Work and Wages
Facts and figures expose many share-the-wealth fallacies, states
S. E. McGORMAN
SINCE DEPRESSION really struck home, in 1931 and 1932, the desire to improve the welfare and guarantee the security of the lower-income groups has reached epidemic proportions throughout the world. Nowhere has the fever been so high as in the English-speaking countries.
Men who had passed the half-century mark without having shown the first spark of ability in handling their own or anybody else’s affairs were suddenly elected to high office. Some of them became national and even international figures because their great desire— real or assumed—to improve the lot of the poor was accepted by the public as the equivalent of the ability
to do something worth while about it. Money has been poured out uncomplainingly for social benefit on a scale never before known; about equal in its total to the cost of a world war every ten years. But economic betterment of those whom we have most desired to help lags. Warnings of impending danger from economists, mathematicians and )ther members of the “sour-puss clan,” are being heard.
How have wage-earners been actually affected by the recent financial upheavals and by the remedial measures designed for their benefit? Within what mathematical limits will the benefits or demerits of some popular economic policies probably lie? It is not intended to discuss the moral side of anything, although I hope my readers will not conclude that I do not appreciate the importance, in the last analysis the supreme importance, of moral issues, merely because I do not mix them with mathematical possibilities.
United States figures and examples are used, to avoid local politics. Anything which is mathematically correct there, is equally correct in Canada. I wish to make it clear that these figures measure what actually has been done in the richest country in the world in its best years.
Workers Receive Two Thirds
I AM FULLY aware of the figures of “potential” income which certain ladies and gentlemen claim will be produced when the social and economic system is made over to their specifications. Some of these figures are not only decidedly attractive, giving each family something over $4,000 a year, but they are very definite, demonstrating their mathematical precision by being, in some cases, worked out to the last dollar. Apparently they are quite independent of variations either in nature’s bounty or of the vagaries of human foolishness. Nevertheless, all such figures, being prophetic, are excluded from the sphere of engineering and mathematics, and from this discussion.
Twenty-five years ago, Gillette’s handbook of costs was a standard reference work in every engineer’s library. It was written by H. P. Gillette, who toward the end of his active career made an intensive study, not of what wages should be but of what they actually had been; measured not in the changing values of dollars and cents but in the amount of necessities of life which they would buy. I do not propose to defend Mr. Gillette’s mathematics or to go into them further than to give his formula and the date of its publication to show what his conclusion was, and that it antedated both of the recent new eras. The formula which follows was published with supporting data in Engineering and Contracting, August 3, 1921 :
The buying (»wer of the average wage = . .MV
M = Total dollars in circulation. V = Number of times money is turned over.
P = Population.
E = Units of commodities jx?r
This is equivalent to saying that wage and salary earners receive two thirds of everything produced, of the entire
national income, whatever that may be. The accuracy of this formula was checked back to 1890 by Mr. Gillette. While sufficient statistical data is lacking to check it further, there is reason to believe it was substantially true from the beginning of time.
The United States Department of Commerce under release date June 12, 1936, gives the following table. Compare the figures in the first line with Mr. Gillette’s theoretical wages and salary figure of 66.6 of everything produced:
Table No. 1
Percentage of Total National Income Paid Out
1929 1932 1935
Wages and Salaries.......................................... 65.5% 63.9% 67.3%
Dividends.......................................................... 7.6 5.7 5.3
Interest.............................................................. 6.5 10.3 8.3
Balance Foreign Account .............................. .3 .6 .1
Net Rents and Royalties................................ 4.3 3.0 2.8
Withdrawals of Farmers, Small
Merchants, etc......................................... 15.8 16.5 16.2
100 100 100
This table is a rather striking vindication of the Gillette theory. Expressed as a percentage of the national income, the wage-earners’ share did not vary by much more than two per cent from his theoretical figure through the greatest boom and the sharpest depression of recorded history.
More Income W’anted
NEARLY everyone who says anything at all on industrial questions is constantly pledging himself to some policy “to get the workingman a greater share in industrial production.” These efforts would be much more intelligently directed toward getting the workingman more income, rather than a greater share in the national income, which is an altogether different thing. To get the workingman a greater share may be, and probably is, impossible; fighting over such an attempt may go so far as to wreck civilization, to which end it has already made very substantial progress outside of the English-speaking countries. It should not be overlooked that regrettable conditions existing today in Russia, Germany, Italy, Spain and many lesser states, all had their origin in a communist-led ficht over division. In all cases, working people have lost what freedom they had, and have failed to collect all or even most of the promised rewards.
