price level is not pushed upward as a result of rising costs, but as a result of changes in the quantity of money in circulation, and in general business psychology. The principle can be illustrated most readily from its more extreme expressions. Prices in Germany went to extreme heights because too many paper marks were printed and put into circulation. Rising labor costs were a consequence, not a cause of rising prices.

One fact which would throw doubt on the business man's loose assumption is the fact that wages lag behind prices. If wage increases do not occur until after prices have increased, it is unlikely that they could cause the increase.

Furthermore, our analysis of marginal utility would lead us to suspect the validity of the doctrine. If price is raised beyond what the marginal buyer will pay, the goods will not be taken off the market. Employers cannot arbitrarily add to their prices without suffering a falling off in volume of sales. This squeezing out of marginal buyers is a drastic check upon price boosting. But if the government and the banks are issuing more money units all the time, consumers will be able to buy the goods at the higher prices. And sellers, knowing that fact, will tend to jack the prices up, whether wages are raised or not. Unless more money is being put into circulation producers cannot keep up their sales when they try to add wage increases into prices.

The price level is not determined by the cost of labor, but by the quantity of money and other causes.

How Can Wages Be Increased?-A theory of wages must explain not only why wages have come to be what they are, but also how they can be made better. If we take marginal productivity as the principle of wages, we must search for methods by which the marginal productivity of labor can be increased. Wages as we find them to-day are far from ideal. At best, they supply the masses with a cramped and narrow existence. Every social thinker, every liberal, every publicspirited leader, must face the urgent necessity for enlarging labor income. The higher and the lower wants alike depend upon the pay envelope. The cultural and the spiritual satisfactions of modern life are in large measure dependent upon spending power. Amusement, recreation, education, appreciation of all the finer things in life, alike must be paid for. The demand for more wages is no sordid, materialistic aspiration. It is no crass, mercenary obsession with the physical indulgences of life. It is a human cry for more abundant life. It is a burning desire for the good things which distinguish civilized from primitive life.

But the effort to control wages for the progressive benefit of labor meets many doctrinal objections. The history of economic thinking is replete with theories calculated to prove that wages are a set and arbitrary sum, incapable of deliberate control. The subsistence theory taught that wages would always be at the bare level of existence. The wages-fund theory taught that only a fixed fund was available for

distribution, and no effort on the part of the worker could augment the fund. The supply and demand theory taught that the supply of and demand for the lifeless commodity, labor, would override all sentimental palaver about the human factor. The marginal productivity theory taught that each laborer would tend to get exactly what the marginal laborer produced, and this doctrine was interpreted to mean, in popular application, that the product was a fixed amount, beyond which wage increases were preposterous. Immutable wage funds, iron laws, natural levels, determining factors, fixed sums, specific products, normal rates,-these are but a few of the phrases which have been used in setting forth the fatalistic doctrine that the wage is what it is, and nothing can make it more or less.

In spite of all such warnings and forebodings, labor nevertheless possesses the determination to exercise some form of control over the wage income. And this determination rests upon a view of wage forces which has much to be said in its defense. The wage income is declared to be the result of institutional forces. These forces include all the social customs, the established ways of doing things, the business habits, the property and contractual institutions of modern society. All of these are man-made institutional fixtures. They are not immutable and inevitable. Customs and institutions can be remade. Economic habits and routines can be reshaped. The wage income is a pliable, flexible, elastic, dynamic thing, fluctuating with every social growth and every social decay.

What then are the possible sources of increased wages? How can wages be raised? What are the pathways of control? The alternative routes toward wage advancement may be classified under the following four headings:

1. Acquisition of a higher wage share by taking something away from the profit, rent, or interest shares of total product.

2. Maintaining the same proportional share of labor, but increasing the total to be shared by technical improvements in production within the plant. 3. Maintaining the same proportional share of labor, but increasing the total to be shared by improvement in the general inter-relations of all plants and all business units.

4. Augmenting the free income of the worker.

The acquisitive strategies of the money economy center about the maximum gain for the individual, whether he be business man or laborer. In the money economy and under the pecuniary régime, every man measures his success by the size of his income. Whether his income rises at the expense of some one else does not usually enter into his thinking. It is enough that he has won an acquisitive gain. Labor faces the possibility of making some acquisitive gain by paring down the other shares in the national income. If a factory, instead of making 20 per cent profit, is forced to give labor an increase which absorbs half of the profit, the capitalist is the loser and the laborer is the

gainer. This direct and immediate source of labor gain probably has occupied the forefront of the laborer's imagination in the bulk of union struggles for better wages.

To test the scope of this source of progress, it is necessary to view the matter in the large, and ask what would happen if all laborers were to seize such differential or acquisitive gains. How far can the process go before it meets a sharp arrest? Is there any room for its progress?

It appears that there is a certain small fraction of national income which is anybody's gain who can seize it. Even granting that rent must be a certain amount or land will be held out of use; that interest must be a certain amount, or capital will not be available; that profit must be a certain amount, or business ability will not be forthcoming, there nevertheless is a fringe of all these shares which can be made slightly more or less without ruining the respective shares. In an earlier part of this discussion, it has been shown that in 1916, labor received only 66.7 of the net value product of industry, but in 1918 received 77.3 per cent. In one year, the labor share was one-seventh greater than in another. An amount equal to from 5 to 15 per cent of the national income is apparently a legitimate field for an acquisitive struggle. The most powerful bargainers in business will receive this flexible fraction of income. At the border of each share is this plastic rim which may be narrowed or widened by the acquisitive struggle between labor and capital. These border surpluses may be added to or taken away from any share without wreaking disaster upon the loser. Labor, by strong bargaining, by proper scarcity, by policies of control, may legitimately aspire to win a part of this slice of national income.2

