theory of collective bargaining, the - ludwig von mises institute

THE THEORY OF

COLLECTIVE BARGAINING

THE THEORY OF

C O L L E C T I V EB A R G A I N I N G

A HISTORY, ANALYSIS AND CRITICISM

OF THE PRINCIPAL THEORIES WHICH

HAVE SOUGHT TO EXPLAIN THE

EFFECTS OF TRADE UNIONS AND

EMPLOYERS' ASSOCIATIONS UPON THE

DISTRIBUTION OF THE PRODUCT OF

INDUSTRY

By W. H. HuttWITH A PREFACE BY LUDWIG VON MiSES

THE FREE PRESS, GLENCOE, ILLINOIS

COPYRIGHT 1954 BY THE FREE PRESS, A CORPORATION

PRINTED IN THE UNITED STATES OF AMERICA

DESIGNED BY SIDNEY SOLOMON

ToARNOLD AND EDITH PLANT

Contents

Preface to the New American Edition 9BY LUDWIG VON MlSES

Author's Preface 13

PART ONE: "Labor's Disadvantage" 21

PART TWO: Indeterminateness 79

Index 147

Preface to the

New American Edition

ECONOMICS TEACHES that there is but one methodavailable to raise wage rates for all those eager toearn wages, viz., to increase the per-head quota ofcapital invested and thereby the marginal productivityof labor.

At the wage rate established on a free labor marketall those who are eager to hire workers can hire asmany as they want and all those who want to earnwages can find a job. On a free labor market thereprevails a tendency to make unemployment disap-pear. Not to interfere with the operation of thelabor market is the only effective full-employmentpolicy.

If either by government decree or by union pres-sure and compulsion wage rates are raised above thepotential market rate, unemployment of a part of thepotential labor force becomes a lasting phenomenon.It is impossible for the unions to raise wage rates for

[ io ] Preface to the New American Edition

all those eager to earn wages and to find jobs. If theywin for some groups of workers higher compensationthan what they would have collected on an unham-pered market, they victimize other groups.

It took much more than a century to attain thiscognition. Quite understandably people sympathizewith the impatience of wage earners who want tofind a more rapid means for the improvement of theirmaterial conditions than that provided by the pro-gressive accumulation of capital. The economists werenot to blame for the fact that emotionally they agreedin this regard with the majority. What was wrongwith the attitude of many of the older economists wasthat they blithely endorsed popular fallacies aboutthe methods to be applied for the realization of thisdesirable end. One of the foremost social functionsof economics is to explode current misconceptionsabout the fitness of means to attain definite endschosen. The classical economists and their followersdid a marvellous job in exposing prevailing errors con-cerning foreign trade, government tutelage of busi-ness, money, credit and so on. But they not only leftthe union doctrine intact, they even tried to find ajustification for it. It was a hopeless task, and it en-tangled its authors in a maze of contradictions andinconsistencies. However, we must be grateful to them

Preface to the New American Edition [ 11 ]

for the pains they bestowed upon the problems. Forit was precisely the failure of their scrupulous exer-tions that made it easier for later generations to arriveat a more correct solution of the problems involved.

Professor Hurt's brilliant essay is not merely acontribution to the history of economic thought.It is rather a critical analysis of the arguments ad-vanced by economists from Adam Smith down andby the spokesmen of the unions in favor of the thesisthat unionism can raise wage rates above the marketlevel without harm to anybody else than the "ex-ploiters." As such it is of utmost use not only toevery student of economics but to everybody whowants to form a well-founded opinion about one ofthe most vital as well as most controversial politicalissues of our age.

LUDWIG VON MlSES

New York, March, 1954

Author's Preface

PART OF THIS ESSAY was included in papers read tothe Economic Society of South Africa at Cape Townon the 18th September, 1928, and to Section "F" ofthe British Association at Johannesburg on the 2ndAugust, 1929. The study on which it is based aroseout of doubts as to the validity of much currentteaching on the subject which had been suggestedin the lectures of Professor Edwin Cannan. My in-debtedness to his teaching and methods must beobvious. I must also acknowledge the help, directand indirect, that I have received from the criticismand encouragement of Professor Arnold Plant.

I have no prefatorial apologies to make. The essayis brief, but brevity I claim as a virtue. It is abso-lutely untopical, but in avoiding reference to cur-rent events or controversy I may lessen suspicionof partisanship. In content and exposition it willhave many defects, but I have attempted a difficulttask which others have neglected. It is strange that

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[ 14 ] Preface

there should be a complete absence of any moderntreatise on the theory of trade unionism, for thereis a colossal literature on its organization and his-tory. We have, it is true, the Webbs' IndustrialDemocracy, but that famous work is respected asa study of the government and organization of union-ism rather than as a contribution to economic theory.My attempt may help to fill the gap until it is super-seded by a better one.

The need was expressed by the Secretary of theGeneral Federation of Trade Unions, Mr. W. A.Appleton, in his book Trade Unions, their Past,Present, and Future, 1925. He said (pp. 136-7):

"To ensure the consideration of trade unionism as afundamental industrial problem, and apart from inheritedor acquired prejudices and unbiassed by its possible appli-cations, requires the type of mind which is sometimesdeveloped in the universities, but which is seldom foundin the partisan atmosphere of the actual movement. Fewmen in the movement realise its complexities or the needfor abstract study as a preparation for official work, andfewer still there are who, apprehending, possess the time,the temperament and the capacity for the task. It israther in the world of economics and letters that one mayhope to find men who have not only the temperamentalaptitudes and scientific attainments required for a studyof the movement, but also the leisure which financialcompetence gives. It may indeed be groups of men en-

Preface [ 15 ]

gaged in research, deduction and explanation who willelucidate the philosophy of trade unionism and tell uswhat ought to be, and what can be."

Now, I cannot claim to possess the qualities ofMr. Appleton's ideal student and, unfortunately, Ido not think he would endorse my conclusions. Yet,on the above quotation, I base my defense againstthose "practical men" who would decry these pagesas the work of an academic theorist; and from it alsoI gather hope that some trade-union officials at leastmay endeavor to understand the thoughts of a de-tached and independent student of the institutionthey control.

I hardly dare express a hope that existing legis-lators will condescend to read what I have written.The student has to face the fact that many men ofaction find continuous intellectual effort irksome;he must cheerfully recognize that practically noneof those people appointed to make laws controllingwages, or to make actual wage-board determina-tions, have even the most elementary understandingof issues such as those discussed here. The hope thatrational thought may one day be imported as anactive force into this field of human activity liesmainly in the universities. The student of today may,

[ 16 ] Preface

in some few cases, be the legislator of tomorrow,and he may carry with him and transmit some glim-mering of enlightenment.

It is, thus, to the genuine student (in whateverclass of society he may happen to be) rather thanto the practical man that this book is addressed. Adultschool tutors and W.E.A. tutors should find it ofassistance even if they are unable to accept its con-clusions. Those who have made no systematic studyof economic theory will be unable to understand thecompressed argument which follows, but it shouldnot be too difficult for any perservering student whohas mastered, say, the Ruskin College correspondencecourse in economics or who is thoroughly familiarwith any good elementary book on economics. Thesubject is a difficult one and I am afraid that mydiscussion will be read with ease only by the fairlyadvanced student. A satisfactory "popular" work isbeyond my powers and, perhaps, impossible. Thestudent who is not familiar with the Webbs' Indus-trial Democracy should read Part II, Chapters XIIand XIII; and Part III, Chapters I and II of thatwork before tackling my contribution.

The popularity of economics has happily greatlyextended in recent decades. But the study of wagequestions has, it seems to me, been handicapped all

Preface [ 17 ]

along by the vague and erroneous ideas which I en-deavor here to sweep away. So long as it was heldthat there was an increment of real income whichcould be transferred from the relatively rich to therelatively poor by control of wage rates, it was essen-tial that a satisfactory wage theory should showexactly what that increment was and how controleffected the transfer. Instead of this we were givenphrases about combination leading to "equality ofbargaining power" and wage fixation protecting "theeconomically weak." Critics have often complainedin recent years of the lack of a realistic theory ofwages. The purging of the discussion of these mis-leading ideas and phrases may, perhaps, clear theway for more useful investigations into the work-ing of the value mechanism in the sphere of labor'sremuneration.

W. H. HUTT.

University of Cape Town, March, 1930.

PART ONE

"Labor's Disadvantage'

THE OBJECT of this essay is to controvert the sug-gestions typical of most modern economic text-books,(a) that there is some portion of the normal re-muneration of labor which, in the absence of col-lective bargaining by labor is, or can be, transferredto the remuneration of other factors of productionowing to labor's "disadvantage in bargaining"; or(b) that combination, by increasing labor's "bargain-ing power," enables it to acquire a part of the normalremuneration of some other factor.

THE TERM"COLLECTIVE BARGAINING"

The very useful term "Collective Bargaining" wascoined in 1891 by Mrs. Sidney Webb in her workon the cooperative movement. The Webbs1 have

1. This is the only sensible way of referring to Lord Passfieldand Mrs. Webb. No disrespect is intended. It is the penalty oftheir greatness.

[ 2 1 ]

[ 22 ] The Theory of Collective Bargaining

never given a formal definition but have used it tocover negotiations between employers and work-people when the workpeople act in concert andthe employer meets "a collective will." Collectivebargaining may take place in many kinds of negotiat-ing in concert, but it is used here to describe whatis probably the most important function of tradeunionism.

THE SUPPOSED IMPORTANCE OF THE ABANDONMENTOF THE WAGE-FUND THEORY

It is commonly believed that the overthrow of the"Wage-Fund" theory was the turning-point in regardto the economist's attitude towards trade unionism.The earlier economists, we are told, held that thelevel of wages depended on the proportion of thewage-fund or capital in relation to the number ofworkers. Trade unions could not affect the size ofthis fund and hence all efforts to raise the generallevel of wages were futile. Gains by one section ofthe workers could only be obtained at the expenseof other sections. With the abandonment of thewage-fund error, however, and especially after Mill'srenunciation of it in 1869, this view was shown tobe untenable, so we are told, and from that timethe economic justification of trade unions has beencomplete. Professor Clay, for instance, tells us that

"Labor's Disadvantage" [ 23 ]

the wage-fund theory was responsible for the belief,common in the middle class, that political economyhad found trade unionism to be futile because ofthe theory that "if wages were fixed by the pro-portion between population and capital, trade union-ism was futile and wicked; it could raise the wagesof one section only at the expense of other sections."2

Successive reiterations by leading economists havecaused this belief to become firmly accepted. F. A.Walker, in 1876, declared that under the wage-funddoctrine the striking workman was regarded as "anirrational animal whose instincts, unfortunately, werenot politico-economical."3 Edgeworth, writing in1881, declared that "in the matter of trade union-ism . . . the untutored mind of the workman hadgone more straight to the point than economic in-telligence misled by a bad method."4 Cunningham,in 1892 said: "Men were continually regretting theblind stupidity of working men who thought thatcombinations could raise wages . . . but this was ablunder. Combinations can raise wages; they havedone so and may do so again."5 This belief in afundamental change having been effected by the

2. Economics for the General Reader, p. 313.3. The Wages Question, p. 144.4. Mathematical Psychics, p. 45.5. Economic Journal, 1892, p. 14.


giving up of the clumsy wage-fund theory is erro-neous and misleading. The realization of the adsurdi-ties of the doctrine gave the apologists of the unionssomething they could attack with the full supportof authority; but the productivity theory which, invarious forms, arose on its ruins did not in itself con-tain any justification for collective bargaining. Thevague phrases about the "disadvantage" of uncom-bined labor which constitute its modern defense haveexisted continuously since the days of Adam Smith.

ATTEMPTS TO RATIONALIZE IDEAS ABOUT"LABOR'S DISADVANTAGE"

The change of doctrine that was supposed to havetaken place in the 'seventies was heralded by fourmainly independent6 but remarkably similar defensesof workers' combinations. The authors were: F. D.Longe, Cliffe Leslie, Fleeming Jenkin and W. T.Thornton. Three of them definitely attacked thewage-fund conception, but the principal object ofall four, although Longe denied it, was the justifica-tion of unionism. These contributions all appearedduring the years 1866 to 1869, and were followedin 1869 by an article from Mill (in the FortnightlyReview), who, it seems, had only read the views of

6. Leslie had read Longe, some articles by Thornton and Jenkin,and Jacob Waley's paper (referred to later).


his friend Thornton. It was in this article that heformally renounced the wage-fund theory and gavecurrency to the view that there was some way inwhich trade unions could gain, not at the expenseof other workers but at the expense of the capitalist.An attempt to analyze separately and carefully everysingle theory put forward by all these writers hasled to the conclusion that they consist largely inthe rationalization of ideas about labor's disadvan-tage in bargaining which, far from being novel, hadbeen held continuously since the time of Adam Smith.For the rest they seem at first to contain little beyonda number of attacks on the general theory of pricesbased on generalizations induced from the consid-eration of a number of hypothetical and improbablespecial cases, and a number of newly coined descrip-tive phrases which have since served as a substitutefor thought in these matters.

THE IDEA OF "LABOR'S DISADVANTAGE"ACCEPTED BY WAGE-FUND THEORISTS

Adam Smith, who was the first to talk about "thefunds destined for the payment of labour," heldviews about the laborer's disadvantage which werenot unlike those of Marshall. M'Culloch had a typi-cal defense of workers' combinations. It is only whenworkers act, he said, "in that simultaneous manner

[26] The Theory of Collective Bargaining

which is equivalent to a combination . . . that itbecomes the immediate interest of the masters tocomply with their demand." (Without) "an open oravowed, or (of) a tacit and real combination, work-men would not be able to obtain a rise of wages bytheir own exertion, but would be left to depend onthe competition of their masters."7 Even Fawcett,the wage-fund die-hard who, for many years afterMill, his master, had given up the theory still clungaffectionately to it, held quite the usual sort of viewsjustifying collective bargaining. "I believe it can beeasily shown," he wrote, "that the labourer is placedat a disadvantage, if he attempts simply as an indi-vidual to arrange this bargain, and I further believethat labourers must show that they have the powerof combining, in order at all times to be able to selltheir labour on the best possible terms."8 The ulti-mate defense of unionism in Mill's 1869 article—thebold justification of monopoly—differed in no re-spect from the justification which he put forward inhis Principles while he still believed in the wage-fund.Those excluded did not suffer for their wages would,in any case, have been kept down to subsistence level."Combinations to keep up wages," he wrote, "are

7. Treatise on Wages, p. 79.8. Economic Position of the British Labourer, 1865, p. 173.


therefore not only permissible, but useful, wheneverreally calculated to have that effect."9 On the otherhand, the chief critic of the supposed new tendencies,T. S. Cree, in an essay praised but not heeded byMarshall, declared that "the correctness of the wagesfund is not at all necessary for my position."10 Curi-ously enough, the two authorities whose condemna-tion of unionism was almost unconditional objectedalso to the wage-fund conception. Mountifort Long-field's Lectures on Political Economy, 1834, is notablechiefly for its anticipation of the productivity theory;yet its object was, to use his own words, "to showhow impossible it is to regulate wages generally eitherby combinations of workmen, or by legislative enact-ments." And Hermann in Germany blamed the wage-fund error for encouraging unionism and causingstrikes "by its doctrine that the source of wages isthe capital of the 'entrepreneur.' . . . " n These factsseem to have been overlooked by the Webbs orelse regarded by them as of no importance at all.For, in seventeen references to M'Culloch and threeto Fawcett in their Industrial Democracy, they makeno mention of the grounds on which these economists

9. Principles, Chap. X.10. Criticism of the Theory of Trade Unionism, 1891, p. 24.u . Quoted by Crook, German Wage Theories, p. 28.


sought to justify unionism; and they are two of thethree authorities quoted in a footnote (on page 606)to support the contention that belief in the wage-fund theory as enunciated by them was the reasonwhy public opinion "unhesitatingly refuted TradeUnionism."12 In twenty-five references to Mill theydo not quote the grounds on which he approved oftheir monopolistic policy. Neither do they noticethe arguments of Mountifort Longfield, whose nameappears in a footnote. And they quote a passage sug-gesting the wage-fund formula from Cree, but donot mention his claim that the theory was irrelevantto his criticisms. Articulate trade-union leaders ac-cepted readily the wage-fund formula. At least twosets of trade-union rules actually quoted M'Culloch,13

thousands of whose pamphlets circulated among andwere approved of by working-class leaders of hisday.14 An essay which declared the orthodox politi-cal economy of the 'fifties to be undisputed15 was

12. In an earlier draft of part of this essay, circulated to a num-ber of friends, I wrongly included C. Morrison as a wage-fundeconomist accepting the doctrine of "labor's disadvantage."- W . H. H.

13. E.g. "Articles of the West Riding Fancy Union. . . . 1824."Quoted in Report of the Select Committee on the CombinationLaws, 1825, p. 27. Cf. a London Trades Committee report in 1838(p. 5), in the Place Add. MSS. 27835:104.

14. E.g. See Place Add. MSS. 27803:294, 347, 478, 516.15. T. J. Dunning, Trade Unions and Strikes, 1859, pp. 4-5.

"Labofs Disadvantage" [ 29 ]

passed by a large union as a faithful representationof their views.16 Even the supposed enemies of unionshad often absorbed the typical belief in their benefi-cence. Sheriff Alison, detested by the unions for hisstern suppression of the disorders of the famous Glas-gow cotton spinners' strike of 1838, gave evidence(before the Parliamentary Enquiry on Combinations,1838)17 to the effect that workmen's combinationsenabled the "members to a certain degree to compen-sate and to enter with equality into the lists withcapital," and by i860, as Sir Archibald Alison, hisviews had not changed. "Without combinations," hesaid, "competition would force wages down andworkers would be reduced to the condition of serfsin Russia or the Ryots of Hindostan."18

THE THEORY OF COLLECTIVE BARGAINING A MERE ATTACHMENTTO WHATEVER PARTICULAR WAGE THEORY HAS BEEN HELD

The truth is, that the theory explaining or show-ing the desirability of collective bargaining has al-ways been quite independent of the wages doctrine

16. A recent writer puts the date on the change in the attitudeof unionism in the 'nineties. Hitherto, ". . . it had taken forgranted the current doctrines of 'the wages fund,' 'the law ofsupply and demand' and so forth." (Rayner, The Story of TradeUnionism, p. 63).

