to lengthen the shorter blade, it would not take much of a theoretician to decide which workman it would be better to hire. The workman who would lengthen the shorter blade would add somewhat more to the cutting-power of the scissors than the workman who would lengthen the longer blade. If blacksmiths all had anvils enough but were short of hammers, or had hammers enough but were short of anvils, they would know perfectly well which to buy. In the one case the seller of hammers, in the other the seller of anvils, would get their money.

Most economic problems, as pointed out many times already in this volumé, relate to the problems of more or less, of improvement or deterioration, of readjustment of existing equipment, organization, etc. If the blacksmith were ever called upon to decide whether to get along with an anvil without any hammer, or with hammers without any anvil, there might be some point to the comparison. The question which he has to decide is how to balance his equipment so as to have hammers and anvils well adapted to one another. If he were to find that he could improve his work slightly by having another hammer, but that he could gain nothing by buying another anvil, there is not much doubt that he would be more likely to spend money on hammers than on anvils. He would not spend much time puzzling over the abstract question as to whether hammers or anvils are the more productive. Similarly, if a farmer found that he could increase his crop more by having extra help than by having more land, he would be more likely to offer wages to someone than to offer rent to someone else. If farmers generally felt that way about it, wages would be high and rent low. Under the opposite conditions rent would be high and wages low.

Diminishing returns from land. Under the law of variable proportions, or that special phase of it known as the law of diminishing returns from land, it is actually found that in a community where there is an abundance of good land but a scarcity of labor to work it, one or more laborers added to

the existing number make a considerable difference in the crop. That is a sufficient reason for paying high wages to labor. Additional laborers are very much needed; the agricultural situation would be very much improved by having more laborers and very much injured if any were lost. The question of more laborers or of fewer laborers is one of considerable importance.

On the other hand, where land is so abundant and laborers are so few that it is difficult to cultivate the existing land, it would not be of much advantage to production to have a few more acres nor much of a disadvantage to have a few less. The question of more or less is not, in this case, very important. This is the question which presents itself to the practical farmer. The question as to which is absolutely more important, land or labor, is one which occurs only to armchair philosophers. This would be in all respects like the question as to which does more of the cutting, the upper or the lower blade of the scissors.

Shares generally divided into wages, rent, interest, and profit. It simplifies the problem somewhat to classify those who take part in the contemporaneous division of labor according to the functions which they are supposed to perform. It is customary to divide them into four main classes. The first class is made up of the laborers, who work either with their hands or with their heads and receive their share in the form of wages or salaries (for the sake of simplicity, salaries are in this chapter included under wages); the second class is made up of the landowners, who furnish the land and receive rent; the third class is made up of the capitalists, who supply the capital and receive a reward in the form of interest; and the fourth class is made up of the independent business men, who undertake to assemble all the other factors,-who take the chief risks of the enterprise and receive whatever is left over after all the others are paid, calling it profits.

Several functions sometimes performed by the same man. Any or all of these functions may be performed by, and any or

all of these shares may go to, the same man. In many small enterprises the independent business man does his own work and is therefore a laborer, owns his own land and is therefore his own landlord, and furnishes his own capital and is therefore his own capitalist. A very large proportion of the total business of the nation is done in this way. The typical farm in the northern half of the country comes under this description, as do also many small shops and stores in country towns and a few even in the larger cities. But even the farmer, as well as any other business man who does a part of his own work, may hire additional help and pay wages, though getting wages for himself. He may also rent additional land, though owning some land of his own and getting rent for it. He may borrow additional capital, though owning some capital of his own and getting interest on it. In fact, we can find every possible variation, from the enterprise where every function is performed by the same man to that where no one performs more than a single function. An example of the latter would be the enterprise where laborers do all the work and receive nothing but wages or salaries; where someone else is the landowner, furnishing nothing but land and receiving nothing but rent; where another man or group of men furnishes nothing but capital and receives nothing but interest; and where still another man or group of men assumes the risks of the enterprise, invests the borrowed capital on the rented land, hires the labor, buys the raw materials, and undertakes to find sale for the finished products. Labor, land, capital, and business management are commonly called the factors of production. There are, as a matter of fact, many kinds of labor, each kind performing a special function, and also many kinds of land, capital, and management; but it would be very inconvenient to carry on a discussion if we attempted to name each and every kind. Therefore it is customary to speak of only four factors of production.

How important is any factor of production? We may say in general that when one factor of production is oversupplied in proportion to the others which need to be combined with it,

the question of getting more of it or even of maintaining the existing supply becomes unimportant. Accordingly not much will be paid in order to get more of it or even to hold the existing supply. But when any factor is undersupplied in proportion to the others which have to be combined with it, the question of getting more of it or of holding the existing supply becomes very important. Accordingly, a high price will be offered for it.

This principle applies not simply to labor, land, capital, and management but to the different kinds of each. If there is a scarcity of skilled labor in proportion to the unskilled labor which has to be combined with it, it becomes very important to get more skilled labor or at least to keep the existing supply. In that case a high wage will be offered for skilled labor. Under the same conditions there is, of course, a large supply of unskilled labor in proportion to the skilled. It is therefore not very important that there should be more unskilled labor. nor even that the existing supply should be kept from diminishing. Additional unskilled laborers, under these conditions, add very little to the physical product, and the loss of a few would subtract very little. Not much is likely to be paid, under such conditions, for unskilled labor unless by philanthropic persons. The next question is, What determines the relative supply of the various factors of production? The relative shares of the total which will go to each factor will depend mainly on how they are balanced in the productive process. The factor which is scarce relatively to the opportunities for its advantageous use in combination with the others will command a large share; the factor which is abundant relatively to the opportunities for its advantageous use in combination with the others will command a small share.

CHAPTER XXXV

WHAT DETERMINES THE RATE OF WAGES?

Causes of differences of wages in different occupations. Let us consider, first, the causes of the difference of wages in different occupations. If in order to get efficient production it is found necessary to have a high degree of specialization, many different kinds of skill will be found in the same establishment, each kind contributing its share toward the production of the same product. Men possessing these different kinds of skill will be needed in slightly variable but fairly definite proportions. In the production of cloth, for example, spinners and weavers will be needed in fairly definite proportions. If by any accident it could happen that for a period of time there were more spinners than were necessary to supply yarn for the weavers, the value of each spinner would be considerably reduced. Under these conditions, if they could exist, it would be literally true that a few less spinners would be little loss, provided the remaining spinners could still supply all the yarn the weavers could use. On the other hand, the labor of each weaver would be of considerable value.

Since there would not be weavers enough to use all the yarn that could be produced, one less weaver would reduce the total production of cloth, and one more weaver would add to the total production, assuming that machinery and room were available. Under these conditions there would grow up in any free community a difference in wages in favor of the weavers and against the spinners. This would be called the law of supply and demand. This law, however, rests upon certain fundamental advantages and disadvantages, sometimes of a physical nature and generally independent of the social system or the