"LORD HATHERTON'S PENNY"

The employers appeal again

Three years passed, and at Martinmas 1879 the manufacturers agreed that the time had come for them to attempt to accomplish that which they had failed to obtain in 1876-7 — a reduction of 10 per cent. 

They therefore sent in an appeal to the Board, supported by no less than seventy-eight members of their body.

At the arbitration of 1877, it will be remembered, only forty-eight manufacturers were parties to the appeal, and the workmen made a strong point of the partial character of the movement among the manufacturers. The general character of the appeal of 1879, however, convinced the workmen that they would have an even more difficult task than they had in the former arbitration in opposing a claim made by nearly every employer of importance in the district.

Lord Hatherton, Umpire (1879)

The first step to be taken was the selection of an Umpire, by both sections of the Board. The name of Lord Hatherton was suggested; and he consented to act as Umpire, but first desired to have some common basis, acknowledged by both sides, upon which he could proceed. 

Incidents of the Arbitration

A deputation of masters and men therefore waited upon him. They informed him of the nature of the question which he had to decide. 

He asked for a standard, upon which they were agreed, and they answered — both masters and men — that they were agreed that he should take the selling prices and wages of 1872 as a standard — that he should go back so far, and no further, and accept evidence dealing with the state of trade from that period up to that of the arbitration.

It is difficult to imagine why the representatives of the workmen thus readily acquiesced in a course of procedure against which they had protested at the previous arbitration, and one which, in all future arbitrations, they emphatically repudiated. 

The only conclusion possible is that they did not quite appreciate the gravity of the step they were taking, nor recognise the position of helplessness to which they were reducing themselves. 

They had narrowed down the issue to practically one point — Had selling prices decreased since 1872? 

Well, obviously that was a matter upon which they could offer no authoritative evidence. 

There were as many different selling prices, for the same goods, as there were manufactories. 

Not only did the workmen possess no knowledge of what the selling prices of any manufacturer were, but, for prudential reasons, and owing to a not unnatural jealousy, every manufacturer was careful not to reveal to his rivals in trade the prices at which he sold his goods. 

The only evidence possible, therefore, upon the issue agreed upon, was the statements of the various manufacturers as to by how much per cent, their selling prices had decreased since a given period. How were the workmen to controvert those statements? Clearly, they could not. 

They had therefore, by so narrowing the issue for the convenience of the Umpire, practically reduced an arbitration to the level of an ex parte motion ; and, for all effective purposes, having once agreed upon the " common basis " that the appeal should fail or succeed by the test of the change in selling prices since 1872, they might just as well have asked the employers to furnish the Umpire with comparative lists of selling prices, and have quietly retired until he had perused those lists, and given his verdict in the only possible way that they permitted.

THE SECOND ARBITRATION

Selling prices again

The arbitration lasted for five days. 

In opening the proceedings, Lord Hatherton gave an early indication of his mental attitude towards the question which he had to decide, and showed that, even if the workmen had not agreed to have a common basis so far as a certain year was concerned, they would have had considerable difficulty in persuading him that a reduction in selling prices was not a justification for a reduction in wages. 

After alluding to the simplification of his work by the agreement "to start with the basis of the prices of 1871-2," he went on to say: 

"We may say and do as we like, but there is an inevitable law that where there is a great demand for labour, the workmen will be in a position to claim, and will eventually get, an increase in wages ; on the other hand, when employers find it necessary to restrict the sphere of their operations, or get alarmed for their capital, and consequently do not employ the same amount of labour as when trade was good, the inevitable result is that, make what strikes you like, before long wages must be abated. 
When trade is good, there is a demand for men, and wages will rise ; when trade is bad, and there is little demand for men, wages must fall." 

