Die Lohnfrvge is-t erne Cultutfragc 
 
 UC-NRLF 
 
 A HISTORY & CRITICISM 
 
 OF THE 
 
 VARIOUS THEORIES OF WAGES 
 
 The natety Prize Essay 1887. 
 
 W.M9 Dennett. 
 
O8- 
 
 T 
 
 
 REESE LIBRARY 
 
 OF THE 
 
 UNIVERSITY OF CALIFORNIA. 
 
 Received.. 
 Accessions No^MJ^' Shelf No. 
 
A HISTORY AND CRITICISM OF THE VARIOUS 
 THEORIES OF WAGES. 
 
" Die Lohnfrage 1st eine Culturfrage." BRENTANO. 
 
 " The wages question has been regarded, both by employers and 
 employed, too much as a question of distribution, too little as one of 
 the production, of wealth." CLIFFE LESLIE. 
 
A HISTORY AND CRITICISM 
 
 VARIOUS THEORIES OF WAGES: 
 
 fov JSS7. 
 
 BY 
 
 w. D. MCDONNELL. 
 
 DUBLIN : WILLIAM McGEE, NASSAU-STREET. 
 
 LONDON : SIMPKIN, MARSHALL & CO. 
 

 R. D. WEBB 4 SON, PRINTERS, DUBLIN. 
 
THE WHATELY MEMORIAL PRIZE. 
 
 ON the 13th of May, 1871, the Committee of the Whately Memorial 
 Fund transferred to the Board of Trinity College, Dublin, a sum of 
 411, 7s. Id. New Three per Cents., which remained after meeting the 
 expenses connected with the erection of the monument to Archbishop 
 Wl lately in St. Patrick's Cathedral. The gift was accompanied by a 
 statement, that it was the wish of the subscribers that the dividends 
 on the stock should be allowed to accumulate, and that the sum accrued 
 at the end of each period of five years should be awarded as a premium, 
 to be called the Whately Prize. Qn the 21st of June, 1886, it was 
 resolved by the Board : 
 
 1. That the prize be in future awarded to the author of the best 
 on a specified economic subject. 
 
 2. That graduates of all chartered universities of the United King- 
 dom be eligible as candidates. 
 
 3. That the subject be announced at least one year previous to the 
 date for sending in the essays. 
 
 4. That the subject for 1887 shall be " A History and Criticism of 
 the Various Theories of Wages." 
 
CONTENTS. 
 
 Page- 
 
 SECTION 1. Introductory, ... ... ... ... 1 
 
 SECTION 2. The Wages- fund Theory, ... ... ... 2 
 
 SECTION 3. Adam Smith's view of the wages question, ... 19 
 
 5. View of Ricardo, ... ... ... ... 23 
 
 ~). View of Jevous, ... ... ... ... 27 
 
 SECTION 6. View of Longlk-ld, ... ... ... ... 31 
 
 SKCTION 7. Vi-w .f Walker, ... ... ... ... 34 
 
 Si;, i ION 8. Yirw of Marshall, ... 
 
 [OH 0. Probable influence on the future of the wages 
 question of the views of Walker, Jevons, and 
 
 Marshall, ... ... ... ... 42 
 
 SECTION 10. Theory of Rogers, ... ... ... ... 47 
 
 SECTION 11. ThtM.iy of Kosher, ... ... ... 50 
 
 SK< TIUN 12. Socialist Theories Karl Marx and Henry George, 56 
 SQOTK N 1 3. Tin- connection between money wages and efficient 
 
 work, clearly established by Cairnes and Senior, 66 
 Si.< TION 14. The connection between real wages and efficient 
 
 work, recognized by almost all economists, 68 
 
 SECTION 15, Summary, ... ... ... ... 70 
 
THE VARIOUS THEORIES OF WAGES. 
 
 1. Introductory. In the infancy of scientific inquiry, 
 it must have seemed to the se ffcer truth as if he 
 
 stood in the centre <>f a chaos, which not even the most 
 patient investigation could ever reduce to order, or show to 
 be subject to tin- reign of law. As time went on, and as one 
 class of natural phenomena after another was shown to be 
 subject to definite laws, it be suspected that tin- 
 
 apparent chaos was merely the result of our ignorance, and 
 that as the light of knowled Brighter we should lind 
 
 that everywhere, in the intellectual and moral, as well as in 
 the material, world it is law, and not caprice, that reigns. 
 This may now be said to be admitted, not only by all scien- 
 tific, but by all educated, ni<-n who accordingly hold that if, 
 amid the multiplicity and complexity of economic and social 
 phenomena, it seems hopeless .to search for any thread to 
 guide us, we should take courage from the history of scien- 
 tific progress, being well assured that what seems to us 
 chance is in fact "direction which we cannot see." 
 
 The various theories which have been put forward on 
 the subject of wages have been the result of attempts to 
 ascertain the law which regulates an important perhaps 
 
 1 
 
2 THE VARIOUS THEORIES OP WAGES. 
 
 the most important class of economic phenomena. One of 
 these theories has become celebrated under the name of the 
 doctrine of the wages-fund, and has, for many years, formed 
 the centre round which the controversies on the subject of 
 wages have mainly revolved at least in England; and I 
 therefore propose, instead of taking the theories of wages in 
 their chronological order, to commence by giving a short 
 account of the origin of the wages-fund theory; and after 
 having sketched its history and examined its validity, I 
 shall proceed to the consideration of the other theories 
 which have preceded it, or which have taken i/he field 
 against it. 
 
 2. The wages-fund theory. At the close of the 
 last, and the commencement of the present, century both the 
 state of the industrial world in England, and the method of 
 emnomic speculation then coming into fashion, were pecu- 
 (Jiarly favourable to theorise of a doctrine which treats the 
 rate of wages as' depending on the ratio of a supposed wages- 
 fund to the rftftnber of the labouring population. A large 
 accumulated capital existed in the hands of employers, 
 population was increasing rapidly, the working classes were 
 too poor to maintain themselves until the completion and 
 sale of the product, and the national industries wore chiefly 
 of a kind which required that a considerable interval should 
 elapse between the execution of the labour and the time 
 when the value of the product could be realized. The 
 labouring classes were, for all practical purposes, excluded 
 from becoming owners or occupiers of land, and the country 
 had long reached the stage of diminishing returns in agri- 
 
THE WAGES-FUND THEORY. 3 
 
 
 
 culture, so that any addition to the population was generally 
 attended by a decline in the efficiency of labour, and a con- 
 sequent fall of wages. ) 
 
 Under an industrial regime of this kind, it is evident 
 that/wages were, as a rule, advanced out of capital, and the 
 capitalist reimbursed himself upon selling the product just 
 1 as a bill discounter does on a bill becoming due. The con- 
 ditions were, as r^a&ssojJSgalker expresses it, financially 
 more favourable, and industrially less favourable, for the pay- 
 ment of wages, than in new countries in which capital is 
 scarce, in which labour is skilful and intelligent, and 
 natural agents highly productive. Economic speculation, at 
 the time (to which I refer) was carried on mainly from the 
 capitalist'^ point of vi'-\v, ami it was natural that an indivi- 
 dual employer, who saw that he advanced a certain sum to 
 his men in the shape of wages during the period required to 
 fit a particular article for the market, and then received him- 
 self the whole price for which it sold, should accept, as uni- 
 versally true, a doctrine which seemed to be in harmony 
 with the facts which fell within his own narrow experience 
 a doctrine which assumes that wages are not only 
 advanced, but also paid, out of capital, and measured by it, 
 and that the efficiency of labour and, the productiveness of 
 natural agents can only affect wages so far as they lead to 
 
 increased accumulation., Not only was economic speculation 
 carried on too much from the stand-point of the capitalist, 
 but the economists of the earlier Kicardian school lived too 
 exclusively in a world of abstractions; they wanted that 
 " strong instinct for realities " for which Adam Smith was 
 
 1* 
 
4 THE VARIOUS THEORIES OF WAGES. 
 
 * remarkable, and were too little in the habit of verifying their 
 a priori deductions by comparing them with the actual facts 
 of life. They bestowed little observation on the industrial 
 system of their own age and country, and seldom looked to 
 former times or other countries to see how far their theories 
 nQSS^ssed the universality which was claimed for them. 
 
 [ Such was the general character of the economic world in 
 v 
 
 which the wages-fund theory was first distinctly formulated 
 by James Mill A Indistinct foreshado wings of the doctrine 
 may indeed b*K>und in earlier writers, but I think I am 
 correct in saying that ^James Mill was the first writer who 
 Jjavejjlear expression to it. It was restated and insisted on 
 as an almost self-evident truth by nearly every English 
 economist of the a priori school by McCulloch, and Senior, 
 by John Mill, and Fawcett, and Cairnes the last of whom 
 was, perhaps, its clearest exponent and its ablest defender. 
 
 No direct attack seems to have been made upon it during 
 the first half of the century, although some doubts were 
 thrown upon it, and theories inconsistent with it were 
 advanced. The note of dissent was, however, clearly 
 sounded by Mr. F. D. Longe in 1866, and two years later 
 the objections to it were set forth with much greater ability 
 / by Professor Leslie, in an article in Frazer's Magazine. The 
 year 1869, however, is the one which has became memorable 
 in the history of the controversy by the conversion of Mr. 
 Mill. In that year Mr. Thornton published his work On 
 Labour, its Wrongful Claims and Rightful Dues, and the 
 immediate effect of his performance is described by Professor 
 Walker (North American Review, January, 1875) in the 
 
THE WAGES-FUND THEORY. 5 
 
 following words : " No sportsman who had fired at a squir- 
 rel, to hear, a minute after, the crashing of boughs above 
 him, and to see a bear come tumbling out of the tree, could 
 have been more astonished than Mr. Thornton must have 
 . when, promptly on the publication of his work, John 
 Stuart Mill, without a reservation, and even without a parley, 
 surrendered the whole territory covered by tl: fund 
 
 flag, with all the materials and properties complete, and 
 marched out without even the of war." JIow far 
 
 Mr. Mill's con to Mr. Longe and Professor 
 
 without the means of ju<l;_i:i^. lit- himself 
 seems to have attributed it entirely to the impression pro- 
 duced upon him by Mr. Thornton's book. However this 
 may be, his recantation was unconditional and complete, 
 
 its corollaries. He declared 
 
 that Mr. Thornton had deprived of all scientific foundation 
 
 hat combinations cannot raise wages, and that 
 
 the wages-fund theory, which had been a barrier closing 
 
 the entrance to an important province of economic enquiry, 
 
 low that will vanish if we go boldly up 
 
 to it." 
 
 The last chapter in the history of the wages-fund theory 
 is that contributed to it by Professor Cairnes, in Some 
 Leading 1 <>f r<>liti<-al Economy Newly Expounded, 
 
 which contains a masterly restatement and analysis of it, 
 although he at the same time confesses, strangely enough, 
 that it is not a solution, but merely a statement, of the wages 
 problem the problem being, in his opinion, to ascertain the 
 causes which lead to an increased demand for labour (that is, 
 
b THE VARIOUS THEORIES OF WAGES. 
 
 to an increased wages-fund) on the one hand, and to an 
 increased supply of it on the other. 
 
 . America is the only country except England in which the 
 
 wages-fund theory has made many converts, and even there 
 the conditions were so unfavourable to its growth that it 
 would probably never have taken root if it had not been 
 transplanted from a more congenial soil. Except in the New 
 England States the practice of advancing wages out of capital 
 is not universally followed even at the present day, and fifty 
 years ago wages were seldom so advanced in any part of the 
 Union. The national industries were chiefly of an extractive 
 kind. The product was capable of being quickly harvested 
 and brought to market; the labourer was usually well off, 
 and able to maintain himself during the interval required for 
 the realization of the value of the product, and where he was 
 unable to do so his wages were partly advanced to him and 
 partly paid when the product was sold. ^The stage of dimin- 
 ishing returns had not yet been reached, and an addition to 
 the number of the labouring population was accompanied by 
 an increase of the per capita product owing to the concentra- 
 tion of labour and a more effective combination among the 
 men.) It is evident that in such a state of things the eco- 
 nomic atmosphere was as unfavourable, as in England it had 
 been favourable, to the growth of the wages-fund theory. In 
 America the facts which came into collision with the theory 
 lay on the surface of the social system. In England they 
 were buried deep beneath the surface, and were only brought 
 to light after a close analysis and a careful comparison of the 
 English social system with those of other countries. 
 
