2.7 The Revenue of Industry
Again, producers seek to engage their resources where they can generate the greatest profit - but are driven not merely by demand, but by the availability of resources. Generally, men are possessed of three productive resources: industry, capital, and land, which Say means to consider separately in the chapters that follow.
Presently, he considers industry - the actions taken by man to produce value - also commonly referred to as labor, though the latter connotes effort that may not ultimately be productive.
The Profits of Industry in General
Industry contributes more greatly than other factors of production in the creation of value. Neither capital nor land can provide any value unless it is acted upon, and we can readily identify economies where there are vast resources that are unutilized, as well as those in which a small amount of resources yields a high level of value due to effective utilization.
Those who are possessed of capital or land in quantity can gather a profit from it without much effort, but their profit derives from the efforts of others who utilize their resources: the landlord does not farm, but the rent he is paid is derived from those who farm his land. In the same way, those with no resources can make productive use of their effort by leasing the capital and land of others.
The compensation of labor is not equal in all professions: involvement in activities that are disagreeable (dangerous or unpleasant), that provide irregular revenue, and require considerable talent all command greater reward than those that are agreeable, provide regular income, and require little talent. These qualities cause people to be less willing and able to do some tasks than others, hence there is a lesser supply of labor for certain purposes tan others, hence those who demand labor must pay more for certain tasks.
In regards to the agreeable nature of work, Say feels it unnecessary to elaborate, as it's largely subjective and most readers should have no difficulty identifying tasks they find unpleasant. However, he does note that the esteem granted to certain professions, or lack thereof, is a significant factor. There are certain professions that are so distasteful that few will be willing to undertake them except for significant compensation (prostitution), and others that are held in such high esteem that they require little compensation and are undertaken for esteem alone (philosophers).
Additional compensation is necessary to professions in which a person is not often needed, to compensate individuals for the time during which the skills are not needed. A driver works only when his carriage is hired, but must be paid enough for his services to feed his horse (and himself) during the long periods in which he is not needed. The maker of masquerade dress for carnival must be paid enough for their product, used once per year, to sustain himself through the entire year.
Say also includes in this consideration those professions to which many apply and few succeed. For professions where there is a potential for tremendous fame and fortune, many will attempt but few will succeed - and in this way Say considers pursuit of such professions to be a lottery where one successful person gains what thousands of others have sought.
(EN: I'm not quite sure I agree - his point is well taken, in that many people aspire to be a "star" actor, musician, or athlete and few succeed. However, the desire to gain the income and esteem are supply-side - they encourage people to attempt to become suppliers. In terms of compensation, that is furnished by the purchaser, who is not concerned about the number of failed wannabes: star-talent is a unique commodity of exceptional ability and highly valued as such.)
The "last and perhaps principal" cause of increased profitability of industry is the degree of skill required. Developing skill at a task requires long and expensive training, during which time the student is not compensated and must often advance capital to receive training. For the individual choosing to enter a skilled trade, this is considered an investment, likened to an annuity, that will pay dividends in the form of an increased compensation for their labor. Because few individuals are wiling to make a present sacrifice for future returns, the number of skilled laborers in the population is generally small, and the effect of supply and demand result in a higher cost for their labor.
There are exceptions to this general rule: if many individuals seek to train in a given profession, the supply is swelled and the compensation is less than they anticipated. There are also professions that gather esteem or other material rewards and little compensation: scholars, philosophers, and members of the clergy are not well remunerated in regard to their training.
Say acknowledges the distinction between training and natural talent, but they are largely analogous as they contribute to the quality of the product. Talent may substitute for training, such that an apprentice carpenter may fashion an item of equal quality as a master; and vice-versa, as the master required years of training to produce what an individual of great talent could do without training. There are also instances in which an utter lack of talent results in an individual who is hopelessly incompetent regardless of the training he receives, as well as instances in which training and talent amplify one another. Those at the peak of their profession, such as a talented surgeon or attorney, benefit from both and command extremely high compensation for the quality of their work.
The Profits of Science
Say briefly considers the compensation of scientists (philosophers) to be woefully inadequate to their contribution to the welfare of a society: a great amount of training and time is devoted to scientific inquiry that results in a discovery that dramatically increases the productive capabilities of his community, nation, and the world and his compensation, if anything, is a trifle by comparison.
He has previously mentioned the esteem granted to scientists, which is their chief reward. Nations that are "sufficiently enlightened" to recognize the value they can receive from the work of scientists have granted favors, privileges, and "flattering distinctions" to encourage the pursuit of scientific inquiry. Those that fail to do so provide little encouragement to the profession, and remain deprived of its benefits.
He returns to the notion of patents, which protect the work of scientists so that they may reap some of the benefit of their labor, but this is of limited effect: the patent can only be enforced in one nation, and is in general short-lived: a discovery is a secret that cannot be long kept - and in helping to keep it a secret, a nation deprives the general public the greater benefit of its wider application.