17. Q. 1956.18. Rep. of the Nat. Assn. for the Prom, of Social Science, i860.


that has existed at any time; it has been very similarin form to what particular theory it has been attached;but it has always been a kind of attachment to thetheory and not, as we should expect, in view ofunionism being the most obvious institution formingpart of the wage-determining mechanism, an in-tegral part of it. This fact alone would suggest thatnothing very important or fundamental is involvedin such a theory. A few economists have ignored italtogether in a way which would suggest that theyregard it as empty although they have not directlyattacked it.19 For example, Professor Cannan writes:"Modern doctrine teaches plainly enough that com-binations of earners can only raise earnings if theycan raise the value or quantity of the product . . ."20

This clearly cuts out any theory of collective bar-gaining, for that is concerned with the distributionand not the size or value of the product. He addsthat in practice it is shown by common observationand careful investigation that little can be done bycombinations of earners unless they have power toprevent outsiders from entering the trade.21 All thatis admitted here is that individual groups may gain

19. The recent publication of Cannan's Review of EconomicTheory provides an exception to this statement.

20. Theories of Production and Distribution, Third Edn., p. 404.21. Op. cit.} p. 404.

"Labor's Disadvantage" [31]

at the expense of others by monopoly obtained bythe device of exclusion; and that was what the earliereconomists appeared, at times, to say. But does directexclusion supply a sufficient explanation of the effectof combinations on wages? It is desirable briefly toexamine this view before discussing the theories whichappear to contradict it.

THE INTERESTS OF THE UNIONISTS ARE ANTAGONISTICTO THOSE OF THE LABORING MASSES

Frederic Harrison described the trade-union move-ment as "one universal protest against injustice fromthe whole field of labour." This identification withthe general working-class movement (although verycommon) may be highly misleading. It probably arosefrom the fact that typical ignorant upper-class opin-ion during the nineteenth century was quite unableto appreciate the complexity of the social and eco-nomic tendencies operating among the "lower orders."To them, there was only one working class—an in-ferior class that, led by demagogues and agitators, wastrying to usurp political and economic power. Apartfrom the economists, a few enlightened industrialistsand a few philosophers, they had a vague belief thatthe drudgery of the masses was necessary for theleisure of the few, that their subservience was the


natural order of things, and that low wages were goodfor trade. They were very glad to have it on theauthority of the economists that these evil and rebel-lious combinations were ineffectual. But this shouldnot allow the modern student to ignore the fact thatthe interests of the unionists were almost universallyantagonistic to those of the laboring masses. Had his-torians of the trade-union movement been orthodoxeconomic theorists they might have laid the strongestemphasis on this point. As it happens, however, theyhave been practically without exception persons withan undisguised hostility to orthodox theory; and thismay account for their failure to stress what mighthave struck other economists most forcibly. TheWebbs frankly admit the frequent existence of monop-olistic tendencies on the part of unions, but thegeneral impression they leave is misleading for theyhave obviously written as union advocates. Howevermuch we may admire their History—a. monumentalachievement which it would be presumptuous topraise—we must remind ourselves, whilst we are influ-enced by its thoroughness and manifest sincerity, thatit is yet the special pleading of those who have devotedtheir lives to the encouragement of the institutionwhose development they were recording.


OPINIONS OF WORKING-CLASS LEADERS

To justify the contention that combinations wereantagonistic to the interests of the great majority ofthe laboring classes is impossible by means of ordinaryhistorical method in a mainly theoretical treatmentsuch as this. We can, however, to escape the suspicionof bias or misrepresentation, appeal to the opinions,expressed at different times, of working-class leadersthemselves. This is not the most satisfactory way ofindicating the position, but it is the most practicableone in the present case.

THE "FOUNDER OF SCIENTIFIC SOCIALISM"

We might appeal first to William Thompson. De-scribed by Menger as "the most eminent founder ofmodern scientific Socialism," the originator of the ideaof "surplus value,"22 a friend and teacher of RobertOwen, Thompson can hardly be regarded as a biasedwitness against working-class bodies. He was, we aretold, of the most kindly and gentle disposition, butwhen he considered the workmen's combinations ofhis day he was moved to passionate condemnation ofthem. To him they were "bloody aristocracies ofindustry." "The apprenticeship or excluding system,"

22. According to Menger. It has been disputed by Dr. Bonaramong others.


he said, "depended on mere force and would notallow other workers to come into the market at anyprice." "It matters not," he said in 1827, "whetherthat force . . . be the gift of law or whether it beassumed by the tradesmen in spite of the law: it isequally mere force."23 They demonstrated to him"the inefficiency of force supported regulations,though backed with political power, to keep up gen-erally throughout the country the remuneration ofany species of labour; though they certainly havetended . . . to keep up the remuneration of the fewwithin the circle of the combination." Such gainswere always "at the expense of the equal right ofthe industrious to acquire skill and to exchange theirlabour where and how they may."24 This is "thefounder of scientific Socialism" speaking—not an em-ployer. "Will they then resort to force," he said,"law supported as to apprenticeships or illegal asto intimidation—in all cases equally hateful—to putdown the competition of the great majority of theindustrious and thus erect a bloody—for force willlead to blood and without blood no aristocracy canbe supported—aristocracy of industry?"25

23. Labour Rewarded, 1827, p. 75.24. Ibid., pp. 76-77.25. Ibid., p. 81.


A SOUTH AFRICAN PARALLEL

The position which raised the ire of Thompson acentury ago finds a close and obvious parallel inSouth Africa today. If he had been writing at thepresent day, and the South African trade unions hadcondescended to reply, they would probably haveanswered: "Those whom we exclude are, on thewhole, 'non-Europeans,' a morally inferior class towhom we do no harm by our exclusive policy as,owing to their low standard of life, they cannot riseand can merely drag us down." Curiously enoughthis was just the view of the English unions of lastcentury towards the "knobsticks" or "scabs," thegreat majority of the laboring classes who were out-side the unions. Their typical attitude was well sum-marized by J. S. Mill in his attempted justificationof enlightened unionism in 1869. Acting as the unions'

advocate he put the following words into the mouthof their witness: "Those whom we exclude are amorally inferior class of labourers to us; their labouris worthless and their want of prudence and self-restraint makes them more active in adding to thepopulation. We do them no wrong by intrenchingourselves behind a barrier, to exclude those whosecompetition would bring down our wages, withoutmore than momentarily raising theirs, but only add-


ing to the total numbers in existence."26 Apart fromthe Malthusian aspect, this argument seems to be afair representation of trade-union opinion at the timeMill wrote.

THE APATHY OF DEPRESSED CLASSES

One may wonder why it was that the workingclasses in England did not protest more at such in-justices. To some extent it may have been for thesame reason that we get so few protests againstunions from "non-Europeans" in South Africa. Itoften appeared as if the "knobstick" felt and believedhimself to be an inferior person. Another friend anddefender of the trade-union movement, writing ayear before Mill in the passage just quoted, describedthe knobstick's position thus: "The wretched knob-stick . . . is jeered at and snubbed on all possibleoccasions . . . he receives none of those little aids bywhich the other men lighten one another's labour . . .he is generally an inferior workman, and his workreceives its full due of criticism; he is an outcast, apariah, and fear of personal violence is not requiredto render this position a wretched one. Some societieswill not allow him to work in the same shop withtheir members, even as though he tainted the air. . . .

26. Fortnightly Review, 1869.


Odd as it may seem, the knobstick takes much thesame view of his position; he feels himself a sneak.. . . He is unskilful, poor, weak and a traitor (forattempting to undercut); they are skilled, rich, strongand noble; yes, even when they morally kickhim "27

PROTESTS AGAINST EXCLUSIVENESS

Mill's attempts to justify exclusiveness did not passwithout criticism. "After all," said Dr. Stirling, "theknobstick is not an outlaw, to be cut off from per-sonal freedom and the protection of the law. He hashis rights like his betters; and though too oftentreated like the leper of old, his chief offence is,after all, his poverty."28 And T. S. Cree, referringto the Malthusian backing to Mill's argument, re-marked that Malthus "never proposed the destructionof the weak by the strong, in order that the lattershould have more to divide."29

UNIONIST APATHY TO CHARTISM

Until they obtained political power the great massof the laboring classes had few friends outside their

27. Fleeming Jenkin, "Trade Unions," in North British Review,1868. Reprinted in his Collected Papers. Compare Webb, History,p. 296.

28. Stirling, "Mr. Mill on Trades Unions" in Recess Studies,1870, p. 330.

29. Cree, op. cit.f p. 28.


own ranks. Apart from the fact that there were noclasses below them whom they could exploit by ex-clusion, they could not afford the luxury of unionsor any other societies; nor could they pay leaders.Organizations of laborers offered no careers to com-petent organizers until well on into the century whenthe course of economic progress had greatly increasedtheir resources. Thus we find that the Chartist Move-ment, the most prominent genuine working-classmovement of the earlier half of the century, receivedlittle support from the unions. Their apathy broughtfierce denunciation from Feargus O'Connor. "Never,"he wrote, "was there more criminal apathy." Thedenunciations of Daniel O'Connell went much deeper.He condemned in the severest language not only theexisting practices of the Irish Unions but also theessential exclusiveness of all attempts at the regula-tion of wages by combination.30 The reply of theLondon Trades Combination Committee to O'Connellwas hardly repentant.31

IN MORE RECENT TIMES THE OLD ANTAGONISMSSTILL OCCASIONALLY APPARENT

When at length, owing to the growth in the eco-nomic and political power of the masses, unionism

30. Cf. Ryan, The Irish Labour Movement, pp. 89, 90.31. Combinations Defended, 1839, P- 42«


began to extend its ranks the hostility to the olderinterests was obvious. John Burns, in the 'eighties,was contemptuous of existing unions. "Mere middleand upper class rate reducing institutions," he calledthem. The "Dockers' Strike" which he organizedheralded a new era which brought into trade unionsworkers in unskilled occupations. This led to a rapidexpansion during the late 'nineties and the early partof this century, during which period the earliertendency to hostility tended, for many reasons, todie down. Not that the opposition of interest hadgone. In the 'nineties exclusiveness still had its un-ashamed apostles. Miss Clementina Black admittedthat no doubt trade unions did "tend to make thebattle of life harder for the incompetent and shiftless."They tend, she said, "to make a boundary line on theone side of which is the well-paid man in work andthe other side the absolutely unpaid man out ofwork." But this, she argued, brought no real injuryto the community.32

THE "NEW UNIONISM" OBSCURED BUT DID NOT DESTROYTHE OLD OPPOSITION OF INTEREST BETWEEN ONE CLASSOF WORKERS AND ANOTHER

Nevertheless, as the proportion of organized work-

ers grew the real antagonism between those with

32. Contemporary Review, 1892.


effective exclusive power and those without becamemore and more obscured. Some regarded the "NewUnionism" as a movement which completely super-seded the old and exclusive system. " 'The Masses'have been as ready to group themselves in exclusivesections, according to income, as their 'betters,'"said H. H. Champion in 1890, "and the greatest sin-ners in this respect have been the Trades Unionists.But of late a different feeling has arisen. . . ,"33

Whether exclusive power or desire was checked inthe 'nineties is doubtful: but it was certainly notbecoming more noticeable. Occasionally, however,we still found an over-earnest or disgruntled leaderrefusing to deny the existence of the old antago-nisms. "The exclusiveness of some of the existingunions," said Tom Mann in 1911, "must be got ridof . . . the skilled men must throw off that silly notionof superiority. . . . That unionism whose object isto maintain a special preserve for the privileged fewmust disappear, for it is incompatible with the rightsof workmen generally and is a menace to industrialsolidarity." In America we see the same thing. Fromthe I.W.W. we occasionally get the same kind ofprotests against exclusiveness. And the French "syndi-

33. The Great Dock Strike, 1890.


calists" have expressed themselves in almost the samewords.

EXCLUDED CLASSES STILL APATHETIC

But from the classes who, in modern society, surfermost from union exclusiveness we get the fewestprotests. They accept quietly and unquestioninglytheir traditional economic inferiority. When the"colored" or "native" workers in South Africa or-ganize, or when women organize in countries whichare racially homogeneous, we either find them estab-lishing new exclusions or else adopting the principleof "equal pay for equal work"—thus renouncing theonly means in their power of discounting the preju-dice against them as a class. Of course, organizationof such workers is sometimes necessary in order toget or preserve the effective or even the legal rightto a trade.

THE "STANDARD RATE" ESSENTIALLY A N EXCLUDING DEVICE

The exclusive policy of unions is not confined to

the obvious method of visible exclusion by appren-

ticeship restrictions and the like. Every insistence on

an artificially high rate will tend to reduce the num-

ber it will be profitable to employ. Those within the

combination will still benefit at the expense of those


outside. This method of obtaining monopoly is morepernicious than that of apprenticeship exclusion asit enables the monopolists to plead that they are act-ing in the interests of those whom they are in factexcluding. They can claim that they are raising thestandard of living of the very ones whose competi-tion they wish to eliminate, and even get the supportof legal enactment to enable them to carry out theirpolicy. The evil in labor monopolies lies not only intheir driving the less fortunate to relatively badlypaid occupations but also in their raising the cost ofliving to them as well.

THE WAGE-FUND THEORY ITSELF DID NOT JUSTIFY THEPOPULAR BELIEF OF THE TIME THAT POLITICAL ECONOMYCONDEMNED ALL STRIKES AS IRRATIONAL

In view of the obviously purely monopolistic na-ture of workmen's combinations in their day, thereis nothing surprising in the classical economists' fail-ure to give much attention to the question as towhether or not the members of a union could in-crease their incomes otherwise than at the expenseof other workers. An elaborate theory of collective

bargaining would not have been much more than the

merest academic abstraction in their day. Wherethey can be blamed is in not having faced more boldlythis question of exclusiveness. It is true that on the


whole they condemned it, but they seemed ratherreluctant to admit its power. They often appear tohave been trying to leave the impression that allstrikes must necessarily fail in the long run and thatno group of workers could gain permanently bystrike action. This sort of thing was very comfort-ing to the employers and the Press, and until the'seventies it was made use of in the most carelessmanner. The economists were said to have declaredthat combinations could not raise wages. If they wereright the workers were fools. But surely what theeconomists (apart from their sophism about labor'sdisadvantage) had been saying or trying to say wasthat unions could not raise wages in general: it hadnever been explicitly denied that those particulargroups could, by combination, increase their ownshare of the wage-fund at the expense of others,although it was sometimes argued that such monopo-lies were bound to break down in the end throughthe competition of other workers (generally fromabroad), or through capital being driven elsewhere.The inadequacy of the wage-fund conception al-lowed this careless thinking to persist—comfortingemployers yet having no effect in preventing strikes.But modern theories would credit unions with somepower of benefiting their members without the exer-


cise of exclusiveness. Let us examine how the various

ideas contained in these modern theories came to

be held.

THE IDEA OF "LABOR'S DISADVANTAGE" IS FOUND IN"THE WEALTH OF NATIONS"

The distinctive ideas that lie behind still-persistingtheories which seek, without defending monopoly,to justify collective bargaining, originated, as has al-ready been pointed out, with Adam Smith. Theyarose in connection with the subsistence theory heput forward. Mr. C. M. Lloyd, a leading advocateand historian of unionism, either does not realizethis or is very ungrateful for it. "The influence ofmanufacturers," he writes, ". . . bore heavily uponParliament . . . in 1776, this influence was reinforcedby Adam Smith's Wealth of Nations, from whichit appeared that the creed of unrestricted exploita-tion was really a new gospel for humanity."34 Thisis a strange way of referring to one of whom it hasbeen said: "(his) sympathies, indeed, seem to havebeen wholly with the industrious wage-earner, andespecially with the poorest."35 To suggest that AdamSmith favored low wages is entirely false. The sug-gestion is constantly reiterated that the classical econo-

34. C. M. Lloyd, Trade Unionism, p. 4.35. Cannan, Economist's Protests, p. 422.


mists generally "defended subsistence wages." "Ofall the libels upon them invented by socialist andsemi-socialist writers," says Professor Cannan, "thisis about the worst. They may have been, they cer-tainly were, wrong about the causes of high wages,but they were always in favour of them."36 The realevil in the subsistence theory lay in its hopelessness,and the attitude of self-pity and dependence whichit tended, right against the spirit of the age, to instilin the minds of the laboring classes. Harriett Mar-tineau, whose views are so often misrepresented asharsh, was attacked by the Edinburgh Review forher sentimentalism. They wrote: "From a wish, wesuppose, to address the men in conciliatory language,she condoles with them as a suffering race who wereinduced to strike by the depression of their wagesto the lowest point."

ADAM SMITH LIMITED HIS THEORY (WHICH CONTAINEDTHREE IDEAS) TO "ORDINARY OCCASIONS"

Adam Smith's views bearing on what became laterthe theory of collective bargaining arose then outof the subsistence theory. "Upon all ordinary occa-sions," he wrote, "the masters have the advantage inthe dispute," and can force the men "into a com-

36. Ibid., p . 423.

[ 4<$ ] The Theory of Collective Bargaining

pliance with their terms." His explanation of thisvague power can be analyzed into three separateideas. First, there existed particular combinations ofmasters who agreed to force down wages to subsis-tence level. Second, there was "a tacit but uniformcombination" among employers to keep wages down.Third, that although in the long run the workmenmight be "as necessary to his master as his master isto him," the necessity is "not so immediate." Whereasmasters, "though they did not employ a single work-man, could generally live a year or two upon thestocks which they have already acquired," manyworkmen "could not subsist a week, few could sub-sist a month, and scarce any a year without employ-ment."37 These factors, he thought, accounted forthe employers' power to force wages down to thesubsistence level. He seems to have assumed that houothey gave the employers this remarkable power wasself-evident, for no further explanation of them wasgiven. The emptiness of the theory becomes clearwhen we consider the limits he assigned to the em-ployers' power in this respect. The limits were de-termined, not by the individual's minimum require-ments for survival, but by those of his family, becauseotherwise, said Smith, "it would be impossible for

37. Wealth of Nations, Book I, Chap. VIII.

"Labors Disadvantage" [ 47 ]

him to bring up a family, and the race of workmencould not last beyond the first generation." But asProfessor Cannan asks, if the masters have this powerwhy should they concern themselves about the laborsupply of the next generation? "Trade rings," hesays, "usually adopt the motto, 'After us the deluge,' "and he points out that Adam Smith himself probablythought the doctrine was weak as evidenced by hisdragging in an irrelevant reference to such wagesbeing the lowest "consistent with common human-ity."38 Moreover, observing that in practice wageswere often considerably higher than subsistence level,Smith limited the application of his theory to "ordi-nary occasions."