THE WAGES-FUND THEORY. 7 
 
 Such being the history of the wages-fund theory, I have 
 next to inquire how far it satisfies the test by which every 
 scientific theory must be tried the test of explaining the 
 facts. I shall first state the theory ; I shall then state the 
 facts ; and I shall then consider to what extent it harmonizes 
 with and explains them. TXhe wages-fund has sometimes 
 been understood to mean tn~e sum actually paid in wages, 
 and it has been supposed that the teachers of the theory 
 meant to assert that wages depend on the ratio of this fund 
 to the number of the labouring population ; and that all you 
 had to do to find the average rate of wages was to divide the 
 sum actually paid by the number of actual recipients. It is 
 in tliis sense that Professor Perry appears to understand it 
 when he says : " There is no arguing against any of the four 
 fundamental rules of arithmetic. The question of wages is a 
 question of division. It is complained that the quotient is 
 too small. Well then, hw many ways are there to make a 
 quotient larger? Two ways. Enlarge your dividend, the 
 divisor remaining the same, and the quotient will be larger ; 
 lessen your divisor, the dividend remaining the same, and 
 the quotient will be larger." (Perry's Elements, p. 123.) If 
 this is the wages-fund theory, it is no doubt perfectly true, 
 but at the same time perfectly worthless ; it is a mere state- 
 ment of an arithmetical fact which contains, as Dr. Ingram 
 has observed, no economic element whatever ; and it seems 
 to me that it would be an insult to the memory of those 
 great men who held and taught it as an important economic 
 truth, to suppose that they meant anything so puerile as this. 
 I therefore assume that they meant by the wages-fund, not 
 
O THE VARIOUS THEORIES OF WAGES. 
 
 / the sum actually paid in wages, but the sum pre-determined 
 
 1 and destined by certain fixed economic causes to be paid, and 
 
 \that the doctrine which they taught was that wages depend 
 
 bn the proportion borne by the amount of capital so destined 
 
 v fend determined to the number of the labouring population. 
 
 ^K the wages-fund, in this latter sense, is capable of being 
 ascertained, and if the facts do not conflict with the theory, 
 then the doctrine as last stated must contain an important 
 economic truth. Let us now, therefore, enquire whether the 
 facts do conflict with it or not. We find two countries, such 
 as England and America were fifty years ago, the former 
 possessed of a large accumulated capital large, not only 
 absolutely, but large compared to the labouring population 
 the latter with -a small capital, both absolutely and relatively. 
 What would the theory lead us to predict with regard to the 
 
 i rate of wages in these two countries? Surely, that it was 
 
 \ high in England and low in America. And yet the fact was 
 ! just the reverse ; and why 1 For this plain reason, that 
 labour was far more productive in America than in England 
 partly on account of its own efficiency, and partly on account 
 of the fertility of the natural agents upon which it operated. 
 Can anything more than this one example be required to 
 show that a large wages-fund (in the second of the two senses 
 in which, as I have shown, that term is capable of being 
 understood) is not the only thing upon which, the number of 
 the labouring population remaining the same, the rate of 
 wages depends, but that it also depends, and that in a still 
 greater degree, on the^ffici^iicy of labour. Wherever you 
 have a body of skilful, industrious, energetic men, and natural 
 
THE WAGES-FUND THEORY. 9 
 
 agents_of a high productive powm^ flip. tlio. reward of In.bour 
 will be high, even though capital be scarce and the wages- p 
 fund small, because it is the product, and not capital, which. \ *" 
 is jho mil and ultimate source from which wa^es are paid, j 
 TVheivver Y'<U have a similar body of men, and similar 
 natur . and, in addition to these, a large capital and 
 
 a largv wages-fund, then' the position of the labourer will be - 
 still ] . - conditions will be financially, as 
 
 well as industrially. ivour, and be< competi- 
 
 tion of capital for the aid of labour will be keen. 
 
 Let us now c fund th< _ -plied to 
 
 a country in which the stage of tliinii i isl i i ng returns has not 
 reached, and in which an addition to the labouring 
 population will_causr an increase in the produce of industry, 
 not nn'ivly in proportion to Q ise of labourers, but in 
 
 ;;<-r proportion. What will tin- upon wages'? 
 
 The product has increased, not only a; . hut relatively 
 
 to the number of labourers, and is it not both " morally just 
 and economically possible " that the labourer should obtain a 
 share of the increase ? It certainly seems so to me, and the 
 evidence goes to show that he does obtain it not merely 
 ultimately, after the increased production has had time to 
 cause fresh accumulations, but at once. So also, by a parity 
 of reasoning, in an old country in which natural agents yield 
 a diminishing return to each additional application of capital, 
 a fall of wages will take place as a consequence of an influx 
 of labourers, because employers in estimating the price at 
 which they can afford to employ the new labour will take 
 into account, prospectively, the diminished return which will 
 
10 THE VAEIOUS THEORIES OF WAGES. 
 
 be received upon each, successive application of capital. So 
 too, if we take a case in which the increased or diminished 
 productive power is due, not to an increase or diminution of 
 the fertility of natural agents, but to a change in the indus- 
 trial qualities of the labourer, we get a precisely similar 
 result. It is supposed that the labour of an average Bengalee 
 is from five to eight times less efficient, according to the sort 
 of work you put him to, than that of an average English- 
 man. If then a body of Bengalee workmen were suddenly 
 substituted for the existing body of English workmen, a 
 great fall in wages would take place. The advocate of the 
 wages-fund theory would explain this by saying that it was 
 caused by the reduction in the wages-fund, consequent on 
 reduced production. But this explanation ignores the fact 
 that the fall in wages will take place at once, that is, imme- 
 diately on the substitution of the less efficient labour of the 
 Bengalees for that of Englishmen, because the employers of 
 labour will foresee a diminution of the product, and will 
 make their calculations accordingly. They will see that 
 because the new men produce less they must be paid less, 
 or else profits will vanish or be converted into a loss. 
 \The wages-fund theory assumes that an employer, in cal- 
 culating what he can afford to pay his men, thinks only of 
 how much capital he will have after having provided himself 
 with machinery, materials, etc., and it is supposed that he 
 will expend the whole of this residuary capital in the 
 purchase of labour. It assumes that he cannot spend more 
 and that he will not spend less. But will he not also take 
 into account the prospective value of the product 1 In the 
 
THE WAGES-FUND THEORY. 11 
 
 western states of America an employer often commences the 
 industrial year with only a quarter the amount of capital 
 necessary to pay his men. He accordingly agrees to pay 
 them only quarter wages until the product comes to market, 
 and they then receive their share of it minus the quarter 
 which has been already paid to them. Here it is plain that 
 it is to the product that the employer looks as the source 
 from which he is to pay his men, and it is evidently the pro- 
 duct, and not the employer's capital, that measures their 
 B. If, in the following year, the employer has reason 
 to expect that the product will be unmarketable, he will 
 probably suspend operations and employ no labour that year, 
 because the source is dried up from which he had previously 
 paid his men three-fourths of their wages and from which he 
 had repaid himself the, fourth which he had advanced. I say 
 that he will probably suspend operations, not that he will 
 certainly do so, for he may continue to produce at no profit, 
 or even at a loss, in order to ke< -p his men together in hope 
 of better times, and because he cannot extricate his iixed 
 capital from the, business. But however this maybe, it is 
 certain that an anticipated decline in the value or amount of 
 the product will tend to make him employ less labour or to 
 employ it at lower rates. 
 
 If we leave out of account that share of the produce 
 which goes to the landlord as rent and to the State as taxes, 
 the whole of what remains must be either wages or profit ; 
 and it seems to me impossible to adduce a single argument to 
 show that the share of this residue which the labourer 
 obtains depends upon the ratio of the wages-fund to the 
 
12 THE VARIOUS THEORIES OF WAGES. 
 
 number of labourers, which could not also be used to prove 
 that the share of the capitalist depends upon the ratio of a 
 supposed profit-fund to the amount of capital. And yet 
 this has never been put forward as a theory of profits ; and 
 why 1 Because during the period of abstinence the capitalist 
 has always maintained himself, just as the labourer did in 
 America when wages were not paid till the close of the 
 industrial year, and hence it was obvious that his profit came 
 from the product. In England the capitalist did so main- 
 tain himself ; the labourer did not ; and so it seemed as if 
 wages and profits came each from a different source, when in 
 truth the difference was only in the time and manner of 
 payment. The labourer was, as it were, paid by a bill which 
 reached maturity on the day the product was sold ; the 
 capitalist was paid by a similar bill ; but the labourer had 
 his bill discounted at once by the capitalist, wjhereas the 
 capitalist waited until his became due and then received the 
 the whole price of the product in liquidation of both bills. 
 
 I have already indicated the circumstances which favoured 
 the growth of the theory of the wages-fund. The reason of 
 its having so long retained a hold on men's minds is obvious. 
 It seemed to afford a logical resting-place to the weary en- 
 quirer, and to provide him with a compact and portable 
 formula for the solution of a multitude of perplexing 
 questions. It satisfied that craving for simplicity and uni- 
 formity which is the last infirmity of the philosophic mind, 
 and which makes it, as Bacon said, " assume and feign in 
 nature a greater uniformity and equality than is in truth." 
 It was popular with employers of labour, because it supplied 
 
THE WAGES-FUND THEORY. 13 
 
 them with a ready answer to the complaints of their men, 
 and with social optimists because it enabled them to justify 
 the existing industrial regime. With the working classes, 
 on the contrary, it never was popular, and it did much to 
 discredit in their eyes economic teaching in general. It 
 was natural that they should regard with suspicion and dis- 
 like a doctrine which "deprived such agencies as strikes and 
 trades-unions of even a standing in a court of Political Econ- 
 omy" (Walker, fra'th American Review, 120, p. 85), and 
 which told them that all their efforts to affect wages were 
 useless which did not either check population or promote 
 accumulation or at least that the utmost they could accom- 
 plish was to accelerate a rise <f wages which was already 
 " in the air," and which would equally occur a little later on 
 if they remained passive and avoided the expense of a strike. 
 It was evident that as soon as Political Economy came to be 
 written more from the point of view of the artisan, and less 
 from that of the employer, the wages-fund theory would be 
 placed upon its trial before no very lenient tribunal, and it 
 probably owes its downfall more to this change in the 
 general spirit of economic speculation than to the attacks of 
 Mr. Thornton and Mr. Longe. Opinions which have enjoyed 
 a long popularity are often silently undermined by moral and 
 economic causes, and it is only when these have accomplished 
 their work that the men appear who get the credit of having 
 killed them. If the attack on the theory of the wages-fund 
 had been made twenty years earlier it would in all proba- 
 bility have failed, 
 /rhe wages-fund theory as taught by some writers, 
 
