181. LABOR AND CAPITAL.—Strictly speaking, five distinct factors are involved in production: land, labor, capital, coÖrdination, and government. As a matter of fact, we are accustomed to speak of the immediate conduct of industry as involving only two factors: labor and capital. Used in this sense, the term labor refers to the masses of hired workmen, while the term capital is held to include not only the individual who has money to invest, i.e. the capitalist proper, but also the entrepreneur, or managing employer.

Labor and capital coÖperate actively in production, while the other factors remain somewhat in the background. As we have seen, both labor and capital are essential to industry, and fundamentally their interests are reciprocal. But in spite of this basic harmony, there are many points of difference and antagonism between labor and capital. This chapter discusses the more important of these disagreements, and outlines some suggested methods of reducing or eliminating them.

182. THE FACTORY SYSTEM AND THE LABORER.—Wherever it has penetrated, the Industrial Revolution has concentrated large numbers of landless laborers in industrial establishments controlled by relatively few employers. Very early in the development of the factory system, the laborer saw that he was at a relative disadvantage in bargaining with employers. Not only does the average laborer lack funds to tide him over a long period of unemployment, but the fact that his labor is generally his sole reliance obliges him to secure work at all hazards. The anxiety and discontent of laborers have been increased by the realization that the factory system affords little opportunity for the average workman to rise to the position of an employer. Most laborers are unable to secure either the training or the capital necessary to set themselves up as independent business men.

183. RISE OF LABOR ORGANIZATIONS.—The risks and limitations which the factory system imposes upon the laboring classes have encouraged workmen to organize for the purpose of promoting their mutual interests. The individual gains, it has been found, when his interests are supported by a group of workmen acting as a unit, and bringing their united pressure to bear upon the employer. The labor organization has been the result of this discovery. A labor organization may be defined as a more or less permanent and continuous association of wage earners, entered into for the purpose of improving the conditions of their employment.

The first labor organizations in the United States were formed early in the nineteenth century, but it was not until about 1850 that the trade union assumed national importance. After 1850, however, and particularly after the Civil War, the trade union grew rapidly. In 1881 a number of national trade unions combined to form the American Federation of Labor. This body, while exercising no real authority over the trade unions comprising it, is nevertheless an important agency in coÖrdinating trade union policies throughout the country. It is important, also, as a means of formulating and expressing the aims and ideals of the working classes. The Federation had a membership of 2,604,701 in 1914, and in 1920 included more than 4,500,000 members. With the exception of the railroad brotherhoods, nearly all of the important trade unions in the country are affiliated with the American Federation of Labor.

184. RISE OF EMPLOYERS' ASSOCIATIONS.—The growing power of the trade union after 1850 stimulated the growth of employers' associations. In 1886 the first national employers' association was organized under the name of the Stove Founders' National Defence Association. Later there was formed a number of other important associations, including the National Association of Manufacturers, the National Council for Industrial Defence, and the American Anti-Boycott Association.

The primary purpose of the employers' association is the protection of the employers' interests against trade union aggression. Some of the associations are frankly hostile to the trade union movement, while others take the stand that the organization of laborers is undesirable only if the power of the trade union is abused. The promotion of friendly relations between labor and capital is increasingly an important concern of the employers' association.

185. WHAT THE TRADE UNION WANTS.—One of the basic aims of the trade union is either to raise wages or to prevent their reduction. Because of the constant shiftings of supply and demand, the prices of commodities are rarely stationary for very long. Over any extended period of time prices are either rising or falling. During a period of rising prices the workmen are at a relative disadvantage, [Footnote: Rising prices affect all who purchase commodities, of course, but here we are intent upon the position of the laborer only.] because they have to pay for commodities higher prices than they had anticipated when they contracted to work for a definite wage. In such a case, the union attempts to secure higher wages for its members. When, on the other hand, prices are falling, the workmen gain, because they do not have to pay as high prices as they had anticipated. In this latter case, the laborers attempt to maintain their advantage by opposing any reduction in wages.