ADAM SMITH HIMSELF SEEMS TO HAVE UNCONSCIOUSLYGIVEN UP THE IDEA

Do the exceptional occasions help us to understandthe theory? He mentioned only one exceptional occa-sion, and that was an "increase of revenue or stock"which would "sometimes give the labourers an ad-vantage, and enable them to raise their wages." Theycould do this because the masters would then "bidagainst one another in order to get workmen, andthus voluntarily break through the natural combina-

38. See Cannan, Theories . . . , op. cit.y p. 235.


tion of masters not to raise wages." This, he thought,would happen while expansion was in progress. Thuswe arrive at the really remarkable conclusion thatan increase of stock loses the masters their relativeadvantage, a conclusion which could be made to looklike a direct contradiction to the previous contentionthat it was the greater stocks held by the masterwhich gave him his advantage. The truth is thatAdam Smith had really unconsciously given up hisearlier theory. In Professor Cannan's words: "Thepower of the masters to depress wages to the sub-sistence level by combination, and their 'commonhumanity' which prevents them killing the goose thatlaid the golden eggs, by depressing them below thatlevel, both disappear. . . . So little room is left forthe subsistence theory that Adam Smith seems, to-wards the end of his work, to have forgotten thathe had ever held it."39 But the ideas about the em-ployer's advantage and his power to force downwages indefinitely and the workman's correspondingdisadvantage which originated thus have persistedright through to the present day, although the basison which Adam Smith himself had founded them hadbeen tacitly renounced.

39. Ibid., p . 237.


MASTERS' COMBINATIONS FOR DEALING WITH WAGES SEEM

TO HAVE BEEN RELUCTANT AND RETALIATORY UNTIL LATE

IN THE NINETEENTH CENTURY

We shall now proceed to examine the history anddevelopment of the three ideas that were connectedwith his statement of the subsistence theory. Weshall deal first with the allegation that masters habitu-ally formed themselves into combinations to forcewages down. (The power of masters' combinationsto force down wages will be discussed at a later stage.)Some informal combinations of masters undoubtedlyoccasionally got together in his day; and there is noreason for believing that these combinations wereanything new. More's Utopia talks about a "con-spiracy of rich men," discussing "how to hire andabuse the work and labour of the poor for as littlemoney as may be." This kind of idea probably re-curred from time to time right up to the time ofAdam Smith. Nevertheless, his contention is mislead-ing. Workmen's combinations equally existed in hisday, and it is a question of some importance whethermasters' combinations led to the formation of unionsor whether it worked the other way. A recent articleby Mrs. Dorothy George has shown that the long-held belief that the Combination Laws were usedin a grossly partial way against organizations of


working-men is erroneous,40 and it is the writer'simpression that throughout the greater part of thenineteenth century the extent of combination of capi-talists for the express purpose of settling wages wasnegligible. Adam Smith's contention was repeatedby J. B. Say, but it did not pass without criticism.It was categorically denied in 1834, by E. C. Tufnell,a very able observer with an almost unrivalled knowl-edge of English industrial and labor conditions."What may have been the case in the time of AdamSmith," he wrote, "we have no means of ascertain-ing, but certainly for a long period back there is noreason to suppose such a state of things to haveexisted."41 Right through the century we find similardenials from trustworthy observers. The Committeeon Artisans and Machinery of 1824 could find onlyone instance of a perfect combination of masters-twelve type-founders.42 It is difficult at times to knowwhat observers understood by "masters' combina-

40. Econ. Jour. History Supp., 1927, p. 214.41. Character, Objects and Effects of Trade Unionism, 1834,

p. 99. Tufnell is criticizing the phrase about "tacit combination,"but he undoubtedly had formal combinations in mind.

42. A great deal of further evidence could be brought forwardto support this point, but an adequate analysis of it would necessi-tate lengthy treatment. (The Select Committee on Artisans andMachinery 1824; the Select Committee on the Combination Lawsof 1825; and the Place Collection contain a large store of evidenceon the point.)


tion."43 Certainly, however, deliberately organizedbodies on the lines of the unions were almost non-existent until late into the century. The early indus-trialists were imbued with a sturdy individualism thatwas repugnant to association. As Dr. Stirling pointedout: aThe oft-quoted dictum of Adam Smith, thatit is easy for a few capitalists to combine, is a grievouserror . . . (they are) necessarily competitors, andtherefore kept apart by natural rivalries."44 "A com-bination of rival traders," said Buchanan, "is a phe-nomenon which, until human nature is changed, willnever be exhibited."45 "The same principle of selfish-ness which prompts them to form the league, promptsthem also to break it. . . . Rival traders have no con-fidence in each other; no two of them will ever actin concert."46 A similar attitude was taken by M'Cul-loch and others. Until the 'eighties this attitude was,to a superficial observer at any rate, correct. Theaversion of employers to enter even into protective

43. There is no suggestion, of course, that the accounts of capi-talist combination in the eighteenth and nineteenth centuries inLevy's Monopolies, Trusts and Cartells and other works are inany way misleading.

44. Stirling, Trade Unionism. Reprint from Second Edn. (1869),1889, p . 40.

45. Buchanan's Editorial note to the Wealth of Nations, Vol. I,p. 210.

46. Wealth of Nations, Vol. I, pp. 206-7, note.


or defensive associations was brought out in evidencebefore the Trade Union Commission of 1867. Thatevidence suggested that the motive of employers'associations — reluctantly entered into — was self-de-fense. Very early in their history, combined workershad discovered the utility, as a coercive weapon, ofthe device so aptly named by the Webbs, "the strikein detail." Practically all the combinations amongemployers that were revealed by the inquiries in1824 or 1825 were either retaliatory against unionsexploiting "the strike in detail" or else the employers'side of "joint monopolies" operating with the encour-agement and connivance of the workers. We shalldiscuss the latter later on. A good example of "thestrike in detail" occurred immediately after the Repealof the Combination Laws, when the Linen Weaversof Barnsley planned to compel workers, factory byfactory, to strike, selecting the order by lot. Theobject was to coerce employers one by one, thusenabling the strikers to be supported out of con-tributions from those still working for other em-ployers. The Edinburgh Review, commenting on thisdevice in 1838, said that those who adopted it weregenerally victorious, and that this caused them toacquire the habit of considering themselves irresistible."They produce," said the Review, "a universal con-

"'Labor's Disadvantage" [ 53 ]

viction of the necessity of a combined resistance."Tufnell gave a description of the reluctant forma-tion of a masters' association at Leeds following astrike in detail.47 Many trustworthy observers gavethis reason for such employers' combinations as thenexisted. In the middle of the century we find thesame opinion held. W. L. Sargant, a student withan intimate knowledge of working-class movements,wrote in 1851: "I have shown that combinationsamong the men are inevitable, and where the work-men combine, masters will and must do the same."48

In 1854 Morrison expressed a similar opinion anddescribed the forms that employers' counter-com-binations could take.49 In the late 'sixties even trade-union advocates spoke of masters' associations asthough they were novelties. "In the last dispute inthe iron trade," said Longe, "employers taught anunruly and high-paid class of workmen the whole-some lesson that employers can combine as wellas labourers."50 Thornton, in a passage largely con-tradictory of other parts of his work, wrote: "Hither-to want of concert between individual masters has

47. Tufnell, Character . . . etc., pp. 101-2.48. Science of Social Opulence, p. 404.49. On the Relations of Labour and Capital, 1854, pp. 98-99.50. Refutation of the Wages Fund Theory.

[ 54 I The Theory of Collective Bargaining

placed them at a great disadvantage as compared withthe men," and "The lock-out is never initiative—itis always retaliatory."51 Another friend of the union-ists was sufficiently naive to attribute inconsistencyto employers who during a strike had entered into acombination "such as they did not hesitate to stig-matise in those who were not so well educated asthemselves."52 And the cry of an employer of aboutthe same time has a sincere ring. "As yet war hasonly been declared on one side. . . . As yet capitalhas been passive, but it will not remain so long; itmust soon, in self-defence, combine to defeat thetyranny of labour, and who then can doubt the re-sult?"53 The studies of Mr. W. Page for the period1886 to 1890 seem to have suggested to him the sameephemeral and retaliatory character of employers'combinations. He states quite simply: "The com-,bination for bargaining purposes of all classes ofworkers necessarily resulted in a like movement amongthe employers."54 Contemporary observers of therapidly developing trade-union movement in the Brit-ish Dominions in the early 'nineties of last century

51. On Labour, Second Edn., 1870, p. 271.52. Samuelson, Friendly Hints to Trade Unionists, 1867.53. Capital and Labour, 1867. By a Member of the Manchester

Chamber of Commerce.54. Commerce and Industry, p. 333.

"Labofs Disadvantage" [55]

tell the same story. Referring to a great strike whichhad just failed owing to the employers getting to-gether, a writer from Australia said that it provedthat, "difficult as it was for employers to risk theirrival interests against a common enemy, they willdo so and receive public support in the most demo-cratic countries, so long as labour makes a demandwhich the public holds to be arbitrary or unfair."55

A New Zealand observer about the same time, writ-ing on "Labour Troubles in New Zealand," declaredthat, apart from a shipowners' association "no othercombination of employers was formed in this countryuntil after the strike commenced. The natural con-clusion is that the aggression of labour forced em-ployers to combine in self-defence."56

THE QUESTION IS OF LESS SIGNIFICANCE IN MODERN TIMES

This rapid historical survey is based on a moreor less arbitrary selection of opinions expressed bycompetent observers at different times during lastcentury. But again and again the writer has foundevidence of the extreme reluctance with which com-peting interests have agreed to cooperate in theirown defense and of the ephemeral nature of any

55. H. H. Champion, in The Nineteenth Century, Feb. 1891.56. Econ. Jour., 1891, p. 716.

[ $6 ] The Theory of Collective Bargaining

associations which have thereby resulted. Since thelate 'eighties other causes have led to the aggrega-tion of capital on such a large scale that an inquiryas to whether employers' associations are primarilybodies which take initiative in labor questions ormerely retaliatory, loses its significance.

JOINT SUPPORT BY OPPOSED COMBINATIONS

The motive for these combinations of masters wasprobably something more than mere direct defense,the opposing of the coercive device of "the strike"by that of the "lock-out." We have early evidenceof workmen's societies being countenanced by themasters and used as instruments against factorieswhich were "underselling." And we find unions claim-ing that their sole object was "to protect the up-right manufacturer against the unfair competition ofthe avaricious one, and to secure a fair remunerationfor labour."57 But this very important phenomenoncan be best discussed at a later stage.

"TACIT COMBINATION" BY MASTERS

Let us turn now to the rather vaguer but fre-quently quoted suggestion of Adam Smith's, thatthe employers were everywhere in a tacit but uni-

57. John Wade, History of the Middle and Working Classes,1833, p . 284.


form combination to keep down wages. This hasprobably been more frequently quoted because, inits vagueness, it is more difficult to refute. It isquite understandable that in the time of Adam Smithmasters had a kind of conception of the wages ofa laborer as something definite, fixed and natural.Wages then varied slowly, and any master wouldnaturally resent having to pay more than he hadbeen accustomed to; but this would not preventwages from rising. If there had been a tendency forwages to rise, it is quite certain that masters wouldhave compared notes on meeting one another andcomplained of the iniquity of it. They would havedone all in their power to avoid paying more; butthe point is, could they have succeeded in keepingwages stationary? Pepys recorded how he paid hisfirst maid three pounds a year and her clothes. Anew cook who came later demanded four pounds,and he wrote: ". . . the first time I ever did giveso much." Later still he wrote: "Wages are very con-siderable; a fat Welsh girl who has just come outof the country, scarce understood a word of Eng-lish, capable of nothing but washing, scouring andsweeping the rooms . . . (received) six guineas ayear, besides a guinea for her tea" (Pepys7 Diary).And Defoe in 1725 deplored the fact that "women


servants are now so scarce that . . . their wages areof late increased to six, seven, nay eight pounds perannum and upwards. . . . But the greatest abuse ofall is that these creatures are become their own law-givers; they hire themselves to you by their ownwill. That is, a month's wages or a month's warning"(Everybody's Business, Nobody's Business). How-ever, the indignation and disgust of these gentlemendid not enable them to escape paying the higherwages caused by the scarcity; and we have no reasonto suppose that they acted any differently from othermasters of their day. It was the very futility of such"tacit combinations" which led to the seventeenth-century attempts to get the Justices to force maidsinto service and to assess their wages.58 And thesame thing applies to the alleged tacit combinationon the part of the farmers. The typical farmer isstill notoriously stupid over the matter of wages—constantly complaining of the shortage of labor, andwhen asked why he does not offer higher wages,indignantly replying that laborers ought to be onlytoo grateful to get work at the wage he is offering.But this spirit does not lower the price of labor: itsimply results in the farmer's demand being some-

58. E.g. See Brown, Bland & Tawney, Select Documentspp. 360, 361.


what less than it might otherwise be, for the shortageof which he complains remains. If he prefers that"shortage" to raising wages, presumably the existingrate is the economic one. Ultimately, all the dictumabout a tacit combination comes to is that masterswill not pay more than they believe to be necessaryto get the labor they desire; and this does not oper-ate solely on the employers' side. Laborers similarlywill not offer to work for less than they believethey can get: the "Clay-Martin" Report of the SouthAfrican Economic and Wage Commission 1925 al-leges a tacit combination on the part of natives notto accept less than a certain rate of wages. Thismerely means that they know what they can get;the phrase simply sums up a typical attitude of mind,an attitude which may perhaps help to maintain sta-bility or may act as an unavailing resistance tonecessary change.59

THE MASTERS' NECESSITIES "NOT SO IMMEDIATE"

If the "tacit combination" theory exercised much

influence because of its vagueness, still more does

this seem to be the case with the third idea which

59. There is no suggestion, of course, that the psychologicalphenomenon of a group of competitors tacitly endeavoring "notto spoil" a buying or selling market (in a time of change) doesnot exist.


we have seen sprang from the Wealth of Nations.To Adam Smith the masters had the advantage be-cause their necessity for the men was "not so imme-diate" as that of the men for them, for while themaster could subsist for a long time upon stocksacquired, many men "could not exist for a week, fewcould subsist a month, and scarce any a year with-out employment." Although writing in the eighteenthcentury he put it much more mildly than many mod-ern writers, who talk as though any unemployedworker is faced with immediate starvation. We mustremember, however, that this idea was held by Smithas a sort of appurtenance to and amplification of hissubsistence theory which, as has already been shown,was quite erroneous and, moreover, apparently givenup by himself. The theory was kept alive in a gen-eral way by the Socialists, whose "exploitation theory"may have been the source from which the idea wasso strongly reinforced in the late 'sixties. "Who soblind," said Louis Blanc, "as not to see that, underits domination (competition), the continuous fall ofwages, far from being exceptional, is necessarily uni-versal." Many of the economists who condemned theexploitation theory put forward, nevertheless, therather milder theory of "the employers' advantage";and it appears as if they were not uninfluenced by


it. The theory of the employers' advantage causesthe worker, as one writer put it, to visualize thecapitalist as a "Gulliver of labour, only to be mas-tered by the united efforts of Lilliputian numbers."60

It is surprising that the idea obtained such a wideacceptance. Appeal to facts could have given littlesupport to it. "Nine-tenths of the cotton-workers,"said Tufnell, criticizing the theory, "never think offorming Unions, and the alleged advantage has neverbeen taken of them."61 Said another writer: To tella "baffled contractor" wanting to get labor that"nothing but a close combination" can give workers"even a chance of successfully contending with em-ployers must sound in his ears like dismal mockery."62

And in the words of yet another critic: "The labourer. . . is at no disadvantage in bargaining with theemployer, who is tied to his machines, which hemust keep fully employed, or perish financially."63

In the writings of Thornton and the other authorsof the late 'sixties mentioned above, attempts to jus-tify or rationalize the theory took various forms,only some of which is it worth while examining. As

60. Stirling, "Mr. Mill on Trades Unions," in Recess Studies,1870, p. 317.

61. Character . . . etc., op. cit., p. 96.62. Stirling, op. tit., p. 319.63. Cree, op. cit., p. 20.

[6i ] The Theory of Collective Bargaining

has been suggested, these attempts appear to be littlemore than inventions of vague phrases, which, ifconveying a clear meaning to some economists, haveserved as mere catchwords and substitutes for think-ing by others.

"ON TERMS OF EQUALITY"

One of the most common is that combination putsthe worker "on terms of equality" or "on an equalfooting" with the employer; it gives him "equalityof bargaining strength."64 Can we give any definitemeaning to this term "equality"? Thornton tried to.He took an example of a product created by thejoint contributions of one worker and one employerand assumed that if they were on "an equal footing"the product would be divided equally between them.This is so absurd that one wonders that he everallowed it to get into print, but it gave him an oppor-tunity of himself criticizing the vague phrases usedby others. He thought that he had dealt with it satis-factorily merely by contradicting it. "Nothing iseasier than to show," he added, "that if labourerswere really on the same footing as their employers,

64. The use of the terms "strong" and "weak" in economic lit-erature was criticized by Pantaleoni in the Economic Journal,1898, p . 193.


the equality between them would after all be but asham and a cloak for the extremest inequality."65

THE WORKER "HAS NO RESERVE"

The idea is made a little more explicit when it isdeveloped into the theory that the worker is at adisadvantage because he has no reserve. The deriva-tion from Adam Smith is obvious. The capitalist "hasthe advantage of past accumulations in striking hisbargain" runs the formula; he can "discharge a singleworkman with comparatively slight inconvenience,while the workman loses the whole means of sub-sistence."66 The employer, it is held, "can generallywait longer for labour than labourers can wait forwages. . . . This is why the price of labour is gen-erally so much depressed."67

EXAGGERATIONS AND CONFUSIONS INTRODUCEDBY THESE IDEAS

Without the subsistence theory to rest upon suchconceptions appear to be the emptiest of sophisms.Sometimes Smith's moderate dictum about the rela-tive urgencies of the master's and workman's neces-

6$. Thornton, op. cit., p. 192.66. "Committee on Trade Societies of the Nat. Assn. for the

Prom, of Soc. Sci." in Transactions, i860.67. Thornton, op. cit., p. 175.


skies is exaggerated into the statement that the lattermust take whatever the employer offers or starve.Thornton, trying to justify this view, was led intothe wildest exaggerations. He contended first thatthe individual laborer could not "carry his labourto a better market or spare the time to go elsewhere,"a contention that the slightest examination of thelabor mobility of his day would have upset; and tothis argument he added, that savings would avail himlittle.68 Possibly, he had noticed that workers withsavings were getting no more wages for the samework than those without, but with this admissionwhat becomes of the "labourer has no reserve" theory?We are forced to the conclusion that there is somedistinction between collective saving by the unionand individual saving, or that individual reserve fundsare no reserves at all. If this is the case, Thornton'sattempted expansion and generalization of the par-ticular theory also falls to the ground. "Price," hesaid, "in any particular instance will be greater orless according as it is the buyer or seller who is bestin a position to take advantage of the other's neces-sities."69 But the only explicit meaning given for

68. Ibid., p. 102.69. Ibid., p. 143.

"Labofs Disadvantage" [65]

"necessities" is lack of a reserve, so that if savings"avail little" the whole idea is meaningless. If theargument had been that poverty acted as a restrictionon the mobility of the laborer, and so prevented himfrom selling his services in the most profitable market,it would have appeared more plausible. There is asuspicion of this idea in the passage just quoted, butit is confused with the "reserve fund" idea, andsuggests that the disadvantage arising from lack ofmobility can be overcome without restoring mobility.Surely the plain truth is that we can make no usefulgeneralizations on this matter at all. It might beargued with equal justification that the worker with-out savings has an advantage over the worker withsavings because he has nothing to lose.

