The Master

When you buy a loaf from a baker, you acquire a loaf, and nothing more. You do not acquire the right to stand in the bakery directing his hands, telling him to knead longer or bake hotter; the transaction is complete in the exchange of bread for coin, and the two of you are, before it and after, equals and strangers. This is a sale, and it is how the market coordinates very nearly everything — by a multitude of such exchanges, each one finished the moment its price is paid. But an employment is not like this, and the whole of the matter lies in the difference. When you engage someone for a wage, you do not buy a finished thing from them. You buy the right to tell them, within bounds and as your needs unfold, what things to make and how to make them.¹1The law’s line between an employee and an independent contractor turns on exactly this: the ‘control test.’ What makes one an employee is not what they produce but whether the hirer has the right to control how the work is done. A contract for services buys a result; a contract of service buys obedience. The contractor sells you a result and keeps command of his method; the employee sells you the command itself.

This is why employment has always felt categorically unlike trade, and why a wage is not simply a price among prices. A price clears a single exchange and dissolves the tie. A wage opens a tie and keeps it open — establishing, for as long as it is paid, a standing relation in which one party proposes and the other disposes, one directs and the other is directed. To be paid for a thing is to remain free of the payer. To be paid a wage is to enter, for the working day, into his service.

For most of the history of the wage, this was said with a bluntness that now gives one pause. The bond between the one who paid and the one who worked was known, in law, as master and servant — and the law meant both of its words. The master had the right to command; the servant, the duty to obey; and the obedience was secured not, as a broken sale would be, by a suit for damages between equals, but by the criminal law itself. Under the Master and Servant Acts — a line of English statutes running back to the Statute of Artificers of 1562 — a servant who left his place, or worked negligently, or was merely disobedient, could be haled before a magistrate (very often an employer himself) and sentenced to gaol, to hard labour, even to the whip.²2Master and Servant law made a worker’s breach of contract a crime, punishable by imprisonment, while a master’s breach was a civil matter only. Criminal prosecutions were heavily used in nineteenth-century industry; abolished in 1875 (the parties renamed ‘employer and workman’), after which, studies find, wages rose and moved more freely with demand. The asymmetry was the very heart of it: a master who broke the bargain owed, at most, money; a servant who broke it had committed an offence against the peace. Only in 1875 were the criminal sanctions struck off and the parties renamed, in the cool modern words, employer and workman — and where the sanctions fell away, wages promptly rose, and moved more freely, as though a hand had been lifted from them.

We are right to feel the distance between that world and our own; the servant who could be jailed for walking off is not the employee who resigns by email. But the distance is one of force and degree, not of kind. The criminal whip is gone; the structure it once enforced — that the wage buys a right to direct, and the worker an obligation to comply — remains the quiet armature of every job. We have made the obedience voluntary and revocable. We have not made it cease to be obedience.

You do not sell your work. You sell your agreement to be told what work to do.

Why should such a relation exist at all? It is a fair question, and a deep one, because the market — that vast machinery of prices and willing exchange — is supposed to coordinate everything without anyone giving an order to anyone. If a carmaker needs a thousand bolts, why does he not simply buy them, and the labour to fit them, by contract in the open market, as he buys his steel? Why instead gather hundreds of people under one roof, set them on a wage, and govern them by command — raising, in the very midst of the free market, a little zone of planning where the prices fall silent and the order of the day descends from above? Ronald Coase put exactly this question in 1937, and the answer founded a science.³3R. H. Coase, ‘The Nature of the Firm’ (1937). Using the market is itself costly — one must find prices, negotiate, and contract for every transaction — and these costs can be spared by bringing the activity inside a firm and coordinating by authority. The firm’s size is set at the margin, where the cost of organising one more task by command equals the cost of buying it in the market. Using the market, he saw, is not free: to coordinate by price one must seek out suppliers, discover what they charge, bargain, and draw a contract for every single transaction — and these costs, the costs of working the price mechanism, may be escaped by drawing the activity inside a firm and coordinating it by authority instead. A firm is a stretch of the economy where the market has been switched off on purpose. It is, in a phrase Coase borrowed, one of the ‘islands of conscious power in this ocean of unconscious co-operation’ — a lump of deliberate planning in the buttermilk of the market.

And the size of the island is no accident; it is fixed, like all things in economics, at a margin. A firm draws one more task inside its command whenever that is cheaper than buying the task in the market, and stops — leaves the task outside, to be bought — when it is not. The shoreline of the island is drawn precisely where the cost of organising by command comes level with the cost of organising by price. Inside, all is run by the wage and the order; outside, by the contract and the price.

