426

Urban Lands.

OUTLINES OF ECONOMICS

In the modern city we have a tremendous mass of land values resulting from the concentration of a large population on a relatively small area. All are familiar with the narrow limits set upon the wholesale districts, the shopping districts, and the financial districts in American cities. The residence districts to which the greatest social prestige attaches are apt to be quite as narrowly restricted. Improvements in rapid transit facilities enlarge the residence areas that are utilized by people with moderate incomes, but only serve to increase the congestion in the business centers. Much has been said in favor of the special taxation of city land values. Movements in this direction have already gained great strength in Europe. If such taxes are to be justified, however, it must be primarily on grounds of fiscal convenience. In urban lands, as elsewhere, there are true unearned increments and true unearned decrements, but it would be going altogether too far to name the whole mass of urban land values, enormous as it, unearned increment.

QUESTIONS AND EXERCISES

1. Malthus and Ricardo differed as to whether rent is an addition to the total income of society. What is the correct view?

2. An accepted doctrine of taxation is that landowners cannot shift a tax on land values to any one else (as the tax on toabcco is shifted from the manufacturer to the consumer). Explain this on the basis of the theory of rent.

3. "Rent does not enter into the determination of normal price." Explain the meaning of this statement.

REFERENCES

CARVER, T. N. The Distribution of Wealth, Chap. v.

GEORGE, HENRY. Progress and Poverty.

HURD, R. M. The Principles of City Land Values.

MARSHALL, ALFRED. Principles of Economics, 6th ed., Book vi, Chaps. ix, x. PIERSON, N. G. Principles of Economics, Vol. i, Part i, Chap. ii.

RICARDO, DAVID.

Principles of Political Economy and Taxation, Chap. ii.

WALKER, F. A. Land and its Rent.

an amount nearly

1 The assessed value of land, exclusive of improvements, in the city of New York, amounted in 1907 to over three and a half billions of dollars twice as great as the assessed value of all the real estate, including improvements in the state of New York outside of the city.

CHAPTER XXI

THE WAGES OF LABOR

WAGES constitute the price paid for the services of labor. Under the head of "labor we include all the various kinds of personal services for which a payment is made. Professional men and salaried employees are wage earners in the economic sense, though the term is by common usage generally restricted to manual laborers working for daily or weekly payments. There is, however, in society to-day, as every one recognizes, a "laboring class," marked off by lines that are fairly distinct, and including the great body of day laborers, factory hands, agricultural laborers, men in various trades requiring various degrees of intelligence and skill, employees in minor positions in business and mercantile establishments, and the like. Some of the most important and pressing present-day economic problems the variety of things that make up what is often called the "labor problem "— relate to the economic position of this class. On this account it becomes of special importance to ascertain just what the rules are that determine its share in the national dividend. In the discussion of wages, then, we have in mind primarily the income of the "laboring class," although most of the principles that will be developed apply just as accurately to the other incomes that must be classed as wages in the economic sense.

Wages as the Price of Labor. The definition of wages already given suggests at once the most important fact about them they are the prices paid for particular kinds of services, and hence come under the general laws of supply and demand. So far as the wages of any one kind of labor are concerned, we can say, as we did of the prices of commodities, that they will tend to be fixed at the point where the supply of that kind of

labor and the demand for it are in equilibrium. But, as was found in the discussion of the prices of commodities, this simple statement does not take us very far into the analysis of the problem. We want to know why the supply of labor and the demand for it are what they are. We shall find, too, that the factors governing the supply and demand of labor are in some respects very different from those governing the supply and demand of commodities.

The Demand for Labor. The demand for labor is, in the last analysis, a demand for the products of labor. Labor does not command a price on its own account, but because it aids in the production of things that satisfy human wants. But how can we measure the product of labor? How can we distinguish it from the shares in the total product that are to be attributed to land and capital? We cannot say that the product of labor is to be measured by the difference between the total product produced by the coöperation of labor, land, and capital and the product which would be produced by land and capital working alone; for this last would, of course, be zero. The fact is, as we have seen in a previous chapter, that the proportion of the product that is attributed to labor is determined by the principle of specific or marginal productivity.

