Wages and Capital
Chapter X. From Ricardo to John Stuart Mill
We come now to the period of active discussion which begins with Ricardo and ends with John Stuart Mill; the period in which the doctrines of the classic economists gradually secured their strongest hold on students and thinkers, and in which the wages fund doctrine is often supposed to have arisen and flourished. All of the writers of the period were contemporaries of Ricardo; most of them knew him, or might have known him, in person. Their writings, however, were published after his, and with hardly an exception were profoundly affected by his compact array of clear-cut and consistent doctrines. On wages, as on other subjects, they showed the unmistakable traces of his influence; and it is very doubtful if all their discussion on this topic added anything substantial to what had been built up by Adam Smith and Ricardo.
In following the discussion by these later writers, it will be convenient to neglect the chronological sequence of their publications, and to group them according to the temper in which they approached economic questions. We may consider first those writers who, like the elder Mill and M’Culloch, followed Ricardo and Adam Smith with loyal fidelity, and made little profession of differing with their masters or of improving on them. Thereafter, the writers of earlier or later date may be taken up, whose attitude was more independent and critical; whether, like Senior, they were in general accord with the dominant views, or, like Richard Jones, protested vigorously against them.
First in the list of the Epigonen, as the Germans, not without a good show of reason, dub this group of writers, comes James Mill, the intimate friend of Ricardo and Bentham. James Mill probably exerted a more enduring influence on the course of economic thought through the remarkable training in Ricardian economics which he gave his son, than through his own writings;* yet these have an independent value, and are significant of the stage which the theory of wages now had reached.
In the opening chapter of his Elements of Political Economy,† James Mill starts in a fresh and promising fashion. He distinguishes sharply between capital and wages. Instruments and materials are “all that can be correctly included in the idea of capital. It is true that wages are in general included in that idea”; but this is an error, “the idea of the subsistence or consumption of the labourer, for which wages is but another name, is included in the idea of the labour.”‡ Here we have a distinction which anticipates some very modern discussion. Mill presently adds that the laborer’s subsistence or wages, “being advanced by the capitalist out of those funds which would otherwise have constituted capital in the distinctive sense of the word, and being considered as yielding the same advantages, it is uniformly spoken of under the name of capital, and a confusion of ideas is the consequence.”
If this first step had been followed up, we might have had with James Mill a new and important stage in the development of the theory of capital and wages. But he never got beyond this first step, and seems to have forgotten that he ever took it. When he has completed the introductory chapter on capital and labor, from which the passages just quoted are taken, and proceeds to the separate treatment of distribution and wages, he has nothing more to say of the confusion of ideas in regard to capital and labor. He slides easily and quickly into the familiar statement that wages depend on capital. It is true that he begins by saying that both laborers and capitalists get their reward from the commodity they produce, “or the value of it”; and that “to suit the convenience of the labourers,” they receive their share of the commodity in advance, in the shape of wages. But he passes at once to the proof that “the rate of wages depends on the proportion between Population and Employment, in other words, Capital,” — this being the italicized summary of the section in which the rate of wages is examined. Apparently “capital” here means not only tools and materials, but subsistence also. For the supposition is made that the number of laborers increases, while the amount of “food, tools, and materials” remains the same: then wages must fall. The point of view is shifted within a page, within a paragraph, from a treatment which contemplates a sharing of product between laborers and capitalists, to a consideration of the ratio between the number of laborers and the total “means of employment” or “requisites of production,” — both phrases being used. Thereafter we hear simply of a ratio between capital and population: the familiar formula emerges. “Universally, then, we may affirm, other things remaining the same, that if the ratio which capital and population bear to one another remains the same, wages will remain the same; if the ratio which capital bears to population increases, wages will rise; if the ratio which population bears to capital increases, wages will fall.”*
The use made of this formula is characteristic of the drift of the discussion of wages among English economists for the next half-century. Mill proceeds at once, after giving but a page or two to the universal proposition, to the corollary which, to his mind and that of his contemporaries, made it mainly important. Population had a “natural tendency” to increase faster than capital: hence are wages low, and the condition of the great body of the people poor and miserable. Their condition can improve only if the tendency of population to increase is checked by prudence. This was the point, however speciously it was concealed at the outset, at which the whole reasoning was aimed. And for this, it was not material whether the thing to which population bore a ratio was entitled “capital” or “subsistence” or “commodity” or “wealth,” so long as it was made to appear that population had the “natural tendency” to increase at the more rapid rate. James Mill accepted the familiar phrase “capital” to describe the resources which could not be expected to grow as fast as population, even though he had expressly defined capital in a manner which might have led him to consider afresh the precise grounds on which his predecessors had laid it down that laborers were paid or supported from capital. But he had no great interest in such an inquiry, absorbed as he was, in common with his brother economists, in questions of production and exchange. So far as wages were concerned, the Malthusian doctrine and the pressure of population were the main things to be considered: the details by which wages might be shown to depend on capital at any given time, called for no special attention.