Fortunately, however, the way to a greater income for working people in Canada is wide open. It is to increase the national income; or to decrease the waste of national income at present existing, which will have the same result.
The United States Department of Commerce gives a second table.
Table No. 2 1929 1932
National Income ... $78,6x32,000,000 $48.362,(XX),(XX) $53,587,(XX),(XX) Paid in Wages and
Salaries........... 51,487,(XX),(XX) 30,920.000.000 36,057,000,000
Per cent of National Income .... 65.5 63.9 67.3
These two tables show the supreme importance to wage-earners of keeping the national income high, because theirs is by far the biggest stake in it.
Farmers and small merchants and businessmen of various kinds are their nearest rivals, but their share amounts to only 25 per cent of the employees’ share. The moneylender gets about one eighth, the owner of industry about a twelfth, the landlord a twentieth, and all of these classes taken together, one third. When the national income (the value of all things produced) falls, whether through war of the foreign, civil, or class variety, through stupid government policies at home or hostile policies abroad, because of unwise social experiments, natural calamities, strikes or speculative excesses and resulting panics, then two thirds of the loss falls directly and inevitably on the employee class.
Compared with 1929, this loss, in wages and salaries in 1932 in the United States, exceeded twenty billion dollars in one year, an amount about equal to the accumulated national debt from the founding of the republic up to that time, and greater than the total profits of industry in its best decade. Even this does not measure the employees’ loss, for everyone who has an insurance policy or a bank account is a moneylender; and since the number of such lenders exceeds the number of adult males, many employees are also moneylenders.
Equally great is the number of profiteers, since holders of industrial stock greatly outnumber the employees of industry. Many employees are also landlords; so, when production falls, three quarters is probably a more accurate estimate of their share of the loss than two thirds. Note further that this huge sum is not transferred to some more favored class—it simply disappears, due to the interruption in the orderly processes of production.
Obviously those who wish to prosper should not halt the parade. They should do their fighting after business hours, and in such a manner as not to destroy their own incomes. Turmoil does not hurt the rich and help the poor. It hurts both rich and poor, and as nearly as is humanly possible by the same ratio.
AT PRESENT the world is in the throes of an intense organization drive which has for its object the enrolling cf industrial workers into unions. This being such a controversial subject, I wish to make it quite clear at this point that what follows is an arithmetical demonstration of why certain popular policies cannot fulfill the hopes of their sponsors, and why other totally neglected policies have greater possibilities.
This discussion is not. an argument for or against labor unions. I am quite willing to concede labor’s right to organize in any way it sees fit. Neither am I disposed to criticize labor’s desire for better living standards or its attempt to obtain them. If there is one theme on which all classes, faiths, trades, and professions agree, it is this: “We don’t get enough.” Why should labor be an exception?
Further, I am quite convinced of both the possibility and the desirability of raising the living standards of working people. One who believes that we shall all go up or down the prosperity scale together, cannot very well believe anything else; but there is, however, a very sharp distinction between desiring to see the workingman more prosperous and believing that many of the policies and laws being urged on him by people who never expect to do productive work are likely to make him so. To me some of these policies seem very ill-designed for that purpose, but very well designed, if persisted in, to destroy private industry, and, having destroyed it, to bring labor under the control of the Government which, in the end, means the army. Experience elsewhere teaches that a free vote does not survive free enterprise. In all planned economy states, the army is king. Regardless of original intent, the result comes by force of circumstances.
The hope for great financial benefits through organization is, like almost all speaking and writing on social questions, based on a great and easily disproved illusion; namely that there is an almost infinite profit in industry, and that a more just division of this profit will cure more of our economic troubles.
Continued on page 41
Continued from page 19
Returning once more to the United States Department of Commerce figures, based on the United States Treasury reports, to which all income of all kinds must be reported under heavy penalties, Í give the percentage of profit as published by the United States Chamber of Commerce for all manufacturing corporations in the United States for eighteen years ending with 1934—the last available.
