This doctrine may be represented schematically by a pyra mid. A young man of cer tain ability and under cer- Raee 41.44, tan conditions may be lt Specia/ielJ able to fit himself for any Er Sidled a b c litaddvone of several occupations, a, b, or c in class III. Unandhed Ilbenery C/a.s..s After he has mastered any Fla. 80. NoN-comPwrixa CLA8888.
trade (say IIIa) he may be able to advance (to class II) but in most cases he would find it each year increasingly difficult to do so. It is however easier to change on the same plane than to move upward, and it is usually still easier to go downward than to change on the same plane. In the extreme cases the value of the labor of any two non-competing classes is fixed as if each class occupied a separate island, and could not change occupations, but could only exchange products at the ratio resulting from the reciprocal bidding of the traders. (See Chapter 7, section 3.) The masses of the workers in any two countries of different resources and density of population, such for example as the United States and Italy or China, are to a certain degree in non-competing classes. If immigration is unrestricted by law, all that keeps wages from becoming identical for like classes of workers (as carpenters, painters, etc.) in the two countries is the difficulty of migration .° § 9. Basis of the personal bargaining power in the wage contract. We arrived at the explanation that the price of labor bought by an employer must be related to and depend on the value of the services bought. Wages, just as the prices 9 This doctrine was given its name by the English economist J. E. Cairnes (Some Leading Principles of Political Economy, Newly Ex pounded, 1874). As presented by him the doctrine was given a very dif ferent emphasis, for he supposed it to be a rare and remarkable excep tion to what he believed was the general rule, that the cost-of-production regulated the price of goods,—essentially a "labor-theory of value." We regard it merely as a helpful way of presenting a particular case of the general rule that the value of agents is derived from their products when the market is viewed as a whole.
of commodities, depend on the values in the minds of the various traders, and these values in turn are the reflection of consumers' choice. But the personal element of bargain ing between man and man seems to obscure our view of the motives determining wages much more than of the motives determining commodity prices. If the fisher and the miner
bring their products to the general market, the question upper most is the price the product shall bring, and their labor incomes are easily seen to be the price of the material prod ucts (less certain costs and allowance for equipment) (see above, section 3). But if an employer hires a number of workmen, and the labor of each becomes merged and lost to view in a complex product, what part of this undivided prod uct is, on value-principles, imputable to the labor? If we lose hold of a guiding principle of value, there is danger that we shall see only the superficial fact of the personal bargain between employer and workman Sometimes the personal power of the employer looms so large that he is thought to "pay whatever he pleases," sometimes wages seem to depend on the whim of labor leaders, sometimes on the monopolistic power of organized labor. This way of viewing the problem has even been dignified with the name of "the bargain theory of wages." Such a view overlooks the logical cause of value, and the network of impersonal forces which enwraps and binds the personal bargain. What makes the employer "please" to pay as much as he does; what is there in the economic situation that at one time gives to the labor leader bargaining power to get an advance of wages, and at another time does not? These are questions whose answers help us to go deeper into the explanation of wages.
The truth seems to be that while wages paid by an employer result from a bargain, this in turn rests on the same causes of value as does the bargain for material agents (commodity prices, rents, as also interest rates), that is, on the direct or indirect effect of labor in the gratifying of desires. When the employer is producing goods to sell he is acting as a mid dleman between the employee and the ultimate consumers whose desires combine to impart value to the labor used. The greater the demand for labor services and the more limited the group of laborers that can render these services, the greater is the bargaining power, and vice versa. Bargaining power is simply the power to bring about a true equilibrium price inherent in the economic situation.