By thus foreshadowing his views, the Umpire clearly indicated that he would not be influenced in his decision by any consideration of a " living wage " for the operatives, for he was evidently a firm believer in the theory of an inelastic " wages fund " and the other then current doctrines of political economists, who called upon workmen to be the passive spectators of a delicate system of economical mechanism by which their wages were considerately adjusted without any effort on their own part, the perfect working of which they were asked to admire, but which they must on no account touch, lest their clumsy fingers should throw it out of gear. [footnote 1]

The formal statement of appeal contained substantially the same reasons as that of 1876. It was as follows: —

"(1) The depressed state of trade; 
(2) the effects of foreign competition ; 
(3) diminished profits ; 
(4) that while trade was good, advances were made, and there has been no reduction in consequence of bad trade; 
(5) that in numerous other trades workmen have submitted to a reduction, and the cost of living is cheaper than when the present scale of wages was authorised." 

A comparison with the claim of 1876 will reveal two deviations from that of 1879. 

In the former appeal, the third clause was, "the generally reduced prices at which goods are now selling," and now the manufacturers did not speak of reduced selling prices, but of diminished profits. 

In clause 4 of the appeal of 1876, the manufacturers were more emphatic in their statement that no reduction had been made in consequence of bad trade, for they then asserted that "on no occasion had any reduction been made when trade had been depressed." If by this they meant a general and simultaneous reduction, then they were only stating that which was true, but the whole tendency of wages from 1846 down to 1867-8 had been to decrease, and only the arbitrations of 1872 had checked the downward tendency.

PROS AND CONS

The evidence given by the employers to support their appeal briefly consisted of the statements that since 1872 prices had been declining, and foreign competition had increased. 

The workmen endeavoured to show that since the date of the last arbitration business had improved, but the Umpire, recollecting the " common basis," declined to restrict his view to the later period. 

EMPLOYERS' ARGUMENTS

Some of the witnesses for the employers, however, said that even since 1876 prices had receded, and none spoke of any improvement in prices since that date. 

So long as they confined their evidence to the decrease in selling prices, the employers were on safe ground ; but they made several excursions into other directions, and advanced arguments and contentions which were as absurd as they were novel. 

Several manufacturers urged that a reduction in wages would be for the benefit of the workmen themselves. 

One manufacturer vaguely said : " With cheaper production there would be increased profit on the capital invested, and enhanced earnings for the workman. They had no desire to reduce wages, except as it would be a mutual advantage." Inasmuch as they proposed to " cheapen production" by reducing wages, one fails to see how the advantage could very well be of a mutual character. 

Others, however, attempted to prove their paradox by pointing out that if wages were reduced the manufacturers would be better able to compete with foreign-made goods, by which they alleged they were under-sold, and they argued that trade would thereby be stimulated, and the workmen would share in this "increased prosperity." 

Increase of trade, but decrease in selling prices 

To this the workmen might have returned the answer that they could only recoup themselves from the loss which a reduction would entail by working more hours for the same money, but extra work would mean increased production, and that, in its turn, would inevitably lower prices, and, presumably, wages again. 

The manufacturers were therefore inviting them to take a first step to bring about what promised to be a series of reductions in wages, whilst endeavouring to persuade them that they were only doing that which was necessary for their own good. 

Other manufacturers urged that they were already carrying on their business at an actual loss, consequent on being compelled to accept unremunerative prices, and they urged that the reduction was necessary in order that they might be able to accept orders at the rate of selling prices then prevailing ; but they made no attempt to show that a reduction of 10 per cent, in wages would make the current selling prices remunerative, and therefore failed to show that the reduction asked for would restore stability to their business. 

Another manufacturer — and a member of an eminent firm, Messrs Josiah Wedgwood & Sons — said that his " dead " expenses had increased (and by " dead " expenses he said, in answer to the Umpire, that he meant " travellers' expenses, new designs, rent, rates, taxes, bad debts, interest on capital, and allowances"), and he urged that inasmuch as those " dead expenses " were necessary in order to increase his business, and secure more orders, "there was no reason why the workmen should not bear their share of the cost." 

This, surely, was an amazing doctrine : that the workmen, having made the goods, should suffer a loss in their wages in order to help the master to dispose of them. 

The principle of the workmen "bearing their share in the cost" of the administrative expenses of the business could be admitted if they also participated in its profits ; but, in the absence of that circumstance, such a contention suggested the suspicion that the manufacturers, looking around them to diminish their outlay, regarded their workmen's wages as offering the readiest means of accomplishing their purpose. 