The desire of the trade unions to improve the general condition of the working classes has steadily widened the program of organized labor. Shorter hours and better conditions of work are important trade union demands. Unions quite generally approve the principle of a minimum wage, [Footnote: The principle of the minimum wage is discussed in the next chapter, Sections 205-207.] at least for women and child workers. Formerly, and to some extent even now, the unions have opposed the introduction of labor-saving machinery on the grounds that it displaces workmen and hence causes unemployment. Union members generally prefer to be paid by the hour or by the day, rather than so much per unit of product. The reason given for the preference is that strain and undue fatigue often result from piece-work, as the system of pay on the basis of units of product is called. Trade unions universally demand that employers recognize the principle of collective bargaining, by which is meant the privilege of workmen dealing with the employer collectively or through the union. Very often, also, the unions demand the closed shop, that is to say, a shop from which all non-union employees are excluded.

186. WHAT THE EMPLOYER WANTS.—Price movements likewise affect the employer. But whereas the laborer is at a relative disadvantage when prices are rising, the employer tends to gain, for the reason that he secures for his product higher prices than he had expected. [Footnote: In a period of rising prices, the employer's costs also tend to rise, but generally not so rapidly as do prices.] Suppose, for example that a shoe manufacturer can make a profit if a pair of shoes sells for $4.00. If later the price rises to $5.00 and his expenses remain stationary or very nearly so, he reaps an unusually large profit. And whereas in a period of falling prices the laborer tends to gain, the employer often loses heavily, for the reason that he must sell at a relatively low price goods produced at a relatively high cost. If, in the case given above, the price of the pair of shoes falls from $4.00 to $3.00, while the expenses of the manufacturer remain stationary, or very nearly so, he may make little or no profit. Thus while prices are rising the employer attempts to maintain his advantage by resisting an increase in wages, while in a period of falling prices he seeks to cut down his expenses by reducing wages. In either case the immediate interests of workmen and employer are antagonistic.

Just as the growing complexity of the industrial situation has enlarged the trade union program, so the aims of employers have steadily increased in number and in importance. On the grounds that it restricts the fullest utilization of his plant, the employer very often objects to a shortening of the working day, even where there is a corresponding decrease in the day-wage. Some employers are unwilling to provide sanitary workshops for their employees, or otherwise to improve the conditions of employment. The employer generally objects to the minimum wage, as constituting an interference with his "right" to offer workmen what wages he chooses. Collective bargaining is accepted by many employers, but many others insist upon the right to hire and discharge men as they see fit, without being forced to consider the wishes of the union. Employers often oppose the closed shop, and insist upon the open shop, an open shop being defined as one in which workmen are employed without regard to whether or not they are members of a union.

187. METHODS OF INDUSTRIAL WARFARE.—Both capital and labor back up their demands by a powerful organization using a variety of weapons. The trade union generally attempts to enforce its demands by threat of, or use of, the strike. A strike is a concerted stoppage of work initiated by the workmen as a group. Sometimes accompanying the strike is the boycott, which may be defined as a concerted avoidance of business relations with one or more employers, or with those who sympathize with those employers. The strike is generally accompanied by the practice of picketing, by which is meant the posting of union agents whose duty it is to attempt to persuade non-union workmen not to fill the places of the striking workmen. Pickets may also attempt to persuade customers not to patronize the employer against whom a strike has been launched. Sometimes picketing leads to intimidation and violence on the part of either strikers or representatives of the employers.

In turn, the employer may employ a variety of weapons against workmen with whom he cannot agree. An employer may make use of the lockout, that is, he may refuse to allow his labor force to continue at work. Many employers also use the blacklist, i.e. the circulation of information among employers for the purpose of forewarning one another against the employment of certain designated workmen. The employer may also attempt to end a strike by persuading non-union men to fill the places vacated by the strikers. Such men as accept are known as strike-breakers. On the plea that the strike may result in the destruction of his property, the employer may resort to the injunction. This is an order secured from a court, and restraining certain laborers in the employer's interest.

188. THE COST OF INDUSTRIAL WARFARE.—The struggles of labor against capital constitute a species of warfare which involves the general public. Regardless of whether a particular dispute ends in favor of the laborers or the employer, every strike, lockout, or other interference with industrial coÖperation lessens the amount of consumable goods in existence. Thus aside from the fact that industrial warfare encourages class antagonisms, it is an important cause of the relative scarcity of goods, and the resulting tendency of prices to rise. Often great injury results from a dispute which originally was of small proportions. In 1902, for example, the anthracite coal strike cost the country more than $100,000,000, though the strike had been initiated because of a local dispute over recognition of the union. In 1919, when we were suffering from a general scarcity of goods, there occurred in this country more than three thousand strikes, involving a loss of more than $2,000,000,000 in decreased production.

