We have become accustomed of late years to the contemplation of enormous salaries.
The payment of such salaries is sauctioned upon the pretext of the equivalent value of the recipient's services. If a protest against the payment of a hundred thousand dollars a year to the president of a mutual insurance company is offered, the answer is made that the rare qualifications demanded in the manager of such in enormous and complex business not only justify but necessitate the payment of such a salary. "The office demands the highest ability, and a hundred thousand dollars is none too much for that."
Defenders of the high salary sometimes make comparisons between a particular salary in question and certain other salaries of equal value, or salaries somewhat less but attaching to positions of less responsibility, under the impression that such citations establish the equity of their cause. And what is of vastly greater and more portentous significance—the general public, though perhaps doubting, yet not knowing how to answer, suffers the case to go by default.
Yet to the clear thinking man who has a comprehensive knowledge of fundamental economic law, the question presents no difficulties, and the verdict will be promptly and emphatically adverse.
In the common field of wage labor, so called, the arbitrament of competition, though it does not indicate the absolute value of theservice rendered, nevertheless does determine, with some approach to equity, the relative values.
True, competition is not free even here; some wages are artificially advanced. But the discrepancy is insignificant in comparison with the difference between, say, the $8,000 salary of a judge and the $150,000 salary of the president of an insurance company. Some carpenters may receive 30 percent higher wages than some other carpenters of equal capacity; but some salaried men receive 1800 percent more than others of equal capacity!
Yet the claim that such enormous salaries are necessary in order to secure the services required, is equivalent to asserting that the salaries are competitive A very little reflection should expose the absurdity of that claim.
President Alexander, of the Equitable Assurance Society, received a salary of $100,000. With whom was he in competition? Did he ever have a chance to get such a salary in any other connection? Will he ever have another chance?
Mr. Paul Morton has succeeded Mr. Alexander, as being fitter for the place, at a reduction of $20,000 in salary. But if the salary were competitive, Mr. Morton being conceded to be much the better man for the place, would have received an advance, instead of a cut.
Of course, in this particular case, the real reason of Mr. Morton's voluntary acceptance of the reduced salary was that the United States public was in no mood to be trifled with at the moment. Mr. Morton, and everybody else, knew perfectly well that a considerable part of the $100,000 salary was graft, pure and simple, and as the ostensible purpose of his selection for president of the company was the elimination of its scandalous excess of graft, he wisely began where the permanent graft was greatest—in the president's salary.
But the salary still is $80,000. Is it an equitable salary? Or (to get away from this particular case, which I have cited only as a means of illustration), are the notoriously large salaries justified by the services rendered by their recipients?
No. And that they are not is easily demonstrated.
If any individual is entitled to higher pay than another, it is because he renders greater service to society than that other. The interposition of the employer between the workman, for instance, and the public does not alter the case. The most efficient group, including employer and employes, will outstrip the less efficient in the competition—that is, in service to the public—and will, as a group, receive cominensurately a greater reward.
The law holds, either as to the individual or the group of individuals. The question of reward does not depend upon the amount of an individual's product, but on the amount that he imparts. He must get his reward by exchanging his product for the product of others; and therefore in order to get more than his competitors he must impart more.
That would be the case if the principle of competition were universally free to act. And the moment that you exempt an individual from the law of competition you thereby concede his inability to command an increased reward without such exemption. Else why exempt him? By exempting him you help him to an increased income; an increase which he could not get without such help, and which, therefore, he does not earn, but receives by special privilege.
Since, then, naturally—that is, under purely competitive conditions—increased reward comes only from increased service to society, it follows that under such conditions an exceptionally high salary would indicate a general rise in the level of social conditions; and that a large number of very high and frequently advancing salaries would indicate a very much improved and frequently rising general standard of living, reaching down to the lowest level of wage-earners.
I repeat that the rapidly rising standard of living would embrace the common laborer. This is the most important fact of the whole problem. The laborer's wage is the criterion of general service value. All advance in income starts from the wage-level of Common Labor. All advance in service-value, therefore, starts from the service-value of Common Labor. The test of alleged exceptionally high service-value, is, therefore, the condition of the Common Laborer.
It follows that if the exceptionally large incomes now prevailing (whether these incomes are in the form of $100,000 salaries or of $1,000,000 profits), are earned, then the condition of Common Laborers generally has risen by leaps and bounds within the last few years.
But statistics prove that in the United States the cost of living has increased beyond any advance in wages. The conclusion is inevitable, therefore, that large incomes exceed the recipients' earnings.
How much do these incomes exceed earnings? No one can tell. The fact of paramount importance for our consideration in this connection is that the great incomes are indisputably beyond the effective influence of those natural laws which tend toward social equity.
The individual laborer's wages are modified by the wages that his fellow consents to work for. The wages of the mechanic bear a manifest competitive relation to the wages of common labor. The profits of the green-grocer, the draper, the teacher, etc., all are competitively related to the wage rate of common labor. Only through exceptional service to those below, can those above maintain their positions in the competitive field.
But there is no comparison whatever between the common-laborer wage and the hundred-thousand-dollar salary. There is no natural relation between them. The wages of the common laborer are the just compensation for valuable service rendered—minus the laborer's enforced contribution to the incomes outside the influence of competition. The great incomes are, at best, in small part compensation for valuable service rendered—plus the maximum of graft that special privilege is able to extort from the occupants of the competitive field; and. at the worst, they are, in their entirety, graft, pure and simple.
What should be the maximum salary, or the individual income of whatsoever name?
It should be just what a man can get, under conditions of universal freedom of competition, in a world where natural opportunities are free to all men. Abolish all special privilege, and the man of high abilities would earn his greater compensation as the just reward of benefits imparted to the whole body of society.
Under such conditions all society, including the humblest servitor, would rise in affluence in proportion to the increase in productivity. Which is to say that if our productivity should increase as fast in the next 40 years as it has in the last 40, the poorest class would be ten times as affluent as now, plus its hitherto withheld equity in the current product of today.
Today, the difference between the extremes of income measures the difference between the opportunities of individuals. Abolish all forms of special privilege, and the difference between the extremes of income would measure the difference in the social service of the individual recipients, and the maximum income would be the just reward of the largest contributor to the sum of human welfare.
EDWARD HOWELL PUTNAM.