One of the workmen's representatives thus commented on the claim : 

" The novelty of the claim is that he wants to meet the increased cost of dead expenses out of the wages. 
I contend that that is not paralleled by any demand usually made by employers to justify a reduction in wages. 
In an eminent firm, of the description of Messrs Wedgwood's, designs and novelties have a substantial value ; they constitute a special element in the financial worth of such a house, and if Mr Wedgwood spends thousands instead of hundreds of pounds in strengthening his trade, he is only doing what the founders of the house did, and that founder would not have reduced his workmen's wages because he paid Flaxman to bring out some of the beautiful designs which helped to make our potting trade one of the wonders of the world."

We have referred to these points, not because they in any way affected the issue, but to show upon what debatable and dangerous grounds the manufacturers stepped when they departed from the safe plateau of the question of selling prices. 

There they were invulnerable — once the fairness of the principle was admitted, as it had been. Still, even upon this point their evidence was contradictory. 

One manufacturer handed in an invoice of goods sent out in 1873, amounting to £100, and said the same goods in 1878 would only fetch £70. There was, therefore, a decrease in selling prices of 30 per cent, and he added that, "the money that came back from the goods sent out did not provide cash for the wages."

Now it was stated by several manufacturers that the wages formed 40 to 50 per cent, of the turnover, so that the manufacturer obviously " proved too much " by his assertion that " the money which came back " — i.e. the turnover — did not provide that which was only half its amount. 

The manufacturer then went on to assert that "a 10 per cent reduction in wages would enable him to sell without loss, though not at a profit'' 

His various statements were, therefore, mutually destructive ; but it was a feature of this arbitration that the statistics quoted were given in the loosest possible fashion. When the employers made a comparison of selling prices, they compared those of 1873 and 1878-79. 

Now the selling prices in 1873 were at their highest, but the advance in wages had been given the previous year, 1872 ; and surely, in order to make any comparison relevant, it should have been one between the prices at the period of the advance and those upon which they then sought a reduction.

DIFFICULTIES OF THE MEN

One admission was made by the leader of the manufacturers of which the operatives' representatives did not take sufficient advantage. 

The workmen had asserted that wages had decreased since 1872, owing to the introduction of machinery. The leader of the manufacturers denied this, saying that though the workmen in certain branches were now paid less per dozen or per score of articles, made by machinery, than they were paid in 1872, when made by hand, they were still able to earn as much money for the same length of time worked, inasmuch as they could turn out, in the same time, more dozens or scores of the same articles by machinery than they could when making those articles by hand.

What, then, did this mean ? Clearly that the manufacturer was able to produce more ware at less cost than formerly, and therefore could afford to sell his goods at less cost. 

The operatives, however, could really make little effective use of this point, inasmuch as they were quite ignorant of the extent to which machinery, by cheapening production, had benefited the employer. 

No figures were given upon this head by the employers ; they contented themselves with saying that the proportion of wages to selling prices had increased, though clearly the cost of production had been modified in their favour by the introduction of machinery. 

Still, the workmen had no data upon which they could give any definite contradiction of the figures given by the employers — except in one instance.

The employers had given a list of the exports from the port of Liverpool to the United States, from 1866 to 1878, extending the list given at the previous arbitration down to the latter year. 

The figures for 1876 were 61,124 packages; for 1877, 69,951 ; and for 1878, 64,461. 

The workmen pointed out that these figures only related to one part of the trade of The Potteries — the American trade — and that they showed, as will be seen, an increase since the date of the last arbitration. They also produced other figures, the official figures of the Parliamentary returns, showing the total pottery exports from England to all parts of the world, not in packages, but in money value. 

These figures were: 

1876, £1,771,179; 
1877, £1,852,992; 
in 1878, £1,794,218. 

Again, the imports showed a decline during those years : 

1876, £336,980; 
1877, £279,888; 
1878, £113,056. 

The year 1877, therefore, showed a marked improvement upon the previous year, and 1878 still showed increased exports and diminished imports, as compared with 1876. 