14 THE VARIOUS THEORIES OF WAGES. 
 
 especially by Mr. McCulloch, professed to furnish a formula, 
 not only for ascertaining the general or average rate of wages, 
 but also forfixing the particular rates prevailing in different 
 employments^) These rates, it was maintained, are always 
 such as to distribujejbhe total wages-fund among the various 
 industries, in exacjjDroportion to the severity, duration, and 
 disagreeableness of the labour in each, as well as the time 
 and expense required to learn, and the skill required to exer- 
 cise it. "Hence the discrepancies," says Mr. McCulloch, 
 " that actually obtain in the rate of wages are confined with- 
 in certain limits ; increasing or diminishing it only so far as 
 may be necessary to equalize the favourable or unfavourable 
 circumstances attending any employment." Mr. McCulloch, 
 and those writers who have followed in his wake, seem to 
 have supposed that in teaching that the level of wages in any 
 trade must be such as to make its "net advantages " (to use 
 Professor Marshall's convenient expression) exactly equal to 
 those of other trades, they were preaching a doctrine of Adam 
 Smith's. Now in no part of Adam Smith's book do we feel 
 " that abiding sense of being in contact with the realities of 
 life," of which, as Dr. Ingram remarks, the reader of that 
 book is always conscious, so much as in the chapter on the 
 rates of wages and profits in different employments; while, 
 on the other hand, in the writings of most of his successors 
 of the English school, we nowhere feel ourselves so far re- 
 moved from realities as in those parts of their works which 
 deal with this very subject. Adam Smith has shown even 
 more than his usual caution in stating the numerous qualifi- 
 cations and conditions which limit the proposition that 
 
THE WAGES-FUND THEORY. 15 
 
 [^competition equalizes the net advantages of different employ- 
 ments. He has shown that it is only true in the same neigh- 
 bourhood, and when the labourer is perfectly free to choose 
 and change his occupation, and even in the same neighbour- 
 hood, and upon the hypothesis of perfect freedom, he shows 
 that the proposition is only true as regards old established 
 industries, those which are in their normal state, and those 
 which form the main occupation of the men engaged in 
 them. Although Mill has been represent lung that 
 
 competition raises wages to the exact point required to com- 
 pensate the labourer for the hardships and disadvantages of 
 the business, yet, the doctrine can in reality only claim 
 the sanction of his authority in the same sense in which 
 it can claim the support of Adam Smith's. Indeed, as 
 Professor Leslie observes, it has been the fate of both of 
 these great men to have had some of their views repro- 
 duced in such a shape as almost to make one think that 
 the reductio ad absurdum of the master was the object of 
 the disciple. Mr. Mill, so far from assuming that the net 
 advantages of different employments are equalized by com- 
 petition, tells us "that wages are generally in an opposite 
 direction to the equitable principle of compensation, erro- 
 neously represented as the general law of the remuneration 
 of labour. The really exhausting and really repulsive 
 labours, instead of being better paid than others, are almost 
 invariably paid worst of all, because performed by those 
 who have no choice." Again, he maintains that women's 
 wages are not determined by competition, and "that the 
 remuneration is greatly below that of equal skill, and 
 
16 THE VARIOUS THEORIES OF WAGES. 
 
 equal disagreeableness in employments carried on by men." 
 He also admits that combinations have been successful in 
 securing net advantages in some trades far superior to those 
 enjoyed by others. McCulloch states that wages in his time 
 were nearer a common level than when the Wealth of Nations 
 was written, and were "nearly the same all over the country" 
 (note to his edition of the Wealth of Nations, p. 34). But 
 the latter part of this statement is certainly untrue, and the 
 truth of the first part of it, although the evidence is not quite 
 decisive,' is very doubtful. Improved communication has, no 
 doubt, done much to facilitate the migration of labour from 
 place to place. Newspapers and advertisements teach the 
 workman where his services are most wanted, and railways 
 and steamers enable him to go there. But can labour migrate 
 from employment to employment much more easily than it 
 could do in Adam Smith's day 1 ? I do not say that it cannot 
 do so; I say that it is far from certain that it can, and that 
 many impediments to its movement still exist. Just as 
 improved communications and the influx of gold between 
 1850 and 1870 destroyed old inequalities of prices and 
 created new ones, so the introduction of machinery and the 
 extent to which the division of labour has been carried have 
 raised up new inequalities in wages, by creating new 
 obstacles which impede the movement of labour from 
 employment to employment, in place of old obstacles which 
 have been swept away. "Whatever Bicardo's hypothesis 
 may lead to," says Professor Leslie, " the real economic 
 conditions of production and distribution have nowhere 
 equalized wages, profits, or rents; they have in fact, in recent 
 
THE WAGES-FUND THEORY. 17 
 
 times, produced new inequalities through the different rates 
 at which industrial development has proceeded in different 
 localities, the different natural advantages of different locali- 
 ties, and the rise of such a multitude of special industries, 
 and such continual change in the conditions, that omni- 
 science only could estimate their prospects, or enable com- 
 petition to equalize them." 
 
 I am aware that Professor Marshall has pointed out some 
 cases in which the division of labour has formed a kind of 
 bridge between two trades that were formerly distinct, /en- 
 abling labour to pass more freely between them. "A country 
 watchmaker," he says, " could not easily become a gunmaker 
 or vice versa ; but many men in a large watch factory could 
 easily find employment in a large rifle factory. When the 
 late American war came to a close, a famous rifle factory 
 devoted itself to making sewing machines." Such cases as 
 these are, however, the exception and not the rule, and the 
 great number of specialized industrial qualities to which the 
 division of labour has given birth impede the migration of 
 labour more frequently than they promote it. Professor 
 Marshall himself admits that skilled labour migrates from 
 employment to employment much less freely than unskilled 
 labour; while Mr. Giffen has shown that the proportion 
 which the number of skilled labourers bears both to the 
 number of unskilled and to the whole community has enor- 
 mously increased during the last fifty years, and he tells us 
 that not only has a substitution taken place of artizan 
 labour for rude labour, but "the proportion to the whole 
 community of the higher paid artizan and professional 
 
 2 
 
18 THE VARIOUS THEORIES OF WAGES. 
 
 workers and clerks who are economically members of the 
 working classes, has greatly increased." So that that section 
 of the working class, the members of which, according to 
 Professor Marshall, find it most difficult to change their em- 
 ployments, is on the increase, both absolutely and relatively. 
 It is no uncommon thing to see thousands of skilled 
 workmen unable to obtain employment, while much ma- 
 chinery is standing idle for want of hands, because the skill 
 of the unemployed men is not of the kind required to work 
 it. The factory inspectors reported in 1860, that in London 
 above 90,000 men were out of employment in one set of in- 
 dustries, while in another set a large demand existed for 
 labour to work machinery then idle. 
 
 Thus we find that, even as applied to highly civilized 
 communities, the assumption that competition equalizes the 
 net advantages in different employments is only a rough 
 approximation to the truth. How much further then must 
 it be from it in those countries where custom, to a greater or 
 less extent, excludes competition in which wages are often 
 paid in kind, or in different currencies, and in which the 
 most Skilful' statistician or actuary would sometimes find it 
 difficult, as between different industries, to determine which 
 of them possessed net advantages superior to the others. It 
 is difficult for an Englishman or an American of the present 
 day to form an idea of the degree to which, in some parts of 
 the world, the social organism is, as it were, encased in a 
 crust of custom which makes it impossible for the workman 
 to seek the best market. And, even if nothing prevented 
 
ADAM SMITH'S THEORY. 19 
 
 him from seeking it, the knowledge that would enable him 
 to find it may lie far beyond his reach. 
 
 These considerations lead me to the conclusion that that 
 branch of the wages-fund theory which deals with the pro- 
 blem of particular wages rests upon assumptions which are 
 only true of a small part of the world, and even of that small 
 part they are only true when taken subject to a number of 
 limitations which have been ignored not indeed by all but 
 by a great number of English economists. It is impossible 
 not to join with Professor Leslie in lamenting that the 
 earlier disciples of Kicardo, instead of assuming an equality 
 of wages which had no real existence, did not search out the 
 causes of existing inequalities so as to pave the way for 
 their removal. Even granting that the scientific economist 
 is going beyond his province when he gives advice, or pro- 
 poses remedies, he is certainly well within it when he points 
 out the causes of evils, leaving it to others to suggest the 
 cure. 
 
 3. View taken of the wages question by Adam 
 Smith. I have placed the wages-fund theory in the fore- 
 front of this discussion, because I think it important to 
 determine the source from which wages proceed before 
 attempting to criticize the other views which have been 
 taken of the subject. My examination of that theory has v 
 led me to conclude that, although capital is not without an . Jj 
 
 ^ 
 
 influence on wages, it is the product that forms the true 
 ultimate source from which they come, and tha,t it J R t.V>p.rp... 
 fore on the efficiency of labour that they mainly depend. I 
 now proceed to examine, by the light of this important truth, 
 
 2* 
 
20 THE VARIOUS THEORIES OF WAGES. 
 
 some of the other solutions of the wages problem which 
 have been offered to the world. 
 
 / According tq^Adam Smith " in that original state which 
 precedes the appropriation of land and the accumulation of 
 stock " the labourer produced his own wages. He received 
 the whole product, because there was neither landlord or 
 capitalist to claim a share of it. When society had emerged 
 from this primitive condition land became private property, 
 the assistance of the capitalist became indispensable to the 
 labourer, and the wages problem lost that character of ex- 
 treme simplicity which had distinguished it in the primitive 
 state. The shares of the landlord and capitalist were 
 determined by causes with which Adam Smith was unac- 
 quainted, and the share of the labourer was determined, 
 according to him, by a struggle between the workman and 
 his employer, each of them combining, the one to raise, the 
 other to lower, the wages of labour. In this contest the 
 capitalist, he considers, generally had the best of it; but 
 there was a point below which he could not permanently 
 force wages. "^A man," he says, " must always live by his > 
 work and his wages must be at least sufficient to maintain 
 him." This furnis^f! thp. minimum. If wages ever fell 
 below this rate, "the lowest which is consistent with common 
 humanity," the check given to population soon brought them 
 back to it. How far wages might rise above this point was 
 determined by "the demand for those that live by wages," 
 and this demand " necessarily increases with the increase of 
 the revenue and stock of every country and cannot possibly 
 increase without it." It is not because a country is rich 
 
ADAM SMITH'S THEORY. 21 
 
 that wages in it are high, but because it is growing rich 
 fast. Wages, he maintains, were higher in America than in 
 England because, although America was a poorer country 
 than England, its wealth was increasing faster. " It is in I 
 the progressive state, while society is advancing to further 
 acquisition, rather than when it has acquired its full com- 
 plement of riches, that the condition of the labouring poor, of 
 the great body of the people, seems to be happiest and most 
 comfortable. It is hard in the stationary, and miserable in 
 the declining state." 
 
 Such is Adam Smith's contribution to the solution of the 
 problem of general wages. The necessities of the labourer 
 fix a minimum, and wages may rise indefinitely above that I 
 minimum, according to the rate at which the country is/ 
 increasing in wealth. He soon loses sight of the truth, 
 which, when speaking of the primitive state before land was 
 appropriated and stock accumulated, he clearly saw namely, 
 that the product is the source of wages, and that efficiency 
 of labour tends to raise them. Looked at by the light of 
 this important truth, it is easy to see why it was that wages 
 were so much higher in America than in England. Labour 
 was at least as skilful and intelligent in the former as in 
 the latter country, and natural agents were far more pro- 
 ductive. The product obtained by a given expenditure of 
 labour and capital was therefore larger, and the capitalist, 
 while reaping large profits himself, could afford to purchase 
 the labourer's assistance in the work of production upon 
 liberal terms j or to state the same fact as viewed from the 
 labourer's side the labourer could afford, while himself 
 
22 THE VARIOUS THEORIES OF WAGES. 
 
 pocketing high wages, to purchase the co-operation of the 
 capitalist, by allowing him to retain high profits. What 
 made it possible for wages to be high concurrently with 
 C profits was that the product was large, and the product was 
 I large because labour was efficient. If it be true that wages 
 are paid from the product, and that when labour is efficient 
 wages are high, then it is clear that a country need not be 
 advancing in wealth in order that wages may be maintained 
 above the "lowest point consistent with common humanity," 
 and that in a stationary state the condition of the labourer 
 may be one of comfort and contentment. If we suppose a 
 flourishing colony, possessed of rich mines and a fertile soil, 
 and equipped with all the resources of civilization roads, 
 railways, harbours, machinery, and peopled with an intelli- 
 gent and energetic race of men if we suppose such a country 
 as this to be stereotyped and reduced to a perfectly stationary 
 state, the labourer may continue to the end of time to enjoy 
 the same comforts and conveniences as when the onward 
 movement was arrested, because the number of his class, the 
 efficiency of his labour, and the amount and distribution of 
 capital will remain the same. Whether the stationary state 
 would be, for any particular country, a desirable one or the 
 reverse, must depend upon the stage of industrial evolution 
 at which it is reduced to that condition. If Adam Smith 
 had been acquainted with the law of diminishing returns, of 
 which he seems only to have obtained occasional glimpses, 
 and if he had kept steadily in view the connection between 
 the efficiency of labour and its reward, he would have given 
 the true explanation of the phenomenon of wages being high 
 
RICARDO'S THEORY. 23 
 
 / in America and low in England, and he would, in all proba- 
 I bility, have been led to a correct solution of most of the 
 \prpblems of distribution. 
 