Table No. 3
1918— 5. 49
1923— 5. 49%
1925— 5. 18
1926— 5. (X)
1927— 4 05
1928— 5. 00
1931— 2.24 loss
1932— 5.97 loss
1933— 0.01 loss
per cent of gross
Average profit for 18 years, 3.71 meóme.
Much sincere belief in the abundance of profits “awaiting division” comes from an ancient error of logic, that of reasoning from an example—especially one selected for the purpose. Most well-managed industries have years of substantial profits, and some very attractive figures can be produced on paper by dividing the profits of the best companies in their best years among their employees. But if the employees are to take the profits of industry they must take also the losses and the taxes of industry, and these are very substantial. No socialist has ever bothered to enquire into the effect of dividing the losses.
What Profit Division Means
TT IS POSSIBLE to state the exact truth
about profits in ways which will give very different impressions to most people. I shall illustrate the two methods from the published figures of the Ford Motor Company.
In one of his books, Mr. Ford gives the original investment in the Ford Motor Company as $35,000. Figuring profits as a percentage of the original investment is a meaningless performance but an everready help for any financial reformer seeking to crash the front pages. On June 14, 1936, after thirty-three years, the profit of the Ford Motor Company was $782,061,144, or 200,000 per cent on the original investment. Looked at from that angle, division of profit seems very attractive, but exactly the same thing, stated in another way, loses most of its glamor. The profit was also $20 per car. While $20 per car is an extremely small spread between cost and selling price, so small that only a very large business could operate on it, it is not net profit for Mr. Ford, nor would it have been available for distribution to the employees, since out of it were built the plants of the Ford Motor Company, which are quite as essential to the employees as to the owner. Even so, the complete profit story of the Ford Motor Company is yet not written, because the inheritance taxes are not yet paid. As the law stands, should Mr. Ford’s heirs desire to continue the business, they would be required to surrender practically all their cash, and not improbably to borrow a large sum of money on the security of the plants, with which to pay the inheritance tax. Conceivably this mortgage could, if a period of depression is encountered, cause the business to go into bankruptcy, in which case the net profits of two generations of motor manufacturing would be exactly nothing.
Most people who advocate the extension of unionization and regard “collective bargaining” as the latest panacea for human difficulties, generally do so on the grounds that wage-earners are being dealt with unfairly, and that by organizing themselves into unions they can get a greater share in the profits of industry. There are many difficulties to be encountered, and many clashes of conflicting interests between different labor groups to be overcome, before industry can be completely organized, but let us determine what the “take” would amount to if labor got all the profits of industry.
This figure can be determined with considerable accuracy. The average annual profit of all manufacturing corporations in the United States for the eighteen-vear period, 1917 to 1934, (Department of Commerce figure) was $1.906,000.000. The average number of employees was not far from ten million (it is now eleven million), so that, evenly divided, each employee would get $190 a year.
This figure is, however, gross and not net. When the owners of industry are deprived of all profit, they are deprived automatically of the responsibilities that go with it. The first of these is the payment of all taxes which fall on them after they receive their profits. These taxes will hardly be less than $66 per year. Next, the employees must provide capital for research expansion and improvements in industry, which will take another $66, judging by past experience. There remains to the employee $66, of which at least $12 will go for union dues, leaving $54, from which will be deducted a further indeterminate amount, since all industrial stocks will be valueless, and since employees themselves (and through the banks in which they deposit their money and the insurance companies in which they insure their lives and property) own very large amounts of them. The final accounting would show employees benefitting by about fifty cents per week, provided there was no loss of efficiency in the manufacturing process as a whole.
Complete unionization of American industry may have many surprising results, but an enhanced living standard for workmen is unlikely to be one of them. To imagine that a sum less than two billion dollars can be divided among the population of the United States in any way whatsoever to affect materially the standard of living reflects little credit on the intelligence of the people who spend so much time devising ways of doing it. To base the whole program of social reform on the division of profits, is as absurd as would have been an attempt to build the pyramids of Egypt upside down.
If Everyone Were Unionized
1ESS THAN a 10 per cent rise for all J industrial employees would have so raised the costs of manufacturing during the past eighteen years that not only the profits but the reserves of industry would have been used up.
