Why Wages Rise: 5. Doing What You Can Do Best

Dr. Harper is a member of the staff of the Foundation for Economic Education.

In the previous article it was shown how the rise in wages has been due in large measure to the aid of tools that use the stored energy from the sun. Energy used to assist each man-hour of labor has increased some five times over the past century in the United, States. and real wages per hour have increased about five times too.

The creation and use of tools became possible only because of a method of cooperation to be discussed in this article.

Apparently man is created in endless variety. We are told that no two persons are identical biologically. Nor are any two persons identical in their ability to do things, in their aptitudes of mind and body with which deeds are done and things are produced for economic betterment.

One person may be totally unable to do a thing that another can do; or if he can do it at all, it is with less ease and excellence. The cripple, for instance, is excluded from the fraternity of four-minute milers; probably Ginger Rogers is too. Yet these persons are not without other rare abilities the four-minute miler lacks. Each sits in the bleachers observing with admiration the accomplishments of the other.

Many who have been carelessly labeled “handicapped” have been great scholars, composers, inventors. In those respects it is the rest of us who are handicapped. Everyone is handicapped, differing only in form or degree—differing endlessly, whether we think of it in the sense of abilities or in the sense of inabilities. Yet to be outstandingly gifted in more than one or a few respects is rare.

With this endless variation of abilities and inabilities, our enjoyments for living—beyond the many pleasures of the free things that exist in our natural environment—would be few indeed if we were all forced to live in isolation. In such an existence, the person unable to sing could have only the songs of the birds and the crickets, and the like, on the airwaves for his enjoyment. If he were unable to catch the wily fish, his dinners would all be fishless. His raiment would be only what he alone could fashion from materials he was able to gather or capture. And only the few devices he could invent would be his to use.

Personal isolation would be an existence of meager means at best. It would reflect our inabilities in a dominant fashion, revealing vividly both the fact and some of the consequences of human variation.

An unfortunate consequence of endless human variation is to create the opportunity for endless misunderstanding. But the other side—the bright side—of the same coin is one of opportunity. It creates the chance for endless cooperation, to the mutual advantage of participants. This opportunity can. exist only as differences are understood and tolerated—allowed to blossom into the cooperation with which we are here concerned.

We may reap fruits of human variation and enjoy things not of our own direct creation only if we discover how to allow this cooperation to work. It springs from trees whose roots are hidden from our view and appreciation.

What One Can Do Best

What happens under this form of cooperation may be seen by a simple illustration. Suppose two persons are living an isolated existence. Let us say that they have aptitudes that are totally unlike. What one can produce or do well the other cannot do at all, and vice versa. Each can produce many times as much of his own product as he has any use for. And yet his taste for the other’s product is equal to that for his own.

It is clear that if each produces double his own wants, exchanging his surplus with the other, they can both double their consumption level of products they enjoy. They could, in effect, double their wages through the simple process of exchanging half for half of what they produce.

Now suppose that instead of being a society of two persons it is a society of three persons of this same design, each of whom can produce many times his own use of his product. By the simple process of triangular exchange of what they produce, each of them could treble his consumption of products he enjoys. This is the same as increasing wages.

Similarly, for a society of four persons, five persons, and so on.

A Seeming Miracle

This process of exchanging the fruits of one’s efforts performs what may seem like a miracle. Each is allowed to use more fully his peculiar abilities in production. The appearance of a miracle is due to the fact that the whole seems greater than the sum of its parts—more economic enjoyment from working together in this way than from existing in isolation. By voluntarily cooperating in this manner everyone can benefit who will join in the process.1

The seeming miracle does not really arise from any increase in ability to produce, however. This ability remains the same for each person as it was at birth, in endless variety. True, we do not know the full limits of our abilities and may fail to develop them to the fullest extent; on the other hand, we may overestimate our abilities and may, as a consequence, limit in various ways the welfare of ourselves and others. But in spite of this, our abilities are those inherent at birth and the seeming miracle occurs for another reason.

What really happens is that by rearranging—through exchange—the products which the peculiar talents of each has made available, there is opened up an outlet for untold amounts of specialized production. Take these written words, for instance. My own demand for them is such that they probably would never have been produced except that others might want them. So something practically useless to me became available for exchange with someone who wants it. It may be some person unknown to me on whose farm is produced the egg I had for breakfast—perhaps a farmer who produces six thousand eggs a day and who himself eats only two of them.

That is how the seeming miracle works. It is really rooted in exchange rather than in production. It is a process that allows rearrangement of what is produced from the producer, who wants it little or not at all, to someone who wants it much more as a consumer. So there arises a cooperating circle of such exchanges.

The total of production is still no more than the sum of its parts, in the sense that total production is only what separate persons have produced. Nothing is produced except what somebody produces, by individual, separate, personal effort. But by the miracle of exchange a person may become able to trade the fruit of an hour of his own labor for what would take him ten or a hundred or a million hours to produce himself—if he could produce it at all. He trades with others who gain a similar advantage from the exchange.