 It has sometimes been supposed that Adam Smith held the j 
 wages-fund theory; and one passage (voL i. p. 92)jn which ' 
 he speaks of the demand for labour as determined by " the 
 funds destined to the payment of labour," might, if it stood 
 alone, bear that interpretation. But the rest of the chapter 
 in which that passage occurs shows that such was not his 
 meaning ; and his doctrine that industry is limited by capi- 
 tal, which has sometimes been identified with the wages-fund 
 theory, has no necessary connection with it. His views, and\\ 
 those of Kicardo, as to the necessity of a subsistence fund I j 
 prepared the way for the wages-fund theory, and led up toy \ 
 it, but they are, at the same time, distinct from it. ~**s 
 
 5. Views of Ricardo. Adam Smith had probably 
 taken his idea of a minimum of wages from the Physiocrats;* 
 Ricardo took it from Adam Smith, and called it the natural 
 price of labour. According to him there is a market rate 
 and a natural rate of wages, just as there is a market price 
 and a natural price of commodities, and the market rate has 
 a constant tendency to conform to the natural rate. The 
 market price of labour is determined by the proportion of 
 the supply of labour to the demand for it ; the natural price, 
 by the price of the necessaries and conveniences required to 
 support the labourer and his family. If these rise in price 
 
 * " En tout genre de travail il doit arriver, et il arrive, que le salaire 
 de 1'ouvrier se borne a ce qui est necessaire pour se procurer sa sub- 
 sistence." TUKGOT. 
 
24 THE VARIOUS THEORIES OF WAGES. 
 
 money wages must rise to enable the labourer to obtain the 
 same quantity of them, or else population will not be kept 
 up. If they fall in price and money wages remain the 
 same, the labourer will receive more than the " natural " 
 amount of food, etc., and an increase of population will 
 reduce money wages, that is, will bring the market rate of 
 wages back to the natural rate. Just as Adam Smith ad- 
 mitted that his minimum of wages might be more than 
 enough to keep the labourer and his family alive and in 
 working order, so Eicardo admitted that his natural rate 
 " essentially depends on the habits and customs of the peo- 
 ple," and might be higher at one time or in one country than 
 another ; so that the minimum of Adam Smith, the natural 
 rate of Eicardo, and the moral minimum of John Mill are 
 different names for the same thing. Eicardo' s answer to the 
 question What fixes the natural rate of wages? that it is 
 the price of commodities on which wages are expended, ifl 
 merely a statement, not a solution of the problem. To the 
 question why the price of commodities being the same is 
 the natural rate higher in one country than another 1 he 
 gives no answer. If pressed for one he would perhaps have 
 referred to the margin of cultivation as determining for any 
 particular country and time the amount of necessaries and 
 conveniences which the labourer could obtain by a day's 
 labour ; but this would only be pushing the difficulty a step 
 further back, for the question would still have remained, 
 why is the margin of cultivation higher in some countries 
 than in others 1 and why do the people of some countries 
 maintain a higher standard of comfort than those of others ? 
 
RICARDO'S THEORY. 25 
 
 And these are questions with which neither the Ricardian 
 method nor the mind of Ricardo himself were well calcu- 
 lated to deal. 
 
 Ricardo, as well as Adam Smith, has had the wages-fund 
 theory attributed to him, but upon equally slender grounds. 
 It seems clear, however, that the language used both by 
 Adam Smith and Ricardo on the subject suggested the 
 doctrine of the wages-fund to those writers by whom it was 
 first formulated. When Ricardo speaks of the supply of, and 
 the demand for, labourers as determining wages, it is the 
 market rate which he has in view, and he merely regards 
 the proportion of capital to population as part of the mecha- 
 nism through which the natural rate acts upon, and controls, 
 the market rate. With him the market rate depends upon 
 the natural rate, the natural rate upon the price of neces- 
 saries. "With every improvement in society," he says, 
 " with every increase in its capital, the market rate of wages 
 will rise ; but the permanence of the rise will depend upon 
 the question, whether the natural price has also risen ; and 
 this again will depend on the rise in the natural price of 
 those necessaries on which the wages of labour are ex- 
 pended." It deserves also to be noticed that Ricardo 
 admits that to whatever extent wages depend on the in- 
 crease or diminution of capital, to exactly the same extent 
 do they depend on the efficiency of labour. " In different 
 states of society," he tells us, "the accumulation of capital, 
 as the means of employing labour, is more or less rapid, 
 and must, in all cases, depend on the productive powers of N 
 labour." And if he admits, which he seems to do by im-/ 
 
26 THE VAEIOUS THEORIES OF WAGES. 
 
 plication, that the natural rate of wages depends on the 
 margin of cultivation, this includes an admission that they 
 depend on the productive power of labour, since this varies 
 with the margin of cultivation. 
 
 If there be a partial truth in Eicardo's view, that the 
 standard of living controls wages by maintaining them at 
 a point below which they cannot fall without giving a 
 check to population, it is also true (and this Eicardo failed 
 to see) that the productiveness of labour and a consequent 
 rise of wages may exercise a strong influence on the standard 
 of living. A sudden rise of wages may, as Mill has shown, 
 if maintained during a sufficient period, create a new and 
 higher standard of living ; and thus the standard of living 
 may sometimes depend on wages, as wages may upon it. If 
 a high standard of living is sometimes the cause of the 
 labourer's wages being high, it is much oftener the effect 
 of his prosperity. If Eicardo had attended more to actual 
 facts he could hardly have failed to see that the labourer's 
 reward is usually determined, not by his wants, but by the 
 value of his labour that one man is paid more than an- 
 other, not because he eats more or better food, or has a 
 higher standard of comfort, but because his labour is worth 
 more to the man who employs him. "The slave and the 
 domestic animal," says Mr. Senior, "are fed according to 
 their necessities ; the free labourer according to his value." 
 (Lecture on the Cost of Obtaining Money, p. 10.) 
 
 Professor Jevons has observed that Eicardo's mode of 
 reasoning from the formula product = wages + profits 
 is radically fallacious, because it involves the attempt to 
 
THEORY OF JEVONS. 27 
 
 determine two unknown quantities from one equation. "I 
 grant," he says, " that if the produce be a fixed amount, then 
 if wages rise profits must fall, and vice versa. Something 
 might perhaps be made of this doctrine, if Kicardo's theory 
 of a natural rate of wages, that which is just sufficient to 
 support the labourer, held true. But I altogether question 
 the existence of any such rate." Eicardo would, perhaps, in 
 reply to this, have pointed to those passages in which he ad- 
 mits that the natural rate of wages varies with the habits 
 and customs of the people. But Professor Jevons is never- 
 theless right; for, notwithstanding this admission, a tacit 
 assumption of a fixed natural rate, just sufficient to supply 
 necessaries, underlies Kicardo's argument and is essential to 
 its validity. 
 
 5. Views of Jevons. The authority of the wages- 
 fund theory had, as we have seen, been considerably 
 shaken by the attacks of Longe, Leslie, and Thornton; it 
 had been still further discredited by Mill's repudiation of it, 
 and it has more recently, in the opinion of its enemies, re- 
 ceived its death blow from Professor Walker. It has there- 
 fore become incumbent on those persons who accept this as 
 the result of the controversy, either to make some attempt 
 to fill the void which has been created in economic doctrine, 
 or to show that this cannot be done. Mr. Thornton made 
 no attempt to fill the gap, admitting that he was himself an 
 architect of ruin, and that his work was one of mere des- 
 truction. Professor Jevons has, however, made an able and 
 ingenious attempt to supply the place of the abandoned 
 doctrine, and his theory purports to give us a calculus, by 
 
28 THE VARIOUS THEORIES OF WAGES. 
 
 which to measure the proportions in which labour and capi- 
 tal share the product which is the result of their co-opera- 
 tion. He applies to the solution of the problem the same 
 principle of final utility, which furnishes, in his opinion, the 
 key to the problem of value, of which, indeed, he regards 
 the wages problem as one particular branch. He treats the 
 labourer as a purchaser_of_the aid of the capitalist ; and just 
 as the price which a purchaser will give for a loaf is not 
 determined by the utility of a loaf to a starving man, so the 
 share of the product which the labourer will sacrifice, in or- 
 der to obtain the co-operation of capital, is not determined by 
 the utility of those earlier portions of capital, with the help 
 of which the labourer can as little dispense as a starving man 
 can dispense witli bread. It is not even determined by the 
 utility, or advantage to the labourer, of the whole mass of 
 capital. It is the final, not the total, utility both of bread 
 and of capital, that determines what will be given for each. 
 If we suppose all the capital in the world to be divided into 
 one hundred parts which have come successively into exist- 
 ence, and call the first of these the first increment of capital, 
 the next the second increment, and so on, the value to the 
 labourer of each successive increment is less than that of the 
 preceding one. The effect of the earlier increments in adding 
 to the amount produced is so great, that the labourer is com- 
 pelled by self-interest to offer high terms to the capitalist ; 
 and the large amount of the product enables him both to 
 keep his bargain and to benefit by it. With each successive 
 increment the labourer's need for capital is more and more 
 nearly satisfied, and the rate of interest, from having been 
 
 of w- 
 
 ld \ 
 
 M 
 
THEORY OF JEVOXS. 29 
 
 almost unlimited, will fall to a rate corresponding, not to the 
 whole advantage to industry of all the capital in existence, 
 but to the utility of the last increment. It is by the utility 
 or advantage to industry of this final increment, that the 
 bargain between the labourer and the capitalist is deter- 
 mined, and the share of the capitalist having been thus 
 ascertained, the share of the labourer is at once known. 
 