This may seem at first glance to be disproved by the constant spectacle of successful strikes, sometimes at intervals of a few months in the same plant, each strike resulting in a wage increase of 10 per cent or more. Let us, however, see what actually
happens, taking the country as a whole. There are in the United States some live million members of unions, six million at most. There are about fifty million gainfully employed. When, due to wage increases to union labor, the price of unionmade goods is raised, say by fifty million dollars, it is roughly true that each person gainfully employed, union or non-union, contributes one dollar. But the unionized workers get all the increase, so that they have a nine-dollar profit on the transaction, against the non-union workers’ loss of a dollar. If twenty-five million people are unionized, the union members’ profit is cut to one dollar; and if all fifty million could be unionized, it disappears altogether.
The ability of union labor to benefit from the forcing-up of prices on union-made goods, depends absolutely on restricting the membership of unions to a relatively small group. The present campaign to unionize everyone on a payroll is selfdestructive, and must of necessity prove a bitter disappointment to multitudes of its enthusiastic supporters. Despite all the present enthusiasm over the right to organize into unions, what workmen want is not more organization but more money, and the rising scale of prices is eating up the wage raises, sometimes won at the cost of months of idleness.
When a union is able to force an increase in wages without any increase in production, that increase comes out of somebody’s pocket. If the rise in wages is balanced by a rise in prices, pretty nearly everybody is affected directly or indirectly; but if no rise in prices takes place, the wage increase is borne by the “capitalists.”
More Stockholders Than Employees
"DECAUSE nearly all our wage discussions are carried on in a jargon borrowed from Europe and largely invented by Karl Marx, there is a general impression that business is owned by a few very rich men and that the “exploited” are many and very, very poor. It might not be amiss to apply a little arithmetic to the capitalistic class in America and see what these “capitalists” look like.
Taking General Motors as reasonably typical, we find:
142.000 shareholders own less than 10 shares.
137.000 shareholders own between 11 and 50 shares.
These shareholders, the greatest of whom own $3,000 in shares and the least $60 (well over half of whom own less than $600), outnumber the employees of the corporation by some 72,000. There remain:
34.000 shareholders who hold between 50 and 100 shares.
27.000 shareholders who hold more than
Only 8 per cent of the stockholders own as much as $6,000 worth of stock, and for every employee there is a stockholder who owns not more than $1,000. Some stockholders are rich, and so are some employees. Whether the average stockholder is richer than the average employee, is at least debatable. In any case, it is quite obvious that to give General Motors profits to the employees will hurt more working people than it will help.
General Motors is not unusual in this respect. Nearly all great corporations have more stockholders than employees. American industry as a whole has 50 per cent more. Canadian Ford has about three times as many. Even the great banks are owned in quite small amounts on the average; and the people to whom they owe money (the depositors) are both more numerous and poorer on the average than those who owe the banks money.
Whatever else may be the result of casting down the capitalist from his seat, it cannot be “a general rise in the American standard of living,” as the popular phrase
goes. There are too many American capitalists, and almost all of them are employees. The great numbers of people having insurance policies, real estate and industrial stocks, leave no possible doubt that almost all employees who have the instinct to save have an investment of some kind.
Any condition which will destroy the investments of the rich, will destroy with equal efficiency the investments of the poor. In the end, the gains which some would win by this process would be balanced to a large extent by losses inflicted on other people of exactly the same class and of no greater wealth.
Higher Wages—Greater Output
' I "HERE ARE different ways by which
we may proceed toward the more abundant life. Without going into any questions of right or wrong, I propose to explore to some extent the possibilities of several, beginning with the strong-arm method of division at present very much in the public eye.
Let us examine the slogan many C. I. O. orators are using in Michigan—“Three thousand a year for everybody.” Presumably by “everybody” is meant only union members. If it includes the 80 per cent of the gainfully employed who are under the necessity of earning a living but still outside labor unions, even after ten million people are carrying union cards, a total annual production about double that of America’s best year, 1929, will be required to provide $3,000 a year apiece.
There has been no suggestion from any source that the union drive, no matter how far it goes, will double the output of goods and services. On the other hand, there are sound reasons for assuming that it will have the opposite effect, since most unions are pledged to shorter hours. National production must fall when millions of individuals each produce less, unless the loss is compensated by other millions each producing more.
