44. The most brilliant of early German economists, Von ThŸnen, offered a theory that applied a final productivity test to both labor and capital, and made wages and interest depend on the result. In his work, Der isolirte Staat, he said that, when new men are taken into an industry,Ñthe tilling of a farm, for example,Ñthey produce less than did the men who were earlier employed. What the farmer gets by means of the labor of the last man, is what he pays for the work of every man. Von ThŸnen also asserted that a final unit of capital, tested in the same way, shows a similar reduction in its productive power, and that the product of the unit last applied sets the standard of interest.

It is a startling fact that the statements of Von ThŸnen did not lead directly to the solution of the problem of wages and interest. With such a brilliant beginning of a true theory before them, why should economists still account for the rate of wages, by saying that it depends on the amount of capital that is foreordained to be divided among laborers in the form of wages? Why, also, should they account for the rate of interest merely by saying that it depends on demand and supply? It is doubtless true that Von ThŸnen himself attached far less importance to his final-productivity formula than he did to that entirely different formula by which, in his view, the socially desirable and rightful rate of wages is expressed; yet it would seem that his statement of the principle of final productivity should have put investigators on the right track.

The explanation is to be found in the incompleteness of Von ThŸnen's actual theory. It was left in a shape in which it not only fails to reveal the most important fact about wages and interest, but seems actually to contradict it. This fact is that, under the influence of perfectly free competition, the pay of all labor tends to equal the product of all labor, and that interest on all capital mark to conform to the product of all capital.

Von ThŸnen's theory of wages is apparently a theory of the exploitation of labor. In his illustration, there is a certain force of laborers working on a farm and a man is now added to the force. His presence enables the farmer to glean his fields more closely. As Von ThŸnen suggested, he can now gather a smaller grade of potatoes than it was formerly profitable to gather; and if the new man is taken in the harvesting season, his product is embodied in the addition that, in such ways as this, is made to the crop. This man, however, produces distinctly less than the men who are before him in the order of the series; and their pay is scaled down to his product. There are expressions in Von ThŸnen's discussion which seem to imply that, in his own view, the law of final productivity is a law of exploitation of labor. There are also indications that his theory of the final productivity of capital involved a similar exploitation of the earlier units of capital.

What is first needed, it order to make Von ThŸnen's statement cover a principle that is of cardinal importance in connection with wages, is a theory of what has been called "imputation," or of what, in the foregoing chapter, has been called economic causation. At any one time, all units of labor tend to be equally productive. There is, then, no class of workers who are degraded and virtually robbed, because of the pressure of others who produce less than they do and who set the standard of their pay. The excess of pay that the men on the illustrative farm formerly got is attributable to the greater product that they formerly created and that is solely due to the excess of capital which they had in the earlier period. The theory needs to trace to capital, and not to labor, that extra product which an overplus of capital insures to the men who, in the assumed case, are made to come early in the series. It needs, also, in studying the products that are attributable to a series of units of capital, to use the same discrimination and to show that the earlier units of this agent are not exploited.

As between a theory which asserts that every unit of labor naturally tends to get, as its pay, its entire product and one which says that the great mass of laborers are, by competition, regularly robbed of a part of their product, the difference is radical; and yet these theories may use identical language, in telling how the pay of all labor is directly determined. Both may apply to labor the commercial principle of final valuation and say, in effect, that there cannot be two prices of the same article in the same marketÑthat what the last unit labor brings, all labor brings; and that the last unit brings what it produces. If it produces less than do other units, these others are sufferers by their connection with it, for they lose a part of their products. If, however, all units under present conditions produce the same amount, there is no robbery involved in fixing the pay of all by the product of the final one. Von ThŸnen's theory is a final productivity theory; but it needs to become, in addition, a specific productivity theory, which makes the pay of each unit of labor conform to its own specific product.

A theory that is to explain the adjustment of wages and interest needs to make clear what is the mature of that "last dose" of capital, on the product of which interest depends; and this involves discriminating between capital and capital-goods. Particularly, also, does the study need to enforce its scope, so as to include, not one industry merely, but the whole system of groups and sub-groups that make an economic society. The final increment of labor, the product of which fixes wages, is a social increment, some of which is found in every sub-group in the series; and the same thing is true of the final increment of capital. The law of value is active in making these apportionments, and it needs to be included as a part of the theory of distribution as a social phenomenon. With Von ThŸnen's work before us, no one else can claim as his own the application to labor and to capital of the principle of final valuation and the basing of valuation on productivity. A prospector in a mining country may, indeed, independently discover and re-occupy an abandoned claim; and this is all that one would do who should re-discover the single principle of final valuation of labor and capital and should stop where Von ThŸnen stopped. Going farther and discovering laws that tend to bring the products of different units of labor at any one time to a equality, to bring the products of different units of capital to an equality, and to make wages equal to the entire product of labor and interest equal to the whole product of capitalÑthis is attaining the essential truth in the theory of wages and interest; since it establishes the fact that natural law, so far as it has it way, excludes all spoliation. Such further study reveals the fact that what are apparently surplus parts of the products of early increments of labor are really products of capital. This result is gained by following the line of study in which Van ThŸnen took the initial steps; and it may, perhaps, give so much of a title to the final result as a miner secures when he strikes a new vein of metal by using, as an entrance way, an abandoned shaft that had led only to a deposit of ore of a different kind. As Von ThŸnen did not suspect, the natural law of wages gives a result that would satisfy his own requirement, as being desirable and morally justifiable.