production to go on. There is no
dread of the rates of pay that it yields. There is practically no
dread on any one's part of what happens when employers and employed
are contented because they jointly thrive at the expense of the
public. Rather than have production stopped, the public is often
willing to let a dispute be settled on almost any terms, though the
result may be to let some men thrive at the expense of consumers and
of other laborers. There is a monopolistic grab the sharing of which
makes both parties better off than are men of their class elsewhere.
Singular as it may seem, even this attitude of the public is
justifiable. It is entirely right not only to welcome conciliation
where it can be made to work, but to try it as often as possible
before resorting to arbitration.

Rates resulting from Conciliation not Unlike those resulting from

The results of collective bargaining, with conciliation in
cases of dispute, come within a certain distance of those which would
be gained by a perfectly natural adjustment of wages. All that we have
said about the relation of wages adjusted by strikes to their natural
standards applies here; potential competition generally keeps the
actual rate within a certain distance of the natural one, though a
monopoly may make the distance unduly great. If potential competition
works feebly on the employers' side,--if independent producers are
slow to appear even when the price of a product is very high,--there
is a large profit in the industry for some one; and if potential
competition works feebly on the side of labor,--if workmen can safely
strike with little fear that independent laborers will dare to take
their places,--the men can secure a fair-sized share of this profit.
A strong trade union working for a strong monopoly gets wages that
exceed the standard rate by the largest obtainable margin; and yet, as
we have said, even this excess has limits, and adjusting disputes by
conciliation does not alter those limits. The rates agreed upon are
still governed by the standard rate to the same extent as under the
regime of strikes. The strike and the lockout become potential, but
they impend as possibilities and do their work. The board of
conciliation knows that they will occur unless their probable results
are anticipated and forestalled by the decision. The board cannot do
otherwise, therefore, than to restrict the actual strikes. Wages then
become the natural rate with a plus mark, and may be said to be
adjusted in a way that at the bottom is natural, though it works under
vitiating influences.

Why Voluntary Arbitration does more than Conciliation

arbitration is an advance over mere conciliation in point of
effectiveness. It departs somewhat from the plan of confining the
action to the family, since it introduces some other parties as
arbitrators and thus invites some recognition of outside interests.
Nevertheless its actual working involves little change in principle,
and its results do not greatly vary from those attained by
conciliation. When we speak of arbitration as voluntary, what we
usually mean is that acceptance of the award is in no way enforced.
Either party may accept it or refuse it, but it may be that both
parties acting together cannot prevent the investigation; and the
economic law of wages acts best when this is the case. How such
voluntary arbitration is provided for,--whether it is established by
free contract between employers and employed, or by statute,--is not
in this connection of importance. The one thing that is important is
that no compulsion is applied to either party to force him to accept
the award.

A Moral Compulsion due to Voluntary Arbitration

A certain moral
force is, indeed, necessarily behind the award of such a tribunal. It
informs the public what fair-minded men regard as a reasonable
adjustment of the dispute, and forces any one who refuses to accept
such a decision to go on record as claiming more than is presumably
just. This tends to alienate public sympathy, and to forfeit the aid
which sympathy insures. Moreover, where voluntary arbitration is
established by a contract between parties,--where, for example,
masters and men agree that during a term of years disputes that cannot
otherwise be settled shall be referred to a tribunal constituted in
some prescribed way,--the decision of the tribunal is made by the
contract to be especially binding.

Why Mere Compromises lead to Fair Results

A merely compromising
policy, such as the one which has often been sharply criticised,
involves an approximation to what strikes would yield; and this, as we
have seen, gives results which, in a rude way, are controlled by
economic law. A fact of the greatest importance is that the awards
made by boards of arbitration with merely voluntary power are not
compromises between mere demands of the two parties; they are between
genuine ultimata. When the court is called in, the employer has
offered a rate of pay and stands ready to close his mill if it is not
accepted; and the men have offered to take a certain rate and are
ready to strike if the rate is not given. The essential fact in the
case is that neither of these rates usually varies by more than a
certain amount from the natural level of wages. There is every
difference between a demand put forward for strategic purposes and a
real ultimatum. If workmen knew that a court would simply make an even
division between their own demand and their employer's offer, then men
who were getting two dollars a day might ask for four in the hope that
the arbitrators might give them three. Even if no such expectations
were entertained, it is certain that both parties would exaggerate
their claims; workers would demand more and employers offer less than
they expected in the end to agree upon. When, however, the demands are
not made in this way for the sake of impressing the tribunal, but are
known to be genuine ultimata, the case is quite different. The workers
will actually go on a strike if their demands are not conceded, and
they will certainly have to do this if they make their figures
extravagant. The employer will close his mill if his offer is not
accepted, and he will have to do it if his offer is absurdly low. Very
much is involved in the fact that an actual severing of the relation
between employers and employed impends over them as a possibility.