 Now it is easy to see that the weak point in this theory 
 is that on which Professor Sidgwick has laid his finger. It 
 only settles the distribution of the produce between employ- 
 ers and employed, so far as the employer's share consists of 
 interest. It deals with the employer only in his capacity 
 of capitalist, and leaves wages of superintendence out of ac- 
 count. This obvious objection appears to have occurred to 
 Professor Jevons himself, and he endeavours to meet it by 
 saying (Tlieory of Political Economy, p. 259) that " in the 
 equation produce = profits-}- wages the quantity of produce 
 is essentially variable, and profit is to be first determined. If 
 we resolve profit into wages of superintendence, insurance 
 against risk, and interest, the first part is really wages itself ; 
 the second equalizes the result in different employments; 
 and interest is, I believe, determined as I have stated." 
 The answer to this, however, is as clear as the objection 
 which it is meant to obviate namely, that wages of superin- 
 tendence cannot, in any philosophic view of the subject, be 
 placed in the same class with other kinds of labour. The 
 labour of the entrepreneur does not increase in proportion to 
 the amount of capital of which he superintends the applica- 
 tion, but his remuneration does increase in proportion, or 
 
30 THE VARIOUS THEORIES OF WAGES. 
 
 nearly in proportion, to it; so that it is evident that on 
 whatever principle his remuneration depends, it is an en- 
 tirely different one from that which regulates the wages of 
 other kinds of labour. Moreover, as Professor Sidgwick has 
 shown (Fortnightly Rev. vol. xxxii. p. 412), Professor Jevons 
 has overlooked the fact, that the entrepreneur will require to 
 be remunerated for the trouble of superintending the employ- 
 ment of the last increment of capital, so that the increment 
 of produce, which the last increment of capital enables the 
 labourer to obtain, cannot be taken as the measure of interest, 
 because we have no means of settling the proportion that is 
 absorbed by the wages of superintending the last increment 
 of capital. The product has to be divided (leaving rent and 
 taxes out of account) between the owners of the capital, the 
 entrepreneur, and the labourer ; Professor Jevons determines 
 the share of the first of these, but gives us no clue as to how 
 the remainder is shared by the entrepreneur and the labour- 
 er. This leaves his theory open to the full force of his own 
 criticism on Kicardo's theory, that it involves the attempt to 
 determine two unknown quantities from one equation. 
 
 A singular feature in Professor Jevons' treatment of the 
 question is, that while he speaks of the wages-fund theory as 
 " simply a truism," and denounces it as being " wholly il- 
 lusory as a real solution of the problem," he at the same time 
 admits it to a subordinate place side by side with his own 
 theory. He is careful to explain that wages are only deter- 
 mined " ultimately, that is, in the long run, and in any one 
 branch of employment," by the fact that the rate of interest 
 which the capitalist can exact is fixed by the advantage of 
 
THEORY OF LONGFIELD. 31 
 
 the last increment of capital. In the meantime he admits 
 that the proportion of capital appropriated to the payment of 
 wages to the number of labourers is what settles the fluctua- 
 tions of wages. " The amount of capital," he says (page 261), 
 " will depend on the amount of anticipated profits, and the 
 competition to obtain proper workmen will strongly tend to 
 secure to the latter all their legitimate share of the ultimate 
 produce." If we take this statement, not as applying to the 
 capital of particular industries, but to the aggregate capital 
 of the country or of the world, the answer to it seems to be, 
 that it may happen, as it has happened in America, that 
 capital is so scarce as to make it impossible for the employer 
 to advance to the labourer " his Ir^itimatr share of the ulti- 
 mate product," and he may have to agree to advance a part 
 only of his wages, and to pay him the balance when the pro- 
 duct is sold; so that although the labourer will receive his 
 legitimate share, that share will be greater than it would be 
 if it depended on the amount of capital. Moreover, it is not 
 true that "the amount of capital will depend on the amount 
 of anticipated profit." An anticipated high profit may affect 
 the amount of capital in particular trades, by attracting capi- 
 tal into them from other trades ; but a sudden discovery that 
 profits generally are going to be higher next year than they 
 are now, can only affect the aggregate capital of the country 
 infinitesimally, by the small additional saving which it may 
 cause in the interval. 
 
 6. Yiew of Longfield. Neither Professor Jevons nor 
 any of his critics seem to have been aware that a theory of 
 wages, not indeed identical with, but still closely resembling 
 
32 THE VARIOUS THEORIES OF WAGES. 
 
 his, had been put forward by Judge Longfield, in his 
 lectures delivered before the University of Dublin in 1833-4. 
 Professor Jevons has, in speaking of Professor Hearn's 
 admirable work, Plutology, attributed the fact of its having 
 received less attention than its merit deserves to its singular 
 title and the distant residence of its author. The fact that 
 he himself seems never to have heard of Longfield' s lectures, 
 proves that for practical purposes, and so far as the com- 
 merce of ideas is concerned, Ireland is even a more " dis- 
 tant residence" than Australia. Judge Longfield "extends" 
 (to use his own words) " to the profits of capital that 
 principle of an equality between the supply and the effectual 
 demand which in all cases regulates value. ... In the 
 case of capital and profits this equality between supply and 
 the effective demand is produced by such a rate of profit, 
 as is equal to the assistance given to labour by that portion 
 of capital which is employed with least efficiency, which I 
 shall call the last portion of capital brought into operation, 
 and for the reasons already mentioned, the rate of profit can- 
 not be much higher or lower than this." (Lecture ix. p. 193.) 
 The rate of profit having been thus determined, he tells us 
 in the following lecture (x. p. 215) that "the wages of labour 
 depend upon the rate of profit and the productiveness of 
 labour employed in the fabrication of those commodities in 
 which the wages of labour are paid, and therefore the com- 
 forts of the labourer will depend on the rate of profits and 
 the relative value of his labour, and the productiveness of 
 that labour which is employed in fabricating those com- 
 modities on which he wishes to expend his wages." 
 
 
THEORY OF LONGFIELD. 33 
 
 With the soundness of Longfield's theory of profits I am 
 not here concerned. What I wish to point out is the close 
 resemblance between his theory of wages and that of Jevons, 
 and to call attention to the fact that it was published twelve 
 years after the wages-fund theory had been formulated by 
 James Mill, and while McCulloch and Senior were preaching 
 it. It is certainly a singular fact in the history of the wages 
 controversy, that such a theory should have been advanced at 
 such a time, and that it should never have been noticed by 
 any English economist. It will be seen from the extracts 
 which I have -ivi-n, that it is the rate of pmlit, and not 
 merely the rate of interest, as in Jevons' theory, that Long- 
 field treats as beiiiLj determined by the utility of the last 
 increment of capital. 
 
 Professor Jevons' Tlieory of Politiral E<'on<>i,ii/ appeared 
 in 1871. In the following year Mr. L. Shadwell, indepen- 
 dently of Jevons, published an article in the Westminster 
 ", in which he explained a theory of wages of which, 
 in a subsequent work, entitled A System of Political Eco- 
 nomy, he speaks as being identical with that of Jevons. It 
 does not seem, however, that there is any other point of 
 contact between the views of these two writers, than the 
 great stress laid by both of them on the connection between 
 the efficiency of labour and the reward of the labourer. 
 The views of Professor Hearn, whose Plutology was pub- 
 lished about ten years before Professor Jevons' book, ap- 
 proach more closely to those of Longfield and Jevons. 
 Unfortunately the value of the excellent chapter of the 
 Plutology on the adjustment of the terms of co-operation, is 
 
 3 
 
34 THE VARIOUS THEORIES OF WAGES. 
 
 diminished by the author's refusal to treat the question of 
 real wages as one which lies within the province of the 
 economist. He considers that it belongs to the economist 
 to ascertain the amount of money which labour realizes, but 
 to "follow the purchase-money of labour into the labourer's 
 hands, and to make inquiries as to its application, belongs 
 rather to the practical statesman " (Plutology, p. 330). This 
 seems to me to amount to an admission, that the material 
 welfare of the majority of the community is a subject with 
 which political economy does not concern itself, since it only 
 gives us, in terms of money, the labourer's share of the pro- 
 duct, without telling us what amount of the "necessaries, 
 conveniences, and amusements of life " that share will com- 
 mand. 
 
 7. Yiew of Walker. The theory of Professor Jevons 
 has been adopted with some modifications and improvements 
 by Professor Walker, a writer who has made the subject of 
 wages peculiarly his own, and who, by his fresh and vigorous 
 treatment of it, has placed many old ideas in a new and 
 striking light. He regards the product as being divided 
 into four shares rent, interest, profits (which term he limits 
 to the earnings of the entrepreneur), and wages. According 
 to him, rent is ascertained in accordance with the Bicardian 
 formula, interest is determined by the supply of, and the 
 demand for, capital, profits, by a principle exactly analogous 
 to that which determines rent, and the residue of the pro- 
 duct forms the wages of labour. This order, it should be 
 observed, of considering the sources of revenue differs 
 from the usual one except as regards rent. According 
 
 
THEORY OF WALKER. 35 
 
 to the Ricardian doctrine, as condensed by De Quincey, 
 
 " profits are the leavings of wages." According to Jevons, 
 
 Longfield, and Walker, on the contrary, "the wages of 
 
 ,a working man are ultimately coincident with what he 
 
 produces after the deduction of rent, taxes, and the 
 
 interest of capital." These words are Jevons' but they 
 
 are quoted by Walker (/V. EC . p. 266) as containing 
 
 /a substantially accurate statement of his own view. As 
 
 :ls the determination of tin' share of the entre- 
 preneur, which, as we have seen, is the weak point of 
 Jevons' theory, Walker attempts with great ability and 
 ingenuity to show that it is determined exactly as rent is 
 mined under Ricardo's, or rath' T Anderson's, law. He 
 points out that the profits of the entrepreneur are the result 
 of the exceptional abilities or opportunities which he com- 
 mands, just as rent arises from the superiority of some land 
 and the necessity of cultivating inferior land. As there is a 
 no-rent stage of cultivation, so there is a theoretical no- 
 profits stage of production, when the number of men of 
 
 .'tional abilities of the kind required by an entrepreneur 
 is more than sufficient to do the work to be done. "Profits," 
 he says, " are drawn from a body of wealth which is created 
 by the exceptional abilities or opportunities of those em- 
 ployers who receive profits measured from the level of those 
 employers who receive no profits, just as all rents are drawn 
 from a body of wealth which is created by the excep- 
 tional fertility, or facilities for transport of produce, of 
 the rent lands, measured from the level of the no-rent 
 lands." (Pol. Econ. p. 253.) It is evident that a theory 
 
 3* 
 
36 THE VARIOUS THEORIES OF WAGES. 
 
 of distribution such as this places the labourer in a position 
 widely different from that which he occupies if the theory of 
 the Bicardian school is sound. Instead of having his wages 
 determined by an actual or moral minimum, and limited by 
 the amount of capital, he becomes the residuary claimant 
 who benefits by almost every improvement in production. 
 Under the wages-fund theory, such improvements can only 
 benefit the labourer by first benefiting the capitalist, whose 
 increased profits will lead to increased savings. Professor 
 Walker, on the contrary, maintains that an increased effi- 
 ciency of Tfl.hnyir Tyrmlrl be^flcompanied_Jyy -a rise TvAvnges, 
 
 even though capital and the wages-fund might be reduced. 
 