The workmen contended, therefore, that the masters were asking for a reduction in a rising market, and the employers again met them with the statement : " Yes ; the exports are greater, because the selling prices are less." So the whole question was narrowed down again to the state of selling prices, and upon that point the manufacturers alone had any knowledge. 

They selected their own particular invoices, and put them forward as samples of the whole. They may or may not have been ; the workmen could not say. 

The Umpire said : 

" We have to deal with the broad question of whether trade is in such a state that it will not stand present wages. The masters have said it will not ; it is for the workmen to show that it will." 

The workmen tried to do so by quoting the only figures at their command — the official and reliable figures of the Parliamentary department — which showed an increase of trade, but the masters disposed of these figures by an allusion to selling prices.

Then the workmen urged their second defence ; that, since 1872, various branches — particularly the printers and oven-men — had, by altered modes of working, suffered a loss in wages. 

In the case of the oven-men, the Umpire said that further evidence was unnecessary to convince him of the contention, but the workmen gained nothing by this point, for the Umpire ruled : 

" I have nothing to do with the disproportion of wages at separate works, or in different departments, nor how much any class of men earn " — as he must consider the trade as a whole — " though that might be a subject for separate arbitration." 

The position, therefore, amounted to this : 

The masters appealed for a reduction in wages because selling prices had decreased since 1872, and it was part of their case that wages had not decreased since that period. 
The workmen answered by saying that the employers had already, in the intervening years, reduced wages, and asked that these reductions should be taken into account. 

The Umpire, deciding between them, ruled that though the decrease in selling prices since 1872 was material to the issue, and favourable to the employers, the decrease in wages since 1872 was a matter of which he could take no cognisance, " but which might be a subject for a separate arbitration."

THE EMPLOYERS SUCCEED
Award against the men — " Lord Hatherton's Penny" 

The workmen, therefore, saw themselves forced to narrow their defence to the limits of inquiry laid down by the Umpire — the question of selling prices. 

They appear to have awakened to some sense of their weakness in assenting to the introduction of this question as the principal factor in deciding the dispute, and their last words in addressing the Umpire were an appeal to him not to allow the question of selling prices to govern the rate of wages. 

They based their appeal upon the general interests of the trade — of manufacturers as well as workmen — contending that 

" if the men must suffer with the masters, they must rise with the masters, and wages must be proportioned to profits," 

and that would involve constant uncertainty and disturbance in the trade, and asking whether it would not be better for the trade, as a whole, that an even and steady rate of wages should be maintained. They also predicted that no good would accrue to the manufacturers if the reduction were granted, as a reduction would only be a sign of weakness in the trade, would increase competition, and encourage the customers of the manufacturers to expect and to insist upon a proportionate reduction in the selling prices. 

The masters, as the appellants, had the " last word " at the arbitration. They urged that a reduction of 10 per cent, in wages was necessary to the salvation of the trade, and that, when a time of prosperity came round, they would only be too willing to give back to their workmen that which they now asked should be taken from them.

In less than a week the Umpire gave his award. He decided in favour of the employers' appeal, and decreed a reduction of wages of 8⅓ per cent, or of a penny in every shilling.

EFFECT OF THE AWARD

The arbitration of 1879 is interesting, not merely as an integral chapter in this history, but because its direct effects are felt upon the trade to-day. 

Twenty years have passed since Lord Hatherton decreed a reduction in the wages of the workmen, and the rates of wages now prevailing in the trade are nominally those which followed upon Lord Hatherton's award. 

Actually, they are less. The continued increase in machinery has involved a continuous decrease in wages, and the introduction of new shapes and patterns, demanding a revision in prices, has had a similar effect. 

We are, however, more concerned with the immediate effect of the award. 

So far as the manufacturers are concerned, it does not appear to have brought them much immediate gain, for in the following year they again spoke of the decline in selling prices. 

The amount taken from the workmen, therefore, by Lord Hatherton's reduction, appears to have either been distributed amongst the pockets of the customers — the "middlemen" of the trade — for their exclusive benefit, or to have been dissipated amongst the general public who bought the ware, but who must have remained in ignorance of the infinitesimal benefit which had accrued to them through Lord Hatherton's decision. 

