This may be called the functional theory of wages. It forms a part of the functional theory of value which was outlined in a previous chapter. The function of a high price in the economy of the nation is to call into existence a larger supply of the thing for which it is offered; the function of a low price is to discourage the production and reduce the supply of the thing for which it is offered. If a larger supply is desired or needed, a high price may be offered as a means of getting it; in fact, in a free country it is almost the only way. In an unfree country it could be commandeered or conscripted. If a larger supply is not desired or needed, a low price is the means of checking, limiting, or reducing the supply. Find out, in any given case, how much better off a community would be (or thinks it would be) if it had more of a given thing than it now has, and you have a fair measure of the reward which it could afford (or thinks it could afford) to pay in order to get more. Stated negatively, find out how much worse off the community would be (or thinks it would be) if it were to lose a unit or a few units of its existing supply of a given thing, and you have a measure of what it could afford (or thinks it could afford) to pay rather than to incur that loss. If it thinks it would make a great difference one way or the other, a high price will be offered; if it thinks it would make very little difference, a low price will be offered. This applies to the price of labor as well as to the price of commodities, and for the same reason.

In the case of labor, as in that of commodities, the community may be sadly mistaken. It may fail to appreciate real merit, and it may greatly overrate certain qualities in either case. There is no going behind the returns in a verdict of this kind any more than in a popular election. Again, there may be members of the community who desire intensely to possess a certain commodity or to hire a certain kind of labor, but who have not the wherewithal to purchase or hire it. They will therefore have little influence on the price or the wages. This impecunious condition may be due to the fact that others have no great desire for the labor or the products of the persons

in question. In that case the community does not value their services very highly, and therefore their desires have little influence on the market for other things or other services.

Productive labor is wanted because of its product. Our next task is to find out what determines how much the labor of any particular man or group of men is wanted. In the simplest possible case-that of a laborer who, without any help from anybody else, produces a complete article-his labor is needed just as much as and no more than the article itself is needed. The price of the article, then, is his reward. If he is not satisfied with his income he must find fault with the price which the consumer pays for the product (for he gets the whole price) and not with the share of the product which goes to him. This, however, is a case so simple as to be very exceptional. Very few finished products are produced by the labor of a single person. One who goes out into the woods and gathers nuts or berries, carries them in vessels which he has himself improvised, and sells them directly to consumers may come under this class. The woodsman who goes into the primeval forest and chops wood will at least have an ax; this ax is likely to have been made by somebody else. He will probably also need a team, which may have been grown or produced by somebody else. While it is not strictly true that in a case of this kind the finished product, firewood, is produced by the labor of one man, still the problem in distribution is fairly simple. If the woodman has paid a fair price for his ax, the question of distribution as between him and the ax-maker is settled and `does not need to bother us any more. If he has likewise paid a fair price for his team and wagon, the problem of distribution as between himself and the horse-breeder and wagon-maker is also settled and need not bother us again. Since he has paid for his tools, the total value of the wood which he cuts and hauls to town is his reward, and there is no further problem in distribution. But the farther we proceed with our study, the more complicated the problem will become, for we shall

find that in the great majority of cases the product is the joint product of a large number of people.

Goods generally produced by the joint labor of a number of persons. We are sometimes told that most goods are socially produced. This is a rather impressionistic statement; it may do no harm, but it is liable to misinterpretation. It would be better to say that most goods are produced by the joint efforts of several persons. The total reward which can go to all of them cannot in the long run exceed the total value of the finished product in the complex cases any more than in the simple cases of the berry-picker and the woodchopper. This must be divided among all those who have participated in its production. The price of the loaf of bread must reward all those who have had any part in its production, including the baker, the miller, the various transportation agencies, and the farmer, as well as the manufacturers of the farmer's, the baker's, and the miller's tools, and so on back to the lumbermen and the miners who extracted the raw material out of which the tools were made.

The successive division of labor and the problem of distribution. We find here that we are in contact with what, in a previous chapter, has been called the division of labor. This, as already pointed out, is of two kinds: contemporaneous and successive. We have the successive division as between the farmer and the miller, and as between the miller and the baker, since, one after the other, they work upon the same material. We have an example of the contemporaneous division of labor as between the baker and his assistants, the mill-owner and his employees of various kinds, the farmer and his hired men, the railroad company and its employees, and so on. The problem of distributing the price of the finished product among those who work upon the raw material in regular succession is simply a problem in the price of commodities. Thus the reward of the farming group comes to them in the form of the price of wheat. This price must then be distributed among the contempora

neous workers on the farm; that is, the farmer himself and his hired men. The difference between the price of wheat and that of flour and its by-products must furnish the total reward for the milling group and must be divided among them, and the difference between the price of flour and that of the bread must furnish the total reward to be divided among the baking group.

All this is fairly simple and leads to no serious social problem. Of course the farmer would like to get a higher price for his wheat and the miller would like to get it at a lower price, and each one may from time to time accuse the other of trying to manipulate the price; but this phase of the problem of distribution is a question of the market price of an impersonal commodity, and society in general has not taken up the quarrel. Similarly, the miller would like to get a higher price for his flour, and the baker would like to get it at a lower price. This conflict of interests, however, is also a question of a commodity price, and it does not now create what is known as a social problem. The commodity market is supposed to take care of it, and social reformers in general have not exercised themselves to any great extent on the subject. Occasionally, of course, someone is accused of cornering wheat or manipulating the price of flour. Similarly, the baker would like not only to get his flour cheaper but also to sell his bread at a higher price. This, again, is taken care of by the commodity market.

When bakers are accused of manipulating prices, as is not infrequently charged by dissatisfied consumers, no great social problem is supposed to be created. There have been historic occasions, of course, when mobs of irate consumers have hanged bakers to their own lamp-posts because the price of bread was higher than the consumers liked to pay. They have not always stopped to consider how much the baker had to pay for his flour, or the miller for his wheat, or how hard a time the farmer had had in growing his wheat, owing to bad weather and pests of various kinds. All that the irate consumers realized was that the price of bread was higher than they were accustomed to paying, and the unfortunate baker

was the only one within their reach upon whom they could wreak their vengeance.

The division of the product among contemporaneous workers the difficult problem. The great social problem of today, so far as it relates to the distribution of wealth, is the problem of distributing the price of the product among the contemporaneous workers. Of the total price of wheat, how much should go to the landowner (if he is a different man from the farmer), how much to the farmer, how much to the laborer, how much to the capitalist (if he is a different man from the farmer)? Or, again, of the total spread between the price of wheat and the price of flour, which furnishes the total reward to the milling group, how much should go to the capitalist, how much to the owner of the mill site, how much to the manager, and how much to the various types of laborers? And so on through the transportation groups and the baking groups, the difficult problem is always that of the distribution of the total earnings of the group among the contemporaneous workers within it.

What is meant by relative productivity? Not much headway can ever be made in the study of this problem unless we hold carefully in mind the law of variable proportions as explained in the last chapter. When it is suggested, for example, that each factor of production should be paid for in proportion to its contribution to the product, any student who does not understand the law of variable proportions is likely to say that there is no way of finding out what each factor contributes. He will say, for example, that it is like trying to find out how much of the welding is done by the anvil and how much by the hammer, or how much of the cutting by the upper and how much by the lower blade of the scissors. To use this comparison is to show that one does not understand the problem. If one blade of the scissors were a little longer than the other, it would not require any so-called metaphysical or theoretical reasoning to see that the scissors might be improved by lengthening the shorter blade. If two workmen were to offer their services, one to lengthen the longer blade and one