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Stedman and Hutchinson, comps. A Library of American Literature:
An Anthology in Eleven Volumes. 1891.
Vols. IX–XI: Literature of the Republic, Part IV., 1861–1889

The Wages System

By Nicholas Paine Gilman (1849–1912)

[Born in Quincy, Ill., 1849. Died in Meadville, Pa., 1912. From Profit Sharing between Employer and Employee. 1889.]

THE DECLARATION is frequently made that the wages system is fundamentally wrong in its partition of benefits. It is said to be, like slavery and serfdom, but one stage in the secular development of industry, out of which we must advance into a new “fourth form of contract,” for which “coöperation” is the best name. Chateaubriand even affirmed that the wage-earner is under a system of “prolonged slavery.” Declamation to the same effect is frequently heard to-day from labor-reformers. It is hardly necessary to point out that these assertions do not proceed from men who have had practical experience of the lot of the slave. A very brief period of servitude would probably suffice to prove to them the emptiness of such rhetoric. Because slavery and serfdom, under which the laborer was not a free contracting agent, have practically disappeared from the civilized world, it does not, by any means, necessarily follow that the wages system, under which the employee is free from all legal coercion, must also pass away. On general grounds, it is more probable that, having succeeded to slavery and serfdom on its intrinsic merits as a system of free contract, it will endure very long, and will undergo evolution rather than perish in revolution. The advantages it secures to the laboring man, as we see them in observing the simple facts of industrial life, are so great, in comparison with its disadvantages, that we might naturally expect the first complaints against it to proceed from the employer rather than from the employee.

Let us look for a moment at the natural history of a modern manufactory. An enterprising man perceives, as he thinks, an opening to make money by establishing and operating a woollen-manufactory in a certain place. Using capital, his own or borrowed, he erects a building and stocks it with machinery at an expense of tens of thousands of dollars. After he has bought the wool and other material, he must have persons to run his engines and tend his looms. They will not work for nothing, as they must have at least the means of subsistence. What shall he offer them? Suppose that he has been so unwise as to exhaust all his capital, and his credit as well, at the very outset, before a yard of cloth is made. Suppose that he then endeavors to engage workpeople by promising them simply a fixed share in the profits. What would the sensible workman have to say to such a proposition of coöperation, where he himself would invest no money capital and would receive no regular wages? Would he not answer: “How shall I live, and support my family, while the woollens are making and are not yet sold? Other workmen object to the delay of a month in getting their wages. They wish to be paid every fortnight, or every week; and such frequent payment is very advantageous to them. I should have to wait an indefinite number of weeks or months, until you effect a sale of the goods I have helped to make. I might indeed manage to get along on credit, paying more, in the end, than if I bought for cash. But will the grocer, and the butcher, and the tailor, and the house-owner give me credit if I am to receive no wages, and must depend entirely for my deferred recompense upon your skilful conduct of the business? For here comes the pinch. While my associates and myself may do our best in making woollens, you, with all your efforts, may reap but a small profit in selling them. Nay, who knows if there will turn out to be any profit at all? No! I cannot take such a risk. Pay me the average wages, even if they are a less return for my labor than what you would give me out of the profits. Then I shall have some regularity and some certainty about my income, and can adjust my expenses to it. Then I can buy in the cheapest market. Take yourself all the risks of business, reap yourself the profits, and bear yourself the losses as they may come, and give me the certainty of regular wages.”

Such would be the probable answer of a prudent workingman to the imprudent manufacturer. If he were then engaged elsewhere on wages, he might afterward have a conflict with his employer as to the fairness of his pay, but he could not ask that the system itself, of a regular fixed payment for so many hours’ work, should be abolished in favor of a distant share in precarious profits. How doubtful such a prospect would be, appears from the usual estimates of the proportion of men who fail to make a profit in conducting business of their own. The fact has been already noted that business men often say that only 5 per cent. succeed while 95 per cent. fail. These latter figures may be exaggerated. In France, said a witness before a parliamentary committee previously quoted, “out of 100 business men, 10 make money, 50 vegetate, and 40 fail entirely.” Taking this more favorable estimate, we see that the workman’s chances of getting a pay out of profits equal to the average wages would be, at the outside, only three out of five; while those employers of labor who “vegetate,” in the French phrase, usually pay the lowest wages. Hardly would the laborer, then, have more than one chance in ten of getting good wages under such a coöperative contract as we have supposed. It is not to such risks as these that we should invite the worker who has no capital to fall back upon in case of loss. It is evidently inexpedient if not unjust to make the entire compensation of the operative depend upon the chances of the market, or the commercial skill of the manager. The workingman cannot afford to take these risks; he can support himself on lower wages than are his just due, but he cannot give up the frequency and certainty of recompense which the wages system assures him. M. Paul Leroy-Beaulieu well says: “Wages render the employee responsible for his own work, and do not leave him dependent on the doings of others, on their intelligence, administrative ability, and understanding of affairs, and on the general prosperity. Wages are a kind of insurance against the possible incapacity or the eventual maladresse of the commander and director of labor.”