THE "DEPENDENCE" AND "INSECURITY" OF THE WORKER

Most writers who use these ideas are less explicit

than Thornton, and so less easy to criticize. With

some, the worker's disadvantage seems to be im-

plicit in the relationship of "employer and employed"

(as it is called), and the alleged "dependence" of

the worker resulting therefrom. The phrase "em-

ployer and employed" is in itself greatly misleading,

for the ultimate employers of labor are the con-


sumers, and it is on their demand that the workersare dependent.70 The development of this relation-ship did not bring, however, any obvious new dis-advantages. On the contrary, the security of theworking class was greatly increased. The Edinburgh

Review in 1837 could speak about "the compara-tively perfect security of the working classes in latertimes"; and Nicholson could point out, towards theend of the century, that "the wage-earners of thiscountry as a whole . . . have a much more stableincome than the mass of peasant proprietors in othercountries; the yield to labour on the large system ofindustry is much more certain than the yield to landof the petite culture"11 There is no reason for sup-posing that the relationship of the wage-earner tosociety is less stable than that of the poor proprietor.

CONTRADICTION OF THESE IDEAS BY"THE PIN MONEY" ARGUMENT

It is enlightening to oppose to these argumentsanother one, curiously enough often naively usedby the same writers, which completely contradictsthem. It argues that the possession of a reserve, orthe relative absence of necessities (i.e., a lower con-

70. See Cannan, Review of Economic Theory, pp. 433-443.71. Econ. Jour., 1892, p. 482.

"Labor's Disadvantage" [ 6j ]

ventional standard of life), far from causing higherwages to come to the possessor, leads to lower wages.In one of its forms it is sometimes called "the pinmoney" argument. The contention is that those whohave some other source of income or some alterna-tive income can, on this account, have their wagesforced down. In another of its forms it might becalled "the standard of living theory of wages." Thesuggestion is that a certain body of workers (usuallyalien immigrants or non-white residents among Euro-pean peoples), on account of their being accustomedto a lower standard of living, find themselves earn-ing lower wages. They get less, it is said, becausethey have fewer requirements. According to the par-ticular sentiment attaching to the people concerned,we are either told that they are "exploited" or thatthey are themselves the evil party in persisting inundercutting. But the economics of the phenomenonare wholly explicable in terms of the effect of thecharacteristics of the workers upon their supply.

LABOR SOLD "WITHOUT RESERVE"

Thornton put forward also a rather different formof the conception of the laborer's lack of a reserve.He declared that the price of labor was determinedon different principles from that of other commodi-


ties because it was "sold without reserve." "Isolatedlabour," he said, "is almost always sold withoutreserve, whereas tangible commodities are scarcelyever so sold." How is it that high prices are secured?"Plainly, by not selling unreservedly." That is trueenough if it merely means that some part of thesupply is held back; but as will be seen when wecome to the form of the theory which says that"labor is perishable," the phrase is probably basedon fallacious reasoning. Even Mill, who showeredextravagant praise on Thornton's book, pointed outthat "reserving a price is, to all intents and purposes,withdrawing supply."72 The most careful analysisdoes not reveal that it means anything more thanthat it means anything more than that uncombinedlabor cannot exploit monopoly power. Quite oftenthis is clearly all that is meant when it is said thatthe workers are "at the employers' mercy." For ex-ample, the executive of an American trade uniondeclares that if skilled work could be obtained with-out the necessity of years of experience, "any craftwould be thrown open to the competition of analmost unlimited labour supply; and the craftsmen init would be practically at the mercy of the em-ployer.'"73

72. Fortnightly Review, 1869.73. Quoted in L. C. Marshall, Industrial Society, p. 562.


LABOR IS "A PERISHABLE COMMODITY"

Another form taken by the idea that labor is ex-ploited because it cannot wait is that which saysthat labor is a perishable commodity. We have tothank or blame Thornton for this form of the idea."Labour," he said, ". . . will not keep? Criticismsoon came.74 Even General Walker, who believedthat in his final overthrow of the wage-fund theoryhe had provided a justification of trade unionism,attacked the idea. His criticism was not altogethersatisfactory. It was based partly upon a hair-splittingpoint about time spent in rest not resulting in waste,but in labor being "stored up,"75 and partly upon acontention that the buyer of labor was in preciselythe same position.76 "If he does not buy today's labourtoday," wrote Walker, "he surely can not buy ittomorrow"; and he went on to say that with a cessa-tion of industry the employer would become "in-dustrially defunct" when he had eaten up his capital,whereas the laborer in "preserving his thews andsinews preserved also his stock in trade and his in-dustrial ability." A criticism by Nicholson in 1892went nearer to the point. " . . . A man who cannot

74. Cairnes criticized the theory privately to Thornton.75. The Wages Question, 1876, p. 292.76. Ibid., p. 294.


employ his capital," he wrote, "loses his income assurely as a labourer out of work loses his wages. . . .If the one is perishable, so is the other. We are con-stantly reminded that a labourer is liable to dismissal,and thus indirectly to starvation and death. Butthough this may be true of a labourer it is not trueof labour. To say that all the labour of a country,or even a considerable part, could be dismissed bycapital, is palpably absurd."77 By all odds the bestcriticism came from Pierson. "Thornton's argument,"he pointed out, "is defective. The 'keeping' oflabour—supposing it could be kept—would not dimin-ish the supply of labour; it would simply delay it.At a given moment there would be fewer peopleoffering to sell their labour; but their number wouldbe all the greater later on. Organisation in a particu-lar trade is capable of achieving its purposes, be-cause, in a particular trade, it is capable of perma-nently limiting the supply of labour. But thislimitation leads to an increase in the supply of labourin other trades; and if all work-people were organ-ised, the conditions under which alone a Trade Unioncan exercise a permanent influence upon the rate ofwages would nowhere be fulfilled."78 One would

77. Econ. Jour., 1892, p. 480.78. Pierson, Principles, Vol. I, p. 270.

"Labor's Disadvantage" [71]

have thought, after such criticism as Pierson's, that

the phrase "labor will not keep" would have disap-

peared for ever from the economic text-books; but

it cheerfully persists. Marshall continued to explain

that labor was at a disadvantage in bargaining be-

cause it was "perishable."79 Probably through his in-

fluence the idea has become sanctified in current

economic jargon;80 thousands of students have re-

peated it parrot-wise in examinations; and when Mr.

R. G. Hawtrey in 1926 ornaments the idea with

flowers and epigram we do not feel shocked. "What

he withholds today," says Mr. Hawtrey, "cannot be

sold tomorrow, for labour is more perishable than

cut flowers. Tomorrow, today's labour will no longer

exist."81 He does not merely mean that if the laborer

(from his own fault or owing to the defects of eco-

79. Marshall, Principles, Third Edn., p. 647.80. The extent of the hold which this idea possesses is seen in

the erroneous attributing of the phrase: that "a strike fund wouldmake labour less perishable, and therefore, as far as bargainingstrength was concerned, more on a par with capital," to a work-man in 1831. See the Economic History Supplement of the Eco-nomic Journal, No. 3, p. 388. The passage in the Cambrian (1stOctober, 1831) on which the above words are based reads asfollows: ". . . that if they had been associated with the clubs intime past, they might have opposed a reduction in wages and ob-tained relief if the attempts to reduce (wages) had been persistedin."

81. Hawtrey, The Economic Problem, p. 29.


nomic organization) does not work, the time he haswasted cannot be regained. He holds that becausethe worker cannot acquire an accumulated stock ofhis labor and defer selling when the market seemsto require it "he is only too likely to sell his servicesat a price below that which the market, properlyapproached, might yield him."82

THE SURVIVAL OF THE "SUBSISTENCE THEORY"

The persistence of all these theories seems to bein part due to the survival of the subsistence theorysuperstition, the idea that wages tend "naturally" orthrough competition to fall to "the lowest point" or"a minimum," although as we have seen, Adam Smithgave no logical explanation for the belief, but merelyassumed that because wages could not be below thatlevel they could not be above. Thornton and Mill,we have seen, were influenced by it. Even Walkerwas led by a similar kind of belief to justify union-ism. He argued first that imperfect competition, whichoperated against the worker, might lead to a dis-advantageous bargain in the first place and that thelow wage resulting would become perpetuated through

82. Mr. Hawtrey's discussion involves a point about the worker'sdisadvantage in not being "a specialist in the art of selling," andthe phrase "properly approached" may have had the whole of thisidea in mind. In essence, however, the argument appears to be thesame as that which Pierson criticized.

"Labofs Disadvantage1'' [ 73 ]

consequent inefficiency. In such circumstances, hesaid, there was no "tendency in any economical forcesto repair the mischief." After an illustration of howthis worked he brought in a theory of a differentkind. Not only was there no tendency in purelyeconomic forces to right the evil, but they them-selves tended to perpetuate it. "Such disasters aside,"he said (referring to his illustration), "the tendencyof purely economical forces is continually to aggra-vate the disadvantages from which any person or classmay suffer. . . . Every gain which one party makesat the expense of another, provides the thews andsinews of war for further aggressions."83 Yet, likeother economists, Walker probably had misgivingson this subject, as evidenced by his reversing theapparent original meaning of the passage last quotedin the otherwise identical passage in his Political

Economy, published later. He inserted the words:"under impaired competition," which considerablyweakened the suggestion that purely economic forcestend to perpetuate rather than to counteract the re-sults of originally disadvantageous bargains.84 Out-

83. The Wages Question, pp. 165-166.84. The revised passage reads: "Irrespective of anything catas-

trophic, the tendency of purely economic forces, under impairedcompetition, is continually to aggravate the disadvantages, etc."(Political Economy, Third Edition, p. 265.)


side the ranks of the more orthodox economists wefind a host of prolific writers who have blamed com-petition itself rather than its impairment, for "thetendency of wages to a minimum." The idea prob-ably found its crudest expression in the writings ofCharles Kingsley and the Christian Socialists, and un-doubtedly exercised a great deal of influence throughthe anti-sweating movements. It has received lengthyand deliberate treatment in the Webbs' IndustrialDemocracy, and is one of the main bases of theiradvocacy of unionism. Marshall's treatment of theidea certainly did not give authority to the viewthat "economic forces" or competition tended to de-press the worker, but it was similar to Walker's inholding that the disadvantageous position of theworker was cumulative. "It lowers his wages," hewrote, "and as we have seen, this lowers his efficiencyas a worker, and thereby lowers the normal valueof his labour."85 This amounts to saying that thereis a dynamic force tending to cause wages to fallthrough the decreased efficiency of labor. Views ofthis sort are popular, but are usually accepted veryuncritically. Economists have always noticed thatwhere the standard of living is low there is lowefficiency; and there is no doubt that a low stand-

85. Marshall, Principles, Third Edn., p. 649.


ard of living is often an important factor causing thatlow efficiency; but this does not in itself allow thatthere is a dynamic tendency downwards. Surely thisgeneralization puts the cart before the horse. In sofar as low wages are due to inefficiency, from what-ever cause, the right thing to do is to tackle thatinefficiency directly. Interference with the pricemechanism seems to be the very worst way of try-ing to deal with it. There is, however, no theoreticalsolution to this particular question—it must be an-swered by appeal to experience; and yet, if therewere anything in the idea, would not employers havediscovered it? Few of them are unaware of the effecton efficiency of the stimulus of piece work, of mak-ing increased income the certain reward of improvedefficiency. May not their general doubt that increasedreward will automatically bring greater efficiencybe due to the simple fact that in general it does not?

PART TWO

Indeterminateness

THE EARLY GROPING TOWARDS THE IDEAOF INDETERMINATENESS

IN THE LATE 'SIXTIES what appears to have been anentirely new idea was brought into the discussion ofcollective bargaining. It seems to consist in the ra-tionalization of an idea which had for long vaguelyexisted in "the untutored mind of the workman,"but which previous economists, according to Edge-worth, had wrongly condemned as fallacious. Theworkman knew that if he argued and haggled witha shopkeeper about the price of an article he mightobtain it for less than its marked price; and on thisanalogy, he did not see why, by threatening to strike,he should not obtain more wages for his labor. Thistheme was borrowed by the economists and devel-oped by them into a theory that the price of laborwas indeterminate, and that within the range of itsindeterminateness trade unionism had a legitimatefield of action, in the same way that there was a

[79 1


valid field for haggling in the indeterminateness ofbarter. It was towards this notion that Thornton,Jenkin, Longe and Leslie were in fact confusedlygroping—towards a conception of the indeterminate-ness that exists under conditions that we now call"bi-lateral monopoly." Their groping was very blind,for competition on both sides (not monopoly) wasgenerally blamed for labor's disadvantageous bargain.

FORMERLY, THE INDEFINITENESS OF ISOLATED BARGAINSSEEMS TO HAVE BEEN THOUGHT UNIMPORTANT

The earlier economists appeared to assume, eithertacitly or expressly, that the indefiniteness of anyparticular bargain was of no importance. They weremerely concerned with market-price, which theyregarded as both the resultant of the innumerableindividual bargains and the index of the level towhich all prices would tend, and from which, inthe presence of competition, they could not greatlydiverge. Longfield, for instance, started with the caseof barter, but did not think it worth while analyzing,as "In all civilised societies goods are exchanged formoney or sold." Moreover, while he recognized quiteclearly the opposition of interest which led everyindividual "to buy as cheap and to sell as dear" ashe could, he did not go to the trouble of pointingout the possible ratios of exchange which could arise

Indeterminateness [ 81 ]

in any individual case, because in fact, we have "thelaw of mutual competition."86 Some degree of free-dom of competition he seemed to take as axiomatic."As this state of freedom nearly exists in all civilisedcountries," he wrote (after a reference to the forcesin the labor market), "the principle just mentionedis not to be considered as a hypothetical axiom, butboth it and the consequences drawn from it are truthsof considerable importance."87 In a hypothetical iso-lated case, he knew that the result of a bargainbetween two people would be indeterminate, al-though he did not use this word; but the ratio re-sulting from that theoretical example had no relationto any rate that would be established in practice. "Alabourer working for himself," he wrote, "wouldfind it to his interest to give io/2oths of the produceof his labour to the person who would lend him (aspade), if the alternative was that he should turnup the earth with his naked hands." But this rate isnot paid because of the competition of capital foremployment and because the profits of the least-paidcapital "regulate the profits of the rest."88 A writerin a later age might have expressed the same thought

86. Lectures on Politicial Economy, 1834, p. 46.87. Ibid., p. 67.88. Ibid., p. 195.


more clearly, perhaps, by saying that, whatever the"curve of indifference" of the laborer might be, hewould not have to pay more than the market pricefor the use of capital. Neither profits nor wages, hethought, were determined by the "intensity of de-mand," which is "the sacrifice we would make to ob-tain any commodity, if the alternative were to becompelled to remain without it."89 Longfield hasbeen quoted at length because he was here deliberatelysetting on one side as unimportant, ideas which werelater thought to be novel, revolutionary and funda-mental. And his judgment seems to have been right.

THE EVOLUTION OF THE IDEA

The first clear statement of the "indeterminateness"idea the writer has found in English economic lit-erature is in a paper read to the Royal StatisticalSociety in 1867 by one Jacob Waley. He argued thatthe sharing of the gross returns of industry betweencapital and labor would be "in a perpetual flux andnever have time to settle into a state of stable equi-librium. . . ." He continued: "I conceive that therewill in general be a large margin of uncertainty asto the division of the returns, and that the preciseplace at which the line is drawn will to a very con-

89. Ibid., p. 194.


siderable extent be determined by circumstanceswhich may fairly be called fortuitous, and may begreatly influenced by a bargain between the em-ployer and the employed." In such a case it wasquite possible that a strike would be successful.This is as clear and as moderate a statement of thetheory as is to be found anywhere. There are pas-sages in F. D. Longe's essay which suggest that hehad the idea in mind, and Fleeming Jenkin in 1868had some conception of it. (We cannot here dis-cuss the several interesting fallacies in Jenkin's ablework.) He said that the division of the produce be-tween capital and labor was "purely a question ofbargain"; and it could legitimately vary "within verywide limits."90 In 1869 Thornton helped to spreadthe idea by a violent yet vague attack on supply anddemand generally (On Labour . . . , 1869).91 Attimes, when reading his book, one imagines that hemust have regarded the price mechanism as a com-pletely arbitrary affair; but the work is so full ofapparent contradictions that one can never be sureof his real meaning. (We are giving so much atten-tion to Thornton because of the extent of his influ-

90. Fleeming Jenkin, Collected Tapers, p. 22.91. At first published as articles, then incorporated in On Labour

. . . , 1869. Two Editions.


ence on this topic and because his contribution re-ceived extravagant praise from Mill.) "The price,whether of labour or anything else, in no case what-soever depends upon the proportion between sup-ply and demand,"92 was his contention. "The propo-sitions of supply and demand do not hold good underordinary circumstances."93 For supply and demandhe substituted "competition," which would suggesta mere verbal quibble; but he asked: "What regu-lates competition?" (p. 79) and replied: "Nothing.There is no regularity about competition—competi-tion is not regulated at all . . . there is no law ofcompetition," (p. 80). We cannot follow him intothe arguments which led him to this strange con-clusion, but the notion seems to have arisen out ofhis expansion of a few special and for the most partquite unlikely cases into generalizations. This is soin spite of the fact that he claimed to have coverednearly the whole field of possible cases with hisexamples. Mill did not fail to see this point; he ad-mitted that most of the examples were, "on the faceof them, altogether exceptional,"94 but it was out of

92. Ibid., Second Edn., p. 44.93. Ibid., p. 49.94. Fortnightly Review, 1869—reprinted in Essays and Disserta-

tions, Vol. IV.


a criticism of some of Thornton's illustrations thathe developed his theory of indeterminateness.