However, there is a quick and drastic limit to this plan for wage increase. At best the gains are narrowly limited. From statistical studies of the different shares, W. I. King arrives at the following conclusion:

"Thus it would seem improbable that, with our present national productive power, any feasible system of distribution could increase the average wage earner's income in purchasing power by more than one-fourth and this is an extreme rather than a moderate estimate. While such a change might or might not be desirable, it would, at least, work no startling revolution in the condition of the employees of the United States. The grim fact remains that the quantity of goods turned out absolutely limits the income of labor and that no reform will bring universal prosperity which is not based fundamentally upon increasing the national income." 3 King's findings were based upon

2 In strict economic reasoning, this plastic slice is traceable to the surpluses of each share. Producer's surplus is gained by those who could afford to sell for less, but do not have to because prices are set at the margin. Much saving would be done for less than the going interest rate, but does not have to be done for less, because rates must be high enough to attract marginal savings. These surpluses in profit, interest, and rent may be encroached upon somewhat by labor without visiting disaster upon the economic system.

3 Wealth and Income of the People of the United States, pp. 165-67.

pre-war figures. A post-war investigation has been made by David Friday, from which the conclusion is essentially the same. "The practical conclusion that follows from all this is that the source of real wages must be found in production and not in a redistribution of the product of industry.

"Those who had hoped to augment the laborer's real wages by making short shrift of the whole matter and adding to the laborer's wages what the entrepreneur now receives as profits, will be disappointed by this analysis of the situation."4

Turning to the second source of added wages mentioned in the foregoing classification, we may inquire into the possibilities of increased technical efficiency within the plant. The technology of production and the state of the industrial arts must be improved if total product is to be increased. These lines of development involve the efficiency of labor, the efficiency of management, and the efficiency of capital. That labor attains only a fraction of its possible efficiency in a large part of industry is a commonplace. How to multiply efficiency is in large measure a question of psychology. The right motivation, the right incentives must be present. The right working environment must be created as the stimulus to superior effort. A technique to cope with this psychological problem has been built up in numerous pioneer factories. The technique has been called "personnel administration,” or "human engineering." It comprehends the whole industrial environment of the worker, and aims to make all details of working experience conspire to stimulate confidence, loyalty, satisfaction, interest, and workmanship.

Labor efficiency cannot be increased in the proximate future by better inheritance of native ability. Biological heredity offers no material hope of more efficient labor. The hope lies in realizing more of the present potential capacities of the laborer. By education, by social stimulus, by environmental improvements, by institutional development, it is possible to tap the great latent resources of efficiency in modern labor.

Increased efficiency of labor largely depends upon increased efficiency of management. Scientific management in labor relations frankly assumes the responsibility for labor efficiency. The widest conceivable differences in managerial ability appear at every hand. The backward and inefficient managements prevent labor from attaining full efficiency. The control of the human factor in industry has been one of the most baffling problems in modern business, but the application of scientific analysis to the problem has resulted in a body of methods and principles which are capable of yielding a large part of the solution. The best managed plants show what management can accomplish. Industrial engineers are themselves accustomed to assert that management is not more than 50 to 60 per cent efficient in the mass of cases.

David Friday has observed, regarding the period of the World War: 4 Profits, Wages and Prices, p. 236.

"That a 20 per cent increase in productive output is possible was demonstrated during the war. That the coöperation of labor is necessary to any such program is obvious. But the possibility of that cooperation was also demonstrated. Given an aim that appealed to the imagination, that made labor an integral part of the body politic, it demonstrated its willingness to coöperate. But there had to be a worthwhile end, and there had to be recognition of labor as a factor equal to the other partners in the industrial life of the nation."5

In other words, even though labor should plunge enthusiastically into the task of increasing production in a measurable degree labor might have no assurance that a due proportionate share of the increase would be forthcoming in the form of wages. Labor has had ample bitter experience in the past to satisfy it that there are altogether too many employers who would pounce upon labor's increased productivity, and endeavor to retain the lion's share of the increase. The only safeguard against this encroachment which has thus far proved reliable enough to command the widespread confidence of labor is collective bargaining through a powerful, organized labor group. The indispensable understanding in labor's mind before any material increase of total production may be looked for, must be that labor shall receive a just and proportionate share of the increase. Unless labor can be reasonably assured of this outcome, labor cannot be expected to take part in the ideal of greatly heightened output. Many individual plants have experimented with such assurances, and have increased production in many cases by surprising amounts, but only because the individual employer has been progressive enough to comprehend labor's point of view, and to offer assurances which convinced labor that wages would constitute a fair and proper share of the increased product. The number of employers, however, who are unable because of traditional ways of thinking, to give labor such an assurance is so great that the laborer declines to trust employers as a class to grant what labor would consider a fair share of the increased product. For the general run of laborers, dealing with a large proportion of employers, the only satisfactory assurance lies in labor's power to claim a fair share of the increase, through agencies of collective bargaining. Even though this agency may often make exaggerated demands, and appear obstinate and headstrong and unreasonable in its claims, nevertheless the only sure recourse of labor is collective bargaining either in the form of works councils or labor unions. Democratic action in government or industry has grave faults, but the central necessity for the group method exists in industry as well as in politics, and the besetting sins of collective bargaining groups must be alleviated by a more cooperative attitude on the part of labor, capital and the public.

Fully aware of these phases of labor psychology, Friday further concludes: "We have learned that it is possible to produce enough 5 Profits, Wages and Prices, p. 236.