into (1) wages, (2) raw material, (3) operating expenses, (4) overhead charges. Taking these four items into account, the producer has, logically 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 principle 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 principle 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 somewhat 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