The imperative necessity, to modern laborers, of the stability and regularity of wages is practically confessed by those who are working out coöperation in practice. There are very few establishments for coöperative production in which there is not a body of auxiliary workmen, not admitted to a share in the profits but paid by the day, the same as if they were employed in an ordinary establishment. These coöperative associations, again, usually make advances on account to their members, to enable them to meet their running expenses. These advances, large or small, are simply wages under another name. One fact sufficiently proves this. In case these advances are not wages, they must be loans which are capable of recovery by the lender. But when coöperative associations fail, as most of them have done thus far, no creditor takes steps to recover from the members the sums they have received on account. These advances on account are no more repaid in fact than are ordinary wages when the wage-paying firm fails.

Taken as a whole, then, and in its most general operation, the wages system might seem to be more favorable to the employee than to the employer. Granting that the proportion of men who succeed as employers of labor on any considerable scale is larger than any of the estimates usually made, and supposing that it actually amounts to one third instead of one tenth of all who make the attempt, then the advantage of regular wages is two to one in favor of the workman, and against the employer. Only in one case out of three, under this supposition, would the employee receive less than a division of profits in lieu of wages would give him; and it might often be only a little less. In two cases out of three he receives more in wages than a division of the product as sold would entitle him to. It should be obvious, then, that the wages system, so far from being a slightly modified form of slavery, is in fact a kind of coöperative association, in which the larger part of the risks and uncertainties falls to the manager, and the larger portion of the certain and regular return to the men. As M. Émile Chevallier has excellently stated the case, the wages system is “an association sui generis, which one of the partners has entered only on condition of being in advance freed from the risks inherent in the enterprise, the part to fall to him being fixed and the time of its payment.” Such is the actual character of the ordinary method of remunerating labor in civilized countries at the present day. The workman cannot afford to take more risk than he actually does in contracting with a manager whose business ability is an uncertain quantity. If the employer is so inefficient or unfortunate as to lose money, he fails, and the employee must seek work elsewhere. Against such a loss of employment the workman can have no safeguard, other than his own shrewdness in choosing his employer, when a choice is open to him. This one risk he must take. Nearly every other risk of loss is thrown upon the master, so that practically the workman has many of the advantages of association without most of its inconveniences.

The naturalness of the wages system, as compared with equal coöperation, appears when we consider the truth, which so many injudicious “friends of labor” fail to perceive, that hand-work is but one factor in production. Capital and skill are the two other factors, each as indispensable in the joint work as labor itself. Coöperative producers find it impossible, of course, to do without capital, whether this be borrowed or consist only of their own modest savings. They have not made the attempt, though some political economists of the first rank have committed the mistake of attributing it to them, to do without the capitalist. As President F. A. Walker, in company with leading French economists, has shown, the actual effort of cöoperative producers is “to get rid of the entrepreneur, or manager,” whose skill brings capital and labor together under his own direction, in a partnership the result of which is proportional to his business ability. We may simply note, in passing, the very meagre results yet achieved in coöperative production, despite great expenditure of effort: the fact indicates a fundamental weakness in the method.

The democratic element in modern society is undoubtedly gaining in strength with every year, and there is no good reason for lamenting its advance. But it will never do away with the natural aristocracy which has made skill in the conduct of business the endowment or the acquisition of a few. The many must continue to follow, as they have always done, when they did not rush to disaster; and the select minority of Nature’s choosing must continue to lead, if the many are to prosper. Natural selection makes stern havoc with headless coöperative associations in competition with firms directed by captains of industry. The weakness of coöperative production, thus far, has been its gross undervaluation of the manager. The dream of an equality contradicted by the plain facts of human nature has led coöperators to offer petty salaries and restricted powers to their superintendents. But modern industry takes on more and more the character of a civilized warfare in which regiments composed of brigadier-generals are quite out of place. While, then, attempts at coöperation have been numerous the world over, the percentage of failures is very large in consequence of this fundamental mistake of underrating the part that brains have to play in successful production, under the keen competition which is the rule in the last half of the nineteenth century. The wages system, on the contrary, is continually making inroads into the ranks of the small dealers, who are forced to take service with the large firms. Joint-stock companies multiply in every direction, and the number of persons on wages or salaries increases absolutely and proportionally every year.

It would be difficult, if not impossible, to imagine a feasible system of conducting business, under the actual conditions of the industrial world, more generally applicable, and more in harmony with all the elements involved, than the method which is to-day assailed by many crude thinkers as a relic of feudalism, or even of barbarism. Its general prevalence is a sufficient proof of its logical strength.