7: Wages in a Static State the Specific Product of Labor
The value of any good or service is the amount of effort that someone will put into obtaining it. In the autistic economy, it is the effort a man will put into achieving a goal; in the trade economy, it is the goods or services he will exchange for it (which represent the effort he put into obtaining that which he trades); and in the money economy it is the amount he will pay to have it (which again represents the effort he put into obtaining that money). The primary difference is that in the market/money economies he has competitors, and his offer must be better than what others will offer a trading partner to have the same thing. It is in this sense that the laborer is a trader - exchanging his time and effort for a money wage, which he will use to purchase other things.
And so it follows that the price of labor is determined by competition among laborers to sell their time and effort. Each man decides how much he wants to undertake the inconvenience of serving his employer, and the employer seeks the best offer in terms of low price and high quality. If this auction is not interfered with, then each man receives his "natural" wage, compromising his desires (which is always as much as he can get) against competitors (against whom he must lower his price to offer buyers the best deal).
Unfortunately, the state often meddles in the private affairs of men to its own advantage - whether directly (getting labor at a rate that is unfavorable to the workers) or indirectly (helping their supporters obtain unfair advantages) - and this has been universally harmful. At best, the market will attempt to work around the law; at worst, the law will do harm to the market, drawing resources away from the places they are most needed.
There's a brief consideration of "cost prices," which is the somewhat naive notion that it is possible to sell things to consumers for the exact amount of money that it cost to produce them. The first problem with this model is it does not account for risks that occur if there are variances in costs or any problems with supply. The second problem is that there is no incentive for entrepreneurs or investors to create productive operations - the investor wants a return on his investment and the entrepreneur wants a reward for his risk. Ideally, competition in the market moves the price toward providing only as much return/reward as is necessary - but if return and reward are altogether eliminated, there is no incentive to engage.
He mentions the attempts to fix a price for labor across all industries, such that the carpenter and the steel-worker are paid the same wage. This is likewise a recipe for disaster, as there is no reason for workers to prefer one profession over the other and to do what best pleases them even if it is not needed. If there is greater demand for carpenters, the wage for that profession must rise to attract the number of workers needed. The shortage of labor creates a shortage of goods that cannot normalize itself.
To maintain a static economy, there must be static demand: consumers must consume the same goods in the same quantities and pay the same prices. Producers must create the same goods in the same quantities and pay the same wages. There can be no growth in the population (which would create additional demand and additional supply of labor) and there can be no disasters or unexpected events that interfere with the production, supply, and consumption of goods. No crop may fail, no worker may call in sick, nothing may be lost or damaged, etc. Clearly, this is unrealistic.
Consumption drives the market: when consumers demand more of one good than another, and are willing to pay for it, then this creates a financial incentive for the good to be produced. The investor gets a higher return and the worker gets a higher wage for contributing their capital and labor to the good that is most wanted. Because people do not demand the same things in the same quantities, wages cannot be fixed. And because peoples' tastes change, the demand for products will likewise change.
The notion that the work-master, investor, and landlord have the ability to set prices arbitrarily is unrealistic. Like any other participant in the market, they may demand or offer whatever they please - but if they do not find others who are willing to take their offers, they must bargain, lowering or raising as necessary to gain trading partners.
He turns to the example of the independent producer, such as a blacksmith who works for himself. His income is determined by what his customers are willing to pay for his work. When he hires an assistant, his customers furnish him with the ability to provide a wage - again, it is only as much as customers are willing to pay for the work of the assistant. If he fails to pay his assistant the value of his work, then the assistant can seek an arrangement with a master who will compensate him more fairly.
He mentions the division of reward between labor and capital, and suggests that the two cannot be cleanly divided. The fisherman who catches with a net cannot divide his fish into two piles and say that one is due to his effort and the other is due to his net. It is perhaps folly to attempt to make such distinctions, as we can observe the result of labor and capital working together, but cannot separate them. The net without the fisherman catches nothing, and the fisherman without a net catches nothing.
It is also observed that capital is the product of previous labor. We consider the fisherman's net and boat to be capital items, but labor was necessary to produce them. Whether he builds his own boat and weaves his own net or purchases these items from someone else is immaterial - they are the products of labor expended in the past toward production in the future. From primitive tribes to homestead farms to villages to industrial towns and cities, the history of man shows a progression due to the accumulation of capital, each generation benefitting from the production of its predecessors.
There's a brief reference to colonial expansion, in which land is originally free for the taking because it is in an unimproved state. When fields are cleared, wells are dug, roads are built, and so on, the land increases in value. The increase in population and proximity of resources further adds to the value of the land. It's also noted that the wages offered in colonies is often very high to begin with because employers must compete with the income men may make by establishing farms, as well as the general lack of population to serve as labor - but as an area becomes settled, free land less available, and population greater, wages fall.
Clark stops short of the theory, espoused by some, that farm profits set the wages for the market. This may be true in the early stages of development, where farming is the principle activity, but in settled and industrialized areas where farming is rare and most of the arable land is occupied, it has less power to set the market. Instead, wages are set comparatively as the laborer's choice is among different employers who require particular skills rather than between employment and farming.
However, he does embrace the principle that "wages tend to equal what labor itself can produce." An employer can pay a worker no more than the profit generated by his labor, and while he seeks to have labor at the lowest price he can pay, competition for workers requires him to offer a reasonable amount - as much as he can afford to pay when there is a labor shortage, less when there is a labor surplus.
In all, there is no universal standard that regulates general wages. They are the consequence of circumstances, and circumstances are constantly changing. It is likewise absurd to suggest that there is a standard schedule of prices for consumer goods - they go to the market that offers the most for them, and the markets are in constant flux.
He mentions that domestic/local product always have a competitive advantage in that the seller does not need to recover transportation costs, but even this assumes all other things are equal. The methods of production have to be equally efficient, labor must cost the same, the item in question has to be in equal scarcity/abundance compared to demand, etc. But at the same time, the international market is an efficient regulator - local sellers in any market cannot sell their goods if they set a price higher than imported goods, unless there is government intervention to prevent the entry of imports into a market. And even then, this merely creates a profit for smuggling.
There's a mention of "surplus labor," which is a temporary state where a fraction of the population is capable of producing all the goods that are desired by an entire society - hence there are many idle hands with nothing to produce. While man's basic needs are modest, his desire for comforts and luxuries is boundless, hence there is always something that can be provided. Where labor is in surplus for an extended period of time, wages and prices fall in the area and laborers emigrate to where their services are needed. Naturally, the opposite happens when there is a shortage of labor.
Finally, there is consideration of the marginal utility of labor - the point at which employing more men makes work less efficient if the capital (facilities, tools, materials) is not also increased. It is in the interest of employer and employee alike to employ additional hands only to the point that their marginal contribution is positive. But this is an imaginary problem, because productive capital can be added to create opportunity for more workers to be productively employed.