THE PROBABLE FIRST USE OF THE WORD"INDETERMINATENESS" IN THIS CONNECTION

One of Thornton's arguments was illustrated byan auction; and he showed how the price at whicha particular article would actually exchange handsmight be different according to whether bidding wasup or down. Mill pointed out that to establish thepoint of this example he had to suppose "the caseto be an exception to the rule that demand increaseswith cheapness: and since this rule, though general,is not absolutely universal he is scientifically right . . .but . . . in the general market of the world—it isthe next thing to impossible that more of the com-modity should not be asked for at every reductionof the price." In spite of this severe criticism headmitted that Thornton had "proved that the lawof supply and demand is not the whole theory ofthe particular case . . . what he has shown is thatthe law is, in this particular case, consistent withtwo different prices, and is equally and completelyfilled by either of them. The demand and supplyare equal at 20s. and equal also at iSs. The conclu-sion is not that the law is false . . . the phenomenon


cannot help obeying it, but there is some amount ofindeterminateness in its operation, a certain limitedextent of variation is possible within the bounds ofthe law. . . ." This is probably the first use of theword "indeterminateness" in this sense.95

CASES WHICH THE SUPPLY AND DEMAND DOCTRINEOF PRICE "DOES NOT REACH"

Mill then went on seriously to discuss some ofThornton's other examples, to show that the lawsof supply and demand still stood. He gravely pointedout, for instance, that in one case "at £50 there is ademand for twice or three times the supply; at £50os. oY^d. there is no demand at all. When the scaleof demand is broken by so extraordinary a jump thelaw fails of its application. . . ." And in another casehe remarked: "Here, again, the author is obliged tosuppose that the whole body of customers (24 innumber) place the extreme limit of what they areprepared to pay rather than go without the articleexactly at the same point . . . the case is just pos-sible in a very small market—practically impossiblein the great market of the community." Nevertheless,from these examples Mill reached the conclusion:"when the equation of demand and supply leaves

95. Thornton had used the word "indeterminateness" in regardto the size of the wage-fund.


the price in part indeterminate, because there is morethan one price which would fulfil the law, neitherbuyers nor sellers are under the action of any motivesderived from supply and demand to give way to oneanother." The doctrine Thornton had tried to con-trovert, though true, was not the whole truth. "Hehas shown," said Mill, "and has been the first to show,that there are cases which it does not reach."

THE CRUCIAL POINT

This brings us to the crucial point in the whole ofMill's argument. "If it should turn out," he wrote,"that the price of labour falls within one of theexcepted cases—the case which the law of equalitybetween demand and supply does not provide for,because several prices all agree in satisfying that law—we are able to see that the question between oneof these prices and another will be determined bycauses which operate strongly against the labourer,and in favour of the employer." After discussingthis possibility he remembered the "If" and wrote:"It will of course be said that these speculations areidle, for labour is not in that barely possible exceptedcase." That is just what would occur to one andwhat one would expect him to prove. But he madeno attempt at a proof. Instead, he went off into acriticism of the wage-fund doctrine and, leaping over


an immense logical gap, wrote: "There is no law ofnature making it inherently impossible for wages torise to the point of absorbing not only the fundswhich he had intended to devote to carrying on hisbusiness, but the whole of what he allows for hisprivate expenses, beyond the necessaries of life." Heobviously believed that in having shown that theconception of fixed limits to the wage-fund waserroneous he had shown that a huge range of inde-terminateness existed, the exact limits of which hedefined more carefully later as "the highest wagesconsistent with keeping up the capital of the countryand increasing it pari passu with the increase of thepeople, and the lowest that will enable the labourersto keep up their numbers with an increase sufficientto provide labourers for the increase of employment."This compares strangely with the moderation of hisearlier generalization: "There is some amount of in-determinateness in its action, a certain limited amountof variation is possible within the bounds of the law."Thus, with no possible justification of any kind, withabsolutely no logical foundation whatever, he de-clared that Thornton had shown that "the doctrinehitherto taught by all or most economists (includinghimself) which denied it to be possible that trade

lndeterminateness [ 89 ]

unions can raise wages . . . is deprived of its scientificfoundation and must be thrown aside."

DIAGRAMMATIC TREATMENT

There were similar ideas, as has been mentioned,in an essay by Fleeming Jenkin published beforeThornton's book. After Mill's article had appearedand after a correspondence with Jevons, Jenkin de-veloped his ideas in a further essay, and it is probablethat, through its influence on Edge worth (andJevons), his work had more to do with the perpetua-tion of the idea of indeterminateness than Mill's.Already, in 1868, Jenkin had expressed the equationof supply and demand algebraically, and in 1870 heintroduced, independently of the then forgottenCournot, and Dupuit, the device of supply and de-mand curves. It is not hard to imagine that such awriter should have profoundly interested the leadingmathematical economist of the past generation. Edge-worth gave the two essays most enthusiastic praise,and as it was he who, more than any other thinker,elaborated the theory of indeterminateness, we canprobably trace the cause to Jenkin. He (Jenkin)illustrated by supply and demand curves Thornton'sexample of price in an auction, to which we have


already referred, and showed that it really made thesimple assumption that demand in the neighborhoodof the market price was constant at all prices; thatis, the demand curve became horizontal96 near themarket price and, owing to the supply curve alsobeing level (one quantity offered singly and withoutreserve), the actual market price would be indeter-minate. He described the diagram as representing "anunusual state of mind." This is putting it mildly in-deed. It depends entirely upon the fortuitous coinci-dence of the horizontal section of an unusual andhighly improbable demand curve with an absolutelyrigid supply curve. Had the supply been larger orsmaller to any noticeable extent, even in this example,the price would have been theoretically determinate.Developing this idea and, it seems, getting furtheraway from economic realities, he said: "Where onlya small number of transactions take place there can. . . be no theoretical market price; thus, with onebuyer and seller of one thing, the demand and sup-ply curve become two straight lines. . . . If the supplyline overlaps the demand line, the sale will take place,and not otherwise; but the price is indeterminate."97

96. He represented prices on the horizontal axis.97. Fleeming Jenkin, Collected Papers, p. 85.


EDGEWORTH DEVELOPED THE IDEA, BUT LATER ON SEEMS

TO HAVE DOUBTED ITS IMPORTANCE

This was the idea that Edgeworth developed andthe one that led him to make the remark alreadyquoted, possibly inspired by the similar remark byMill to the effect that the old belief that trade unionscould not raise wages had to be given up. We can-not here discuss the detailed development of theidea in his hands. His chief contribution to the theorywas to draw curves of indifference for two bar-gainers, thus representing graphically the area of in-determinateness. But he did not, any more than didMill, show that there was any justification for con-sidering the value of labor as specially influenced bythis principle, or that it disclosed any increment ofthe total product of industry which could be divertedto those who provided labor. We cannot be certainas to how far the Edgeworth of 1891 would haveupheld the point of view expressed in 1881, for ina criticism of Marshall's "Note on Barter" (The"Note on Barter" appeared in the Second Editionof Marshall's Principles), he said, after an analysis ofideas of which he was the chief original propagator,that in comparison with other conditions of the labormarket, they were "of little practical importance."


In his own words: "I do not, however, regard thesenice points as more than curiosa, of little practicalimportance in comparison with the conditions ofthe labour market on which Marshall has dwelt."He referred here to "the tendency of any accidentaldisadvantage under which the work-people may besuffering to become perpetuated through the lower-ing of their vitality and efficiency."98 This, however,is an entirely different point. Edgeworth had com-pletely changed the basis of his defense of unionism.That same year, in his Introductory Lecture on Po-litical Economy at Oxford, he said: "As an instancein which eminent theorists may have omitted a rele-vant circumstance, may be taken the question whetherit is possible for trade unionists, by standing out fora higher than the market rate of wages, to benefitthemselves permanently without injuring other work-men. The negative answer which has sometimes beengiven omits the consideration that an increase ofwages tends to increase efficiency . . . etc." Thisdeliberately avoids a reference to the affirmative an-swer which he had given ten years previously. InSidgwick's Principles, Mr. L. L. Price's IndustrialPeace, and Prof. Pigou's Principles and Methods of

98. Edgeworth, Papers Relating to Political Economy, Vol. II,p . 319.


Industrial Peace, the idea seems to have survived withmore importance than Edgeworth would himself haveattached to it.

MR. FLUX HAS DOUBTED ITS IMPORTANCE

We can detect in other economists who have dealtwith the question the same doubt as to the importanceof the idea. Mr. Flux, for example, discussing thealleged indeterminate increment, in 1900" wrote:"Now, it can not be denied that this element is inexistence in fact. The question rather is, whether ithas sufficient generality, and whether the relative im-portance of the amounts involved in such as mayentitle it to figure prominently in a discussion of thegeneral problem of distribution."100

MARSHALL'S TREATMENT

The later treatment of the idea by Marshall is veryuncertain compared to his earlier treatment of it.He was possibly the first to give an even superficiallysatisfactory explanation of why the value of laborshould be considered as specially influenced by thisprincple. Basing his treatment on Edgeworth's con-ception, he illustrated it by considering the extremely

99. Econ. Jour., 1900, p. 381.100. Compare Edgeworth's review of Davidson's "Bargain

Theory of Wages" in the Economic Journal, 1899.


artificial cases of the barter, in isolation, of nuts andapples. In such an example he had no difficulty inshowing "the uncertainty of the rate at which equi-librium is reached." It is what we should expect ina case of simple barter. But in the earlier editions ofhis Principles he said that this uncertainty "Does notdepend on the fact that one commodity is beingbartered for another instead of being sold for money.It results from our being obliged to regard the mar-ginal utilities of both commodities as varying" (ThirdEdn., p. 415). It was this consideration that causedhim to regard the price as likely to be indeterminateand arrived at as under barter, although, in fact, nota subject of barter. After his general treatment ofthe temporary equilibrium of demand and supply heremarked: "We did not allow for any appreciablechange in the marginal utility of money . . . (whichis) justifiable with regard to most of the marketswith which we are practically concerned. . . . Theexceptions are rare and unimportant in markets forcommodities; but in markets for labour they are fre-quent and important. When a workman is in fear ofhunger, the marginal utility of money to him is veryhigh; and if at starting he gets the worst of the bar-gaining and is employed at low wages, it remainslow, and he may go on selling his labour at a low


rate" (pp. 411, 412, Third Edn.). This led him tohis discussion of the barter of nuts and apples witha view of "throwing additional light" on the problem.In spite of the contention by Edgeworth that thistreatment of "the specific peculiarities of the labourmarket . . . left little to be said freshly"101 we findMarshall's doubts expressed in subsequent changes oftext. In a later edition he had substituted through-out for the workman's "marginal utility of money,""his need of money (its marginal utility to him)"(Seventh Edn.). This is a strange amendment, forwhile the word "need" is vague, "marginal utility"is definite. He probably felt that the phrase "his mar-ginal utility" did not quite fit the case. However, ina later edition he had relegated his "Note on Barter"to the Appendix and omitted the phrase which claimedthat it threw "additional light" on the labor market.(Compare p. 412, Third Edn. and p. 336, SeventhEdn.) This also suggests a change of attitude. Buthis amendment to the "Note on Barter" was suchas amounted to a tacit renunciation of the wholeprevious argument. Instead of contending that inde-terminateness "does not depend on the fact that onecommodity is being bartered for another instead ofbeing sold for money," he seemed completely to

101. Econ. Jour., 1899, p. 231.

[ g6 ] The Theory of Collective Bargaining

reverse his previous content, and said that it "dependsindirectly on the fact that one commodity is beingbartered for another instead of being sold for money. . . the steadying influences which hold together amarket in which values are set in money are absent"(Seventh Edn., p. 793).102 All the amended argumentof the later editions comes to is this; that where thereis buying and selling through the agency of moneythere is more likely to be an effective market. Ab-sence of money economy is one factor which maycause market forces to be ineffective.

UNDER COMPETITION, THE MARGINAL UTILITIES OF"INCOME11 OR "MONEY" ARE IRRELEVANT TO THIS PROBLEM

Having made the uncertainty of the equilibriumrates depend upon barter (and ultimately, thoughnot expressly stated, upon the absence of an effectivemarket), any peculiarities of labor in respect of themarginal utility of money become irrelevant. Weget back to the position that Longfield discussed acentury ago. An individual worker's need for in-come might be so great that he would be preparedto give i9/2oths of the results of his labor to the

102. The word "indirectly" seems the wrong one. If he had said"generally" it would have been more true; for indeterminatenesscan exist where all transactions take place through the monetarymechanism.


person who would lend him a spade rather than tillthe soil with his hands. But the market rate might besuch that he might have to give only i/5th. It isquite true that the poorer a workman is, the higherwill be the marginal utility to him of further incre-ments of income—that is, of those commodities ingeneral which satisfy his needs; but while it is clearthat that will affect the intensity or amount of hisefforts to get further income we have no reason atall to suppose that it will (a) prevent in any way theformation of an effective market for his labor, (b)cause an equilibrium in the market at a lower ratethan would result from the same quantity of laborbeing offered by workers to whom the marginalutilities of income were lower.

JEVONS' TREATMENT IN"THE THEORY OF POLITICAL ECONOMY"

With Jevons the theory developed in a rather dif-ferent way. Like Edgeworth he seems to have beeninfluenced by Thornton and Jenkin. The latter hadcorresponded with him on the subject of the mathe-matical treatment of economics before publishing hissecond article, and it was partly in consequence ofJenkin's essays that Jevons decided to put his ownTheory of Political Economy into print as early as1871. The idea emerged in his treatment of the theory


of exchange. He put forward the proposition that"the equation of exchange will fail to be possiblewhen the commodity or useful article possessed onone or both sides is indivisible . . . " as, for instance,in the case of a house,103 "because we cannot con-template the existence of an increment or decrementto an indivisible article.104 . . . The theory seems togive a very unsatisfactory answer, for the problemproves to be, within certain limits, indeterminate."Such a bargain, he said, "must be settled upon otherthan strictly economic grounds." What would de-termine the result was "the comparative amount ofknowledge of each other's position and needs (ouritalics) which each bargainer may possess." The onlymeaning we can suggest for this phrase is that theseller will endeavor to find out how the utility to bederived by the prospective buyer from the house com-pares with the utility he can derive by spending anequal amount in available alternative ways. What oneis prepared to give for any commodity (or incrementof a commodity) is a function of alternatives oralternative sources of supply. But Jcvons was tacitly

103. The example of the sale of an estate was discussed in a notdissimilar manner in T. J. Dunning's Trade Unions and Strikes. . . , 1859, p. 6.

104. As a matter of fact, it is very easy to conceive of an incre-ment to a house, as, indeed, of most other large properties.


assuming that there were no alternative sources ofsupply of houses. The case is similar to the theoreti-cally isolated transaction which we saw Longfieldhad dismissed as of no practical importance. It restson three assumptions—largeness of unit, uniquenessand monopoly. The general unimportance of theidea is further brought out in his elaboration of it.He held that indeterminateness existed even whencommodities were divisible, if their divisibility wasnot into infinitely small quantities. As an illustration,he took bottles of ink. A fixed price (presumablycompetitive) of one shilling each was given, and theindeterminateness thrown on to quantity—that is, thenumber of bottles purchased at that price. Would thelast and doubtful one be purchased? Here, again,these hypothetical transactions are isolated both inspace and time. Putting aside the absence of com-peting ink supplies, or supplies available in different-sized units, when we take the factor of time intoaccount, we see that the size of the unit purchasedat a particular transaction loses all its relevance andimportance. We can only imagine the size of thebottles affecting the interval between purchases—notthe amount of ink consumed. This has an obviousparallel, as we shall see, in the case of the supplyof some kinds of capital equipment.

[ ioo ] The Theory of Collective Bargaining

THE DANGER OF GENERALIZING FROM ISOLATED CASES,AND IGNORING THE TIME FACTOR IN THOSE CASES

Most of the erroneous deductions which havesprung out of the indeterminateness conception ap-pear to have arisen from the expansion to a generaliza-tion of the results of a particular isolated case. Mr.Flux, in reviewing Mr. J. A. Hobson's Economicsof Distribution, based on ideas similar to those whichwe have just discussed, remarked: "That the grada-tions of any actual supply or demand schedule donot proceed by the infinitesimal changes assumed inthe mathematical treatment of the problems of valuemay be granted. It need not follow that the grada-tions, though finite, are of a magnitude requiring asmuch attention as demanded in the book under dis-cussion."105 The important consideration, however, isnot the size of units or gradations of supply anddemand as affecting the size of transactions, but theinfluence of the time element, which causes the nor-mal competitive economic forces to be effective.

JEVONS" TREATMENT IN "THE STATE IN RELATION TO LABOUR"

The treatment of bargains over large units wassimilar in Jevons' later work The State in Relationto Labour (1882), but he substituted for compara-

105. Econ. Jour., 1900, p. 381.


tive "knowledge of each other's position and needs"the "combat of desires and fears," of the parties, acombat which, he thought, was "only solved by thelapse of time which tries the patience of both parties."In view of the apparent similarity of this position tothat which exists in the case of a strike it seems de-sirable to examine the idea. In any actual case weshould not find complete isolation, monopoly anduniqueness; and the term "combat" is not quite sat-isfactory. Both parties may be extremely keen tosecure the exchange of the property on good terms;and if the sum of money involved is a large one, afraidof misjudging the value of the investment or realiza-tion. The reason why the would-be seller waits isso that he may test the market. The possible pur-chasers at any one moment of an indivisible propertyof large value may be very small, but there are po-tential purchasers who will, in course of time, comeinto the market. The seller's judgment of the probableextent of potential demand will determine the price hewill be prepared to accept. His inclination will mostlikely be to agree to a lower price in the presentthan he believes he will probably be offered in thefuture because, in so doing, he will discount bothtime and risk. The reason why the buyer waits isthat he believes there is no other buyer who is likely,


within a reasonable space of time, to offer the pricehe is prepared to pay; or that by waiting he canfind an equally good alternative at that price. As bothare keen to make a transaction both are aware ofsome loss to themselves in delay. They will sooneror later be in a position to estimate whether theirjudgment was right or wrong and ultimately arriveat a price representing a rough coincidence of inter-est. Both parties may endeavor to "bluff"—that is, tocreate a false impression of the state of the market ortheir relationship to it—but the word "patience" ex-plains nothing. If they had the means of forecastingthe ultimate or long run demand or supply they wouldbe relieved of the burden of waiting as a means ofobtaining an indication of the position.