At any rate, it is certain that the trade, as a whole, reaped no benefit from that award. 

The workmen certainly had lost a penny of every shilling of their wages, and the employers disclaimed any benefit from that award by pointing to continually falling selling prices. 

The essential point to discover, therefore, is whether the reduction in wages had had anything to do with the decline in selling prices — whether the latter was the consequence of the former. If that were so, then it is clear that Lord Hatherton's award was an unmixed evil for both employers and men. 

It is obviously difficult to prove the connection between the two circumstances, and to show that the reduced selling prices were a direct result of the reduction in wages ; but there are strong grounds for assuming that the connection existed. 

In the golden year of 1872, trade was so brisk and prices so remunerative, that all the employers were content to ride on the crest of the wave. Then, when trade declined to a more normal level, each employer sought compensation by competition with his fellows, and selling prices declined, but no proof was ever given, nor the statement even made, that the selling prices had declined below the level which prevailed previous to the unusually high prices of 1872. 

In 1876, however, the employers saw they were approaching a limit beyond which further reductions in selling prices would be dangerous, and, aware of the difficulty of recovering lost ground in that respect, they sought to fortify themselves against loss by obtaining, through a reduction in wages, a further margin within which they might compete. 

The award of 1877, however, checked their hopes in this direction. And what was the immediate result? That for the next three years there was no further decline in selling prices, and an increase in the general bulk of trade done. 

At the arbitration before Lord Hatherton, the comparisons of selling prices were not made as between 1879 and 1876 — (for the appeal of the manufacturers was at Martinmas of that year, although the arbitration did not take place until January of 1877)— but the employers had to go back to 1872 in order to show that they had declined.

There can, at any rate, be no doubt that whether or not it was a result of the refusal of the arbitrator of 1877 to reduce wages, trade improved between that period and 1879. 

The employers, however, were more fortunate in the Umpire of 1879. He had to decide upon practically the same facts as his predecessor, and he came to a totally different conclusion. If he had restricted his view of the case to a comparison between 1876 and 1879, the result might possibly have been different, but, by the strange folly of the workmen in allowing Lord Hatherton to go back to 1872, they were practically submitting a decision in their favour by one Umpire to the review of another Umpire — and Lord Hatherton looked at the matter from a different point of view to his predecessor. 

That difference of view made all the difference in the decision, and the employers had then obtained what they wanted — the assurance that they might rely upon falling back upon their workmen's wages when selling prices were low.

ENCOURAGING COMPETITION

Surely this was an incentive to further reductions in selling prices ? Negatively, the least that can be said of it, is that it was at any rate not calculated to restrain competition, but to rather diminish the restraint. 

Looking, therefore, at the experience of the three previous years, when trade had been fairly maintained, even after the Umpire had declined to decree that which the employer said was necessary for the salvation of the trade (viz. a reduction in wages), and paying due regard to the probabilities of the effect of Lord Hatherton's award, it does not seem a rash assumption that subsequent reductions in selling prices were encouraged by Lord Hatherton's award, even if they were not a direct effect. 

In later days, it certainly became an accepted belief of the trade that if Lord Hatherton had refused a reduction, it would have "stiffened" the manufacturers in their dealings with their customers, would have reduced reckless competition amongst themselves, and would have given stability to the whole industry. And that certainly seems a common-sense view to take, even as a prediction.

As for the effect of the award upon the workmen, it is sufficiently obvious not to be dwelt upon. 

The name of that estimable peer, Lord Hatherton, became synonymous to the potter with injustice. " Lord Hatherton's pennies " are spoken of to-day, and remembered as a stolen birthright. 

But, at that time, the workmen only thought of the decision as one which would have but a short-lived effect, and which must be reversed at the first opportunity. The following Martinmas was, of course, the earliest opportunity that presented itself, and they took it. They not only wanted their " pennies " back, but they were determined that the next arbitration should be fought out entirely upon the issue of whether selling prices should govern wages or not.