 I have been careful to limit Walker's statement that all 
 mprovements in production enure to the labourer's benefit, 
 by saying that nearly every improvement will do so, because 
 when the improvement is one which is applicable only to 
 the production of articles not used by the labourer, he may 
 derive no benefit from it at all, and in no case does he 
 derive so large a benefit from such improvements as from 
 those which cheapen the articles on which his wages are 
 expended. Suppose an improvement to take place which 
 reduces by one-half the cost of producing velvet in a country 
 which does not export velvet ; and suppose further that the 
 consumers of velvet continue, after its reduction in price, 
 to consume the same value, and double the quantity, of it 
 in such a case, which, of course, is not a very likely one to 
 happen, the labourers will remain just as they were. Eut 
 if the consumers of velvet only increase their consumption 
 of that article by one-half, in consequence of its reduced 
 
THEORY OF WALKER. 37 
 
 price, and if they save, as it is probable they will do, a part 
 of the sum previously spent by them upon velvet, the im- 
 provement will in the end have benefited the workman. 
 Part of the labour and capital which had been employed in 
 tin- production of velvet will be set free, and part of the 
 liberated portion may be employed in the production of 
 commodities consumed by labourers, since, on the assump- 
 iin that the consumers of velvet save a portion of what 
 they hud previously spent on velvet, the whole of the labour 
 and capital liberated from the velvet trade will not be 
 required to produce the articles to which tin* consumers of 
 velvet transfer their demand. In the case which I have 
 put, of the cost of producing velvet being reduced to one- 
 half, and the consumers using double the previous quantity, 
 I have supposed that velvet does not form an article of ex- 
 port. If, however, it does form an article of export, or if 
 the reduction in price opens a foreign market for it, then, in 
 either case, a benefit must accrue to the labourers, because 
 by expending the same amount of labour and capital as 
 before, the country will obtain a greater amount of all 
 foreign commodities, and some of these will be commodities 
 consumed by the labouring class and will fall in price. 
 Kven in the case put by Mill, in his chapter on Interna- 
 tional Value, in which the foreign demand for the cheapened 
 commodity increases in a proportion less than that of the 
 cheapness, so that the equation of international demand is 
 altered to the disadvantage of the country possessing the 
 improvement even in this case the country will obtain its 
 imports by a smaller expenditure of labour and capital after 
 
38 THE VARIOUS THEORIES OF WAGES. 
 
 the introduction of the improvement, because the increased 
 quantity of the cheapened commodity, which the foreigner 
 obtains, costs less to produce. A labourer producing velvet 
 for the foreign market is really producing the imports which 
 that velvet purchases, and every increase in the efficiency of 
 his labour cheapens those imports of which he is the indirect 
 producer. I have dwelt at some length upon this point in 
 connection with Walker's theory, because he usually ex- 
 presses himself as if every improvement whatever, in pro- 
 duction, must enure to the benefit of the labourer; and 
 although this is true of the great majority of improvements 
 especially of those discoveries which enable man to con- 
 trol the great forces of nature and make them subserve 
 many productive ^purposes still there will be some cases in 
 which the consumers of luxuries will reap the entire benefit, 
 leaving both labourers and capitalists as they were, except 
 so far as the latter may gain as consumers of the cheapened 
 commodities. 
 
 Professor Walker's theory has been subjected to a rather 
 severe criticism by Professor Sidgwick in his article on the 
 wages-fund theory (Fortnightly Review, vol. xxxii. p. 410). 
 He agrees with Walker in thinking that wages may be 
 philosophically regarded as paid out of current produce, but 
 he maintains that he has failed to determine what share of 
 the product goes to the labourer, and he holds that when 
 Walker asserts that " the product furnishes "at once the 
 motive to employment and the measure of wages," he 
 is confounding " measure " with limit. When Professor 
 Sidgwick's article was written (1879), Walker's Political 
 
THEORY OF WALKER. 39 
 
 Economy, which contains a more careful, as well as a 
 more concise, statement of his theory of distribution than 
 his work on wages, had not appeared, and it was against the 
 views contained, or supposed to be contained, in the latter 
 work that Professor Sidgwick's observations were directed. 
 Professor Sidgwick would now probably admit that Walker 
 has made a very able and ingenious attempt to determine 
 the labourer's share of the product, or, at least, that he has 
 faced the difficulty, which Jevons evaded, of detennining 
 the share of the enterpreneur. As to the objection that 
 Walker confounds " measure " of wages with " limit," he 
 expressly meets this by saying (Political Economy, p. 381) 
 that when lie makes the product the measure of wages, he 
 is not to be understood to mean that wugv* equal the pro- 
 duct of industry, but that "the amount to be paid in wages 
 is some part of the product, the ratio between the two vary- 
 ing, probably, from time to time, from causes innumerable, 
 but being for any given moment fixed by existing C9n- 
 ditions." It does not seem to be an improper form of 
 expression to describe the share of a residuary legatee as 
 "measured/' by the amount of the testator's personalty, 
 because anyone who knows the amount of the personalty can 
 ascertain the residue by deducting the specific and pecuniary 
 legacies. It is in this sense, and in this only, that Walker 
 speaks of the product as measuring wages. 
 
 8. View of Professor Marshall. Professor Mar- 
 shall in his excellent little book, The Economics of Industry, 
 has taken up a position on the wages question about mid- 
 way between the position of Professor Jevons and that 
 
40 THE VARIOUS THEORIES OF WAGES. 
 
 occupied by Walker. Eent he treats as being determined 
 in the usual way, and the problem which then remains is 
 the distribution of the "wages and profits fund," an expres- 
 sion for which, after using it once, he substitutes " earnings 
 and interest fund." The change is significant, because his 
 reason for making it is that he considers that earnings of 
 management should be classed with other earnings, and not 
 with interest, although he admits that the enterpreneur class 
 is " to some extent a separate class from those who get ear- 
 nings of other kinds." Accordingly, the problem which he 
 sets himself is to " seek for the laws which determine in the 
 long run that remuneration of abstinence which is called 
 interest, and those various remunerations of industry which 
 are called earnings." The rate of interest, he tells us, 
 depends on the "urgency of the demand of industry for 
 capital," and this demand is constantly increasing because 
 every important invention increases the scope for the profit- 
 able employment of capital. The rate of interest would 
 therefore be constantly rising, were it not that the tendency 
 of the increasing demand of industry for the aid of capital 
 to raise interest, is counteracted by the tendency which the 
 increase of capital has to lower it. Thus his theory of 
 interest substantially coincides with that of Jevons, whose 
 language he almost uses, when he says that, "the current rate 
 of interest measures the final utility to each borrower; 
 that is, the advantage to him of that capital which he is only 
 just induced to employ." The interest fund being thus 
 determined, it remains to enquire how the earnings fund is 
 divided among the three classes of skilled labourers, un- 
 
THEORY OF MARSHALL. 41 
 
 skilled labourers, and those possessed of "business power," 
 that is, the entrepreneurs. This, he tells us, is effected by the 
 competition of these classes for each others aid in the work of 
 production ; and the share of the produce which is thus de- 
 termined to go to skill* -d labour is again subdivided among 
 tin- various grades of skilled industries by the same principle. 
 The weak point in Professor Marshall's theory appears to 
 be, that, although he recognizes the entrepreneur as belong- 
 in- to a separate class from other earners, he nevertheless 
 classes his earnings with the earnings <>f other kinds of work, 
 "because," as he says, "they are similar in their nature to 
 other earnings and are in the long run governed by the same 
 laws.' 5 Having taken up this wrong position (as it seems to 
 me to be), he afterwards almost abandons it, and on several 
 occasions uses language which seems to admit that earnings 
 of management are regulated (as Walker contends) by a prin- 
 ciple strictly analogous to that which determines rent. Thus 
 he tells us that "while profits op capital invested in education 
 is a specially important element in the income of profes- 
 sional men, rent of rare natural abilities is a specially im- 
 portant element in the incomes of business men."* And 
 again, "That part of a man's wages which he owes to his 
 education may be regarded as a kind of profit on the capital 
 invested in it; that part which he owes to exceptional natu- 
 ral qualities may be regarded as a kind of rent; that is, it is 
 
 * '* The gains which persons obtain by their special taste for an em- 
 ployment which is usually regarded as onerous, are of the nature of rent, 
 and deserve more attention than economists have been willing to 
 bestow upon them." Bastable's Theory of International Trade, p. 41. 
 
42 THE VARIOUS THEORIES OF WAGES. 
 
 the income derived from an agent of production the supply 
 of which is determined by natural causes, and not by the de- 
 liberate outlay of human effort for the sake of future advan- 
 tage." In another place he observes that "The laws which 
 govern the normal earnings of management appear at first 
 sight to differ much, and they really do differ a little, from 
 those which govern the normal wages of skilled labour; 
 the chief difference arising from the fact that the earnings of 
 management can be obtained only by those who have the 
 control of capital;" and again "The earnings of management 
 in large businesses must be, on the average, higher than 
 those in small; and they even give some reason for thinking 
 that the average earnings of management in different busi- 
 nesses in the same trade vary almost in proportion to the 
 capital employed." It is unfortunate that a writer who has 
 seen so clearly, and stated so accurately, the functions of 
 the entrepreneur and the nature of his earnings, should not 
 have followed his opinions to their logical result and treated 
 those earnings as an element in distribution, distinct, not 
 only from the interest of the capitalist, but also from the 
 wages both of skilled and unskilled labour. 
 
 9. Probable influence on the future of the wages 
 question of the views of Jevons, Walker, and Mar- 
 shall. The view taken of the wages question by Jevons, 
 Walker, and Marshall may be assumed to represent, not 
 unfairly, the opinions of that class of economists who, while 
 they accept the doctrines of the orthodox or classical English 
 school as being in the main sound, admit, nevertheless, that 
 a considerable portion of those doctrines require to be re- 
 
FUTURE OF THE WAGES QUESTION. 43 
 
 vised and re-stated, and, in some few instances, to be com- 
 pletely re-cast. These writers have wisely endeavoured to 
 preserve, as much as possible, all that was worth preserving 
 of the work of the founders of the science and their ex- 
 positors, and have searched carefully, to use an expression 
 of Mr. Mill's, "for every fragment of truth that may lie 
 concealed beneath the ruins of exploded error." This is 
 undoubtedly the attitude of the true philosopher an atti- 
 tude of revert-nt respi-ct towards the great teachers of the 
 science, joined with a determination to hold neither their 
 teachings nor anything else sacred except truth ; and who 
 can doubt that an investigation prosecuted in such a spirit 
 will in the end secure to the investigator a rich reward, in 
 the consciousness that lie has helped to advance the cause 
 of truth, that he has done sonn-thing "for the relief of man's 
 ." And surely in no branch of social or economic in- 
 quiry is the discovery of new truth more likely to be followed 
 by an improvement of man's estate than in the one now under 
 examination. The earlier English economists had too little 
 belief in the working classes ; they did not see, or at least 
 they failed to keep steadily in view, the fact that their 
 poverty was in a great measure the result of their in- 
 efficiency, while their inefficiency was itself kept up by 
 their poverty, which placed education, good food, and 
 acquired skill, beyond their reach. These writers, accor- 
 dingly, insisted too much on the Malthusian remedy as the 
 only one, without dwelling sufficiently on the fact that, if 
 the labourer were once raised from his condition of hopeless 
 degradation, his labour would become more efficient, his 
 
44 THE VARIOUS THEORIES OF WAGES. 
 
 wages would rise, and each successive improvement in his 
 condition would be a stepping-stone from which it might 
 be hoped that he would rise to higher things. Mr. Mill 
 (Claims of Labour, Edinb. Rev. April, 1845) fixes the publi- 
 cation of Malthus's Essay on Population as the date from 
 which the economic condition of the labouring classes began 
 to be looked on by thoughtful men as susceptible of per- 
 manent improvement. It was then, he says, that the degra- 
 dation of the population ceased to be regarded as inevitable 
 as a provision of nature, an ordinance, as some said, of 
 God. The commencement of an epoch not less important, 
 in the eyes of those who have the welfare of the working 
 classes deeply at heart, may be dated from the full recog- 
 nition of the fact that, of the agents which co-operate in 
 production, labour is the one which mainly benefits by 
 improved processes and increased efficiency,* and that the 
 rise which takes place in the labourer's condition by reason 
 of his increased efficiency leads to a further increase of his 
 efficiency and a further improvement. Just as economic 
 injuries which degrade labour tend, as Walker says, to 
 deepen and remain, so economic benefits which elevate 
 labour have a tendency to reproduce themselves and lead 
 to indefinite improvement. Each step which the labourer 
 makes forward from a lower to a higher condition makes it 
 probable that the preventive check of Malthus will operate 
 
 * ' c It is indisputable that the rates of wages or the amounts of 
 earnings of artizans and labourers in the principal industries have 
 risen in proportion to increasing productiveness." (Prof. Leoni Levi, 
 Fortnightly Review, June, 1887, p. 918.) 
 
