Labor's True "Magna Carta"

This study in futility has come about mainly as a result This article first appeared in The Guaranty Survey, July 1956, Albert C. Wilcox, Editor. [150 ] of the persistent belief that the earnings of labor some how can and should be exempted from the free-market processes by which· prices, values, and distributive shares in general are determined in a competitive economy-a belief that is epitomized in the declaration that "labor is nota commodity." How did this expression originate, what does it really mean, and what does it imply? Labor V8. Laborer Superficially, the statement that "labor is not a com modity" has a strong humanitarian appeal. It sounds like a sort of declaration of independence for labor, an asser tion that the workingman is not a slave or chattel to be bought and sold in the market place. It was undoubtedly this aspect of the matter that led Pope Leo XIII in 1891 to issue his famous encyclical on the condition of labor, Rerum Novarum, a document that has done much to shape recent thinking on labor questions. The official English version contains these words: "Religion teaches the rich man and the employer that their work-people are not their slaves ... and that it is shameful and inhuman to treat men like chattels to make money by.... "

No doubt it was likewise the humanitarian appeal mixed perhaps with other considerations, that led Con gress to declare in the Clayton Act of 1914 that 4:4:the labor of a human being is not a commodity or article of commerce. Nothing contained in the antitrust laws shall be construed to forbid the existence and operation of [151 ] labor, agricultural, or horticultural organizations, insti tuted for the purposes of mutual help, and not having capital stock· or conducted for profits, or to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspir acies in restraint of trade under the antitrust laws.') A Dubious Privilege This provision was enthusiastically hailed as a CCMagna Charta" of labor. Subsequent court decisions showed that its practical effects were much less important than had been thought, and Congress eventually found it necessary to pass the Norris-La Guardia Act of 1932 in order to give labor unions the legal immunity that was deemed desirable. This, however, is beside the point.

The point is that the majority in Congress, like many others, believed (1) that a legislative enactment could exempt labor from the normal competitive determination of its rates of pay, and (2) that labor would gain by such an exemption. The same philosophy underlies the whole trend of recent governmental labor policy and labor legislation: the National Industrial Recovery Act of 1933, the Wagner Act of 1935, the Fair Labor Standards Act of 1938, the Smith-Connally Act of 1948, the Taft~Hartley Act of 1947, and a multitude of other federal and state laws. Some foreign countries still commonly called "free" have [152 ] gone even further in regulating or influencing labor-man agement relations in general and wage rates in particular. Whatever the means may be, the underlying intent is the same: to ,:cemancipate" the worker from the rule of the market, to prove that c1abor is not a commodity."

what Is a Commodity? The statement that working people are not slaves or chattels and the declaration that their labor is not a commodity or article of commerce sound much alike, and this superficial similarity appears to have caused a great deal of confusion. Actually, not only are they two very diHerent assertions, but in their final implications they are mutually contradictory. This becomes clear when a little consideration is given to the real economic position and significance of human labor. The essential characteristics of a commodity or article of commerce are (1) that it is in demand and (2) that its supply is not unlimited. These two characteristics give it value, enable it to command a price in the market in exchange for other valuable things. The price is deter mined by the interaction of demand and supply-demand as affected by the commodity's price and usefulness, supply as affected by the price obtainable for it and the difficulty or cost of producing it.

Human labor possesses all these characteristics. It is in demand; its supply is limited; hence, it commands a price in the market. The demand for it arises from the fact that employers can use it profitably and is limited by the [153 ] ability of employers so to use it. The supply arises from the need of workers to meet their personal wants and is limited by the number of workers and their preference for leisure; that is, for noneconomic pursuits. Economists usually make a distinction between com modities and services, commodities being material arti cles and services consisting of useful actions. The distinction is not essential to the present purpose, be cause the basic economic characteristics of the two cate gories are the same. If labor is not a commodity in this sense, it is certainly a service, and from the economic standpoint it is, in every essential respect, a "commodity or article of commerce."