189. NECESSITY OF INDUSTRIAL PEACE.—Industrial warfare very often results in the correction of abuses, but in many cases it seems to bring little or no benefit to either labor or capital. In any case, it is a costly method, and one which constitutes a menace to the peace of the community. American democracy demands that in the settlement of disputes between labor and capital, industrial warfare be replaced by some method less costly, less violent, and more in harmony with the principles of justice and civilized behavior. Responsibility for the present extent of industrial warfare cannot definitely be placed upon either capital or labor, but at least both sides should be obliged to recognize that the public is a third party to every industrial dispute. We should insist upon fair play for both capital and labor, but we should likewise insist that the interests of the public be safeguarded.

190. SOME METHODS OF INDUSTRIAL PEACE.—As has already been pointed out, profit sharing is not of great importance in lessening industrial unrest. Various systems of bonuses and pensions have temporarily improved the position of some groups of workmen, but experience has proven both bonuses and pensions to be limited in scope. Employers are often unwilling to adopt such devices as these, while the laborers frequently regard them as paternalistic measures which at best are a poor substitute for the higher wages to which they consider themselves entitled. Existing evils are often lessened by welfare work, which includes such measures as the establishment of schools, libraries, and playgrounds for the laborers. But in many cases welfare work is initiated by the employer for the purpose of diverting the attention of the workmen from their fundamental grievances, and for this reason it is often opposed by the workmen. All of the measures enumerated in this section are of more or less value, but as methods of combating industrial warfare, they have proved to be palliative, rather than remedial or preventive.

191. THE TRADE AGREEMENT.—In some industries there is a growing tendency for employers not only to recognize the union, but also to make a collective contract, or trade agreement, with the unionized workmen. The trade agreement may lead to the formation of councils in which representatives of both workmen and employer attempt to reach a friendly agreement upon disputed matters. The trade agreement has been particularly successful in many industries in England. In this country it is best known in the soft coal mining industry in eastern United States, and in the needle trades of New York City. On the whole, the trade agreement has not been markedly successful in the United States. Although it smoothes out minor differences, the unions still prefer to back their more important demands by use of the strike.

192. VOLUNTARY ARBITRATION.—Since 1898 the several states have been giving an increasing amount of attention to the creation of boards of industrial conciliation, mediation, and arbitration. [Footnote: The words conciliation, mediation, and arbitration are variously used, but the following distinction may be of use. Mediation is an attempt to get the disputants to come together for the purpose of discussing their grievances. Conciliation is aid extended to the disputants in the actual settlement of the dispute. Arbitration implies that a third party settles the dispute and renders a decision.] Most states now have some provision for a board whose duty it is to attempt to eliminate industrial warfare. The powers and duties of these boards vary from state to state. In some states the board may investigate labor disputes on its own initiative, but it is not obliged to make an investigation. In other states the investigation of industrial disputes is compulsory.

Boards of the type discussed in this section have no power to compel the disputants to arbitrate their troubles, though they may persuade the parties involved to resort to arbitration. When the disputants agree to allow the state board to arbitrate the dispute, and when also they previously promise to abide by the decision of the board, the award of the state board is binding upon both sides. When the parties to the dispute have not previously agreed to abide by the award, the board cannot force an acceptance of its decision, but can only rely upon public sentiment to help effect a just settlement.

193. COMPULSORY ARBITRATION IN NEW ZEALAND AND AUSTRALIA.—The frequent refusal of labor and capital willingly to submit their differences to arbitration has led to the development of the principle of compulsory arbitration.

In New Zealand, compulsory arbitration was adopted as early as 1894. In that country the arbitrating body is known as the court of arbitration, the decisions of which are absolute and binding. At the discretion of the court, the awards handed down may be extended to embrace other employees or employers in the same trade, or in the same locality, or in the whole country. Violations of the award, either by labor or by capital, are punishable by heavy fines. An even more drastic form of compulsory arbitration has been adopted in Australia.

Due to the influence of many complicating factors, the status of compulsory arbitration in these two countries is uncertain. Many students of the question maintain that this form of arbitration has materially reduced industrial warfare; on the other hand, other authorities declare that compulsory arbitration in New Zealand and Australia has not markedly improved industrial relations.