 
FUTURE OF THE WAGES QUESTION. 45 
 
 more freely, and makes it nearly certain that the labourer 
 will become a more efficient producer. The importance of^ 
 these views in their bearing on the future of the labour 
 question is not easy to over-estimate. Let the working 
 classes once become thoroughly convinced that, although 
 the warnings of Malthus are not to be disregarded, there 
 is another cure for the evils they complain of, namely, 
 increased production; prove to them that capital is their ally 
 in production, not their enemy; educate them really and 
 practically into the belief that capital "collects and unites 
 the scattered elements of power, that it economizes their use 
 and organizes their action" (Ilearn) that it gives continuity 
 to labour, increases the skill and energy of the workman, 
 and makes the division of labour and the use of inven- 
 tions possible let these vii-ws, 1 say, lie once accepted and 
 I on by the mass of the people, and the long war be- 
 tween labour and capital will be near its close, especially 
 if the working classes can also be brought to see that high 
 interest, so far from being an evil, is the cure for an evil, 
 namely, scarcity of capital, and that the successful entre- 
 preneur, so far from being the enemy and rival of the 
 labourer, competing with him for a share of a common fund, 
 is himself the creator of that increment of value which pays 
 him for his intelligence and skill. 
 
 These views are, perhaps, those of an optimist ; but I wish 
 to point out that the optimism which they contain is of quite 
 a different kind from that of Mr. Bastiat. His aim was to 
 justify, rather than explain, economic facts ; to show, as M. 
 Fontenay expressed it, that that which is, is that which 
 
46 THE VARIOUS THEORIES OF WAGES. 
 
 ought to be. He seems to have thought that the improve- 
 ment of the labouring classes lay, so to speak, in the spon- 
 taneous course of events, and would be brought about, 
 independently of their own efforts, by the operation of 
 those moral and economic laws which he thought were 
 working together for the general good. According to hinr 
 wages are constantly tending to rise, on account of the sub- 
 stitution which is for ever taking place of " gratuitous co- 
 operation " on the part of nature for human labour, so that 
 a given utility represents an ever smaller and smaller amount 
 of labour. The hopeful view which I take of the future of 
 the working classes is founded on different considerations. 
 I hold that if they are to rise to a higher state they must 
 work out their own salvation, and not trust to the har- 
 monious operation of the laws of nature saving them without 
 any effort of their own. My hope and my belief is that an 
 educated working class will attend sufficiently to Malthusian 
 doctrines, and to the teaching of those writers who have in- 
 sisted strongly on the connexion between efficient labour 
 and high wages, to save themselves from what Cairnes 
 speaks of as the harsh and hopeless destiny which would 
 otherwise be in store for them. Professor Leslie has well 
 observed that there are two questions on which both labour- 
 ers and employers should concentrate their attention. " One 
 is, what is the utmost that can be made by capital and 
 labour together? The other, how is the produce to be 
 divided between them'? The mistake into which both em- 
 ployers and labourers commonly fall is of attention to the 
 latter only of these two questions; neither looking to the 
 
FUTURE OF THE WAGES QUESTION. 47 
 
 means by which the total amount to be divided may be 
 raised to the utmost; both looking to extort the utmost 
 possible share of the actual total ; neither treating the 
 problem as one of production; both treating it as one of 
 distribution." 
 
 10. Theory of Rogers. All the theories upon which 
 I have hitherto touched recognize, in some degree, however 
 slight, the connection between wages and the efficiency of 
 work. I come now to a theory which ignoivs any such con- 
 nection, and which treats the labourer as a domestic animal, 
 or a machine, which cost, to their owner exactly what he 
 must expend to produce them and maintain them in efficient 
 working order. 1 ivtYr to the theory of Professor Rogers. 
 According to him "the value and pi-ire of anything whether 
 it be work done or labour to be hired, agrees with the cost 
 of making the thing or preparing the labourer " (Xm'lal Eco- 
 nomy p. 20); and u <\\ why one kind of manual labour 
 is worth one shilling ;i day and another is worth eight shil- 
 lings, is because it has cost so much more to prepare the lat- 
 ter kind of workman than it has to bring up the former " (p. 
 19). Again, "the remuneration of the labourer is generally 
 relative to the cost of producing his services; wages are 
 partly interest on capital, partly a sinking fund which 
 replaces the capital as it is gradually extinguished by the 
 growing age or declining strength, or certain wearing out of 
 the labourer ; and partly an insurance against risk of prema- 
 ture extinction, or any extraordinary liability to suspension of 
 work in the case of the labourer." (Political Economy, p. iii.) 
 
 Now, it is not difficult to see the point at which the 
 
48 THE VARIOUS THEORIES OF WAGES. 
 
 analogy which Professor Eogers endeavours to make out 
 between the value of commodities and the value of labour 
 breaks down. The reason why cost of production possesses 
 the power of regulating the normal value of most commodi- 
 ties is, that the producers of any commodity will only con- 
 tinue to produce it on condition that its value, when 
 produced, will defray the cost of its production. But pro- 
 ducers of labourers make no calculations of this kind. Not 
 only is there no analogy, there is an actual antithesis, be- 
 tween the production of commodities and the production of 
 labourers. The former, as Cairnes has observed, is an 
 onerous act, which will only be undertaken in prospect of 
 reward ; the latter, so far from being an onerous act, is one 
 which it requires a prospective reward to induce men not to 
 perform. Even when the question is, not the bringing of 
 labourers into the world, but educating them after they are 
 in it, and preparing them for the labour market, we find that 
 the considerations which influence the persons upon whom 
 the cost of fitting them for that market falls are entirely 
 different from the considerations which act upon the pro- 
 ducer of commodities. Until a boy reaches the stage of 
 technical or professional education, his education is not con- 
 ducted with a view to what he can afterwards earn. Two 
 fathers, one of whom intends his son for an industrial career, 
 while the other does not intend his son for any trade or 
 profession, will, up to a certain point, educate them alike. 
 Each will give his son the education which is customary in 
 the particular rank in life to which he belongs, and it is only 
 towards the close of his education that the father, who 
 
THEORY OF ROGERS. 49 
 
 wishes to prepare his son for an occupation, will be guided 
 by industrial considerations. In slave countries, indeed, 
 labourers are produced, like other commodities, solely with 
 a view to the market, and in such countries accordingly 
 Professor Rogers' theory holds true. The importer or 
 breeder of slaves is actuated by purely mercantile motives, 
 and the education of a slave is conducted entirely with a 
 view to making him as efficient a producer as he can be 
 made, or at least efficient as the breeder thinks it will pay to 
 make him. When his education is finished, and his career 
 lal.uurer commences, he receives exactly what his owner 
 considers necessary to keep him in working order, just as a 
 steam engine is supplied with so much fuel as is i-nouji to 
 get the maximum of work out of it, and no more. If the 
 labour of a >lav.> becomes more efficient he gains nothing, 
 whereas, in a free country, the moment labour becomes more 
 eilirinit the capitalist bids a higher price for its aid, and so 
 the labourer obtains his share of the increased product ; that 
 is, the free labourer will receive more or less according to his 
 efficiency, without regard to what it may have cost to rear 
 and educate him. If the natives of India were to be sud- 
 denly endowed with the mental and physical vigour of Eng- 
 lish or American workmen, the efficiency of their labour 
 would be many times increased, and their wages would rise 
 a fact just as inconsistent with Professor Rogers' theory of 
 wages as I have already shown it to be with the theory of 
 the wages-fund. Professor Rogers, indeed, seems to have 
 felt the objection to his theory that it applies to the case of 
 free labour, a principle which only holds true of slaves and 
 
50 THE VARIOUS THEORIES OF WAGES. 
 
 machines. " The character," he says, " of a labourer's main- 
 tenance is matter of general habit or tradition. It cannot be 
 determined at the discretion of his employer. The owner of 
 a steam engine may study the cheapest way in which he may 
 supply the fuel needed for the force he calls into operation ; 
 but he cannot study these economics in dealing with free 
 labour." (Political Economy, p. 64.) This objection, which is 
 fatal to his theory, he attempts to meet by saying that when 
 the customary food of the labourer is costly his wages will be 
 high in proportion, and that the reason why his wages are 
 high is that his customary requirements render his education 
 and bringing up expensive. But how does this agree with 
 the fact, that an increase in the efficiency of a body of 
 labourers will cause a rise in their wages, although the sum 
 spent in rearing and educating them remains the same? The 
 wages of the free labourer rise as he becomes more efficient, 
 because the value of the article labour which he has to 
 dispose of, has increased, and being a free agent, he can sell 
 it for what it will bring. The slave cannot do this, because 
 his mental and physical powers belong to his master, to 
 whom all gain arising from his increased efficiency must 
 
 g- 
 
 11. Theory of Roscher. Having now glanced at the 
 principal theories of wages which have been taught by 
 English and American economists, I shall give a short 
 account of the theory put forward by Eoscher, taking him 
 as fairly representing the German historical school. Labour, 
 according to him, is a commodity, and its " immediate " or 
 market price is determined like that of every other com- 
 
THEORY OF ROSCHER. 51 
 
 modity by the relation of demand and supply. The value 
 of labour, however, must, as in the case of other commodi- 
 ties, conform in the long run to its cost of production, and 
 the cost of production of labour " embraces not only the 
 necessary or customary means of subsistence of the workman 
 himself, but also of his family ; that is, of the coming gene- 
 ration of workmen; and the number of the latter depends 
 essentially on the demand fur labour." Like Adam Smith 
 and Ricardo, Roscher admits that the ideas conveyed by the 
 expressions "necessaries of life " and " standard of decency" 
 are relative ones, and vary in different ages and countries, 
 according to the habits and customs of the people; and 
 therefore, he thinks that the working (lasses hold in their 
 own hands the principal elements wliieh determine wages, 
 and have no right to complain of an " iron law/' which is 
 for ever dragging wages down to the subsistence minimum. 
 Every increase in wages must produce an increase in the 
 number, or in the well-being, of the workmen, and it is in 
 their own power to decide between the two alternatives. 
 Up to this point the view of Roscher bears a striking 
 resemblance to that of Ricardo; but when he proceeds to 
 state what it is that constitutes the demand for labour, we 
 find a divergence from the Ricardian doctrine. Still fol- 
 lowing the analogy of other commodities, he tells us that the 
 demand for labour depends, (1) on its value in use, (2) on 
 the purchaser's power to pay for it. " These two elements 
 determine the maximum limit of wages, as the means of 
 support considered indispensable by the workmen, determine 
 the minimum." Labour being a commodity universally 
 
 4* 
 
52 THE VAKIOUS THEORIES OF WAGES. 
 
 desired, "the purchaser's capacity to pay for it must be 
 nearly commensurate with the national income." The 
 direction which national consumption takes determines the 
 relative amount of different kinds of labour, and the direc- 
 tion of the national consumption depends on the distribution 
 of the national income. In a country which neither pro- 
 duced nor imported any articles except those consumed by 
 labourers, the rate of wages would be determined exclusively 
 by the ratio between the number of the working population 
 and the amount of the national income. 
 