A much less important personage than James Mill, and a much less familiar name to economic students, is Mrs. Jane H. Marcet, who seems to have been the pioneer in the many endeavors made in this eager century to popularize political economy. Mrs. Marcet published in 1816 her Conversations on Political Economy, a series of imaginary conversations between “Caroline,” an ingenuous maiden, and “Mrs. B.,” a wise old lady, who naturally does most of the talking. The book had so little vogue in its day, going through four editions between 1816 and 1821; and it gives interesting indications of the shape in which economic doctrines then were interpreted by a person of good intelligence who did not affect to have any theories of her own making.
In the conversation on capital, the difference between rich and poor is first referred to; then the circumstance that the rich, to maintain and employ their capital, must advance it to the poor; the perpetual consumption and reproduction of capital; profit arising from the fact that laborers produce more than is advanced to them, — all this is neatly expounded, with a characteristic comment that it is “one of the most beneficent ordinations of Providence that the employment of the poor should be a necessary step to the increase of the wealth of the rich.”* Those who are disposed to judge the classic writers by their fruits may not unnaturally be roused to wrath by such as teleology. When it comes to wages, the inquiring Caroline is informed first that they depend on the habits of the poor and the degree of prudence they practice in multiplying, — the exposition resting faithfully on Malthus. Shortly after, it is laid down in terms that wages depend on the ratio of capital to laborers. Plenty of capital may indeed coexist with low wages, if the laborers also are numerous, — thus in China; while capital, though absolutely scarce, may yet be plentiful relatively to the number of laborers, — thus in America. The primary proposition that wages depend on capital is proved, after the fashion of the time, by analyzing a simple case: a shipwrecked crew is supposed to land, stripped and forlorn, on an island where, obviously enough, they must depend on the original settlers” for maintenance and employment.”*
The reader conversant with the economic literature of England during the first half of the present century, need not be told how familiar a ring all this has, or how faithfully it reflects the expositions long current of the theory of wages. The reason for singling out for mention this particular bit of popularizing literature is the early date at which it appeared, and the evidence it supplies of the source whence the whole train of thought was derived. Mrs. Marcet first published her Conversations in 1816, at a time when Ricardo was known almost exclusively by his pamphlets on monetary subjects, and when the writers to whom the maker of a tract would look for guidance were mainly Adam Smith and his immediate successors.† Ricardo is mentioned in the preface, and evidently is followed by Mrs. Marcet in the exposition of money, coinage, and prices. But on value, Adam Smith’s analysis of cost of production into its constituent parts, — wages, profits, and rent, — is faithfully followed. On foreign trade there is similarly no trace of Ricardo’s unmistakable doctrines; indeed, Adam Smith is followed in a doctrine which no follower of Ricardo would fail to reject, — his eulogy on the home trade as yielding more “encouragement to industry” than the foreign trade. Clearly, the wages fund, essentially in the form in which it was retained for the next generation, is here found in a writer who derived her knowledge and inspiration from economic literature as it stood before Ricardo’s peculiar doctrines had been incorporated into it. The dependence of wages on capital, the ratio of capital to population, the standard of living and the “habits” of the population as the important determining factors, — these are the doctrines which the popularizer gathered from the political economy of the day. They are evidently derived, in the main, from Adam Smith and Malthus. Ricardo soon put his stamp on them; but before his day the essentials could easily be put together.
Next among those who represent the views current in their day, comes a writer who would have been highly indignant at finding himself ranked in any way with so modest a personage as Mrs. Marcet, — John Ramsay M’Culloch, member of the Institute of France, editor of the works of Adam Smith and Ricardo, author of a widely accepted exposition of the Principles of Political Economy and of many other works of repute, ever a welcome contributor to the reviews and the cyclopædias, honored witness before Parliamentary commissions, — in fact, the most prominent figure in the economic world in the period from 1820 to 1850. The fate of M’Culloch is a warning to those who bask in the sunshine of general favor. Once the authoritative expounder of the economic gospel, he is now, in the minds of those who would be in the van of thought, the representative of all that is bad in classic political economy. In fact, M’Culloch has been made somewhat of a scapegoat. He was an honest and an able man, who did good service in his day in spreading knowledge and in contributing helpfully to the understanding of many concrete questions. Having a great faith in the completeness and accuracy of his own knowledge, and a great willingness to apply the formulas of the day to any and every problem that might appear, he naturally stated the doctrines current in his time in their most unqualified form, and became a ready butt for those of a later day who had shaken loose from them. However great his pretensions as a man of science, M’Culloch was but a popularizer of the doctrines of Adam Smith, Malthus, and Ricardo, and stood for no views that were his own except by a process of absorption from others.
M’Culloch has been sometimes spoken of as the author of the wages fund doctrine;* but there is an a priori improbability that he really originated any independent doctrine whatever, and no indication that he did more in this case than to restate and put into more definite form what had been worked out by others. M’Culloch first set forth his views on distribution and on wages in the article on Political Economy which he contributed to the supplement to the Encyclopædia Britannica, and which he expanded into his Principles of Political Economy in 1825. That book went through five editions in his lifetime, the last being published in 1864. Meanwhile he printed in 1826 an Essay on Wages, which in 1854 was revised and enlarged as a Treatise on Wages. In all these writings, not to mention others, the conclusions and the form of statement, even the very words, are repeated with exemplary and monotonous consistency.
