The Natural Economic Order/Part I/Chapter 13
If the landowner is able to squeeze $1000 rent out of his land, he will not be satisfied with less than this amount if he chooses to hire labourers and to farm the land himself. If the land, after deducting cost of wages, did not yield at least $1000, the landowner would dismiss the labourers and let it for $1000.
In no circumstances, therefore, will a day-labourer earn higher proceeds of labour than the tenant or the settler on unclaimed land; for otherwise the tenant (or settler) would prefer to work as a day-labourer.
On the other hand the day-labourer will not consent to work for a wage which is less than what he might earn as a tenant or settler, for otherwise he would rent a piece of land or emigrate. It is true that he often lacks the money necessary to run a farm or to emigrate; but whether he has the money or is forced to borrow it, he must charge interest on it in his calculation, and deduct this interest from the product of his labour. For it is only what is left to the settler after paying the interest on his capital that belongs to him as a worker.
If the gross proceeds of the labour of the settler on freeland are $250 and the interest on his working capital is $50 then the net proceeds of his labour are $200 and the general rate of wages must oscillate about this point. The wages of the day-labourer cannot rise higher, for otherwise settlers would turn day-labourers; and they cannot sink lower, for otherwise day-labourers would turn settlers.
The wages of industrial labourers are also, obviously, dominated by this general rate of wages. For if the proceeds of labour in industry were larger than the proceeds of labour on unclaimed land, agricultural labourers would turn to industry, with the result that agricultural produce would become scarce and rise in price, whereas industrial products, being super-abundant, would fall in price. The rise of prices in agriculture and the fall of prices in industry would bring about a re-arrangement of the wage scale, until wages had again been equitably adjusted. And this readjustment would certainly be rapid, considering the great number of migrating labourers who are indifferent whether they grow sugar-beet or shovel coal.
Thus it is incontestable that if the proceeds of labour on freeland determine the labour proceeds of the agricultural labourer they also determine labour proceeds in general.
Wages cannot rise above the proceeds of labour on freeland, since freeland is the only support of the farm-labourer in his wage-negotiations, or of the tenant in his rent-negotiations, with the landowner. If the farm-labourer or tenant is deprived of this support (say by suppression of his freedom of movement) he is at the mercy of the landowner. But since freeland is the only support, it is also true that no other circumstances can depress wages below these proceeds.
The proceeds of labour on freeland are, therefore, at once the maximum and the minimum of wages in general.
The existing great differences in the individual proceeds of labour are by no means inconsistent with this general rule. When the division of the product of labour between landowners and workers has once been determined, the share that falls to the workers is distributed automatically on a perfectly natural basis. The varying remuneration is not arbitrary, but is adjusted entirely by the laws of competition, of supply and demand. The more difficult or disagreeable the work, the higher is the wage. For how is a man to be induced to choose the more difficult or disagreeable of two tasks ? Only by the prospect of higher labour-proceeds (which may, of course, consist of advantages and privileges other than money). Thus if the workers need a teacher, a pastor or a forester, their only course is to open their purses and grant salaries for these offices which may greatly exceed their own proceeds of labour. Only in this way can they induce someone to undertake the expense of having his sons educated for these professions. If the supply of tachers and pastors is still insufficient, the salaries must again be raised. If the workers have overshot the mark so that the supply exceeds the demand, salaries will be reduced. And it is the same with all trades requiring special training. The opposite happens when the workers need a shepherd, a goose-girl or a boy to scare crows. If they were to offer for such leisurely pursuits their own full proceeds of labour gained by hard work, every townsman, teacher, pastor and farmer would apply for these posts. So a minimum wage is offered for the herding of the geese, and this minimum is increased until someone is willing to accept the job. The workers also need a merchant to buy their products and to sell them whatever goods they want. This worker (merchant) must also be granted a wage, in the shape of commercial profit, sufficient to induce someone to devote himself to this harassing profession.
Thus the basis for the adjustment of all wages is always the proceeds of labour on freeland. Upon this basis is built the whole structure of fine gradations in the proceeds of labour up to the highest-paid occupations. Every change in the basis is therefore transmitted to the whole superstructure, just as an earthquake makes itself felt up to the weather-cock on the steeple.
Our proof that the doctrine of the "iron wage" is unsound is not yet, indeed, complete, for the "iron wage", though not caused by private ownership of land, might still be caused by capital. That capital does not possess this power is obvious, however, from the frequent fluctuations of wages (a really "iron" wage could not fluctuate). Why capital does not possess this power we shall demonstrate later (see Part V, The Free-Money Theory of Interest). If capital had power to reduce the proceeds of labour on freeland to a minimum corresponding to the "iron wage", the yield of capital, as expressed in the rate of interest, would necessarily share the fluctuations to which the product of labour on freeland is obviously subject. But this is not the case, for, as we shall show later, pure interest, which is here in question, is a remarkably stable quantity, so remarkably stable, indeed, that we are fully justified in speaking of an "iron" return on capital. So if besides this fixed quantity of interest, wages were also a fixed quantity, where - if rent moves on independent lines - would be the reservoir to collect the fluctuations of the product of labour?