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different amounts of products. In countries where the population is not congested and where the soil is rich, the marginal product of labor tends to be high. In countries of congested population, and mediocre land, the marginal product of the laborers on the soil tends to be low.

Some authorities have maintained that each factor in production yields a separate and specific product. It should be apparent however that the product of labor is not wholly separate from the products of other factors, but decidedly dependent upon those factors. The marginal product of labor will be no higher than the capital and land factors in production will permit. The product of labor is the resultant of labor and the other factors in production. And since the amount and character of the land and capital elements may sharply raise or lower the product resulting from the effort of labor, the product is not separate and specific to labor, but is general and relative to the coöperating factors in production.

The rôles of the other factors may be viewed in marginal terms. The last units of capital employed are marginal units and likewise the last units of land employed. The marginal product of capital or of land is the product of the last units used. If the marginal products of these factors are high, the marginal product of labor will tend to be high. The best land and the best capital being used, the best results of labor may be expected. The marginal products of land and of capital condition the marginal product of labor, which in turn shapes the wage rates for all laborers of a given kind. The relationships between the factors in production are coöperative, not independent and separate. The marginal productivity of the labor factor is vitally dependent upon the marginal productivity of all other factors in production.

The Value of Labor Derived from the Value of its Products. The ultimate forces governing labor value must be looked for in the value of the commodities produced by labor. Why can the manufacturer pay good wages ? Because consumers attach high marginal utility to the goods manufactured. Why can retail stores pay given rates of wages ? Because consumers stand ready to buy given quantities of goods at given prices. The value of labor arises from the value of the products of labor.

This version of derived labor value may be compared with the doctrine that the value of capital or of land is derived from the value of the products turned out by capital and land. Capital goods are high in price when producers expect to be able to sell large quantities of finished products to consumers at high prices. Iron and steel prices depend upon automobile prices. Cotton prices depend upon cloth prices. Lumber prices depend upon furniture prices. The prices of consumer's goods are the origin, source, and fountain of value, and all agents in production derive the value of their marginal units from the value of the finished things produced.

In marginal terminology, we may say that the marginal productivity of labor depends upon the marginal utility of the products of labor. The wage received by the least effective worker depends upon the price that can be obtained for his product from the least willing buyer. The wage which the least effective employer can afford to pay depends upon the price which he expects to realize on the products from the least willing consumers. The marginal wage depends upon the marginal utility of the things made by the wage laborer. The marginal productivity of labor is derived from the marginal utility of the results of labor.

With these factors in mind, it is readily seen that the word, "productivity,” is used in a very special sense. Unless this special sense is clearly perceived, the student will see nothing more to the marginal productivity theory of wages than the circular law that a man gets what he earns and earns what he gets. When we state that the laborer receives a wage which is governed by his marginal productivity, we mean his productivity of exchange-value. Productivity must be taken in the pecuniary sense, as a price term.

Let us assume an illustration. The marginal product of an energetic, intelligent, hard working laborer in a field where labor is scarce, where capital is inferior, where land location is poor will be assumed to be one pair of shoes in one day of labor. In another community, the marginal product of a lazy, ignorant, easy-going laborer in a field where labor is plenty, where capital is the best, where land location is ideal will be assumed to be one pair of shoes in one day of labor. Now, in a physical sense, the product is identical. The fine laborer and the despicable laborer produced the same physical product. All this is purely physical. But turn to the exchange-value aspect of the case. In the former community, where labor scarcity limits the quantity of shoes, and where marginal utility of shoes is high, the pair of shoes will be sold for $10.00. But in the latter community, where labor plenty expands the quantity of shoes and where marginal utility of shoes is low, the pair of shoes will be sold for $5.00.

What is the marginal product of the laborer? In the physical sense of terms, it is one pair of shoes in each case. But in the money economy, pecuniary terms prevail. There the marginal product of labor depends

the money price of things, the exchange value of the product. We may assume that the former worker earns a wage of $8.00 a day, whereas the latter worker earns a wage of only $4.00 a day. Then, the marginal productivity of the first man's labor is $8.00 and the marginal productivity of the last man's labor is only $4.00. In physical terms, the result of the labor is identical, but in pecuniary terms, the result in one case is double that in the other.