To quote the words of the first edition of the Political Economy:
“The capacity of a country to support and employ labourers is in no degree dependent on advantageousness of situation, richness of soil, or extent of territory . … It is obviously not on these circumstances, but on the actual amount of the accumulated produce of previous labour, or of capital, devoted to the payment of wages, in the possession of a country, at a given period, that its power of supporting or employing labour must wholly depend. A fertile soil affords the means of rapidly accumulating capital: but that is all. Before this soil can be cultivated, capital must be provided for the support of the labourers employed upon it, just as it must be provided for the support of those engaged in manufactures, or in any other department of industry.”*
This is all that M’Culloch has to say as to the basis of the doctrine that wages depend on the capital available for paying them. The same language, substantially, is used in all the editions of the Political Economy, and in the two versions of the Essay on Wages. Elsewhere, in discussing capital as a means of increasing the productiveness of labor, he follows Adam Smith in saying that the accumulation of capital must precede the division of labor;† beyond this, there is no further consideration of the why and how of the dependence of wages on capital. M’Culloch was an ardent and faithful follower of Adam Smith and Ricardo, and his writing has the easy flow of the former with yet the angular and unqualified doctrines of the latter. His exposition differs from theirs mainly In emphasis. In the note on wages which he appended to his edition of the Wealth of Nations (1828), he put the doctrine of wages and capital, as it stood with Ricardo’s stamp on it, with characteristic vehemence: “No other fund [than capital] is in existence from which the labourers, as such, can draw a single shilling.”*
This much seemed to M’Culloch, as to a long series of writers of his generation, so simple and self-evident that, to be proved, it needed but to be stated. He passed at once to the phase of the wages question which did seem to need all possible proof and illustration: to the relative growth of population and capital, and the pressure of population on subsistence. Thus he reached, in the phrase which forms the caption of a section in the Essay on Wages, the topic of “natural or necessary wages, different in different countries and periods; dependent on the quality and species of the articles required for the subsistence of the labourer.” When he thus proceeded to the discussion of the relative growth of population and capital, he evidently meant by “capital” simply food, and used the proposition that market wages depended on the ratio of population to capital, chiefly as an easy introduction to the Malthusian doctrine. It was with more or less conscious thought of the ratio of food to population that he laid it down in sweeping terms that “the rate of wages in all countries and at all periods depends on the ratio between the portion of their capital allotted to paying wages, and the number of their labourers.”†
There is little indication that M’Culloch ever got beyond this stage in the wages fund doctrine. It remains, in all his many disquisitions, simply an introduction to the Malthusian discussion. It is true that in the Political Economy, he inserted, in later editions, a paragraph or two which went a trifle farther. He drew the corollary that the interests of laborers and capitalists are identical, because “a capitalist can not increase his own stock without at the same time, and to the same extent, increasing the wealth, or the means of subsistence of the working classes,” — a comforting doctrine very like that of Mrs. Marcet, just referred to. He insisted, too, on the practical certainty that “all the capital, through the higgling of the market, will be equitably distributed among all the labourers”; hence “it is idle to suppose that the efforts of capitalists to cheapen labour can have the smallest influence on its medium price.”* This has something of the ring of a wages fund doctrine with rigid lines, sufficient for the explanation of any and all questions concerning wages. M’Culloch, in another passage inserted in his later editions, mentioned the possibility of an inquiry whether “an increase of capital is synonymous with an increase of the means of employing labour.”† He disposes of the inquiry summarily by referring to his previous discussion of the effects of machinery on wages, where he conceived that he had shown that “the introduction of machinery uniformly increases the aggregate demand of society for labour and wages.” These additions to his first statements show that M’Culloch did come to have some glimpse of the fact that there were some questions on the relations of capital to wages which did not connect themselves once for all with the theory of population. But he never followed them out, or discussed them: briefly touched on them, still retaining his exposition in essentials as he had first given it to the public when a young man barely in his majority. It is significant that when he touched on combinations of laborers and the concrete questions of wages which arise regarding them, he said not a word of a limitation of wages by capital, or of any light thrown from this point of view on the possible effects of trade unions. We shall have occasion presently to consider his attitude, as well as that of other writers, on combinations and trade unions. For the present it suffices to note that he virtually did not cite the wages fund at all on this aspect of the problem: a further bit of evidence as to the use of the doctrine, by the writers of this period, as a means primarily of proving the need of restraint in the growth of population.