Its also observed that scientists tend to have other sources of income as they must. Philosophy is the pass-time of the wealthy, or the hobby of those who derive revenue from other sources (chiefly capital and land) and thus have the time to tinker in pursuits for which they will be ill-compensated.
The Profits of Adventure and Master Agent
The profits of embarking on any unknown course are seen as similar to the profits of science: an adventurer (entrepreneur) embarks on a course of action that is not known, investing significant effort in hope that it will be profitable - with far less certainty that an individual who follows a proven and traditional course of action.
Much attention is given to the capital investment in adventure, which in most cases is chiefly paid out of the adventurer's own store of capital, though instances in which some portion, or even all, of the funding needed for an adventure was extended by creditors or investors who intended to be compensated in the event of a positive outcome. In the content of the present chapter, this is set aside to focus upon the labor of adventure and the risk to the adventurer himself.
Say includes in the same consideration the "master agent" (executive) of any endeavor, whose labor is in the direction of the action of others: the farm laborer is compensated for his effort regardless of the profit that the farm produces, if any, whereas the master agent of the farm, that directs the laborer's action, is entirely dependent on success for his reward. So too does the merchant fall into the class of master agent, as his decision of what to trade and where to convey goods for the greatest profit is critical to the success of commerce, and who commands the service of porters and sailors who receive wages regardless of the success of the operation.
The significant compensation of master agents is begrudged by those who perceive them as having little contribution to the act of production - but without their direction, production would not be possible. A great many individuals are unable to be productive not from lack of willingness to produce, but lack of direction to know what to produce, or how to act in concert with others to produce it.
Say elaborates on some of the skills that master agents bring to bear, in predicting the demands of the market, bringing together the components (labor, equipment, materials) to furnish it, and the myriad of other tasks that require knowledge and acumen to effect and sustain a productive operation.
It's also noted that the degree of skill necessary to act as a master agent differs among industries. The profession of farming is widely practiced and well known and it requires little knowledge to successfully command a farm, hence the profits of the master agent in this industry are low. The knowledge required for merchant or manufacturing operations is considerably greater, and compensation of master agents is higher.
The compensation of the master agent is bound to the success of his operation, and those who achieve success are entrusted with greater amounts of capital for other endeavors, their skill having been proven - or where he fails, his record of failure decreases the trust others will place in him, and may prevent him from continuing in his own line of work beyond the extent of his own capital can facilitate.
The Profits of the Laborer
The simplest forms of labor may be performed by "any man possessed of life and health" - and as a consequence, there is often greater supply than demand of common laborers, which keeps the price of labor low.
It can be observed that certain acts of labor require some degree of physical strength, such that the supply of capable laborers is slightly more limited, men who are in good health and of a certain age, which raises their wage slightly above that of tasks that can be done by women, children, or the elderly.
It is reckoned that the wages of labor are bounded by the needs of the laborer and those who count on him to support: a person will not work for less than he must have to provide the bare necessities for himself and his family.
(EN: This seems reasonable, but does not always bear out in practice. Others have suggested that people will only choose to labor for others if they are offered more than they could make for themselves, which seems a better standard as a person's needs and capabilities are not always matched.)
On that premise, a bachelor can accept less for his labor than one who is a husband and father. As such, societies may preach celibacy for the working class as a means to dispose of the excess population before it is born, keeping wages elevated to a certain level for the lowest levels of society by limiting the labor supply. Even if the common man could fathom this connection, immigration and emigration of population occurs where the price offered to labor is significantly greater in one location than another, so the market will balance itself out to send resources to where they are most wanted.
It also does not follow that children will necessary follow in the profession of their fathers, though it often tends to be so, as those raised in a specific location are often prepared for the occupations that are in practice and demand. It's also noted that where a local economy is in decline, its population also tends to be in decline for want of the resources to support larger families; but where an economy is flourishing, the population also expands.
Another factor that determines the cost of labor is the degree to which the worker is entirely dependent on his productive income for his sustenance. That is, a child who is fed and housed by his parents may labor to generate income, but because his survival is not dependent on it, he will accept a lower rate. One of the factors that kept cloth cheap is that it was a cottage industry, women too young or old to work would earn a small income by spinning thread, and did not have need of much income because their basic needs were covered by the household.
While manufacturing wages are generally higher than those of agricultural labor, they are also more tenuous. Few manufactured goods are necessities of life, and their manufacture ceases abruptly at an economic downturn. In some instances, "the mere caprice of fashion" is fatal to industry: when shoelaces became preferred to buckles, the manufacturing income of entire towns was eliminated. Also, law and taxation is often directed toward manufacturing, such that a single edict can render an operation unprofitable.