If, however, ten million unionists are to have $3,000 a year and the rest what they can get, it will require thirty billion dollars to provide for the unionists. On the basis of 1929, that leaves less than forty-nine billion for the other forty million gainfully employed, or less than $1,300 each. Even this small income would not be possible in practice, as the production of 1929 could not be maintained under such circumstances. To arrive at the desired result, by this method, the ten million unionists must reduce the forty million non-unionists to peonage. This is a difficult task, but not an impossible one with a good army, like the 4,000,000 soldiers in Russia.
rT"'HE SECOND method is to drive the
industrial machine faster. This is possible to some extent, but it is directly contrary to orthodox union doctrine, which is to reduce production per man wherever possible in order to employ more men an obvious fallacy. The automobile workers of Michigan triumphantly publish the percentages of slowing-down which they have effected in the various plants. It is a sort of contest, and the art is taught in classes. Comparing 1936 with 1929, we find that some fifty thousand men, totally unnecessary by 1929 standards, have been added to the automobile industry. Hourly rates have been sharply increased, but average weekly earnings are decreased by two dollars. As the price of cars has been forced up, and as half of all the cars in service belong to people w'ith incomes of $1,500 or less, and only one car in ten is owned by a man having an income of $3,000 or more, it is hard to see whose living standards have been raised.
However, assuming that the policy is changed, and again basing the calculation on 1929 production, the same objective can be obtained by the ten million unionists producing about twelve billion dollars worth of goods more than they produced in
1929. This also is difficult but not necessarily impossible, as production methods are always improving and would improve much faster if labor came to see that its interest lay in increasing production and not in decreasing it. Every worth-while advance in living standards since Eden has followed some improvement in the way of doing something.
There are great but unknown possibilities in this method. If we could have unions led by responsible and informed men looking for their rewards to industry and not to politics, and composed of loyal and disciplined members, we would have a sound economic asset and a great business convenience. Such a condition actually exists in Holland. The Dutch have a vast respect for guilders and a great lack of respect for theories. That is why you hear such thunders of silence on industrial matters from that country. Notwithstanding that, they are highly organized and practice collective bargaining very effectively.
When a contractor bids on a large undertaking in that country, he calls in the labor chiefs and discusses all prices with them, including labor rates. When the discussion is finished, the price of labor for that particular work is fixed and will not be changed. It is a remarkable fact that the price is very frequently fixed above the rates first proposed by the labor leaders, who recognize that with no work there will be no wages. The contractor is sure of the good faith and responsibility of the labor leaders, and can put in his bid without padding it for contingencies or ringing it around with strike clauses.
Largely by reason of this highly intelligent way of going at the matter, Dutch contractors and their workmen are doing an amount of the world’s heavy contracting out of all proportion to their numbers or capital.
Labor, in order to help itself most efficiently, must be responsible, must have competent and practical men in its employ (not political or semi-political bosses) ; then it will be in a position to take its place as a full partner in business undertaking. To be a friend one must be friendly; to be a partner one must aid in the common effort. Here is no place for demagoguery, for attacks, for sabotage, for malingering, for weakness or folly or violence; here is ample place for intelligent and cordial co-operation.
This sounds like strange doctrine to ears accustomed to the tone of our disputes, but the Dutch have found money in it, whereas many of our so-called labor gains are a net loss to labor. The West Coast ship strike, which closed a whole coast of the United States more effectively than a blockade could have done, is said to have cost the people of the U. S. A.—not the shipowners--$600,000,000, of which possibly $450,000,000 would fall on working people of some kind. The increases won by the ship crews will not make up that loss in ten generations. What then did labor win?
Incidents of this kind must sooner or later bring out the fact that what is called a capital-and-labor contest is really a contest between some one union and the general public, with capital having little, if any, interest in the matter. The recent threat to shut off milk from Detroit and the attempt to shut off meat from Buffalo, are incidents well calculated to make this point clear. Once clearly understood, the public, with a majority of twenty to one against the unions, is likely to deal with the matter effectively.
Laws Do Not Produce Wealth
AS A PEOPLE we have a childlike 4*“ faith in legislation and of recent years have been willing that anyone should undertake the remaking of our financial system, even though he had never had any success in any line of human endeavor. If he claimed to know the needs of the poor it was enough. We would take his claims as demonstrated fact against all advice of training and experience.