One or two other writers who illustrate still further the manner in which wages were usually set forth by the group to which M’Culloch belonged, may receive brief mention. Like M’Culloch, they assume once for all the determination of wages in the first instance by the ratio between capital and population, and then proceed without further ado to the consideration of other less simple matters. Torrens, in his Essay on the Production of Wealth (1821), tried to take a middle ground between Ricardo and Malthus in regard to the mooted questions of value; but on wages he assumed as a matter of course that they depend on the advance of subsistence by capitalists to laborers, and then pushes this line of thought no farther. On one point only does he even stop to consider the relation between wages and capital; influenced perhaps by a suggestion of James Mill’s, referred to a moment ago. It occurs to him to inquire whether subsistence should after all be classed as capital; but he concludes that this is not “a forced or unwarrantable extension of the meaning of the term, capital,” since the capitalist advances wages, as he provides materials and tools, “for the express purpose of obtaining a reproductive return.”* Thirteen years later, when the doctrines of the classic school had been much more frequently worked over, and had gained much wider acceptance, Torrens wrote on Wages and Combinations (1834). Here we have a discussion at large of the theory of wages, by an able hand, and might expect some detailed inquiry into the meaning and grounds of the proposition that wages are determined by the amount of capital. But no such inquiry is undertaken. It is assumed without question or argument that wages are paid from capital; capital is conceived in terms of food, — so many quarters of wheat; and the upshot of the whole book is that wages can be little influenced by combinations, but can be effectively raised through a check to the growth of numbers and through free trade in grain. It is significant that Torrens, while reasoning that wages are paid from capital, evidently does not see herein any ground for alleging that combinations of laborers can not affect wages. On the contrary, he argues that a universal combination might conceivably raise all wages, until they reached the point where the curtailment of profits would check accumulation and reinvestment. All this goes to show that the payment of wages from capital did not present itself to Torrens as a hard-and-fast barrier to efforts on the part of the laborers to better their lot; while, on the other hand, it did not appear to him to be of crucial importance, as compared with the other forces that affected wages.*
A similar brevity in the treatment of the doctrine appears in De Quincey’s Logic of Political Economy (1844), which is confessedly no more than an exposition of Ricardo’s doctrines. It is chiefly concerned with value, and juggles with the subtleties of that subject in De Quincey’s most elaborately polished style. In the chapter on wages, he proceeds to mention four determining factors: (1) the rate of movement of population, (2) the rate of movement of capital, (3) changes in the price of necessaries, (4) the standard of living. Little is said of capital, and it is simply assumed, in direct acceptance of the usual compact statement, that the ratio of capital to population determines wages. De Quincey’s reasoning rather than reasonable mind brought him to the curious conclusion that a rapid and immediate effect on wages could be exercised only by the third of his four factors, — changes in the price of food. The other factors could vary but slowly; hence, by a residual process, he was led to the conclusion that “the daily cost of necessaries alters sometimes largely in a single day, and upon this, therefore, must be charged the main solution of those vicissitudes in wages which are likely to occur within one man’s life.” For the present subject, De Quincey’s discussion deserves notice only as yielding one further piece of evidence as to the general acceptance of the doctrine as to the payment of wages from capital, and the slightness of the emphasis placed on it.
We come now to a writer who at least saw that there was a question here, and stopped to think about it, — Nassau W. Senior. Professor Böhm-Bawerk,* in his admirable history of the theories of capital, has pointed out the merit of Senior in appreciating the need of some independent explanation of interest as a share in distribution; and an equally able and certainly no less critical historian, Mr. Cannan, has similarly given him credit for perceiving the inadequacy of what his predecessors had said on interest and profit.† Praise of the same sort can be given to Senior’s treatment of wages also. He did not on the whole advance the discussion of wages as much as that of interest; but he faced it squarely, and showed himself awake to the inadequacy of the simple phrases and generalizations which had been current since the days of Adam Smith and Ricardo. Senior, in fact, was the most acute critic of his day. Intellectual indolence prevented him from pushing his work beyond the stage of criticism. He began his contributions to economic literature with a burst of promising activity: lecturing at Oxford on value, on wages, on population, on international trade. Ricardo’s peculiar doctrines and phraseology were subjected to criticism which was severe, but in the main just; and Malthus’s excessive emphasis on the pressure of population led to a correspondence in which Malthus virtually accepted Senior’s version of his own views. Perhaps the most successful constructive part of his work was in the lectures on international trade and the movement of the precious metals, where Ricardo’s general reasoning on those subjects was carried to new and important corollaries. On wages he published in 1830 Three Lectures on the Rate of Wages, which contain almost everything that he ever said on that subject. The matter of these lectures, as well as that of the lectures on other topics, was later incorporated in the general essay on political economy, amounting to a small book, which Senior prepared in 1836, in the form of an article for the Encyclopædia Metropolitana. With this article, — written presumably to order and with no great deliberation, — his contributions to economic theory unfortunately came to an end. Other matters of public and private interest engrossed his attention, and he published nothing more on economic theory. His work was thus never carried beyond its first stage of promise, and his results were never maturely developed.
For our purposes, it will suffice to consider the presentation of the theory of wages in the encyclopædia article on Political Economy, in which, as was just remarked, Senior incorporated substantially everything he said on this subject in the earlier essays. He begins by laying it down that wages depend proximately on the commodities appropriated to laborers as compared with the number of laborers; “or, to speak more concisely, on the extent of the fund for the maintenance of labourers, compared with the number of labourers to be maintained.” So much is “nearly self-evident.” But various current opinions are inconsistent with it, and Senior proceeds to examine at length seven propositions which are thus inconsistent and therefore unsound. Among the doctrines dissected in this prolonged introduction are some that do not touch the present subject, and others that have no longer a living interest; such as the effects of absentee-landlordism, of the importation of foreign commodities, of the luxurious expenditure of the rich. But two of the rejected propositions were those most widely accepted of the time. One, the most familiar of all, was that wages depended on the ratio between capital and the number of laborers: which Senior rejects because “we know of no definition of that term [capital] which would not include many things that are not used by the labouring classes, and, if our proposition be correct, no increase or diminution of these things can directly affect wages.” The other important doctrine set aside by Senior was probably mentioned by him because it was attributable, with some show of reason, to Adam Smith, and (as will presently be seen) to Malthus. It was that wages depended on the proportion between the number of laborers and the whole revenue of society. Neither Adam Smith nor Malthus, so far as they held any such opinion, seem to have had anything more in mind than that wages tended to go up or down in sympathy with the general movement of the whole income of the community. In any case, Senior has no difficulty in showing that this is no precise statement of the specific causes determining wages at any one time.