What does this mean to the individual worker? It means that he is the owner of a valuable commodity, his capacity to work, which other men are eager to buy and pay for. This commodity is inalienably his, and he is free to sell it in the most attractive market he can find. He can pick and choose, not only among pay offers but among occupations. He is, in a larger or smaller way, an independent proprietor, an entrepreneur. His opportunity to rise is limited only by his capacity to make himself useful to others through his ability, energy, and diligence. He is able to command an income from others, not by virtue of any authority or compulsion by a paternalistic state, not because of any protection or favor bestowed upon him by a public or private organization, but because others are ready to buy voluntarily, and in their own interest, what he has to sell. The fact that his labor is. a commodity does not make him a slave or a chattel. On [154 ] the contrary, it makes him, in the·full.sense of the phrase, a free man.

How Wages Are Determined To say that employers seek to "make money" by hiring workers is not to say that they are treating them like chattels. The employer does precisely what the worker does: he tries to employ his resources to the best advan tage. In this endeavor, each party attempts to "make money" from the other; that is, each hopes and expects to profit by the employment contract, and each tries to make the best bargain he can. Only in this way can an economy of free enterprise function effectively. If it were not for the hope of "making money," there would be no employment and no enterprise. "Making money" is merely the form which the efficient use of resources takes in an enterprise economy. To read a sinister mean ing into the phrase is to betray a lack of understanding of the whole economic process. It is as pointless to criticize the employer for not pay ing more than he must as to blame the worker for refus ing to work for less than he can get elsewhere. Each party obtains the best terms he can. The worker must work for a wage that will make it profitable for the employer to hire him in turning out a product at a price which consumers are able and willing to pay in a com petitive market. The employer must pay a wage that will prevent the worker from being drawn away by other employers. In this way there is established a wage struc[155 ] ture, a set of "going rates:>:> for different occupations and grades of labor. These rates reflect the productivity of industry at the time, the quantity of goods and services produced in relation to the quantity of resources em ployed. If wage rates are not higher than they are, it is not because of the rapacity of employers but because the productivity of industry, while greater than ever before, is still limited.

The idea of a fair, just, or reasonable wage is very appealing. But what is fair, just, and reasonable under the conditions prevailing at a particular time? Since the dawn of history, buyers and sellers have had very differ ent ideas regarding the concrete meaning of these words. How are such differences to be resolved? There is only one valid and objective criterion: the free market, which, under the consumer's whiplash (and the consumer means everyone), forces both buyers and sellers of labor to conform to the basic reality of the situation, the current level of productivity .... Socialism Really Enslaves Workers To abolish the market determination of wages-that is, the commodity character of labor-it would be neces sary to destroy private enterprise and resort to socialism. Then the worker really would become a chattel. No longer would his wages depend upon his individual abil ity to make himself useful, as determined ultimately by the current state of industrial productivity, but upon the will of a political master, from whose decision there [156 ] would be no appeal. No longer would he be free to choose his occupation, or even his place of residence; he would have to work at his assigned task, whatever and wherever it happened to be, at the bidding of the same political master.

The true C'Magna Charta" of labor lies in the very fact that labor is "a commodity or article of commerce," not a pawn in a totalitarian game. [157 ] FACTS ABOUT THE "INDUSTRIAL REVOLUTION~~ SOCIALIST and interventionist authors assert that the his tory of modern industrialism and especially the history of the British ':'Industrial Revolution" provide an empiri cal verification of the '':realistic'' or ':':institutionaf' doctrine and utterly explode the '':abstract'' dogmatism of the economists.1 The economists flatly deny that labor unions and gov ernment prolabor legislation can and did lastingly 1 The attribution of the phrase "the Industrial Revolution" to the reigns of the two last Hanoverian Georges was the outcome of deliberate attempts to melodramatize economic history in order to fit it into the Procrustean Marxian schemes. The transition from medieval methods of production to those of the free enterprise system was a long process that started centuries before 1760 and, even in England, was not finished in 1880. Yet, it is true that Eng land's industrial development was considerably accelerated in the second half of the eighteenth century. It is therefore permissible to use the term ':'Industrial Revolution" in the examination of the emo tional connotations with which Fabianism, Marxism, the Historical School, and Institutionalism have loaded it.