The result of this state of the public
mind has been a flood of wage raising legislation. Many criticisms can be made of such legislation. I make one only—IT DOES NOT RAISE WAGES.
The most pretentious measure was the N.R.A. Dr. Leo Wolman, Chairman of the Labor Advisory Board of N.R.A., a sympathetic witness, has completed a most careful study of the results of that shortlived experiment. He divided wage earners into thirteen groups and found that in two only, soft coal and iron miners, had living standards gone up, and in all the other eleven groups they had gone down. Money wages rose, but buying power fell. These findings are published in detail by the National Bureau of Economic Research, New York.
The second great attempt was in France, where the Popular Front gained power by the promise of a 15 per cent increase to everyone and promptly devalued the franc to make it possible. The French dispatches contain evidence almost daily that the French workmen are worse off than before. Furthermore, fighting over the division of what did not exist has split France into two irreconcilable camps ready for the Class War. Herr Hitler has good reason to bless the “Front Populaire.”
Laws do not produce wealth. Only a combination of natural resources, intelligence, and labor produces any wealth, beyond some very limited food supplies which grow wild. Living standards are set by production; they cannot be set by law. I f a proposed bill can set a minimum wage of 75 cents an hour for everybody regardless of what he produces, it is foolish to stop there. The wage can quite as well be set at $7.50 per hour.
While laws cannot produce wealth, they can distribute it; and if there were enough wealth this would do as well. But there is not. And much harm is done by constant and irresponsible talking and writing about the age of abundance when there is no abundance.
If a dietitian were asked to specify the amount and variety of food the average family should have for full health and vigor, and if the result were multiplied by the number of families, the result would represent an amount of food which no nation ever had. Furthermore, no nation ever produced a suit of clothes per man per year. In 1929 the U. S. A. produced twenty-nine suits for every fifty-nine men; in 1934, one overcoat for every eleven men, and one pair of pants for every three men. No nation has ever had one small, livable room per person. We have not solved the problem of production, as is so often claimed. Laws will not correct the matter. It can only be done by changing the ideas, the habits, occupations, methods of life, and place of residence of millions of people. To bring the three primary essentials of food, clothing and shelter up to where they should be. would change the entire face of the country. The problem goes much deeper than any change in the financial system. If we could have a really effective and widespread religious revival, the problem might be solved.
WE NOT ONLY do not produce enough, but we waste a tremendous part of what we do produce. Books have been written on this subject, and it is the constant problem of business. I propose to speak of one waste only, that of crime, and I do so to show how large it is compared with the profits of industry.
No study of this cost, and there have been several since 1920, has put it at less than twelve billion dollars per annum for the U. S. A.—more than six times the profit of all manufacturing industry put together. It has been some surprise to me that so many clergymen and reformers regard the profits of industry as such a burden on the poor, and overlook this much greater burden entirely. Crime cannot be eliminated, but it can be greatly reduced, and it will be when there is a strong public demand that it shall be reduced and an unswerving public support
for the people who have to deal with it. Crime levies a substantial charge on every pay cheque.
If organized labor could come to see this, its influence could be very helpful. A 50 per cent decrease in crime would do for the workingman many times what the profits of industry could possibly do, even if he could get them all without suffering any losses in the process. Mr. Babson, as well as other economists and statisticians who have given much study to the question, believes that it is quite jxtssible to procure a 100 per cent increase in the standard of living by the elimination of waste.
In common with most engineers, I believe the abolition of poverty, at least for people of normal intelligence and industry, to be cjuite possible under any system, and much more probable under conditions of
democratic freedom and capitalism than under any other. The only state in which living standards cannot be raised is that state in which everything is done as well as it can be done. Merely stating the problem in that form shows the possibilities to be very great, but they are possibilities only capable of realization by the harmonious and intelligent co-operation of great numbers of people. No trick of legislation, no magic applied to the money system, is g<xxl enough.
A good first step would be to get our discussions out of the language and atmosphere of revolution and into the everyday language of intelligent discussion, based on facts as they are, and not on theories, however pleasing to fancy. To this end. labor, business and government can well afford to co-operate.