It is clear that Senior set out with the intention of examining in detail the causes determining the real “fund for the maintenance of labourers,” and with a strong sense of the vagueness and inadequacy of the current generalizations about the proportion of capital to population. Doubtless he was led thus to inquire more searchingly how wages at any time were exactly fixed, by his comparative freedom from the Malthusian tinge of his contemporaries. But, as he digressed needlessly in his introductory examination of the opinions he rejects, so he wandered from his subject when he came to the statement of his own views; and before he came to the end, was so weary of the task, or uncertain of his ground, that he ended with little more than that simple statement of the problem with which he had begun.
After the introduction, Senior returns to his main subject, and points out that the fund for maintaining laborers depends on two things: the general productiveness of the laborers of the community on the one hand, and the proportion of those laborers, on the other hand, who are engaged in producing goods for the use of laborers. This is simple, but none the less good because it is simple. While only another statement of the problem, it is a statement and a beginning from a promising point of view. It brings out the fundamental fact that all production comes from labor, and brushes away any notion of an independent “productiveness” of land or capital. It brings out another important side of the same fundamental fact, namely, that income from capital and land means simply that some laborers are working to satisfy the wants or caprices of the owners of these instruments, and that the share of the laborers in distribution depends primarily on how many of them are working for the satisfaction of the wants of their whole number. The right statement of a problem is a good step toward its solution; and a modern writer could do worse than to follow Senior in this mode of approaching the subject.
Fairly started, Senior digresses again. He stops to discuss the first of the two factors he has mentioned, — the general productiveness of labor. The intelligence and skill of the laborers; the quality of the natural agents; the aid given “by abstinence, or to use a more familiar expression, by the use of capital”; the interference or non-interference of government, — are successively examined. These are clearly questions of production, and not of distribution; they distract the reader’s attention from the main inquiry, and one may suspect that Senior lingered over these comparatively simple matters because of an instinctive hesitation in grappling with the more involved problem of distribution proper. When at last he reaches this, he sets aside at once, as presenting no difficulties, rent and taxes. Rent means that some laborers produce commodities for the use of landlords, and “such labourers may be considered as existing only in consequence of the existence of natural agents of extraordinary productiveness.”* Taxes mean that some laborers work “for the supply of the consumption of the government “: and here again Senior digresses to discuss some evils of taxation, holding off for a while longer from the crucial question. At last, rent and taxes are left behind, somewhat after the residual method which has come so much into vogue in our own time. He reaches profits, ·and “the extent to which wages may be affected by the employment of labour to produce, instead of wages, things for the use of capitalists.”
Unfortunately, at this important stage, the exposition becomes obscure, and difficult to follow or to state. What the capitalists get, — i. e., how many laborers work to supply their wants, — is said to depend on the rate of profits and the length of time over which the advance of capital is spread. But the rate of profits is surely the consequence rather than the cause of the share of the capitalist in the result of production; or rather it is the same phenomenon defined in different terms. Senior seems to fall into a vicious circle, and to get no farther than to state his problem in another way. He illustrates his principle by supposititious figures, in which the shares of the capitalists and the laborers are stated in terms of the product of so many days’ labor. But, in fine, we get nothing that clears away the real difficulties. “The rate of profit depends on the previous conduct of the labourers and capitalists of the country,”— which probably expresses an intuition that at any given time distribution, and especially wages, must be predetermined by forces that have operated mainly in the past. But exactly how the previous conduct either of laborers or of capitalists affects the situation, is not lucidly set forth. We might expect to find here some reference to the mode in which capitalists have been induced to “abstain,” and to the manner in which their reward for “abstinence,”— so much discussed by Senior in earlier passages of this same essay, — is worked out; but we hear nothing of it. Almost imperceptibly, Senior drifts back into the familiar mode of approaching the question. Capital is stated in terms of so much food; and the income of the laborers is made to depend at any given time on the quantity of food as compared with the number of the laborers. He forgets, apparently, what he said at the outset, of wages not depending on the ratio between capital and population. It is true that he professes to examine only the simplest state of society, in which all capital may be food; but he examines no other; and he does not introduce at the close those qualifications which appear in a complicated society and which he clearly had in mind when he began.
