156 THE POPULAR SCIENCE MONTHLY 



into (1) wages, (2) raw material, (3) operating expenses, (4) overhead 

 charges. Taking these four items into account, the producer has, log- 

 ically enough, proceeded on the assumption that the less he has to pay 

 for any one of them, the selling price remaining constant, the greater will 

 be his net profit. When in the earlier stages of industry, production was 

 carried on in small workshops, and hired help was uncommon because 

 unnecessary, the only direct costs were those for raw material and for 

 overhead charges. The lower the price per unit the producer had to pay, 

 the lower were his total costs of production. When he came to need help 

 in the shop, he assumed, rather than figured it out, that the less he 

 had to pay an assistant per day, the lower would be his wage cost. 

 If the thing were true of raw material, obviously, he reasoned, it would 

 also be true of labor cost. The fact that his help was trained and 

 worked under his personal supervision and hence was actually more 

 efficient than would otherwise be the case probably explains why the 

 fundamental error in his assumption passed unnoticed. 



When shops became factories and power-driven machinery replaced 

 the old hand processes, the question of the competency of labor was 

 never raised, for reasons already noted, save in unusual cases, and 

 attention was centered upon capital. With their minds still on the 

 mechanics of production, competing employers began to unite, and the 

 modern concentration and integration of industry commenced. With 

 its development, aided perhaps by those who had the time to analyze 

 theoretically the costs of production, was evolved the monopoly prin- 

 ciple of price, namely, that the price should be fixed at that point where 

 the difference between the total income and the total cost was the 

 greatest. And it was merely a question of time before some progressive 

 individuals came to apply the same principle to wages and the labor 

 cost. The added attention unionism had forced people generally to 

 give to labor undoubtedly caused the idea to develop sooner than it 

 would otherwise have done. 



It is, however, in some respects a surprising thing that this prin- 

 ciple has not come to have a more general recognition, since it is 

 applicable in industries other than monopolies. In theory, it is almost 

 universally conceded that the efficient man — he who produces most and 

 best — is always the most profitable, even though he demands a some- 

 what higher wage. The truth of this statement has always been the 

 reason ascribed for the successful competition of American industry 

 with that of Europe, despite lower wage cost per unit on the continent. 

 But employers have been prone to accept this greater efficiency of the 

 American workman as a thing in the natural order of events, and so 

 drew the conclusion that if he could get this greater efficiency at 

 European rates, his profits would be doubly increased, failing utterly 

 to see that the efficiency largely depended upon the higher wage, or, in 