What, then, does the worker actually agree to, when he steps onto the island and takes the wage? Not to perform some one, specified task — that would be a contractor’s bargain, the sale of a defined result. He agrees to a far more open thing: to do, within limits, whatever he is told. Herbert Simon, who modelled the employment relation with great exactness, saw that this open-endedness is its whole purpose.⁴4Herbert Simon, ‘A Formal Theory of the Employment Relationship’ (1951), distinguished a sales contract (a defined thing for a price) from an employment contract, in which the worker agrees, within limits, to do what the employer later directs — a ‘zone of acceptance.’ It is the rational choice precisely when the employer cannot foresee what he will need. A sale settles in advance exactly what shall change hands; but an employer often cannot know, at the hour of hiring, what he will need a month hence — and so he buys, in place of a fixed task, a range of possible tasks, a zone within which he may afterwards direct the worker as the day requires. Simon called it the worker’s ‘zone of acceptance’: the set of orders the worker agrees, beforehand and for the wage, to treat as legitimate and to obey. The wage is, in part, the price of the breadth of that zone — of how much of a person’s own discretion is signed over to another’s choosing.

This is why the employment relation is so useful — far more useful than a sheaf of contracts could be — for it is adaptable. The world changes faster than contracts can be rewritten; the firm that can simply re-aim its people, point them at the new problem, the new product, the sudden emergency, without renegotiating terms at every turn, moves at the speed of a command and not the speed of a haggle. The wage buys pliancy: a general, standing readiness to be useful in ways not yet named. One is paid not for what one will do, which is unknown, but for the promise to find out, and to do it.

And yet — is any of this truly authority? A formidable line of economists says it is not, and the challenge is bracing. Armen Alchian and Harold Demsetz argued in 1972 that the ‘command’ of the employer is a fiction dressed as power.⁵5Alchian and Demsetz, ‘Production, Information Costs, and Economic Organization’ (1972): the firm ‘has no power of fiat, no authority’; an employer can only dismiss or sue, ‘just as I can fire my grocer.’ The firm is on this view a ‘nexus of contracts.’ Later theorists (Williamson; Hart) recovered a real role for authority, lodged in the residual control rights of ownership. What, they asked, can an employer actually do to a disobedient worker? He cannot fine him at will, nor jail him — those days ended in 1875 — nor compel his body by any means. He can do just two things: cease to employ him, or sue him for breaking their agreement. But these are exactly the powers that any party to any exchange already holds. One can fire a grocer, by taking one’s custom elsewhere, just as an employer can fire a worker; the employer, they insisted, has no fiat, no authority, beyond what one trading partner holds over another. On this reading the firm is no hierarchy at all but a ‘nexus of contracts’ — a knot in which many ordinary, voluntary agreements happen to be tied — and the language of masters and commands is a misdescription of what is, at bottom, only more exchange among equals who stay free to walk away.

There is real force in this, and yet it proves too much, for it cannot say why working inside a firm feels, and functions, so unlike shopping. The economists who came after answered that the difference is genuine: that ownership carries a residual right of control — the right to decide all the things the contract never foresaw — and that this is a real fiat the market does not confer, the reason the law treats a firm as, in the quarrels of its own members, a kind of court unto itself. The truth lies between the grocer and the sovereign. The worker is not owned and may leave; the employer’s last sanction is only dismissal, which is the market’s sanction and not a gaoler’s. But for as long as the bond endures, the worker does, day upon day, simply obey within the zone — does not renegotiate the filing of each document or the typing of each letter, but does as he is bid — and a thousand such obediences, directed from a centre, are a different thing from a thousand market bargains, whatever the ultimate freedom beneath them. The wage is the price of an authority consented to and revocable: more than a purchase, less than a dominion, and exactly the bond that makes a firm a firm.

More than a purchase. Less than a dominion.

The line between command and price, once drawn, does not hold still — and in our own time it is moving, plainly, beneath our feet. The long arc has run toward freedom: from the servant who could be jailed for leaving, to the employee ‘at will’ who may quit on a whim and be dismissed on one, the worker’s submission has grown ever more conditional, ever more revocable. And now the island itself is, in places, washing back into the sea. The very logic Coase named is running in reverse: as the digital networks make it cheaper to find, price, rate, and contract with a stranger for a single task — a ride, a delivery, a design, an hour of labour summoned through an app — work that the firm had once swallowed is being cast back out into the market, recoded from employment into contracting, from the wage into the fee, from command into a price per piece.⁶6As the cost of contracting falls — search and coordination made cheap by digital platforms — Coase’s trade-off runs in reverse: work once internalised under employment (the wage, command) flows back out into the market (the fee, the contract). The blurring of the line between employee and independent contractor is the live legal edge of the shift. See A. Sundararajan, The Sharing Economy (2016). Whether this is liberation (each worker his own master at last, a free agent contracting as an equal) or its cunning opposite (the direction retained through the soft command of the algorithm and the rating, while the wage’s old protections are quietly shed) is the fierce question of the present labour economy — and it is, at bottom, this plate’s question: where the market should end, and command begin.

For that line — the shoreline of the island — is what the wage has marked all along. The folio has watched this single price measure value and sell time, stand as a pledge and fall under compulsion, settle by power and bound the world of work, refuse from dignity to drop, and serve at the last as the measure of all things. Here it does the most defining thing of all, the thing that parts a job from a sale: it buys not a person’s labour but a person’s agreement to be directed in it — a will placed, for a price and a time, at another’s command. That is what it is to be employed and not merely paid; and the whole vast architecture of firms — of offices and factories and the ordered working day — is built of nothing else but that agreement, multiplied.