It may be suspected that if Senior, after writing this statement of the theory of distribution, had laid it aside, and re-examined it after the lapse of two or three years, he would not have given it to the public in its present form. How far a riper consideration would have affected his views, it is idle to speculate. Senior had good sense, a clear and independent head, the easy style of a man of letters: a more mature and deliberate piece of work from his hand might have profoundly affected the subsequent course of thought. As it was, his discussion of wages served on the whole to keep the traditional statement where it was. When he came at close quarters with the subject, he followed Ricardo in analyzing capital into advances to laborers, or food; he laid stress on the proximate dependence of wages on the “fund for the maintenance of labourers” as compared with the number of laborers; and, while he criticised Malthus, he did little to distract the attention of economists from the standard of living as the one great factor to be insisted on in the presentation of the wages question.
We may turn now to some of the writers who dissented more or less from the general theories of the reigning school. On the wages fund doctrine, in the form in which it was then commonly stated, we shall find their dissent neither important in substance nor strong in emphasis.
Malthus’s attitude in the Essay on Population has been already described: he had shown some disposition to differ with Adam Smith, and had attempted to give his own analysis of “the funds for the maintenance of labour.” In the books and pamphlets which he published in later years, after Ricardo had turned economic thought so largely into new channels, he attempted a modification of the doctrine that the demand for labor came from capital, which followed substantially the lines of his first modest difference with Adam Smith.
Malthus’s opposition to Ricardo and his followers centered about his insistence on demand and supply as the primary forces determining exchange and distribution. Hence, in regard to wages, he laid stress on the importance of the proximate demand for labor, and protested against the emphasis on a “natural” rate of wages determined by the habitual subsistence of the laborer. Malthus himself was mainly responsible for the almost exclusive attention which the Ricardian school gave to “natural” wages; and it is part of the irony of fate that he found it necessary to protest against doctrines which were largely of his own making. He insisted on the importance of supply and demand, as they worked at any given time, in the determination of profits, protesting against Ricardo’s teaching that profits depended on the price of food; and similarly he insisted on the importance of the proximate demand for labor in determining wages.
As to the nature of this direct demand, however, and the causes which made it large or small at any given time, Malthus after all had not much to say. In the first edition of the Principles of Political Economy (1820) he begins by saying that wages depend primarily on demand and supply, and that “what may be called cost of production of labour only influences wages as it regulates the supply of labour.”* Demand, thereafter, he speaks of in terms that vary much: sometimes as coming from the “capital” of the community, sometimes from the “capital and revenue,” sometimes from the “resources,” sometimes from the “general value of the produce.” Apparently he did not at this time think it of much moment to consider and define the demand for labor with any painstaking accuracy. In the second edition (1836), he changed his general introductory statement in a manner indicating that he had given more specific attention to this part of the theory of distribution. It may be guessed that Senior’s discussion led him to stop to think more carefully about it; beyond question, the steady controversy which he had carried on, since the appearance of the first edition, with Ricardo and his followers, led him to define his views more sharply in this second edition. The most important passage in the later edition may be quoted in full:
“It has been generally considered that the demand for labour is proportioned only to the circulating, not to the fixed capital of a country. But in reality the demand for labour is not proportioned to the increase of capital in any shape; nor even, as I once thought, to the increase of the exchangeable value of the whole annual produce. It is proportioned only, as above stated, to the increase in the quantity and value of the funds which are actually employed in the maintenance of labour.
”These funds consist in the necessaries of life, or the means of commanding the food, clothing, lodging, and firing of the labouring classes of society,”—*
and then Malthus goes on to point out that a large expenditure of “neat surplus” in hiring “menial servants, soldiers, and sailors” will add to the demand for labor without an increase of capital. Evidently he was here on very much the same ground that he had taken in the Essay on Population: we must consider “the increase in the funds specifically destined for the maintenance of labor, instead either of the increase of wealth, or the increase of capital, or the increase of the exchangeable value of the whole produce.”†
Yet Malthus never got even as far as Senior did in the inquiry what precise relation these funds bore to the capital, or the wealth, or the exchangeable produce of the country. More than this: when discussing other related subjects, and more particularly the closely related one of profits, he fell into the traditional way of speaking of capital simply as constituting the demand for labor, and of the relative advance of capital and population as determining profits.* His insistence on the “funds” rather than ”capital” as making and measuring the demand for labor arose, in fact, from a desire to influence other parts of economic theory than those connected with the wages fund doctrine proper. He meant to protest against the notion that “natural” wages, determined by cost of production, told virtually the whole story. Further, he had in mind the question how far a market for an increasing supply of commodities could be found among laborers, as capital accumulated and profits tended to decline. All of Malthus’s speculations in later years were colored by his adherence to the theory of gluts, or general over-investment and over-production. His views on gluts never gained acceptance, and on the whole did not deserve to; and this aided to prevent his attempt at a re-statement of the immediate demand for labor from making much impression. In any case, Malthus never questioned that commodities turned over to laborers by employers engaged in production were capital; on the contrary, one of the many points on which he quarrelled with M’Culloch was in insisting that food became capital simply by virtue of being in fact turned over to laborers.* This fundamental part of the current doctrine being accepted, it was natural that corrections in the precise statement of the total demand for wages, applied as they were chiefly in connection with unpopular doctrines like that on gluts, should have failed to affect in any visible way writers of that day or of later days.
