§ 2. Differences arising from Natural Monopolies.

The preceding are cases in which inequality of remuneration is necessary to produce equality of attractiveness, and are examples of the equalizing effect of free competition. The following are cases of real inequality, and arise from a different principle.

(4.) “The wages of labor vary according to the small or great trust which must be reposed in the workmen. The wages of goldsmiths and jewelers are everywhere superior to those of many other workmen, not only of equal but of much superior ingenuity, on account of the precious materials with which they are intrusted.” The superiority of reward is not here the consequence of competition, but of its absence: not a compensation for disadvantages inherent in the employment, but an extra advantage; a kind of monopoly price, the effect not of a legal, but of what has been termed a natural monopoly. If all laborers were trustworthy, it would not be necessary to give extra pay to working goldsmiths on account of the trust. The degree of integrity required being supposed to be uncommon, those who can make it appear that they possess it are able to take advantage of the peculiarity, and obtain higher pay in proportion to its rarity.

This same explanation of a natural monopoly applies exactly to the causes which give able executive managers, who watch over productive operations, the usually high rewards for [pg 209] labor under the name of “wages of superintendence.” If successful managers of cotton or woolen mills were as plentiful, in proportion to the demand for them, as ordinary artisans, in proportion to the demand for them, then the former would get no higher rewards than the latter. Able executive and business managers secure high wages solely on the ground—as explained above—of monopoly; that is, because their numbers, owing to natural causes, are few relatively to the demand for them in every industry in the land.

(5.) Some employments require a much longer time to learn, and a much more expensive course of instruction, than others; and to this extent there is, as explained by Adam Smith, an inherent reason for their being more highly remunerated. Wages, consequently, must yield, over and above the ordinary amount, an annuity sufficient to repay these sums, with the common rate of profit, within the number of years [the laborer] can expect to live and be in working condition.

But, independently of these or any other artificial monopolies, there is a natural monopoly in favor of skilled laborers against the unskilled, which makes the difference of reward exceed, sometimes in a manifold proportion, what is sufficient merely to equalize their advantages. But the fact that a course of instruction is required, of even a low degree of costliness, or that the laborer must be maintained for a considerable time from other sources, suffices everywhere to exclude the great body of the laboring people from the possibility of any such competition. Until lately, all employments which required even the humble education of reading and writing could be recruited only from a select class, the majority having had no opportunity of acquiring those attainments.

Here is found the germ of the idea, which has been elaborately worked out by Mr. Cairnes175in his theory of non-competing groups of laborers: “What we find, in effect, is not a whole population competing indiscriminately for all occupations, but a series of industrial layers superposed on one another, within each of which the various candidates for employment [pg 210] possess a real and effective power of selection, while those occupying the several strata are, for all purposes of effective competition, practically isolated from each other.” (Mr. Mill certainly understood this fully, and stated it clearly again in Book III, Chap. II, § 2.)

The changes, however, now so rapidly taking place in usages and ideas, are undermining all these distinctions; the habits or disabilities which chained people to their hereditary condition are fast wearing away, and every class is exposed to increased and increasing competition from at least the class immediately below it. The general relaxation of conventional barriers, and the increased facilities of education which already are, and will be in a much greater degree, brought within the reach of all, tend to produce, among many excellent effects, one which is the reverse: they tend to bring down the wages of skilled labor.