The Principles of Political Economy

Henry Sidgwick

Book III

Chapter VII


§7. If, however, the expediency of governmental interference, having a markedly distributional character, depends greatly on the extent to which provision is voluntarily made for certain social needs, we are naturally led to ask on what principles such action on the part of private persons should be determined. I shall consider this question---so far as seems suitable in such a treatise as the present---in the concluding chapter: but I may here point out that it is important to distinguish clearly between what should be morally imposed in the name of strict justice and what should be morally encouraged as wise beneficence. Any rich individual who restricts his assumption of luxuries, in order to distribute his superfluous wealth among poorer members of the community, tends pro tanto to bring about what I have called a more ``economic'' application of the material means of happiness, if only he manages his distribution so as to avoid impairing the normal motives to energy and thrift in the recipients of his beneficence. But it is much more doubtful whether ``distributive justice'' so far as this diverges from the result brought about by open competition---can be effectively promoted by the voluntary action of private persons. For any such action would, from its inevitably partial and sporadic character,---since only a few moral persons could be braced up to the requisite sacrifices---tend to introduce a new kind of inequality.

There is, however, one case---of growing importance in the present organization of industry---in which there is primâ facie more opportunity for a private application of distributive justice. I refer to the problem of dividing the produce of industry between opposing combinations of labourers and employers. Here, as was before explained, economic science cannot determine a normal division, on the basis of its ordinary assumption of self-interest as the governing motive in the exchange: it can only determine roughly the limits within which it is the interest of both sides to accept any terms rather than finally break off negotiations. But if any principle of fair division could be laid down, then---provided that the division determined by it fell anywhere between these limits---the ordinary economic motive would tend powerfully to maintain it in general application, owing to the strong interest that both the opposing combinations have in avoiding strife.

At the same time, I do not think that this conflict of opposing combinations can be decided by any general principle of social justice, determining bow much either party ought to receive of the value of their common product. No voluntary combination of labourers could be expected to undertake the task of securing for every labourer who wants it a ``fair day's wages for a fair day's work'': practically actual struggles have always related to the wages of labourers in some special branch of production: there is no means of ascertaining what wages such a group of labourers would obtain if all removable inequality of opportunities were absent: and we are not even warranted in assuming that they would now be content with this, if it could be ascertained,---still less that it would be the interest of the employers to give this amount of wages rather than withdraw from the business. Hence in any rational process for determining the `fair' wages of a group of combined labourers there must be an arbitrary point of departure: some particular ratio between their wages and the value of the net produce of their industry, under certain actual conditions, must be assumed to be `fair', and the definite question must be bow to maintain `fairness', so understood, under changing conditions. This, I conceive, is the principal theoretical problem presented to Boards of Arbitration between labourers and employers: and an approximate---though necessarily rough and imperfect--solution of this problem would seem to be aimed at in the automatic sliding scales by which conflict has been partially prevented in certain industries in recent years.

So long as no material change takes place in the processes of the industry, or in the quality of the labour employed in it including the employers' own labour---the problem offers little theoretical difficulty: net produce can be estimated with sufficient accuracy by subtracting from the price of the commodities produced the cost of the raw material and other capital consumed in producing them, and wages can be made to vary so as to maintain the same proportion to net produce. If, however, the processes of the industry change so as to alter materially the proportion of labour to capital, or of one kind of labour to another kind, a somewhat different comparison will be required. It will then be needful to ascertain the proportion borne by wages, in the division assumed to be fair, to average employers' earnings per cent. of capital---i.e. to net profit with interest and allowance for risk subtracted---in order to keep the proportion approximately stable in any revision of wages. Theoretically any ascertainable change in the average quality of business management ought to affect the proportion: but in practice this point could hardly be satisfactorily investigated. On the other hand a change in the efficiency of manual labour is more easily taken into account, and ought to be so taken: the stable proportion ought to be between employers' earnings and the remuneration of labour of a given efficiency. But variations in the demand for labour ought not, I conceive, to be admitted as grounds for varying the proportional division agreed upon, though they must affect the limits within which this division will be sustained by ordinary economic motives: since the fundamental assumption in the discussion between the opposing combinations is not that the effects of free competition are to be imitated as far as possible in the settlement arrived at, but rather that they are to be resisted and modified. Again, it is obvious that changes in the purchasing power of money are not to be taken into account, unless---as may happen---they affect the prices of commodities consumed by labourers and employers respectively in appreciably different degrees.

It is probably desirable that the variations in wages, from the amount originally fixed, should be reduced by throwing on employers the larger share of loss through any fall in the price of the net produce of the industry. But if this is done it should be as a matter of express agreement, with a view to the distinct end of avoiding fluctuations in wages: and the employers should of course be compensated by a correspondingly larger share of gain from a rise in price.

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