The Chief Advantage of Arbitration over Conciliation

We are now in
a position to measure the real difference between conciliation and
voluntary arbitration. If a strike comes after nothing has been tried
except conciliation, there is often nothing to prevent the strikers
from resorting to all the devices which are available for guarding
their tenure of place--in other words, for keeping "scabs" out of the
field. The local community is in its usual position of uncertainty as
to the equities of the case, and is likely to show its usual
hesitancy in giving to the new laborers the complete protection which
the laws enjoin. There is the customary dread of the effect of letting
a strike-breaking force have full sway and the opportunity for
disciplining the former workmen into submission. The chance that the
resulting rate of pay may be too low to do justice to the laborers
remains before the eyes of the local community, and has the effect to
which we have earlier called attention--that of taking much of the
vigor out of the official arm when violence occurs.

How is it when a tribunal of arbitration has studied the case and
announced a decision? Though the workmen may be as free to strike as
ever, such an action would put them at a fatal disadvantage. The
arbitration has given to the public a basis for a judgment as to the
equities of the dispute. If the tribunal is one which commands
respect, a refusal to abide by its decision puts the men prima facie
in the wrong. If they strike now, they reject a rate which is
authoritatively pronounced just. Even this they have the privilege of
doing if they so desire; but if they go farther and forcibly prevent
other men from accepting the equitable rate and doing the work, they
forfeit their right of tenure; and it would be a strangely constituted
public which, under such circumstances, would let them use fists,
missiles, or clubs in defending it.

There may be an agreement between employers and employed to submit to
impartial arbitration such disputes as are not otherwise settled; and
when this has been actually done and a decision has been reached, it
is made by the contract to be too binding to be lightly disregarded.
If it is still disregarded and if violence is resorted to, the
forfeiture of public sympathy is so complete that there is little
danger that violence will be winked at. The action of such a tribunal
may be nearly as effective as that of one which has full coercive

Why Compulsory Arbitration is less Certain to give a Just

Arbitration by a court that has full compulsion behind it
does not theoretically need to satisfy the contending parties. If it
can fine or otherwise coerce the party that refuses to accept its
mandate, and thus insure a forced compliance with its orders, it is
conceivable that it might announce rates of pay entirely at variance
with prevailing ones. It might announce arbitrary rates or make a bold
effort to discover and introduce those which should coincide with the
ultimate natural standards--which would mean a relentless reducing of
some rates and a raising of others. In a democratic country, however,
such a court would have to satisfy the contestants and the public or
forfeit its existence, and the only mode of insuring its continuance
would be a more conservative policy and a respecting of the status
quo. It might appeal to the probable result of violent contests
somewhat less than a purely voluntary tribunal might do, since it
might venture to give offense to employers or to workmen, and trust to
the support of the general public; but in the main it would have to
let the existing rates of wages continue with no radical change. Even
though it were able by some statistical test to discover the natural
rates of wages, it could not be bold enough rigorously to apply them
without forfeiting its existence. Under any system, then, whether it
be crude contention, conciliation, voluntary arbitration, or
compulsory arbitration, the rates fixed by the present half-savage
process would be allowed to rule till the process itself should be
freed from the perversion that monopoly causes. Inequalities of pay
would be tempered in different degrees by the various tribunals, but
the existing rates in each employment would continue to furnish a
basis of adjustment.

The Most Available Plan of Arbitration

Since there is little
prospect that compulsory arbitration will give rates of wages which
will differ materially from those secured by arbitration of the
voluntary sort, the latter kind has the preference, so long as it is
able actually to prevent the strikes and lockouts which, at present,
are so wasteful and disorganizing. To accomplish this, there is
available a kind of arbitration which is voluntary, but has behind it
enough authority to make actual strikes very rare. By this plan the
state recognizes for an interim the laborers' tenure of place, on
condition that they continue working during the time occupied by the
adjustment. If they stop working before a decision is announced, they
forfeit their tenure of positions. When the tribunal announces a
decision as to the terms on which labor shall go on, the force already
working has the option of retaining the positions or abandoning them;
but if they elect to leave them, it must be with the understanding
that their departure is definitive and their right to tenure
surrendered. The state then uses its utmost power in protecting men
who may occupy the vacated places. The mere prospect of this outcome
will be enough, and the shifting of the force will not have actually
to be made, since the right of tenure is too valuable to be forfeited.
The system requires that prompt action be had whenever a strike or a
lockout is impending, but it enforces decisions only by imposing on
workmen who choose to be recalcitrant the penalty of forfeiting the
right of ownership of positions, the claim to which they esteem so
highly that they are ready literally to fight in defense of it.