Let us assume another case. Two laborers of equal brain and brawn work in two different branches of enterprise. They toil equally hard. They work equally long. Will it follow that they receive equal pay? Not at all. Productivity is not the same as effort. It is not the same as honest endeavor. It is not the same as hard work. Productivity is the making of exchange values. No matter if two laborers work equally hard in their respective fields, if the product of one laborer will sell in the commodity markets for twice what the product of the other will bring, the productivity of the first laborer is double that of the second. Productivity refers only incidentally to goods; it refers primarily to price gains expected from the sale of the goods. The increment of price resulting from labor is the sole economic measure of the productivity of labor.

The theory of productivity must be revamped to suit the vocabulary of the money economy. People generally attach some element of service to productivity. The term implies for them definite ethical or moral values. They think of some spiritual desert. They are talking of some abstract form of justice. But all that is irrelevant in our economic analysis. The gain falls from heaven alike upon the just and upon the unjust. Fortune smiles equally upon those marginal producers who are turning out pink pills, spurious patent medicines, or the bread of life. Desert is rewarded not in proportion to the ethical worth of the worker nor to the sweat of his brow, but to the exchange-value of the lifeless matter which he turns out. Productivity is pecuniary. The marginal producer makes dollars, and only incidentally goods. Productivity of money gain is the thing itself. In the money economy this is the acid test of productivity,—there is no other,—the popular conceptions of service and reward therefor to the contrary notwithstanding.

But all this must not be allowed to take on the cast of sordidness. From a social standpoint we may check up on money productivity. We may inquire to what extent pecuniary productivity results in social productivity. At times and places the two coincide. At times and places pecuniary productivity yields a modicum of social gain and a mountain of private gain. At times and places, pecuniary productivity yields social exploitation and misery, and private riches unbounded.

Although we may apply the social check as drastically as we please, the fact remains that productivity in the business world is a purely pecuniary concept. Productivity depends not upon the human worth of the goods for health and happiness and character, but upon the saleability of the goods as determined by the drives of advertisers and salesmen to break down consumer resistance. Productivity depends not upon tons, bushels, and yards turned out but upon dollars taken in. Productivity depends not upon mere effort and earnestness and all the virtues of the calendar, but also upon the scarcity of labor, the scarcity of the goods produced, the intensity of the demand. Productivity is great where scarcity is great and slight when scarcity is wanting. Effort, ability, endeavor, may remain the same on the part of labor, but scarcity will do more to give the laborer a big share of the product than all the fine virtues in the world. Productivity of exchange-value is the concept to which we must return, from whatever angle we approach the problem.

Conclusion. The share of labor, like the share of other agents of production, is determined by the marginal product of the agent, product being used not in the physical but in the pecuniary sense.


BYE, R. T., Principles of Economics, Chapter XX.
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CLARK, J. B., The Distribution of Wealth.

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Proportional Importance of Labor and Other Factors.-The factors in production may be combined in any number of different proportions. But in each plant and each industry, some one proportion will be found to give the largest profit. This proportion is the one which business men will tend to adopt. The proportionality of factors of production requires that land, labor, capital, and management be in the most advantageous relations with each other. In one industry, the main cost of production will be wages. In another, it will be land. In another it will be capital. This variety of proportions is found in wide range as one moves from trade to trade over the nation's economic life. The variations may be illustrated by a graphic account of the practice in a selected list of industries. The diagrams on page 364 show the percentages of total value of manufactured products represented by wages as contrasted with other factors. Cost of materials includes labor and capital costs in the earlier stages of production, such as mining, where materials are being prepared for the manufacturing stage. After wages and cost of materials have been met, the balance of the total value of products represents interest, dividends; rents, taxes, selling expenses, etc.

The first diagram, dealing with all manufacture, shows that wages come below materials as a major item of cost, but are nearly equal to the balance of all other agents in production. Moreover, the relative wage cost in all manufacture has remained fairly constant from 1899 to 1923. Over a period of twenty-four years, wages absorbed less than 20 per cent of the cost of the manufactured products.

The average distribution does not, however, hold for the individual industries. In furniture, glass and steel, wages are a more important fraction of total product. But in slaughtering and meat packing, the labor share is very small, amounting to less than 10 per cent of the total value of products.

Not only are the differences between industries obvious, but also the differences in the same individual industry from year to year. In steel and meat packing, the labor share increased during the period, but in cement, glass, and motor vehicles, it decreased. In the latter industries, the introduction of machinery led to a reduction in the importance of the labor factor. The importance of machine capital was enhanced and the importance of labor power diminished. The diagrams are sufficient to emphasize variability in the proportioning of the factors in production. The marginal productivity of labor is reached in some industries

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