IN CHAPTER IV JEVONS HELD THAT TRADE UNIONS COULDNOT OBTAIN GENERAL AND PERMANENT INCREASES OF WAGES

Although obviously influenced by Thornton andJenkin, Jevons did not indicate in his Theory ofPolitical Economy that he thought the conceptionof indeterminateness was particularly applicable tothe problem of labor's remuneration. That the ideamay have been in his mind is suggested by the inter-polation (almost as an afterthought) of the phrase:"It may be that indeterminate bargains of this kind"(e.g., over the sale of a house) "are best arranged by


an arbitrator or third party"—an idea which is inter-esting in view of the later development of this ideaby himself and others106 in particular reference tolabor. It was only after the appearance of Mathe-matical Psychics, however, that Jevons ventured tofollow Edgeworth in arguing that the existence ofcombinations in trade disputes usually reduces themto a single contract bargain of the same indeterminatekind. He made the application to labor in his Stateon Relation to Labour, a treatise which appeared inApril, 1882, a very short time after the publicationof Edgeworth's book. The idea appears in the lastchapter and seems rather in contradiction to the argu-ment of the earlier chapters. There are, therefore,some grounds for a suspicion that it was hurriedlyinserted. We certainly never get the impression fromJevons as from Edgeworth, that the creation or mag-nifying of such indeterminateness by combinationswas "favourable to the unionists," or that owing tothe neglect by economists of like considerations "theuntutored mind of the workman had gone morestraight to the point than economic intelligence.'"107

106. Especially by Prof. Pigou. "It is only because there is amargin of indeterminateness that the possibility and the need of(arbitration) exists" (Principles and Methods of Industrial Peace,

p. 36).107. Mathematical Psychics.


On the contrary, he had concluded "that it is quiteimpossible for trades unions in general to effect anypermanent increase in wages,"108 and that there were"two possible modes of increasing earnings: the onebeing to increase products, so as to have more to sell,and the second to decrease products in order to sellthem at a higher price." Moreover, it followed "in-evitably that if many or all people pursued the latterpolicy it would fail altogether"109 "Obviously . . . ,"he said, "the rate of wages which workmen can de-mand will depend upon the relation of supply todemand of such particular kind of labour.'"110

IN CHAPTER VII JEVONS REJECTED THE SUPPLY AND DEMANDTHEORY OF WAGES AND BROUGHT IN "INDETERMINATENESS"

The remarkable thing is that the whole of the pointof view here expressed, in fact, the complete argu-ment of his Chapter IV, is, in Chapter VII on "Arbi-tration and Conciliation," casually superseded in acouple of pages (pp. 153-155) as being mere abstrac-tion, an analysis of what would have been the case ifthings had been different from what, in reality, theywere. "The existence, however, of combinations inthe labour market," he wrote, "alters the nature of

108. Jevons, The State in Relation to Labour, 1882, p. 106,

109. Ibid., p. 94.

no. Ibid., p. 93.


the bargains altogether. The laws of supply anddemand do not apply to such a case. In all bargainsabout a single object there may arise, as I have ex-plained in my Theory of Political Economy, a dead-lock." What he failed to show was that such examplescould be linked in any useful way to the problem ofbargains between combinations of capital and labor.Even if we could accept his assumption that theymight be validly regarded as bargaining about a singleobject, there would still exist this radical difference,that whereas a contract over the sale of a house oran estate is a contract presumably for perpetuity,agreements between capital and labor are capable ofbeing subjected to constant re-contract. But can bar-gains between combinations of capital and labor belegitimately regarded as concerned with anything re-sembling "a single object" or, as he had expressed itin his earlier book, "an indivisible object"? Surely,it is almost impossible to imagine anything moreeasily divisible than labor supplied. The two sidesmay haggle about the price per unit of labor but notabout the amount of available labor that will betaken on at any given price. The price of labor willvery rarely be immaterial to capitalists (even as per-fect monopolists), in determining how much laborthey can profitably employ, for instance. Each party


may rely, however, on some immobility, temporaryor permanent, of the factor of production ownedby the other, causing a certain rigidity in the responseof quantity to price; and Jevons might have extendedhis argument to cover this class of case. Instead, heintroduced what seems at first a new considerationto explain indeterminateness—that is, the disutility ofstrikes and lock-outs to the parties.

POLITICAL ECONOMY IS NOT "SILENCED" UNDERBI-LATERAL MONOPOLY

"The men, for instance," he wrote, "ask for fifteenper cent advance of wages all round. Rather than havea strike, it might be for the interest of employers togive the advance or for the men to withdraw theirdemand; a fortiori any intermediate arrangementwould still more meet their views." As in the caseof the house transaction in his Theory of PoliticalEconomy he argued that there may be "absolutelyno economic principle on which to decide the ques-tion." The disutilities of strikes and lock-outs can,of course, be paralleled with the loss from delay inthat illustration, but a comparison is misleading. Inthe case of labor there is no inability to test the mar-ket through the absence of small increments; and thecontinuous refusal to contract in this case seems tobe a delay with an entirely different motive. Even if


we neglect "motives," we still cannot make a parallel,for in the former case the passage of time reveals themarket or alternatives, whereas in the latter the veryfactors which normally reveal the market are sup-pressed. The object of the strike or lock-out wheninitiatory seems to be to obtain a price higher orlower than available alternatives to both parties woulddetermine, and the power to do so ultimately restsupon control of alternatives—that is, upon the powerto exploit monopoly. There are many elements ofuncertainty in the determination of price in such cir-cumstances. Apart from those which we have alreadynoticed, the factors determining the extent of controlor limitation in any case may be complex and un-certain, and hence the result unpredictable from thiscause. The prices resulting may favor one party orthe other, but there is no reason why we should saythat economic principle fails to work; or as econo-mists so careful as Sidgwick and, following him, Mr.L. L. Price, have held, that "where two combinationsmeet one another, political economy is perforce si-lenced."111 Prof. Macgregor has pointed out in hisIndustrial Combinations that ". . . relative fewnesstends to introduce elements which are more psy-

I I I . L. L. Price, Economic Science and Practice, p. 192. (Also inhis Industrial Peace.)


chological than economic, though they can scarcelybe called accidental to an economic analysis."112 Judg-ment, of course, is less certain when transactions arefew and potential demand and supply have to beestimated; and "bluff" may admittedly come in. Theseelements it seems are the only psychological oneswhich mere feivness necessarily brings in. Moreover,economic principle applies with equal relevance toconditions of relative monopoly as to conditions ofrelative competition. Not only is there no clear lineof division between the two, but, to use Prof. Daven-port's words, "It may indeed be said that in the maincompetitive and monopoly theory do not diverge,that the supply and demand analysis applies withoutchange to monopoly and that monopoly differs fromcompetition only in the fact that in monopoly thevolume of supply is under centralised control, whilein competition the limit of supply is found in mar-ginal cost of production."113

MONOPOLIST CONTROL OF SUPPLY MAY BE DIRECT ORTHROUGH PRICE CONTROL

Monopoly power rests ultimately upon the abilityto limit or control supply. Such limitation or controlmay be direct—that is, scarcities may be created to

112. Industrial Combinations, pp. 69-70.113. Economics of Enterprise, p. 482.


suit the interests of particular groups by direct re-striction or exclusion (and much trade-union actionis of this nature); or such limitation may be indirect—that is, monopolists may proceed by enforcing cer-tain prices which suit them. It is combined resistanceto attempts of the latter kind to enforce adverseprices that usually causes strikes or lock-outs to con-tinue for more than one moment of time.

STRIKES AND LOCK-OUTS BEST REGARDED AS

"COERCIVE DEVICES"

The problems we have just been considering areperhaps made clearer if we regard strikes and lock-outs (whether aggressive or defensive is immaterial)as coercive devices. Like a similar coercive weapon,"the boycott," they may be employed for a varietyof motives and for the attainment of many differentends. They are a deliberate interference with thefree and continuous flow of the services of the work-ers, capital equipment, or other factor of productionin response to a given economic condition, competi-tive or monopolistic. Their object is generally eitherto force another party to acquiesce in a price otherthan the competitive or to resist such a price whichanother party seeks to impose. As we have alreadyseen, the mere grouping in combinations of the own-ers of co-operant resources such as "property" and

[ no ] The Theory of Collective Bargaining

"labor" would not necessarily cause indeterminate-ness, provided transactions were made in small units.It is the joint determination by one group not to letanother make contracts with individuals among them,which, judged by their available alternatives, wouldbe most favorable to them, that creates the range ofindeterminateness and the conditions in which a strikeis possible; the determination that all transactions shallbe made at a certain price (or more favorable ones)or there will be no transactions at all. For this reasonwe have additional grounds for saying that there isdefinitely a "coercive" element in such actions. Theinstitution of property gives all monopolists the powerto prevent access by other factors of production tothe resources that they control. By that means theformation of a true socially determined price is pre-vented and a private coercion is substituted for asocial coercion. (The meaning of "social coercion"is given below.) In the absence of monopoly, the in-stitution of property may be held to be the veryinstitution which causes the various factors of pro-duction to move to the most profitable channels asdetermined by society. In its presence, that viewcannot be held.114

114. This must not, of course, be taken as implying a condemna-tion of "large" properties, In the community of the world a very

Indeterminateness [ m ]

SUCCESSFUL STRIKES AND LOCK-OUTS ESTABLISH APRIVATE COERCION IN PLACE OF A SOCIAL COERCION

Where there is a complete absence of monopoly allindividuals dealing in small increments are powerlessin regard to price. They may give goods away, butwe cannot call such happenings "transactions." Ex-cept in ignorance, or as a gift, or as a method ofaggression to secure concessions, selling below or buy-ing above the market price is inconceivable underperfect competition. Hence, when the market is theruling force, we have what might be called "a socialcoercion," the impartial and impersonal ruling ofsociety itself expressed in the resultant of those forceswhich make up the market. (The term "coercion"may seem the wrong word, for in this case it isdefinitely a product of the utmost freedom and mo-bility.) The monopolist aims at substituting for thissocially determined price one that is believed to favora particular group; and the power to do so is defi-

large property indeed may, through direct competition and thatof substitutes and alternatives, be quite unable to exploit anymonopoly power at all. But the usual defense of private propertyon economic grounds does not necessarily hold in such cases.That defense presupposes the most complete mobility and respon-siveness of every unit of resources. It is only when this mobilityand responsiveness exists that there can be any certain validity inwhat is thought to be a common assumption of economists thatthe price determined under private enterprise is the one whichbest serves the common good,


nitely obtained from a coercive power over individualcooperating units, preventing them from exercisingthat freedom which, under competition, results inthe controlling power of market price.

THIS EXPLAINS THE "RANGE OF INDETERMINATENESS"

We can now come back to the idea of the range ofindeterminateness. Is not the best explanation of itto be found in the fact that under bi-lateral monopolyyou have two groups with coercive power of thiskind, each attempting in the case of a strike to enforcea price against the interest of the other? The resultmay not be predictable, nor may the forces deter-mining the ultimate price be expressible in schedules,but political economy is not "silenced." Quite apartfrom the economic nature of the coercive power, bothparties will adjust their supply or demand accordingto the ruling price exactly as they would if the pricehad been fixed by the free market or legal enact-ment; and this remains the case as we shall see althoughthe actual division of the spoils of monopoly obtainedat the expense of the consumer is largely an arbitraryaffair; and the limits to which either party will gowill be influenced by the possibility of revision ofthe terms and other expected long-run reactions oftheir policy.

Indeterminateness [ 1 1 3 ]

CAN MONOPOLY-GAINS BE MADE AT THE EXPENSE OF THEOWNERS OF OTHER FACTORS OF PRODUCTION?

Having considered the nature of the strike andmonopoly coercion, we can now tackle the questionof whether, by the exploitation of monopoly, theowners of one factor of production as a whole maygain at the expense of another—labor at the expenseof the owners of property, for instance, or vice versa.(These groups are, of course, not naturally exclusive.Most property owners receive incomes from workand most "workers" own some property.)

PARTICULAR GROUPS MAY GAIN BY EXCLUDING OTHERFACTORS WHEN THEY ARE COMPETITIVE

Any group of persons together owning some por-tion of the factors of production may gain by keep-ing out of supply (or operation) certain factors ofproduction owned by others; that is, they may gainas producers and sellers of certain commodities bypreventing increments of factors owned by others,which might add to the supply of those commodities,from coming in to cooperate in the task of produc-tion. In so far as they can thus exclude, the totalproduct (not necessarily its aggregate value) will besmaller. Thus their gain will be accompanied partlyby loss to those excluded from cooperating in thetask, and partly by loss to those who buy the com-

[ ii4 ] The Theory of Collective Bargaining

modity, who will have to pay a higher price per unitfor the smaller quantity. What factors it will payany particular group to exclude will depend uponseveral considerations. Other things being equal, itwill certainly pay the workers in any particular caseto exclude such factors as capital equipment or newmethods of organization when they are "labor-saving,"i.e. when their exclusion will mean that more workerscan be employed at the same rate of wages or thesame number at a higher rate of wages. In other cases,the exclusion of capital equipment, improved organ-ization or other factors will result in a fall in demandfor the workers themselves (although they might notrealize this), and a gain to them is not certain. Inregard to other supplies of like factors, however(workers of the same type, for example), exclusionwill nearly always benefit the particular group prac-ticing it: and the gain will have been at the expenseof the owners of the units excluded, and accom-panied by loss to the consumer and probably to otherfactors of production.

THE PHRASE "AT THE EXPENSE O F "

Before going further we need to devote some at-tention to the phrase "at the expense of." Any monop-olist-gain by a single monopolist among co-operant


producing groups is necessarily accompanied by lossto certain of the other groups, for one reason becauseat the higher price asked by the monopoly factorthere is, even in the absence of direct exclusion, somefall in the number of units of it demanded, and aconsequent fall in the number of units of work orservice demanded from the factors of productionwhich cooperate with it. Thus, a trade union exclu-sion of competing workmen from a particular jobtends to make both the capitalist and the consumerworse off. We might therefore say that the tradeunion gains at the expense of excluded workers, capi-tal and the consumer. Yet, in a discussion such asthis, mainly concerned with the possibility of redis-tribution, it might be convenient to distinguish broadlybetween (1) the source of those gains to one partywhich are possible because of the nature or conditionof a factor of production owned by some other party,that is, when it is "exploitable" or "excludable," and(2) those losses to owners of other factors which areincidental rather than direct, although not necessarilyunimportant. For instance, there is usually no pointin a labor monopoly excluding directly a body ofnon-competing but co-operant workers (i.e.; thoseengaged on an entirely different, complementaryprocess), for they will be worse off by so doing. But


any exclusion which pays them may, incidentally,exclude some non-competing workers. We can dis-tinguish here between the loss to those whom it haspaid to exclude and the loss to those who also happento be kept out by that policy. The gain may be saidto be obtained by the exclusion of the former (al-though also accompanied by loss to the latter, but notby their exploitation, for it would be impossible togain at their expense alone). And, again, monopolyprofits which are obtainable by any factor solelybecause of inelasticity of demand for the commodityby the consumer, may be said to exploit him, al-though the other factors of production as a wholemay be worse off as a result of the exploitation ofthat monopoly. Monopoly profits to a factor whichare possible solely owing to immobility of otherfactors may be said to be obtained by exploitingthem, although as a result of their exploitation theconsumer is worse off. This use of the term "exploit"is purely for convenience; it makes no clear logicaldistinction,115 and it is not implied that these "inci-dental losses" as we have called them are not highlyimportant. Almost invariably monopoly-gains, no

115. The elasticity of supply of any "non-exploitable" co-operantfactor in this sense will influence the degree to which it is desir-able to exploit any other co-operant factor or the consumer.

Indeterrmnateness [ 117 ]

matter to what factor, are accompanied by loss tothe consumer.

A GROUP OF WORKERS MAY GAIN WITHOUT EXCLUSIONAGAINST AN INELASTIC DEMAND

For the next stage of our argument it will be mostuseful to take first a particular case and ask: Is itpossible for a group of workers to gain without ex-clusion of other workers? If so, by whose exploita-tion may we say they have gained? Let us assumefirst that all other factors are in competition amongthemselves. When the relationship of the workers toother factors of production and the demand for thecommodity is such that the number of units of theirlabor demanded is inelastic to rises in their remunera-tion per unit (from whatever cause), the restrictionof the amount offered by them at a price may meana larger aggregate return to them. In other words,by forcing a price higher than the competitive, andpracticing work-sharing or a restriction of output,every worker in the group may be better off thanunder competition, although no workers whom com-petitive remuneration would have attracted have beenexcluded. This appears to be what the Webbs meanwhen (in dealing with Edge worth's contention onthis point that combined parties tend to gain at theexpense of uncombined parties with whom they are


dealing) they say: "Nor need the combination amountin any sense to a monopoly." (Industrial Democracy,p. 653.) The action is, of course, essentially monopo-listic, although not necessarily to be condemned onthat account if it does result in a redistribution ofthe product of industry in favor of the relativelypoor. "Because the total produce is diminished, itdoes not follow that the labourer's share is diminished(the loss may fall on the capitalist and entrepreneurwhose compressibility has been well shown by Mr.Sidgwick)." (Edgeworth, Mathematical Psychics.)

IS RESTRICTION OF OUTPUT, THEN, TO THE INTERESTSOF THE WORKERS?

But does an examination of this hypothetical pos-sibility enable us to say, as Edgeworth said in regardto the alleged disbelief of trade unionists in the wage-fund, that in the matter of the work fund athe un-tutored mind of the workman had gone more straightto the point than economic intelligence misled by abad method, reasoning without mathematics uponmathematical subjects"? Does the road to plenty forthe workers lie in restriction, work-sharing and "shorttime"?116

116. When a fund such as "unemployment donation" (providedby State or charity) exists to remunerate workers excluded, thewhole body of workers may conceivably gain as a whole. But

Indetertmnateness [ 119 J

GAINS OF THIS KIND RARE IN PRACTICE

Attempts to obtain pure gains of this nature seemto be very rare in practice. We find few cases ofconscious and rational work-sharing. Trade-unionofficials think in terms of rates per head—not aggre-gates. There may, nevertheless, be some incrementof this sort of gain combined with the gain fromdirect exclusion when unions are faced with an in-elastic demand. If we allow for conditions which causea certain inertia in the movement of economic fac-tors, the conclusion suggests itself that inelastic de-mand for labor is ultimately very rare. The questionof the demand for labor in general raises big difficul-ties which cannot be dealt with here. But from broadconsiderations of this kind we might, whilst franklyadmitting the possibility of large gains to particulargroups, deny the likelihood of any general improvedredistribution between different factors of productionor income classes. This would not satisfy the sceptic,however, and accordingly the following analysis isdesirable.

this represents a direct transference of society's income whichcould have been effected equally well without trade union action,the resulting unemployment and its incidental loss.


WE CANNOT ASSUME ELASTICITY OF DEMAND FOR LABORWHERE OTHER FACTORS ARE CO-OPERANT AND NOT COMPETITIVE

To the extent to which a considerable part of theother factors (e.g., capital equipment) can be "laborsaving," the condition of inelasticity is unlikely toexist even in the short run, because of the possibilityof substitution. When, on the other hand, the mar-ginal increments of other factors are co-operant ratherthan competing in their relation to labor, we cannotassume probable elasticity of demand.