194. COMPULSORY ARBITRATION IN THE UNITED STATES.—Although the principle of compulsory arbitration has been familiar to American students of labor problems for more than a quarter of a century, there is as yet very little sentiment in favor of its application to industrial disputes in this country. The explanation of this is not far to seek. Individualism is so strong in the United States that compulsory arbitration is regarded by many Americans as an unwarranted interference in private business. It is still generally true that both labor and capital prefer to settle their disputes in open struggle. Equally important, perhaps, is the feeling that compulsory arbitration laws would nullify the constitutional guarantee that no citizen shall be deprived of life, liberty, or property without due process of law. [Footnote: For an explanation of this point, see Chapter XIX, Section 214.]

However, a definite step toward compulsory arbitration was taken when in 1920 the State of Kansas established a Court of Industrial Relations "for the purpose of preserving the public peace, protecting the public health, preventing industrial strife, disorder, and waste, and securing regular and orderly conduct of the businesses directly affecting the living conditions of the people." The law of 1920 declared illegal the suspension of work in those industries which are designated as essential and necessary to the community life. Industrial disputes arising in such industries are subject to compulsory arbitration by the court. The merits of this court are still being debated. Some authorities declare that the court has already demonstrated its value, but other observers claim that so far this tribunal has not operated to reduce labor troubles in Kansas.

195. STATUS OF THE DEMANDS OF LABOR.—For a number of years the attitude of labor has been clearly aggressive, while the attitude of capital has tended to be one of resistance. In view of this fact, the simplest way of considering the merits of the industrial situation is to examine the demands of labor. The justice of these demands cannot be gone into here, but a few words of general application may be helpful.

The proper determination of wages depends, of course, upon the particular circumstances. No general rule can be laid down, except the very obvious one that wages cannot permanently go so high as to wipe out profits in an industry, nor yet so low as to render it impossible for the workmen to secure a decent living.

The steady improvement of living and working conditions is desirable, and is a challenge to any progressive society.

Shorter work hours are desirable, wherever the cutting down of the working day does not too greatly hamper production. Many economists feel that an eight-hour day will prove a social gain only if introduced gradually. They believe that it should be introduced in proportion as the industrial productivity of the country increases to compensate for the shortening of the working day.

Opposition to the introduction of labor-saving machinery is both useless and short-sighted. The officials of most unions now advise workmen not to oppose the adoption of machinery, but rather to fit themselves to operate the machines.

The question of a closed shop or an open shop is largely a matter of opinion. The problem will probably continue to be disputed for a long time to come. Many students of labor conditions feel that the closed shop is justifiable only when accompanied by the open union. By an open union is meant a union into which all laborers competent to do the work are admitted freely. Where the open union principle is adopted, Professor Taussig points out, the closed shop is no longer a monopolistic device to shut out competition and raise wages for a small group. It becomes, instead, a means of promoting mutual aid and collective bargaining.

Many employers still refuse to recognize the principle of collective bargaining, but from the social point of view collective bargaining is desirable. In many cases it so strengthens the position of the laborers that they are able to compete with the employer more nearly on terms of equality. Under such conditions competition in the labor market is in a healthy state. The difficulty is, of course, that some unions may take advantage of their strengthened position to enforce unduly severe conditions upon the employer.

196. THE OUTLOOK.—Although it is probable that industrial disagreements will long endure, we have a right to expect that continued progress will be made in settling these disputes peaceably. By many it is believed that compulsory arbitration is the most effective method of securing industrial peace, but for reasons already given, the extension of this form of arbitration will probably be slow in this country. English experience would indicate that we have not yet exhausted the possibilities of the trade agreement, but though this device is becoming better known in the United States, both the American laborer and the American employer are still disposed to settle their differences by means of the strike, the lockout, and similar weapons.

The present century is an age of industrial stress and change, and it is possible that the ultimate solution of the disputes between labor and capital has not yet been advanced. From the data now at hand, however, it is maintained by many that labor disputes must ultimately be eradicated through the development of industrial democracy. Industrial democracy implies the joint direction of industrial policies by employer and employees, working together harmoniously and in the spirit of equality. When industrial democracy is attained, according to this view, mutual trust and the spirit of friendly coÖperation will enable labor and capital to adjust their differences peaceably and economically, without dictation from any outside source.