Some remark is made on the interference of government in wages, which has been universally negative. To raise both wages and prices in equal measure is to have no effect at all. To raise wages alone also increases costs, which increases prices, making the products uncompetitive or unprofitable, or less so to an extent that demand falls and the operation fails.
Say suggests that there are temporary fluctuations that may decrease wages below the amount necessary for subsistence - but if left to their own devices, the market will even out. It is certainly more likely to do so if left alone than interfered with. There follows an extended example of a disparity between the production of wines and the production of barrels in which the crop is poor and the demand for barrels leads o a drop in the demand for laborers in the barrel-making industry.
The wages of labor is a reflection of the demand for the product of labor, which is the effect of the desires of the consumers. Wages will be low for the maker of any product that is not in demand, and higher for those who are capable of producing goods that are in greatest demand. To interfere with one part of the equation will cause an imbalance that will inevitably be restored.
The demand of labor in a market can not remain for long below the level that is necessary to produce the goods needed for subsistence, but it can be elevated considerably higher. The limit to the desire for luxuries and conveniences has never been exceeded, as when the needs of man are addressed he has little difficulty inventing wants.
(EN: My sense is that this is subject to culture, as there are examples in which the preference of laborers is not to obtain more things, but to perform less labor - or in effect, to have more leisure time. Even in materialistic cultures, no-one spends every waking hour at productive labor, but instead resigns to be satisfied with a given level of income, having given sufficient labor for sufficient compensation to obtain the things they desire. Adam Smith specifically mentions that some men who can earn in four days enough to sustain them for a week will idle away the other three.)
Say suggests that much of the misfortune of the laboring class arises from their failure to consider the possibility of misfortune - the habit of consuming all they produce and laying nothing aside for contingencies. The condition of the aged in his time was particularly piteous, but it should be considered that those who are deprived in old age are as culpable for their own deprivation as the farmer who gluttonously consumes his autumn harvest and stores nothing for winter. Wisdom is the only certain cure for misfortune, but the attempt of centuries of philosophy does not seem to have sufficiently conveyed the lesson.
Back to the factors that determine the wages of labor: the value of product is foremost, the supply of workers second, but other factors also hold sway. The negotiation of wages between master and workman are likened to the haggling between buyer and seller, with one attempting to give as little and the other attempting to get as much as he can for the item in question - though in this situation, the master is limited by his estimation of the future value of his product rather than the certainty of his past income.
It's also suggested that there is mutual need to come to an agreement, the master needing labor to produce and the laborer desiring income from assistance, though the need of the laborer is in most cases more immediate, as there are few masters without the capital resources to subsist if they need to close their operations for weeks or months for lack of labor.
While it seems noble to intervene on behalf of the laborers, there has yet to be contrived a sustainable method for doing so: schemes have been proposed to make the master obliged to provide sustenance to his laborers - but none yet has suggested a method to compel customers to purchase the product of the master in sufficient quantity and price to furnish the means by which he would do so. Where funding is provided out of charity for the sustenance of those who are unproductive, it swells their number an discourages them from finding productive means to obtain for their own wants - the necessity of which ultimately is the natural state of all mankind.
He turns at last to Smith, who indicate that the wages of labor are like the reward of any endeavor: those who are most productive and who choose to produce that which is most wanted are most greatly rewarded; those who are unproductive or insist on producing that which has no value are encouraged to amend their poor choices by the unprofitability of such ventures. This is as true for the adventurer and the master as it is for the common laborer, though the latter is the only one who garners sympathy for his own folly.
Benefits of the Advance of Industry
Say goes on a rather long rant through history, the point of which seems to be that it is the advancement of industry, rather than spiritual or intellectual enlightenment, that has done the most to elevate the general state of mankind. The peace and prosperity of his present age are the advancement of industry, enabling man to produce for his needs with far less effort than in ages past.
The savagery or barbarism of previous ages were necessitated by the inability of men to produce for their own needs: those who can provide for themselves have little needs to loot a village or enslave their neighbors, or to take of any without offering equal value in return in voluntary and mutually beneficial exchange.
Industry has also been the liberation of the bulk of the population, who have grown independent of the caprice of a controlling minority. The man who is capable of providing his own needs has no need and less interest in the proposition to surrender himself to the will of another for the sake of being tended and nursed.
While there remains warfare, the object has changed: it is no longer waged to obtain wealth, but to defend the ability of citizens to produce and consume the product of their own effort from those who would interfere.
"There is yet one more step to be made," which is for nations to desist with competition for commercial monopoly, which is itself a vain pursuit. Those who engage in trade are indifferent to the distinction of domestic or foreign products or customers, and the attempt to balance competition or tilt it in the favor of some producers, contrary to the natural order, does more injury than benefit to all.
Industry is best facilitated by peace, and progress best facilitated by refraining from interference with the productive capabilities of man and his natural inclination to seek to apply himself to the course of action that brings him the greatest benefit.