THE POSSIBILITY OF ULTIMATE GAIN BY ARTIFICIAL WAGERATES DEPENDS UPON THE ELASTICITY OF DEMAND FORTHE PRODUCT

When a group of workers raises the price per unitof its work and adopts the device of work-sharing, theeffect is that in supplying less units for the process ofproduction they have allowed less units of the otherfactors to cooperate; that is, they have excluded orcaused to remain idle that portion of those factorswhich no longer finds its most profitable use in thatfield. They must be able either to prevent such ex-cluded units of other factors from cooperating withother supplies of workers whom earnings above thecompetitive level in the particular trade would tendto attract, or to rely upon such cooperation being,for other reasons, impossible. As we have assumed

lndeterminateness [ 121 ]

that other factors are in competition the ultimateeffect will be that increased costs will cause a diver-sion of the resources comprising those factors untilthe return to the marginal increment of each cate-gory thereof has fallen to normal. When this has re-sulted, it seems extremely improbable that the workerswill have gained unless the demand for the commodityis inelastic. The elasticity of demand for the com-modity will determine the price obtained by thecompetitive sellers for the smaller product, and hencethe extent to which other resources will be drivenaway by the increased costs. A gain resulting fromthis circumstance, therefore, cannot be said to beobtained by exploiting property or any other factor,for only the nature of the demand for the productenables it to be realized. It is obtained by exploitingthe consumer.

UNTIL CO-OPERANT FACTORS CAN MOVETHEY MAY BE EXPLOITED

Any monopoly increment accruing to the workers'group which does not result from this circumstancemust arise from the fact that the diversion of otherfactors of production referred to above may be slow.Some resources we can conceive of as being trans-ferred immediately there is any increase of costs,but there might be a long lag with others for which

f 122 ] The Theory of Collective Bargaining

there are no sufficiently profitable alternative uses.The whole question turns principally on the elas-ticity of supply of other factors, which it is now con-venient in view of current terminology to lump to-gether under one heading as "capital." The supplyof capital we must regard as being, in the long run,highly elastic. In respect of some forms of it, par-ticularly new capital coming forward, it is obviouslyso; but in some other concerns, particularly thosewith large fixed plants, it seems at first sight to bethe very reverse.

FACTORS MAKING FOR SHORT-RUNIMMOBILITY OF "CAPITAL"

In the short run, the elasticity of demand for la-bor of a particular concern is almost always inelastic.It may have, for instance, a contract to fulfill and beunder a penalty for failure. In such circumstances alabor combination might demand and obtain a riseof fifty per cent in wages, and yet the numbers em-ployed, even if the job had to be carried on at a loss,hardly fall off at all. It is perhaps in part owing tothe ease with which gains may be made in this wayat the expense of the entrepreneur that the terms ofcontracts often have a clause inserted to the effectthat in the case of any changes in the remuneration


of labor an adjusting modification of the price pay-able shall be made. There are many other kinds ofshort-run commitments the existence of which maymake for temporary inelasticity of demand. Prob-ably the most important of all is the necessity to payinterest on capital or on borrowed money where thereare heavy costs. Undertakings such as railways orother public works, in which capital consists largelyin valuable plant and equipment that cannot be turnedto other uses, are the outstanding example of this. Atfirst, it seems that we have here a case in which laborcan exploit capital, if not permanently, at least overa long period; and where demand is not expanding,capital does appear to be definitely exploitable. Yet,even in the extreme case of absolute immobility ofcapital, we can conceive of factors likely to causesome degree of elasticity. Quite apart from the pos-sible substitution of labor-saving equipment new meansof economizing labor are almost certain to becomeprofitable when it is more expensive.

APPARENT EXPLOITABILITY OF IMMOBILE FACTORS MAYPROVE ILLUSORY

In practice, for many reasons, when considerablerises in general costs cannot be passed on to the con-sumer, some part of the total capital equipment will


be closed down. There will most likely be a hardstruggle before such action is considered, but as soonas it becomes clear that absolute loss cannot be avoidedon the operation of a particular section of plant, thenit will be laid idle. In such a case a new equilibriumwill be suddenly realized after a time, and at a singlemoment a large number of workers may be at oncedismissed. How soon such a result will follow anyincrease of costs will depend upon how near theunprofitable point the unit of plant involved happensto be before that increase. This suggests that in prac-tice such elasticity of demand for labor as there is,is effective, so to speak, "in jerks." Increased wageswhich occasion little reduction in numbers employedmight, if raised a little further, result in a considerablereduction. Hence, whereas it is theoretically possible,from the factors we have so far considered that, inparticular cases, labor stands to gain, it must be re-membered that whether the necessary theoretical con-ditions will be present or not in any case will be insome degree a matter of chance. Unless the trueposition is realized adequately in each case a rise inwages may often result in a large drop in numbersemployed.


WHEN SUCH POLICIES BECOME NORMAL, NO CO-OPERANTFACTOR IS EXPLOITABLE

But however strong the probability that capital willbe exploitable in such circumstances, we cannot val-idly generalize from the particular. If it were reallynormal for labor to exploit capital invested in thisclass of undertaking, the result would be that lesswould be invested in this class. Owing to the risk ofsuch exploitation capital would be diverted to chan-nels which, through that risk, would become rela-tively profitable. New capital is absolutely mobile. Or,to put the matter in more general terms, resources areattracted to particular productive channels in thelight of the claims on the value of the product madeby co-operant factors. Where competition exists thereis no expectation that the size of other claims will bepermanent except for the contract period; but re-sources will only be directed into channels in whichthey must become immobile in the light of the prob-able future variation through competition of theterms demanded by the others. Where artificial inter-ferences through monopoly or State regulations aregeneral it is in the light of the expected course oftheir results that resources will be attracted. Thus,once collective bargaining or legal enactment be-


comes the normal policy, no co-operant factor of

producion is in itself exploitable.

THE SIZE OF THE UNIT OF SUPPLY IS IRRELEVANT

The size of the technical unit of supply makes nodifference to this principle at all. The supply ofplant that is only possible in large units reacts tointensification of demand in exactly the same wayas does plant for industries of different form, exceptthat it does so "in jerks." Thus, although a particu-lar increase in wages costs may not result in a largefalling off in numbers employed it may have pre-vented a large falling off in numbers employed itmay have prevented a large increase which wasimminent. In practice, these considerations are some-what masked by the fact that such concerns arethemselves in some degree monopolistic and canwithstand increased costs up to a point by placinga further burden on the consumer.

EXPLOITATION OF "CAPITAL" A BREACH OF FAITHWITH INVESTORS IN IMMOBILE RESOURCES

The exploitation of capital by particular groupsof workers is, thus, impossible except during thefirst transition from competition to monopoly orregulation; and such exploitation might be regarded


as a breach of faith on the part of Society with thosewho have chosen to invest in relatively immobileresources. We must, however, bear in mind thatthe probability of aggregate gain is, even in this classof case, not high. (As we have seen above.)

"LABOR" NO MORE EXPLOITABLE THROUGH IMMOBILITYTHAN "CAPITAL"

In the same way, the general exploitation of"labor" by "capital" through its immobility can beshown to be equally impossible. Once again, thequestion can be approached by considering elasticityof supply, which is probably greatest among labor-ers, the completely unspecialized class. Workers ofthis kind, although their territorial mobility may besmall (in so far as they correspond to the mostpoorly paid class), have yet a wide range of alterna-tive occupations. The chief restrictions on their mo-bility are those which have been created by labororganizations themselves and are clearly against theadvantage of owners of capital generally. Here also,as with the supply of capital, in the very short runthe supply of labor is inelastic and capable, in par-ticular cases and during the first transition fromcompetition to monopoly among capitalists, of tem-porary exploitation. But with the progress of mod-


ern industrial organization and technique and thegrowing tendency for labor to lose its specializa-tion, as skill is thrown more and more on to themachine, the power even in these circumstances toobtain short-run gains through immobility becomesless and less possible. In practice, for many reasons,reductions of wages sought for by capitalists in-volve relatively small percentages except in times ofmonetary disturbance when prices generally are fluc-tuating rapidly. Undue lowering of wages can bemet by a gradual migration of the more efficientworkers to the considerable disadvantage of the in-judicious firm. There is no parallel in labor to theimmobility of huge capital units.

DELIBERATELY IMPOSED RESTRICTIONS ON MOBILITY OF LABORNOT ADVANTAGEOUS TO CAPITAL IN GENERAL

The principle remains the same even if, for thesake of argument, we suppose it to be possible forthe capitalist to impose deliberate restrictions on themobility of labor. In so far as a capitalist can, by anydevice, prevent his workers from moving to takeadvantage of the labor market elsewhere he can, itseems, obviously gain at their expense. The moreeffective his power, it appears, the greater will be hisgain. Surely, it will be said, laws or institutions de-


signed to keep agricultural workers on the land, forinstance, will benefit the farming community in sofar as they succeed. The answer is that more of theother resources of the country will remain in orflow into that form of enterprise. In cases where suchrestrictions have been imposed under changing con-ditions, and until a new equilibrium has been reached,and so long as competition from existing or potentialfarmers can be prevented, the profitableness of farm-ing will be above the normal. But it hardly seemslikely that suppression of competition would be pos-sible in the case of so large a group, even for a shorttime. In any case it does not follow from this thatlabor in general will lose relatively to capital in gen-eral, even in the short run (including all other fac-tors of production under the heading "capital"). Forlabor elsewhere will probably benefit through therelative scarcity of labor, and capitalists elsewherelose through that same scarcity. Further analysis ofthis unimportant point would have to consider theeffect of relative elasticities of demand for the dif-ferent factors in competitive and non-competitivechannels. But this is a question on which we can for-mulate so few valid generalizations that it seems de-sirable to regard it as a chance consideration affectingthe result.


NEW LABOR COMING FORWARD UNEXPLOITABLE

EVEN IN THE SHORT RUN

The same reasoning applies in regard to incidentalimmobility, i.e. that which is not the result of deliber-ate contrivance. Where there has been temporaryexploitation of an immobile labor group, workers inother groups will tend to lose, not to gain, as it isovercome; and capitalists elsewhere will tend to gainas labor becomes more plentiful to them. Trade-uniondemarcations and artificial restriction on entrance todifferent occupations, State regulation of wages, andgenerally policies which hinder labor transference-all tend to create the conditions in which exploitationof the kind we are considering may appear to be pos-sible in particular cases. It seems that if a large numberof occupations have their entrance restricted, open-ings for adequate alternative employment for thoseworkers who feel themselves to be unfairly treatedwill be so limited that they will have to lowertheir supply price considerably in order to get ab-sorbed. Such short-run monopoly-gains as are pos-sible to capitalists through the existence of suchconditions must, of course, be offset by the monopoly-gains of those groups of workers whose protectivesystem alone enables the capitalist to exploit. But inregard to the constant flow of new labor coming


forward, however irrational we may believe the choiceof trades to be, we may yet presume that trades whoseworkers are being "exploited" by employers owingto their acquired or incidental immobility will beavoided.

THE CONSUMER ALONE IS ULTIMATELY EXPLOITABLE

BY COLLECTIVE ACTION

To sum up our main conclusions so far: we haveseen that combined labor cannot be said to exploitthe co-operant factors of production possessed bythe capitalist, and that labor combinations do notenable workers in general to exploit capital in gen-eral. The ultimate gains of workers by combinationwhen not at the expense of excluded competitorsare obtained by exploiting the consumer; for theextent to which capital will be excluded by de-creased supply of labor at a higher cost per unitwill depend upon elasticity of demand for the com-modity , which will determine the margin whichgives the normal rate of return. We have also seenthat combined capital not practicing exclusion ofthose whom competitive profits would attract can-not be said to gain by exploiting the worker but byexploiting the consumer. Briefly, the import of theseconclusions may be summarized as follows:


No factor of production can maintain the co-operation of another factor by offering it or leavingit an amount of the product less than the value ofits net product elsewhere. The extent to whichdemand for the product falls off as its price israised determines the quantity of one factor that willbe driven away by another factor getting a largershare. Hence, we can say that monopoly-gains byany factor are ultimately obtained by exploiting theconsumer, although incidental losses are usuallythrown upon other co-operant factors.

WHY THE ERRONEOUS BELIEF HAS ARISEN

The widespread belief that monopoly-gains (orgains by wage regulation) are obtainable by laborand capital at one another's expense seems to havearisen (1) from the belief that if any or all wagerates are raised artificially, workers as a whole willget more; and (2) from the habit of regarding "labor"and "capital" as in opposition rather than as co-operators in production.3117

117. In so far as they are competitors they may gain at one an-other's expense by excluding units of competing resources, e.g.successful labor opposition to labor-saving machinery, etc. It isnot suggested that such a policy can be to the general advantageof either party. The reverse can be shown.


LOWER WAGE RATESMAY MEAN HIGHER AGGREGATE EARNINGS

The popular view ignores completely the possi-bility that the aggregate amount paid in wages mightbe increased by a shifting (directly or through re-cruitment) of workers from lower-paid to higher-paid jobs, even if there were many substantial reduc-tions in wage rates and (what would be unlikely tohappen in practice) there was no corresponding risein the less well-paid jobs. Still less does the popularview take account of the increase in the aggregatewelfare of the workers which would result fromgreater equality caused by such a redistribution.

AS THE CONSUMER IS ALONE EXPLOITABLE WE EXPECTTO FIND AND DO FIND "JOINT MONOPOLIES11

The habit of regarding labor and capital as in op-position has been encouraged by economic text-books.It may be convenient for some purposes to representtheir relations to one another by supply and demandschedules, so long as it is not forgotten that the ulti-mate demand for both of them is the demand for theirjointly produced product. As monopoly gains, bothto workers' and to capitalists' combinations, are ulti-mately obtained solely by limiting the supply of thecommodities, it is not surprising that we find joint


monopolies, that is, different co-operant factors ofproduction consciously or tacitly practicing monop-oly together and dividing the spoils. A joint monop-oly is a greatly strengthened one, and represents aconcentration of interests against those excluded. Itis a particular case of vertical combination (generallytacit). Often, it will definitely pay an employers'monopoly that its employees shall combine. If thereis any body of workers free to cooperate with a rivalmanufacturer whom monopoly prices would bringinto the field the capitalist's monopoly is threatened;and this accounts for the frequent agreement betweenan employers' combination and a trade union for thepayment of a high wage provided that the union willsee that no workers at all in that occupation shallbe employed at less. In modern times the State hasintervened to strengthen such joint monopolies, eitherby making agreements arrived at by industrial coun-cils binding on the trade or by direct legal enact-ment. Combined workers themselves have nearly al-ways encouraged their employers to combine also.They have been strong advocates of price agree-ments, have roundly condemned "cut-throat" com-petition, and have asked for State help to protect"the good employer." In joint monopoly is to befound the explanation of most trade-union action in


these times, and of much capital combination at all

times.

THE INDETERMINATENESS OF "THE QUOTA"

There is always an arbitrary element in the divisionof monopoly spoils. In the case of the quota systemwith a capital monopoly, or a system of work-sharingby a trade union, the problem is always there ofdeciding how many shall be allowed to participateat all. In the case of a trade union it will probably bethe normal number employed before the exercise orfurther exercise of monopoly power. And then weget the problem of how different kinds of partici-pants shall share in the proceeds. In the case of agroup of workers engaged on the same process "thestandard rate" usually settles the matter, althoughthere may still be some grading according to ability.When we get two groups of workers sharing themonopoly but engaged on non-competing or com-plementary (co-operant) processes, some formularoughly based on "justice" may be applied; e.g. wemay get the proceeds divided more or less in pro-portion to former competitive earnings, or supposeddifficulty of the task or technical status, etc. Thereis, however, no certain exterior principle such as themarket to refer to in this division: from some points


of view it is a purely arbitrary affair. In regard toconsiderations which can be usefully expressed orrepresented in schedules or curves, the division amongthem is "indeterminate." As a rule, equal divisionper head of workers seems to be sufficiently just: theyare seldom conscious of any serious divergence ofinterest between different groups. Yet, in essence, theproblem of the division between workers of themonopoly increment is the same as in the case ofjoint monopoly between capital and labor.

THE ADVANTAGE IN COLLUSION

Now joint monopolists may either act independ-ently, or in collusion (deliberate or tacit). If theyact independently and seek to maximize their ownshare of the monopoly-gain, the aggregate gain willbe, other things being equal, smaller than if theyact in collusion. For in acting independently they willeach restrict their contribution in response to theterms on which they can get the other factors tocooperate. If any one factor only is a monopolist, itwill presumably so limit its contribution as to maxi-mize the return to it, given what competition com-mands shall be paid to the other factors. Any increasein costs to that monopolized factor (whether due tomonopoly of another factor or not is immaterial) will


presumably cause it to reduce its contribution stillfurther in order to maximize, not the aggregate re-ceived for the commodity, but its share of the total.As it is to the obvious advantage of all factors con-sidered together that the greatest aggregate shall beobtained, we can say that each monopolist factorseeking its own end does not serve their general good.No matter what division of the proceeds finally re-sults (within the range of indeterminateness), col-lusion in regard to output will benefit all factors, forno factor need get less and all may get more thanunder independent action. Hence, we may expect tofind, and in practice we do find, some measure oftacit collusion, or forebearance and "reasonableness"among co-operant monopolistic groups.

JOINT MONOPOLY IN THE EARLY NINETEENTH CENTURY

It is impossible in this essay adequately to indicatethe significance in economic history of joint monop-oly of this kind. All that can be done is to suggestgrounds for the belief that its importance has beengreatly under-estimated. It has already been pointedout that practically all the combinations among em-ployers that were revealed by the inquiries in Englandin 1824 and 1825 were either retaliatory againstunions exploiting "the strike in detail" or else the


employers' side of joint monopolies operating withthe encouragement and connivance of the workers.Francis Place merely wanted the Combination Lawsrepealed, and had no interest in bringing out thetrue significance of the evidence which was broughtforward. His comment on an obvious case of jointmonopoly was: "Employers advised the men to com-bine. Thus it appears the law is so iniquitous thatthose in whose favour it was made encourage the mento break it." (Note written on his copy of the Re-port of the 1824 Select Committee on Artisans andMachinery, p. 279). Even in the days when com-binations were illegal there is much evidence of em-ployers encouraging their men to combine. Thereseems to have been a good deal of it among theFramework Knitters, directly fostered by the mas-ters.118 And we find just as frequently cases of or-ganized workmen petitioning their employers andurging them to combine: the Journeymen Coach-Makers were trying during 1816 and 1817 to gettheir masters to organize.119 The rules of the Journey-man Paper-Makers of 1823 included a doggerel versebeginning with the ominous words: "May masters

118. E.g., Evidence of Thorpe and Ben Taylor. Report of SelectCommittee on Artisans and Machinery, 1824, pp. 274, 281.

119. Place Add. MSS. 27799:147-8.


with their men unite."120 Other cases of joint monop-oly (or attempts to protect the "honourable masters"as they were called), before 1824 were found amongthe Rochdale weavers,121 the Stockport Cotton Spin-ners, the Dublin Saddlers, the Hosiers, the Ship-wrights, the Calico Printers, and many other estab-lished trades of that day.122 It was always the "hon-ourable employers" whom they sought to protect;and the same phraseology remains today. In thoseearly times they had even conceived of the utility ofthe device known today as "extension of agreements"which is found in conjunction with legislation con-cerning industrial councils and arbitration courts inso many parts of the world. In 1824 the Lace-Makerspetitioned Sir J. Hobhouse to introduce a bill "forregulating wages by the decisions of a board com-posed of selected masters and men, and making thescale thus agreed upon binding on the trade. . . ,"123

He refused.