QUESTIONS ON THE TEXT

1. Why are we accustomed to speak of labor and capital as the two chief factors in production?

2. Why have labor organizations arisen?

3. Name some employers' associations.

4. Contrast the aims of the union with the aims of the employers' association.

5. Discuss the methods of industrial warfare.

6. Why is industrial warfare undesirable?

7. What is the attitude of American democracy toward industrial warfare?

8. Name some minor methods of industrial peace.

9. Discuss the character of the trade agreement.

10. Distinguish between conciliation, mediation, and arbitration.

11. Discuss compulsory arbitration in New Zealand and Australia.

12. What is the significance of the Kansas Court of Industrial Relations?

13. What is the outlook for industrial peace in this country?

14. Define industrial democracy.

REQUIRED READINGS

1. Williamson, Readings in American Democracy, chapter xviii.

Or all of the following:

2. Bullock, Elements of Economics, chapter xiii.

3. Carlton, History and Problems of Organized Labor, chapter v.

4. Ely, Outlines of Economics, chapter xxii.

5. Fetter, Modern Economic Problems, chapter xx.

QUESTIONS ON THE REQUIRED READINGS

1. What are the three types of labor organizations? (Fetter, page 299.)

2. Who were the Knights of Labor? (Bullock, page 316.)

3. What is the economic justification of the trade union? (Ely, pages 445-446.)

4. Outline the history of the American Federation of Labor. (Carlton, pages 74-82.)

5. What are some of the secondary functions of the trade union? (Fetter, pages 298-299.)

6. Among what groups of workers is the trade union strong? Among what groups is it weak? (Fetter, page 300.)

7. What effect has unionism had upon wages? (Fetter, pages 306-307.)

8. What is meant by limitation of output? (Ely, pages 449-450.)

9. What is a standard wage? (Bullock, pages 320-321.)

10. What is the legal status of the strike? (Bullock, pages 328-329.)

11. What is scientific management? (Bullock, pages 339-340.)

12. What will probably be the future development of the trade union? (Ely, pages 468-469.)

TOPICS FOR INVESTIGATION AND REPORT

I

1. Origin and growth of the trade union movement in your section.

2. Select some one trade union for study. Obtain information on the following points, either by means of literature issued by the union, or by personal interview with union officials:

(a) Aims of the union.

(b) Insurance benefits.

(c) Political activities of the union.

(d) Strike procedure.

(e) Attitude toward arbitration.

3. Select for study an employers' association in your locality. Obtain information on the following points. (If no association is available, consult a friendly employer):

(a) Attitude of the employer toward the trade union movement.

(b) Attitude toward the closed shop.

(c) What the employer does when a strike is launched against him.

(d) Use of the injunction.

(e) Attitude of the employer toward arbitration.

4. If possible, investigate an actual strike and report upon it.

5. The laws of your state with regard to mediation, conciliation, and arbitration. Do you think further legislation on this subject is advisable?

II

6. History of the trade union movement in the United States. (Consult any available text on labor problems. See also Carlton, Organized Labor in American History.)

7. The Knights of Labor. (Any standard text on labor problems, or an encyclopedia.)

8. Trade union policies. (Bullock, Selected Readings in Economics, pages 589-613.)

9. Program of the American Federation of Labor. (Any standard text on labor problems, or an encyclopedia.)

10. The theory of price changes. (Taussig, Principles of Economics, vol. i, chapter xxii.)

11. The problem of adjusting wages to prices. (Bloomfield, Selected Articles on Problems of Labor, pages 56-75.)

12. Reducing the labor turnover. (Annals, vol. ixxi, pages 1-81.)

13. Scientific management. (Any standard text on labor problems. See also Hoxie, Scientific Management and Labor.)

14. Incorporation of the trade union. (Bloomfield, Selected Articles on Problems of Labor, pages 262-267. Commons, Trade Unionism and Labor Problems, chapter vi.)

15. Employers' associations. (Any standard text on labor problems.)

16. Principles of industrial relations, as formulated by the Chamber of Commerce of the United States of America. (Write to the Chamber's headquarters, Washington, D. C., for copies. Also reprinted in Edie, Current Social and Industrial Forces, pages 346-381.)

FOR CLASSROOM DISCUSSION

17. Closed shop versus open shop.

18. Should trade unions be obliged to incorporate?

19. To what extent does compulsory arbitration constitute an unwarranted interference in private business?

20. The shortening of the working day.

21. Effect of the World War upon relations between labor and capital.