That is, we cannot think of the "product of labor," except as the product of the individual laborers making up the supply of labor, and the product of any individual laborer is actually and exactly the amount which he adds to the total product of land, labor, and capital; in other words, the amount by which the total product would be decreased if the labor of this individual laborer were not utilized. The social demand for the products of labor, which is the basis of the entrepreneur's demand for labor, is not a demand for any vague abstraction like the "product of labor in general," but is a demand for the concrete products due to the activities of individual laborers.

We must note also that in the case of labor, as in the case of commodities, the word "demand" must not be taken in a loose, indefinite sense. The demand for commodities means

the quantities that will be taken at certain definite prices. The demand for labor does not mean anything unless it is understood to refer to the number of laborers that will be employed in a particular occupation at a certain wage. In a given occupation at a particular time wages might be fixed at any one of a large number of different possible points. The higher the wage, the smaller will be the number of laborers that an entrepreneur can afford to employ; and that for two. reasons: In the first place, the higher wages mean higher expenses of production, and consequently higher prices will have to be charged for the product a fact which will reduce the quantity of the product that can be sold on the market, and consequently reduce the demand for labor. In the second place, higher wages for labor will induce entrepreneurs to economize in the use of labor, and to use relatively more land and capital, according to the principles which have been explained in the discussion of diminishing productivity. The demand for any particular kind of labor is thus influenced both by variations in the demand for the products of that particular kind of labor, and in the proportion of the product that can be attributed to labor rather than to land and capital.

In a similar way the elasticity of the demand for any kind of labor - the extent to which variations in wages will affect the quantity of labor utilized is a complex function, being affected not only by the elasticity of the demand for the particular products produced by this kind of labor, but also by the readiness with which more capital or more land, or both, can be substituted for labor, as labor becomes higher priced. In the printing industry, for example, a rise in wages would make it profitable for employing printers to use more labor-saving machinery, such as typesetting and linotype machines, automatic press feeders, and the like. The higher the wages of agricultural laborers, the more profitable will be the more extensive, as compared with the more intensive, uses of land. On the other hand, the reader will at once think of many trades, such as plumbing, where machinery cannot be substituted for hand labor, and where, consequently, the only elastic element in the

demand for labor lies in the elasticity of the demand for the products of labor.

The Effect of Labor-saving Machinery on the Demand for Labor. In what has just been said about the use of machinery as a substitute for labor, we have had in mind only the effect of changes of wages on the relative amounts of labor and of capital that would be used in any one branch of production. Quite another problem, and one of great social importance, relates to the way in which the demand for labor is affected by new inventions and by the introduction of new machine processes. The laborers themselves have often looked at such innovations with hostility. When machinery first began to be used extensively in the woolen industry in England, this opposition was expressed in riots in which the new machines were destroyed, as well as in "proposals to impose legislative restrictions on the use of machines, so as to bring them to a level with hand work, and prevent them from doing the work more quickly or more cheaply than it could be done by hand." In many instances laborers still are inclined to view the introduction of labor-saving machinery as an economic injury to themselves. On the other hand, there are many persons who claim that this attitude on the part of the laborers is an evidence of shortsightedness, since the inevitable result of machine production is to cheapen the prices of products and thus to lower the cost of living, the net result being an increase in real wages, as contrasted with nominal or money wages.

This view emphasizes an important truth, and yet it misses the real point of the laborers' alleged grievance. It is true that while the first result of the introduction of improved methods of production is often to bring larger profits to those who introduce them (especially if the new methods are protected by patents), their benefits are ultimately diffused throughout society at large in the form of the fuller and better satisfaction of wants, and the laboring class, as members of society, share in these advantages. But while it is thus true that such improvements ultimately redound to the benefit of laborers as a class, it is equally true that hardship to many individual laborers is often an immediate result of the introduction of labor-saving machinery. Especially is this true in the case of skilled workmen in highly specialized employments, who sometimes find themselves suddenly deprived of the advantages of their skill, — gained often by long years of apprenticeship. To expect that such men will feel that they are compensated for their personal loss by the advantages ultimately accruing to laborers as a class, is to ask too much of the altruistic elements in human nature. Workmen have learned, however, from the experience of the past hundred years, that the introduction of machinery is inevitable, and in the better-organized trades they are in many cases pursuing the wiser course of trying to regulate the conditions of the introduction of new kinds of labor-saving machinery

1 Cunningham and McArthur, English Industrial History, p. 226.