So the seeming miracle of exchange, yielding untold increases in the usefulness of things, is easily and almost effortlessly accomplished by the simple and easy process of trading.

It all comes about without people having to work longer hours. They probably work even fewer hours when any economy becomes more and more developed in this way, under the process of specialization and exchange. They work fewer hours than if it were an economy of privation, not so developed. Leisure becomes a luxury they can now better afford, so they accept more leisure in the market for their time. The process, rather than to demand more mental or physical effort in the form of work, only increases the extent of concentration of one’s effort on what he can do best. He spends less time on what he cannot do well, obtaining it instead by means of trade.

In this way he produces far more. The increase is not directly that of his own appraisal of its worth to himself, but reflects how others appraise it for themselves by access in the market. So we trade our special abilities—trade our peculiarities, so to speak, and make of them an economic virtue instead of a vice.

Limits on the Process

The only limits to the extent wages can be increased by this process are these:

1. There is, of course, a limit to what a person—even the most talented—can produce. The more capable he is in a rare ability, the higher this ceiling becomes.

2. There is a limit on his ability to find other interested traders with products they have produced beyond their own wants.

3. There are geographic and other barriers to exchange throughout the whole of society.

These three factors set the ceiling on the possible rise. Only as these barriers have been removed has it been possible for wages to rise to the point where they now are.

Barriers are in many instances the result of government intervention in production affairs, in the market, and in devices for exchange. But it is not the purpose of this article to discuss them in detail.

If wages are to be increased further, these problems must receive attention. The capacity to increase one’s specialized production beyond one’s own needs includes all the aids to specialized production discussed in previous articles—savings, the creation of tools, the harnessing of power, and the like. These become aids to the use of a person’s rare ability, putting increased leverage on the unusual ability of a person like an inventor or a machine technician. By specialized work in a highly complex exchange society, one person can spend a lifetime perfecting his unusual aptitude for doing some almost indistinguishable little bit of the production process, for some complex machine sold all over the world.

One would be remiss, however, if he did not recognize certain hazards in this seeming miracle of division of labor in a complex, specialized economy of exchange.

First, though there are material benefits from such specialization, there can be serious consequences outside the material realm. A man who prepares himself for an extreme specialty and concentrates upon it for a livelihood, tends to that extent to become a physical, mental, and spiritual victim of the narrow confines of his specialty. He need not be so enslaved to his specialty, to be sure, and may be able to escape its restrictive tendencies. But the danger in this respect is certainly greater than for his ancestor whose living depended on a wider practice of various arts.

Thomas Davidson once told of a man who had ladled tar with such accomplishment for over thirty years that in his mind he might not be able to make a living if the demand for tar ladling should disappear. To that man, his perfection of a specialty had made him the victim of an insecure reliance upon a narrow specialty.

By contrast, a noted surgeon of my acquaintance had mastered nine trades before entering medical training. This gave him a great feeling of security that the tar ladler lacked. In like manner, a pioneer—despite his modest material living—evidences a spirit of self-reliance which is some compensation for his lack of economic welfare.

So it is well to do many things, outside one’s vocation if not within it, for nonmaterial reasons as well as from the standpoint of revealing talents that have been latent. Even at the cost of some possible economic gain, some of one’s time and effort may well be devoted to repairing the intellectual and moral loss that sometimes is the price of specialization. In becoming a wealthy giant in pursuing one’s most rare talents, one must not dwarf and cripple oneself in all other respects. Not all means of satisfaction are composed of economic wealth, and there is no market in which you can buy nonmaterial welfare with material means. And so a man who would be wholesomely free must think of these dangers, as well as of the economic fruits of specialization.

Second, in addition to the narrowing tendency of increased specialization on one’s culture and interests, there is also the danger of losing the material welfare we have attained by undermining the processes which have made it possible to rise to present levels. Our economic welfare could fall by removing the means of its attainment. If persons should be prohibited from producing their specialties, or from trading them with others in the markets of the world, the fall could parallel the rise we have enjoyed.

In the next article I shall discuss one of these matters, namely, money and its function in facilitating this process of exchanging the products of specialization.


True Today As It Was Then!

There are persons who constantly clamor; they complain of oppression, speculation and pernicious influence of accumulated wealth.

They cry out loud against all banks and corporations and all means by which small capitalists become united in order to produce important and beneficial results. They carry on mad hostility against all established institutions. They would choke the fountain of industry and dry all streams . . . . In a country where wages of labor are high beyond parallel, they would teach the laborer he is but an oppressed slave.

Sir, what can such men want? What do they mean? They want nothing, sir, ‘but to enjoy the fruits of another man’s labor.

Daniel Webster, 1828


Foot Notes

1.   For further discussion on this point, see Government—An Ideal Concept by Leonard E. Read. Irvington, N. Y.: Foundation for Economic Education, Inc., 1954. Especially pp. 17-31.

Read the next part of this series here