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
he 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