Another writer may here be briefly mentioned: Thomas Chalmers, who joined with Malthus in asserting that something like a general glut was possible, and so dissented from the dominant school on at least one fundamental doctrine. Unlike Malthus, Chalmers, in his Political Economy ( 1832 ), always speaks of “capital” simply as the source whence wages are paid. Capital, in Ricardo’s fashion, is treated as resolvable ultimately into a succession of advances to laborers: the point on which Chalmers dissented being the possibility of indefinitely increasing those advances without annihilating profits. In his reasoning on the ultimate consequence of investment, and the ultimate source whence capitalists were recouped, Chalmers suggested, though very briefly, a doctrine which later was made much of by German economists, — that ultimately wages were derived from what was paid for the product by consumers and so from the “replacing power in the hands of consumers.”† Of this turn in the development of the theory of wages more will be said in a later chapter. In the main Chalmers, even more than Malthus, retained and even reinforced the current doctrines as to the immediate determination of wages by capital, and made no impression on the course of thought on wages and the wages fund.
A much more vigorous protest than came from either Senior or Malthus or Chalmers, against the general doctrines in vogue, was made by Richard Jones. Jones was an able and scholarly thinker, with views broadened by a wide knowledge of history and an appreciation of the lessons of history. His attitude on the wages fund doctrine, as the doctrine stood at that date, is significant. He admitted that it was true hic et nunc, but insisted that in the sweep of history it had but very limited application. His views on our subject appear in the Literary Remains, consisting of Lectures and Tracts on Political Economy, published in 1859, after his death. At what date these fragments were composed does not appear; but from passages in his Essay on Rent, published in 1831, it is clear that he had matured his opinions in all essentials as early as that date.*
Jones laid stress on the fact that, taking the world over, only a small proportion of laborers were paid out of capital. He divided laborers into three classes: (1) unhired laborers tilling the ground as peasant proprietors or serfs; (2) laborers paid directly out of “revenue” by those employing them, such as servants in modern times and retainers in the Middle Ages; (.1) laborers hired by capitalists and paid by advances from them. He maintained that the great bulk of laborers in the world belonged to the first class, and were not paid out of capital. The commodities on which they lived were a fund for “immediate consumption, constituting part of the revenue of the country.” The second class were also paid out of “revenue,” and not out of capital. In a society like that of the Middle Ages, this class would include not only the great numbers of feudal retainers, but many artificers engaged directly by those wanting their services. As to the third class, England was the only country in which the bulk of the laborers belonged to it; and even in the England of the author’s day, the members of the second class were “a body not unimportant.”
Here we have on the one hand an echo of Adam Smith’s distinction between capital and revenue, on the other hand a large-minded view of the great variations in the machinery of production and distribution among different communities and in different times. The differences which he pointed out between modern advanced communities, and older communities having a fundamentally different organization of industry, deserved much more attention than they received. The English economists of that time had a singularly insular horizon. They regarded only the phenomena that were before their eyes in their own country, and generalized from them with a strange disregard of the absence elsewhere of the conditions on which their generalizations rested. Jones’s protests against the undiscriminating rashness with which they applied their doctrines were not heeded; yet they deserve, as they have received, high praise for the historic sense which they evince.*
Nevertheless, as to the third class of laborers, and so as to the conditions of modern societies, Jones does not question the doctrines of the day. Such laborers are paid out of capital, and their wages depend on the amount of capital. “The whole fund from which they are paid is a fund which has to be saved, which goes through a process of accumulation with a view to profit.” As their numbers increase, “it is necessary for their continuous prosperity that the community should save and accumulate capital at least as fast as they are multiplying their numbers.”* The wages of such laborers depend on the relative growth of capital and population. This is laid down in unquestioning acceptance, as to modern advanced societies, of the doctrine then current.
Jones gave little space to his third class of laborers, hired by capital. In the fragments, attention is given chiefly to the other two classes, which his contemporaries had so completely left out of sight. He thus questions rather the scope of the classic doctrine, than its validity where the assumed conditions are to be found. He maintains, indeed, that the organization of industry by which laborers are hired by capitalists, represents an advance in the methods of production. The laborers work more continuously and efficiently: the capitalists plan and develop inventions and improvements. In fact, there is a tinge of optimism, unexpected in a writer of his stamp, in the reasoning as to the advantages of the capitalist system for the laborer. It brings greater competition for his services, and “nothing can prevent the whole sum paid as wages being dictated by the wants and demands of the whole body of capitalists made more pressing and eager by each successive accumulation of capital. This competition is the workman’s real safeguard, — he interferes with it, ordinarily, much to his disadvantage.”†
In all the discussions of this period, the mode in which capital served to reward labor was treated in general terms and with a loose touch. Hence it is not often that we find any intimation on a point which in a later period became of prime importance, — the rigidity of the funds “destined” for the maintenance of labor. The point, in fact, was hardly ever raised in terms. Such opinions as were entertained in regard to it are to be gathered from what was said on other aspects oi the question, and more particularly on the possible effects of combinations and strikes among laborers. No aspect of the proposition that wages are paid from capital has caused it to be treated with greater contumely than the corollary, supposed to flow from it, that trades-unions and combinations can not secure any rise in wages. What was said on this topic by the writers of the generation here considered is in itself of interest, and at the same time gives some clue to their views on the fixity or elasticity of the wages fund.