120. Report of Select Committee on Combination Laws, 1825,P- 59-

121. Ibid., p. 154.122. The Reports of the Committees of 1824 and 1825 already-

referred to are full of evidence, direct and indirect on this point,as are also the Place MSS. and cuttings. We find the same phenom-enon during the seventeenth and eighteenth centuries.

123. Felkin, History of the Machine Wrought Hosiery . . . etc.,p. 344.


INADEQUATE RECOGNITION OF THE SIGNIFICANCE OF"JOINT MONOPOLY"

The nineteenth century is full of further examplesof joint monopoly. Yet, as already pointed out, ithas received singularly little recognition except bycasual comment of unimportant writers. A pamphletin 1867 recognized that "the means which secure theworkmen the monopoly of labour, secure the mastersalso from any heavy pressure of competition."124 In1905, a writer on Employers' Associations recognizedthat they were "but a logical step in, and the naturalcomplement of, the trade-union movement," and thatthey were "an essential feature (of it) without whichit would be impossible for it to accomplish the pur-poses for which it exists."125 But we seldom find socertain an understanding of this relation betweenemployers' and workers' combinations. This is per-haps because formal combinations between capitaland labor have been rare. In the late 'nineties of lastcentury a number of open alliances of this kind wereflourishing in England in certain hardware, furnitureand china trades. The leading advocate of this formof organization was one E. J. Smith, who had no veryclear idea of the economic implications of the de-

124. H. M. White, The Principles of Trade Unionism, 1867, p.17-

125. Quarterly Journal of Economics, 1905, p. no.

bideterminateness [ 141 ]

velopments he advised. His schemes received thecordial approval of the Economic Review and wereby no means regarded as against the general interestby the Economic Journal.126 The injurious and mo-nopolistic nature of such organizations was, however,pointed out by Prof. Cannan127 and by Prof. Pigou.128

About the same time similar organizations had grownup on the Continent—"Les Syndicats Mixtes" ofFrance. None of these alliances resulted in very closebodies and they do not appear to have survived forlong.

IMPORTANCE OF JOINT MONOPOLY IN MODERN SOCIETY

If open and deliberate alliances like these have beenrare, cases of tacit mutual support of each other bycapitalist and labor groups have been widespread, andare typical of modern economic society. They havebeen encouraged and developed by tariff and indus-trial legislation—especially by arbitration, conciliation,and wage regulation acts. In joint monopoly, thewriter believes, we have the real clue to the under-standing of "anti-sweating" movements, which havenot yet, in his opinions, received adequate impartial

126. See paragraph, obviously written by Edgeworth, in Econ.Jour., 1898, p. 227.

127. Econ. Jour., 1900, p. 63.128. Principles and Methods of Industrial Peace,


study. In the present stage of development, when thesize of the monopoly unit is tending to become larger,and when capitalist monopoly tendencies are maderespectable by the adoption of the propagandisteuphemism "rationalization,"129 the same relationshipis there on a larger scale. Dr. Robert Liefmann's pro-posal that trade-union representatives should be ad-mitted to cartel directorates and that employers shouldhave permanent representatives on trade-union execu-tives is a good manifestation of it.

OUR ASSUMPTION HERE OF RATIONAL ACTION BYMONOPOLISTS NOT JUSTIFIABLE IN PRACTICE

The practical results of the widespread existence ofcollective bargaining may be more harmful thanthis discussion has suggested. For convenience andsimplicity we have made here certain assumptions inregard to rational action on the part of combinationswhich cannot be justified in practice. The truth isthat only the vaguest guesses as to the long-run elas-ticity of demand for products are possible in theactual economic world; and we find, as a result, thatbilateral monopoly creates "indeterminateness" of

129. It is deplorable that this term has become so closely asso-ciated in the Press with quota schemes and price-fixing cartels.Unfortunately, the stress is nearly always on "ration" not "ra-tional."


wage rates in another sense—through causing the priceand wage-fixing mechanism to lose its sensitiveness.There arises a process of higgling between large andclumsy units in which the forces determining thesettlement have only a remote connection with theinterests of those members of the community whowill be affected by the result. So undefinable are theforces which in such circumstances actually bringabout the result that the adjective "indeterminate"well fits the case. Within the complex of factors de-termining price there are none which are sufficientlyconstant to be honored with the name of "cause." Itoften appears to the writer that the continued ap-pearance of industrial depression in Great Britain isprimarily due to the widespread existence of monop-olistic bodies on both sides which (quite apart fromtheir having caused equipment and labor to remainidle by policies aiming at "not spoiling the market")have destroyed the sensitiveness of the price and par-ticularly the wage system.

EXPLOITATION OF THE CONSUMER HITSTHE WORKING-CLASS MOST HEAVILY

The above analysis has sought to show that theultimate gains of trade unions as well as monopoliesof capital are obtained either by the "exploitation" ofthe consumer or the exclusion of competitors (al-


though in the latter case, of course, the consumeralso loses). In regard to gains at the consumers' ex-pense, the effect upon distribution will depend uponthe extent to which the owners of different factorsof production are the final consumers of the productconcerned. In fact, we find that the greater part ofthe demand for consumers' goods is exercised byrelatively poor people, and most of the commoditiesin whose manufacture the working-class are employedare consumed by themselves as a class. This is a ques-tion of fact which has often been commented on.130

Hence, apparent gains by workers at the expense ofthe consumer are likely, in general, to cause a morethan proportionate real loss to them. If trade unionshad, and exercised, the power to break down capi-talists' monopolies they would benefit the workersof the community as consumers, but in practice theireffect is to bolster up the capitalist's exclusiveness andto erect a dyke (against potential competition) cov-ering an even larger area.

TRADE UNIONS ARE THE WRONG INSTITUTIONFOR ATTEMPTING TO IMPROVE DISTRIBUTION

Workers' combinations are impotent to secure aredistribution of the product of industry in favor of

130. E.g., cf. Pigou, Economics of Welfare, Second Edn., pp.646-8,


the relatively poor. Such a result cannot be achievedby interference with the value mechanism. Econo-mists are all clearly conscious of the desirability ofa more equal distribution of wealth; indeed, theybase their case for it upon the firm foundation thatit will lead to a maximization of economic welfare,and not upon abstractions such as "natural right" or"justice." There are means of achieving greater equal-ity that will still allow the value mechanism to func-tion freely. It can be achieved by the thoughtfulmodification of economic institutions. But the con-sideration of this point lies outside the scope of thisessay.

THE "LEGITIMATE" FUNCTIONS OF TRADE UNIONISM AREPERHAPS CONCERNED WITH OTHER MATTERS THAN WAGE RATES

The rate of wages which is best for the workersas a whole is that which is determined in the free mar-ket. The main useful function of collective bargain-ing may perhaps be negotiating about those thingswhich, unlike prices or rates of wages, are not ade-quately determined by the market process. For ex-ample, hours of work and conditions of work arethings that intimately concern workmen and arebest decided collectively. They are a social matter,and ought, if possible, to express the will of the


majority. "The employer" is concerned not so muchwith wages, hours, or conditions of work as withlabor costs. Once it is recognized that shorter hours,or extra workshop comforts that cost money anddo not add to efficiency, tend, in the absence ofmonopoly, to reduce wages, collective bargainingbecomes an excellent thing. So long as one of thefactors making up total labor costs is allowed to varyin harmony with economic change the value mecha-nism in society can continue to work. One costfactor at least must be a variable, and it is desirablethat it should be the one which is most sensitive tochange and therefore the most reliable index to guidehuman effort. That condition is satisfied by the rateof wages.

NOTE.—Since the final proofs of this book werereturned the author has seen the manuscript of anacute and lucid article by Mr. J. R. Hicks whichcriticizes the contributions of Edgeworth and Mar-shall to the theory of wage indeterminateness. Thearticle will, it is understood, shortly appear in theEconomic Journal, It gives strong general support tothe main thesis of this book, and in particular fills thegap left by the omission here of the detail of Edge-worth's discussion.

Index

Alison, Sir Archibald, 29Anti-sweating movements, 74,

141

Apprenticeship, 33, 34, 41, 42Arbitration, 102-04, 141Aristocracy of Industry, 33, 34Artisans and Machinery, Select

Committee on, 50, 138At the expense of, meaning of

the phrase, 114Auction, price in, 85

Bargaining power, 21, 62, 80,101-02, 105

Barter, 80, 91, 93-5Bi-lateral Monopoly, 80, 106,

no, 112Black, Clementina, 39Blanc, Louis, 60Bluff, 102, 108Bonar, J., 33 n.Boycott, 109Brown, Bland & Tawney, Ed-

itors of Select Documents inEnglish Economic History,58 n.

Buchanan, David, 51Burns, John, 39

Cairnes, J. E., 69 n.Cannan, Professor Edwin, 30,

44 n., 45, 47, 48, 66 n., 141Champion, H. H., 40, 55 n.Chartism, 37, 38Christian Socialists, 74Clay, Henry, 22"Clay-Martin" Report of the

South African Economic andWage Commission, 1925, 59

Coercive elements in strikes andlock-outs, 109-11

Collective bargaining, definitionof, 21

Collusion between joint mo-nopolists, 136

"Combat of desires and fears"in bargaining, 101

Combination Laws, 49, 52, 138Combination Laws, Select Com-

mittee on, 1825, 28 72., 50 «.,

139Competition forcing down

wages, 72-4Co-operant and competitive fac-

tors of production, 115, 120,121, 125, 126, 132, 134, 136

Cournot, Augustin, 89[ i47]

Index

Cree, T. S., 27, 28, 37, 61 n.Crook, author of German Wage

Theories, 27 n.Cunningham, Archdeacon W.,

Curve of indifference, 82, 90

Davenport, H. J., 108Davidson, J., 93 n .Defoe, Daniel, 57"Demarcations," trade union,

130"Dependence" of the worker,

65,66Depressed classes, 36Disutility of strikes and lock-

outs to the parties, 106Division of monopoly spoils,

112Dockers' Strike, 39Dunning, T. J., 28 n., 98 n.Dupuit, A. J. E., 89

Edgeworth, F. Y., 23, 79, 89, 91-5, 97, 117-18, IO3, 141 72., 146

Edinburgh Review, 45, 52, 66Efficiency of Labor, 75Employers' Advantage, see

Labor's disadvantageEmployers' Associations, 56,

140Equal footing, 62Equality, on terms of, 62Equal pay for equal work, 41Exclusion, 31, 35, 37-42, 44, 109,

113-20Exploit, definition of, 116Exploitation of immobile fac-

tor, 121, 123, 126, 130

Exploitation theory, 60Extension of agreements, 139

Fawcett, Henry, 26-7Felkin, W., 139 n.Flux, A. W., 93, 100Fortnightly Review, 24, 36 72.,

68, 84 72.

Gains without exclusion, 113George, Dorothy, 49"Good employers," 134

Harrison, Frederic, 31Hawtrey, R. G., 71, 72 n.Hermann, F. B. W., 27Hicks, J. R., 146Hobhouse, Sir J., 139Hobson, J. A., 100

Indeterminateness, 79 et seq.,104, 112, 135-37, 142-43

Indivisible property, 78, 99, 101,105

Industrial councils, 139Industrial depression, 143"Insecurity" of the worker, 6$,

66I.W.W., 40

Jenkin, Fleeming, 24, 37 72., 83,89, 90, 97-8, 102

Jevons, W. S., 89, 97, 98, 100,102-06

Joint monopoly, 52, 106, no,112, 133, 134, 137, 139-41

Kingsley, Charles, 74'"Knobsticks," 35-6

Index [ 149]Knowledge of "position and

needs" in bargaining, 98

Labor costs, 91, 105, 123, 126,146

"Labor is a perishable commod-ity," 68-72

Labor's disadvantage, 24, 25, 28«., 43, 44, 48, 60, 61-5, 68, 71-3, 80, 87, 92

Labor sold without reserve, 64"Legitimate" functions of trade

unions, 145Leslie, Cliffe, 24, 83Levy, H., 51 n.Liefmann, Robert, 142Lloyd, C. M., 44Lock-out, 54, $6, 106, 107, 109,

inLonge, Francis D., 24, 53, 80, 83Longfield, Mountifort, 27, 28,

80, 82, 96, 99"Lower orders," 31

Macgregor, D. H., 107Malthusianism, 36, 37Mann, Tom, 40Marginal utility of money, 94-7Marshall, Alfred, 25, 27, 91-6,

146Marshall, L. C, 68 n., 71, 74Martineau, Harriett, 45M'Culloch, J. R., 25, 27, 51Menger, A., 33Mill, J. S., 22, 24, 26, 28, 35, 36,

37, 61 w., 68, 72, 84-9, 91Mobility of labor, 64, 6$, 106,

124, 127, 128Mobility of new capital, 122-27

More, Sir Thomas, 49Morrison, C, 28 n., 53

National Association for thePromotion of Social Science,i860, 29 n.f 63 n.

"Natural rivalries" of capital-ists, ss

New Unionism, 40Nicholson, J. S., 66y 69"Non-Europeans" in South

Africa, 35, 36"No reserve" theory, 63-8

O'Connell, Daniel, 38O'Connor, Feargus, 38Owen, Robert, 33

Page, W., 54Pantaleoni, M., 62 n."Patience" in bargaining, 101-02Pepys, Samuel, 57"Perishable commodity" argu-

ment, see LaborPiece work, 75Pierson, N. G., 70, 71, 72 n.Pigou, A. C, 92, 103, 141, 144 n."Pin money" argument, 66, 67Place Add. MSS., 28 «., 138 n.Place, Francis, 138, 139 n."Political Economy silenced,"

106, 112Price, L. L., 92, 107Productivity theory, 27

Quota, the, 135

Rationalization, 25, 142Rayner, R. M., 29 n.

Index

Restriction of output, 109, 118Ryan, W. P., 38 n.

Samuelson, 54 n.Sargant, W. Lucas, 53Say, J. B., 50"Scabs," 35, 36Short time, 118Sidgwick, H., 92, 107, 118Size of unit of supply, 99, 100,

126Smith, Adam, 24, 25, 44-51, 56,

57, 60, 63, 72Smith, E. J., 140-41South Africa, 35, 36, 41, 59"Standard of living theory of

wages," 42, 67, 74Standard rate, 41, 135State regulation of wages, 125,

130, 132, 134, 141Stirling, J., 37, 51, 61 n.Strike, 42, 56, 106, 107, 109, m ,

" 3"Strike in detail," 52, 137Subsistence theory, 44-9, 60, 63,

7*> 74"Supply and Demand" criti-

cized by Thornton 84-7Supply and demand curves used

by Fleeming Jenkin, 89, 90Surplus value, 33

Tacit combination, $6, 58, 59,134, 136

Thompson, William, 33, 35Thornton, W. T., 24, 25, 53, 61,

62, 63 72., 64-70, 72, 80, 83-9,97, 102

Tufnell, E. C, 50, 53, 61

Wade, John, 56 n.Wage-fund theory, 22-8, 29 n.,

42> 43. 69Wage rates and wage aggre-

gates, 104, 133, 136, 143Waley, Jacob, 24 n., 82Walker, F. A., 23, 69, 72-4W e b b - " T h e Webbs": Lord

Passfield and Mrs. Webb, 21,27, 32, 37 n., 52, 74, 117

White, H. M., 140 n.Work fund, 87, 118Work-sharing, 117, 118, 120, 135

ERRATA 3Page 17: Line 8-should read "affected" instead of "effected"Page 29: First line of footnote—should be "of" instead of "on"Page 30: Line 2—"no matter" was omitted after "in form"Page 68: Line 15—"that it means anything more than" was repeatedPage 93: Line n—should read "is" instead of "in"Page 93: Line 19—the last "i" was omitted from the word "prin-

ciple"Page 123: Line 7—the word "overhead" was omitted after the word

"heavy"Page 126: Lines 11 & 12—"a large falling off in numbers employed

it may have prevented" repeatedPage 141: Last line—there should be no "s" on "opinion"

INDEXPage 147: "Artisans and Machinery, Select Committee on."—the

original text includes the date "1824"Page 147: "Conditions of work, 145" omitted. Should follow

"Competition, forcing down wages"Page 148: "Curve of indifference"—Page 91 instead of page 90Page 148: "Edgeworth, F. Y." Pages "117-18" and "103" out of

orderPage 148: "Efficiency of Labor"—reference should be page "74"

instead of "75"Page 148: "Exclusion"—the original text reads "Exclusion, device

of"Page 148: "Exploitation of consumer, 116, 121, 143" should follow

"Exploit, definition of"Page 148: "Fortnightly Review: —reference on page 68 should

read "68n"Page 148: "Gains without exclusion"—page reference should be

" . , 7 "Page 148: "Hours of Work, 145" should be inserted after "Hobson,

J. A."Page 148: "Jenkin, Fleeming"—page references should include

page 80Page 149: "Labor's disadvantage"—page references should include

page 21Page 149: "Leslie, Cliffe"—page reference should be "80" instead

of "83"Page 149: "Marshall, Alfred"—page references should include "71,

74" which appear in error after "Marshall, L. C."Page 149: "Pigou, A. C."—page reference "103" should read "io3n"Page 150: "Webb, Mrs. Sidney, 21" appears, in the original text,

after "The Webbs'"Page 150: "Workers' necessities, 60" omitted

Errors, which appeared in the original text and have not been cor-rected in this printing, are found on the following pages:Page 24: Line 2—should be "absurdities" instead of "adsurdities"Page $$: Line 18—the word "the" omitted before the word "last"Page 104: Line 9—the period was omitted after "altogether"Page 144: Line 19-the word "dyke" misspelled—should be "dike"