The general laws of supply and demand hold good.  The wages of labor tend to a level at which the demand is equal to the supply.  For, if the demand exceeds the supply, if, in other words, labor is scarce, wages tend to rise, sooner or later in any case, and the more promptly in proportion as the workpeople are organized.  Conversely, if the supply exceeds the demand, if in other Words there is general unemployment, wages tend to fall, and the strongest trade unions cannot resist the tendency, though they may delay it.  Moreover, the higher the wages that must be paid, the smaller, other things being equal, is the demand for labor.  For, even if we leave foreign competition out of account, and consider, as it were, labor throughout the world as a whole, the demand for labor is by no means inelastic.  It is derived along with the demand for the other agents of production in the manner described in Chapter V. As was there shown, the greater the supply of the other agents of production, the greater is likely to be the demand for labor; but these other agents can be substituted for labor in a great variety of ways, and an increase in wages (unless accompanied by increased efficiency) will make it profitable for employers to effect such a substitution, where it was not profitable before.  Thus, higher wages for the same labor efficiency must stimulate the tendency for capital to act as a substitute for labor at the expense necessarily (since the aggregate supply of capital will not be increased thereby) of its tendency to serve as a complement; and this must mean a decrease in the volume of employment.  Hence the power of labor to secure a general advance of wages by concerted or simultaneous trade union action, applied if you will, not merely to every industry, but to every country, is necessarily very limited.  Beyond a certain point, such a policy must result in general unemployment; and, if pushed sufficiently far, in unemployment so extensive that it would continue even in periods of active trade.  Such a policy could neither be maintained in practice nor would it be a wise policy from the workers’ point of view.

In other words, given on the one hand the conditions of the demand for labor (i.e. the supply of capital, natural resources, business ability, risk-bearing and knowledge of technical processes, etc., which happens to exist), and given on the other hand the supply of labor (i.e. both the numbers of workpeople and their efficiency), the wage-level in the long run is fairly rigidly determined.  The introduction of the phrase “in the long run” in this connection is apt to provoke comment which may be pertinent, but may be misconceived.  The worker, it is pointed out, is deeply concerned with “the short run” in which he has to live.  It is very true; and it is this that supplies one of the many justifications of trade unionism.  To secure for the workers advances of wages, which economic conditions justify, sooner than would otherwise have been obtained, is certainly no trivial or contemptible function.  But it is none the less an illusion to suppose that the general wage-level can be appreciably and permanently raised by trade union action, except in so far as it increases the efficiency of the workers or incidentally stimulates the efficiency of the employers.