It has already been seen* that one of the prominent members of the Ricardian school, Colonel Torrens, writing specifically On Wages and Combinations, gives no intimation of any rigid barrier mocking the efforts of laborers to secure better terms. In that essay, the soldier-scholar admits that a universal combination of laborers might secure an immediate general rise of wages, provided that profits were not at the minimum; and he does not conceive profits as necessarily at the minimum, even though he agrees that high profits will stimulate accumulation, and so raise wages eventually at the expense of profits. In reasoning of this sort, wages are assumed as a matter of course to depend on capital: but capital does not appear as a fund unalterable at any given time, predetermining wages once for. all. Similarly, the reviewer of Torrens in the journal in which the classic writers had full sway, the Edinburgh Review,* evinces indeed a spirit sufficiently out of sympathy with workmen and their unions; but at all events does not fling the wages fund at their heads. The familiar remarks about the certain failure of strikes, the committees who spend the union funds on liquor, the slack trade and diminished employment which must neutralize any temporary success, — these appear in characteristic form. But no law of political economy in the way of an unalterable wages fund is propounded for the confusion of the unionists.
Much the same may be said of M’Culloch. That arch-sinner among the classic writers has something to say of trade-unions and combinations in the two editions of his Essay on Wages; and the spirit of it is by no means of that intolerant sort which the traditions as to the tenets of his school would lead us to expect. In the first edition, of 1825, he defends unhesitatingly the repeal, in the year preceding, of the act prohibiting combinations. While scolding laborers freely for every individual strike he mentions, he yet admits that combinations may sometimes raise the wages of some workmen to their “proper” rate. Of any difficulties in the way of a general rise in wages he has nothing to say.† That question is taken up more specifically in the second edition of the essay (1854), — an edition given to the public immediately after the great strikes of 1853, and largely with the purpose of spreading among workmen themselves the economic views which the author thought pertinent to the events of the day. Here the case of a general combination and strike is considered. M’Culloch predicts the failure of any such move; not, however, because it is inherently doomed by economic law, but because the masters are likely to outlast the men. He concludes that strikes to force up wages are likely to restart in the emigration of capital to foreign parts: an effect which presupposes that there was at least a temporary success in bringing wages up.* All this, to repeat, suggests nothing rigid or inflexible in the capital from which alone M’Culloch and his fellows maintained that wages could be paid, and shows once more how vague were their views as to the precise meaning and limits of the wages fund.
The explanation of this general vagueness of statement and unexpected silence on crucial points in the application of the doctrine, has already been indicated. The main interest of the writers of the period was in other subjects. They believed that the chief means of bettering the condition of mankind was on the one hand by the maintenance of a high standard of living, on the other hand by improvements in the machinery of production, more especially by the relaxation of all restrictions on domestic trade, still more of those on foreign trade. Given unfettered play to self-interest and competition (the mainsprings of individual and national prosperity) and economic difficulties would disappear. The only serious danger under such conditions lay in the possibility, — in the minds of many of these men a probability, — that population would increase so fast as to swallow up all gain from increased production. Hence the ready statement of the causes on which wages depended in a form which made it easy to pass at once to the all-important aspect of the question: the necessity of restraint on the advance of population.
The main results of this account of the stage which the wages fund doctrine reached between 1815 and 1848 may now be summarized. The writers of the period have been considered at length, perhaps at wearisome length, because it is the period during which the doctrine was most widely accepted and might be expected to be most explicitly stated. In fact, however, we find it to be stated usually in the vaguest terms, and with little emphasis. Wages are paid from capital, and depend on the amount of capital compared with the number of laborers: so much is laid down in general terms, and then, as a rule, the writers pass at once to other subjects. The reasons which Adam Smith and his immediate successors gave, to explain and prove the dependence of laborers on capital, are not thought to need attention. Ricardo had set the example of assuming, as one of the things settled by Adam Smith, that wages of “productive” laborers are paid from capital. The same tacit assumption was made by most of his successors. Some writers, indeed, like Senior and Malthus, paused to analyze more in detail the nature of the demand for labor; but neither they, nor other writers who might dissent from the current doctrines, denied that capital constituted a demand for labor; and not only a demand, but the most important, even if not the sole, constituent part of the total demand. Jones, the most radical among the critics of the reigning school, denied that wages depended on capital universally; but that the dependence existed in modern advanced communities, he assumed as unhesitatingly as M’Culloch.
While the general doctrine was thus accepted almost without qualification, it was also stated in terms not likely to provoke opposition. The sting of the doctrine, as it was attacked and reprobated in later days, was in the supposed predetermination and rigidity of the wages fund: in the obstacles which it was supposed to present against efforts at immediate improvement in the condition of laborers. Whatever may have been the case in later years, there is no evidence that fixity or rigidity in the wages fund was prominent in the minds of the writers of the period considered in the present chapter. Such evidence as we get on this point, derived mainly from their discussion of combinations and strikes, is in the negative. The wages fund is there certainly not described as rigid, and by inference is treated as elastic.