A Mode of Dealing with Rebellious Employers

An employer might
refuse to accept the result of an arbitration. In view of the strong
pressure that public opinion would exert after the decision should
have been rendered, frequent refusals are not probable. If, however,
the employer should reject an award, the logic of the case would
require that he lose his tenure of place as the men do for a like
offense; and the only way to accomplish this is to throw him out of
his business connections. The tenure which an entrepreneur most
values consists in his relation to his customers; and if the state
should see to it that the goods he makes could always be had from some
other source, the entrepreneur would be unlikely to close his mills.
How the state shall keep the sources of supply open will become an
important question if it shall appear that producers do defy the
public opinion and reject the court's awards.[1]

[1] If the employer were a corporation possessing a monopoly
of its department of production, it would be difficult
quickly to open such new sources of supply as would be
requisite; but a temporary reduction of import duties would
often go far in this direction. And a measure which would
insure the running of the plant under a temporary
receivership would, of course, do it.

The Practical Working of the Arbitration Proposed

Let us see how
such a system of arbitration as is here described would work in the
case in which, as we have supposed, a strong trade union is dealing
with a monopolistic employer. At the outset all violence on the men's
side is ruled out. No assaulting, maiming, or killing of so-called
"scabs" is tolerated, and, moreover, the first temptation to this is
removed by the act of the state in recognizing for an interval the
men's tenure of place. There are no strike breakers to be attacked.
While proceedings of arbitration are pending, the obnoxious class is
out of sight, and all the places are transiently reserved for their
original holders. The court has submitted to it two possible rates of
pay, one demanded by the men and the other offered by the employers.
It may confirm either of these rates or any rate that is intermediate
between them, and it is likely to pursue the latter course. In any
case, it announces a rate, the one which to it appears to be fair and
is more likely to be so than the one claimed by either of the parties.
"This is a just rate," declares the tribunal to the men; "you may take
it or leave it, but if you leave it a certain thing will
happen,--workmen who refuse it will forfeit all claim upon their
positions." Workmen will not often refuse the award, and the pressure
of public opinion makes it improbable that the employer will do so.
Coupled with arbitration and an essential part of the system is a
policy which shall remove the danger of monopoly. In its perfectly
secure form monopoly as yet scarcely exists, but what does exist is a
great number of partial monopolies able to handle competitors roughly
and extort profits from the people. Directly connected with the
adjustment of wages is the disarming of such monopolies. The
preventing of strikes may often be accomplished without this, but the
insuring of just wages requires it. With a solution of the problem of
monopoly in view, all other needs of the situation might well be met
by arbitration without compulsory power.

We may now tabulate our conclusions.

1. In the making of the wages contract the individual laborer is at a
disadvantage. He has something which he must sell and which his
employer is not obliged to take, since he can reject single men with

2. A period of idleness may increase this disability to any extent.
The vender of anything which must be sold at once is like a starving
man pawning his coat--he must take whatever is offered.

3. Collective bargaining enables men to withhold, for a time,
something which is of importance to an employer. He cannot let them
all go with impunity.

4. A strike is a contest of endurance; and if it continues until the
men are exhausted, they are collectively in the position of the hungry
individual seller, who is at the buyer's mercy. The wages they then
take may be far below the natural standard.

5. If their places are filled at once by men who are already thus
necessitous, the resulting rate may be equally below the natural

6. The power of the union often depends on its use of force in keeping
the needy out of its field.

7. The rate of pay gained where compulsion is freely and successfully
practiced is above the normal rate.

8. Conciliation does little in the way of changing the results which
are realized without it, but it lessens the frequency of strikes.

9. Arbitration by a court, which must make a decision but cannot
enforce it--by a court which confirms the workmen's tenure of place
while action is pending and declares it forfeited if the men reject
its decree,--such arbitration would secure a closer conformity to the
normal standard of wages than any other action. It would establish
rates which give the workmen the benefit of every legitimate advantage
from collective bargaining.

10. Arbitration by a court which is compelled to act, and can enforce
its decision, may deviate in a particular case from the rate of pay
which strikes would yield; but if the deviation is frequent and great,
it will induce a rebellion against the system of compulsory
arbitration. The rate under this system cannot differ greatly from the
result secured with no arbitration at all. The chief value of all the
foregoing modes of settling disputes lies in their prevention of
costly interruptions of business. They may reduce the number of
strikes and prevent much waste and suffering.

11. A mode of procedure which aims chiefly to end strikes usually
depends on making compromises between opposing claims. This secures an
approach to a reasonable adjustment, as between employers and
employed, but does not affect the differences between the wages of
different classes of laborers.

12. In order that any mode of adjusting wages may give fair
comparative rates, monopolies must be repressed; and this can only be
accomplished by measures which are independent of tribunals of

Next: Boycotts And The Limiting Of Products

Previous: Organization Of Labor

Add to Informational Site Network

Viewed 1600