 Now, the first idea which presents itself to a person hear- 
 ing this theory stated for the first time is, that it seems to 
 involve that most pernicious of economic fallacies that a 
 demand for commodities is a demand for labour. But before 
 charging Eoscher with having made so vulgar a blunder as 
 this would be, it is necessary to call to mind the vital dis- 
 tinction which Cairnes has pointed out (Leading Principles, 
 Part I. chapter ii.) between supply and demand as related to 
 particular commodities, and supply and demand considered 
 as aggregates. He shows that supply and demand as related 
 to particular commodities are independent phenomena, either 
 of which may increase or diminish irrespective of the other, 
 while, considered as aggregates, they are strictly interdepen- 
 dent, and increase or diminish together. In this latter 
 aspect, he tells us supply and demand are the reciprocals of 
 each other ; they are not so much separate facts as opposite 
 faces of the same facts. Demand as an aggregate cannot 
 increase without supply, nor supply without demand. Now, 
 when Eoscher speaks of the demand for labour as being 
 
THEORY OF ROSCHER. 53 
 
 commensurate with the national income, and the national 
 income as heing identical with the demand for commodities, 
 (labour being, according to him, a commodity) it is evidently 
 demand in the aggregate that he means ; and therefore, his 
 doctrine comes in the end to this : that, in a country which 
 only produced or imported commodities consumed by labour- 
 ers, wages would depend on the ratio of the working popula- 
 tion to the amount of the aggregate supply of commodities 
 for the terms aggregate supply, a_ demand, and 
 
 national income, are really different expressions for the same 
 thing. If, then, the aggregate supply is what constitutes the 
 demand for labour, and so determines wages, it is evident 
 that wages must depend on the efficiency of labour ; for on 
 what does the aggregate supply of commodities itself depend 
 but on the efficiency of the labour force of the country ? I 
 tun of course aware that the number of productive labourers 
 is also an important factor in determining the aggregate pro- 
 duct ; but when we are considering the aggregate labour and 
 the aggregate supply of a country, a transfer of labour from 
 unproductive to productive employment is equivalent to an 
 increase in the efficiency of the total labour force of the 
 country. Take the case of a country which has 1,000,000 
 productive labourers and 100,000 soldiers, and which is just 
 passing from the stage of increasing, to that of diminishing, 
 returns. If the army is disbanded, and the soldiers become 
 producers, the labour force of the country is increased by a 
 tenth, and the aggregate supply, that is, the national income, 
 will increase in proportion. It is as if an individual work- 
 man, who had been obliged to use one arm to defend himself 
 
54 THE VARIOUS THEORIES OP WAGES. 
 
 against mosquitoes, while working with the other, were sud- 
 denly enabled to use both arms to work with ; his efficiency 
 would be increased. In the same way, the aggregate labour 
 force of a country becomes more efficient by a transfer from 
 the ranks of unproductive, to those of productive, labour; 
 and the effect which the change will produce upon wages 
 will depend on the extent to which the labour which has 
 been transferred from unproductive to productive employ- 
 ment is applied to the production of commodities used by 
 labourers. 
 
 It would seem then, that Roscher's theory is capable of an 
 interpretation which exonerates him from the charge of re- 
 viving the old and mischievous heresy which made the de- 
 mand for commodities a demand for labour. What he really 
 asserts is that the demand for labour depends, (1) on its value 
 in use, (2) on the purchaser's power to pay for it, which is 
 coincident with the total supply of commodities, and that 
 supply depends on the efficiency of the labour force of the 
 nation it being understood that the efficiency of the national 
 labour force is increased, not only by anything that adds to 
 the efficiency of individual labourers, but by anything which 
 increases the proportion which the number of productive 
 labourers bears to the population. Roscher's doctrine is 
 thus a closer approximation to that of the modern English 
 school than it seems at first sight to be. It is however im- 
 portant to note that, although a leader of the school which 
 is avide des faits, his theory is not true of nations as we 
 find them, but only of imaginary communities which only 
 produce and import commodities which the labouring classes 
 
THEORY OF ROSCHER. 55 
 
 consume. Suppose one half of the labour of England to be 
 employed in producing luxuries, while the other half produces 
 commodities used by labourers ; if that half of the labour 
 which produces luxuries becomes doubly efficient, the na- 
 tional income and supply of commodities will increase fifty 
 j H -i cent., but wages will not necessarily rise. But if that half 
 of the national labour which produces labourers' commodities 
 becomes twice as efficient, the national income and the aggre- 
 supply will increase, as before, fifty per cent., but wages 
 will rise one hundred per cent. 
 
 Professor Cairnes, in criticising, as he has done with great 
 severity, Mr Longe's pamphlet, has given, what he considers 
 a redwtio ad almurdum of the doctrine that wages depend on 
 the gross produce or aggregate demand of a country. He 
 shows that the production per head of the population in 
 America is approximately the same as in the United 
 Kingdom, although wages are considerably higher in the 
 former country, and he asks how could this be so if the 
 supposed connection between gross produce and wages exist- 
 ed. But, assuming the facts on which Cairnes argues to be 
 correct, the explanation of wages being higher in America, 
 while the gross produce is only the same as in the United 
 Kingdom, is evidently this. In America the part which 
 immediate labour takes in production is proportionally great- 
 er than in England, partly on account of the nature of the 
 national industries, and partly because England has reached 
 a more advanced stage of economic development in which 
 fixed capital and mechanical substitutes for labour are very 
 largely used. Hence, the need which the English capitalist 
 
56 THE VARIOUS THEORIES OF WAGES. 
 
 lias for the co-operation of direct labour is less than that 
 which the American capitalist experiences ; and that part of 
 the gross produce which is due to fixed capital in England, 
 being proportionally greater than in America, the share 
 which remains for the labourer is less. If Professor Cairnes 
 could have taken for the purpose of his comparison two 
 countries in the same stage of economic development, in 
 which the national industries were of a similar character, 
 and in which no commodities were produced or imported, 
 except those consumed by labourers, but in one of which the 
 production per head of the population exceeded that of the 
 other, he would, doubtless, have found a corresponding 
 difference in the rates of wages which prevailed. 
 
 12. Socialist Theories: Karl Marx, Henry George. 
 An account of the various theories of wages which omit- 
 ted to notice the socialist theories would be hardly complete. 
 I therefore propose, before I conclude, to give an outline, 
 necessarily brief and imperfect, of the views taken of the 
 wages question by two socialist writers of very different 
 complexion Karl Marx and Henry George. 
 
 The first of these writers, the author of what has been 
 called "the sacred book of contemporary socialism," has 
 directed his attack chiefly against what he considers the 
 tyranny of capital, while the second has undertaken to 
 prove that the monopoly of land by private owners is the 
 cause of low wages in all old countries, and the remedy 
 which he proposes is that the state should appropriate, by 
 taxation or otherwise, the rent of land so as to extinguish 
 the monopoly of private ownership. It is fair to both these 
 
SOCIALIST THEORIES. 57 
 
 writers to admit that, however they may have laid them- 
 selves open to the charge of economic heresy, no one can 
 accuse them of economic ignorance. They both accept 
 current economic doctrines up to a certain point, and each 
 of them in fact erects for himself a platform of economic 
 principles from which to deliver his attack upon that part 
 of the existing industrial retjiuie which he has selected for 
 destruction. 
 
 Karl Marx rests his argument on two principles which he 
 adopts from Ricardo. (1) The principle that value is simply 
 labour embedded in the product; (2) the principle of natural 
 or necessary wages, and their dependence on the cost of the 
 labourers' subsistence. He omits, however, Kicardo's limita- 
 tion of the first of these principles to the case of commodities 
 which do not possess a scarcity value, and refuses to admit 
 that utility, independently of labour, can, in any case, confer 
 value. Since value is nothing but labour iixed in the pro- 
 duct, he argues that all capital, except what is spent in 
 advancing wages nrustb^uaproductive ; the value of the 
 materials, fixed capital, etc., is carried forward and re- 
 appears in the product, but it is so carried forward by 
 labour, to which alone the result is really due. Labour 
 preserves the old and creates the new value. "That part 
 of capital," he says, " which is represented by the means 
 of production, by the raw material, and the instruments of 
 labour, does not, in the process of production, undergo any 
 quantitative alteration of value. I therefore call it the con- 
 stant part of capital. On the other hand, that part of capital 
 represented by labour power does, in the process of produc- 
 
58 THE VARIOUS THEORIES OF WAGES. 
 
 tion, undergo an alteration in value. It both produces the 
 equivalent of its own value, and also produces" an excess, or 
 surplus value, which may itself vary according to circum- 
 stances ; I therefore call it variable capital." (Capital, p. 
 191-2.) He therefore thinks that the whole of the new 
 value which the commodity contains should belong to the 
 labourer, the capitalist's only just claim being to the re- 
 placement of his capital. The value of a diamond found 
 without labour he explains, as Lasalle would have done, by 
 saying that it depends on the labour " socially necessary " 
 to produce diamonds ; that is, on the average labour under- 
 gone by diamond-finders. The " necessary time of labour " 
 Marx defines as the time in which a man produces what he 
 requires to keep him alive and in working order, and the 
 value which he creates in that time is "necessary value." 
 The "surplus time of labour" is the rest of the working 
 day, and " surplus value " the value which owes its existence 
 to the labourer's work in that time. If the labourer's sub- 
 sistence is cheapened, his efficiency increased, or the working 
 day extended, surplus value increases; that is, profits rise. 
 Surplus value being thus only another name for profits, 
 this view leads Marx directly to the conclusion that fixed 
 capital, division and combination of labour, inventions in 
 a word, all expedients^for cheapening production are only 
 devices for increasing profits, and the labourer is, under 
 the existing industrial system, excluded from a share in 
 the benefits which arise from them. 
 
 \ The obvious and fatal defect in Marx's theory of value, 
 on which, as we have seen, his theory of wages depends, is 
 
SOCIALIST THEORIES. 59 
 
 that it excludes from value the element of utility, and de- 
 fines it iiiterms of labour alone. The obvious and un- 
 answerable reply to his argument, that labour alone creates, 
 and should therefore own, the whole of the new value which 
 resides in the product, is that in civilized societies labour 
 without the help of capital is as helpless as capital would 
 be without that of labour. Either of them alone is un- 
 productive. This objection he is forced to notice, but he 
 passes it by without any real answer. He represents the 
 capitalist as asking, "Did I not supply the labourer with 
 materials by means of which, and in which alone his labour 
 could be embodied, and have I not also provided him with 
 the necessaries of lift-, and am I to be allowed nothing in 
 return for this?" And he answers: "Well, but has not the 
 labourer rendered him the equivalent service of changing 
 his cotton and spindle into yarn;" to which one might 
 expect the capitalist to reply: "No, he has not rendered 
 me the full equivalent unless he pays me for having ab- 
 stained from the immediate consumption of my capital." 
 
 As to depriving the capitalist of his reward for the part 
 which he bears in production, it is difficult to understand 
 how anyone writing as the friend of the working classes 
 could make a proposal so fatal to their interest. Abstinence 
 and accumulation, even on the part of the labourers them- 
 selves, would cease, and the ruin of the working classes 
 would be the sure consequence of such a measure. If the 
 state were to appropriate the capital of the nation and lend 
 it to the workmen on the terms of their replacing it without 
 interest, this would be mere robbery of the capitalist for the 
 
60 THE VARIOUS THEORIES OF WAGES. 
 
 benefit of the existing generation of workmen. I say for the 
 benefit of the existing generation, because the momentary 
 rise of wages would probably be followed by an increase of 
 population, which would bring them back to their former 
 level, and no future growth of capital could be expected. 
 The radical error in Marx's view of the labour question is 
 -the idea that whatever increases production does so, under 
 the capitalist system, for the benefit of the capitalist alone. 
 He regards the whole of the "surplus time of labour" as 
 spent in producing profits, and he denies by implication that 
 the labourer ever gains by an increase of his own efficiency. 
 This is just the reverse of the truth, for it is the labourer 
 who ultimately (subject to the exception I have already 
 noticed as to the cheapening of luxuries) reaps nearly the 
 whole benefit of cheap production, although I admit that 
 under the capitalist organization of industry the capitalists 
 may for a time succeed in appropriating more than their 
 fair share of the increased " surplus value " resulting from 
 increased efficiency. If co-operative industries were every- 
 where substituted for those now conducted by capitalists, 
 and were managed with the same energy and skill, the 
 labourers would, no doubt, gain more immediately than ' they 
 now do by increased productiveness. That part of the im- 
 mediate gain which is now intercepted by the capitalists 
 would go to the workmen directly either as wages or as 
 profits. But it is not a true co-operative system which 
 Marx proposes to substitute for the existing system. It is 
 one which would discourage accumulation, abstinence, and 
 invention, and which would go far to stereotype industry 
 
 
SOCIALIST THEORIES. 61 
 
 and make increased efficiency impossible. Such teaching 
 may, as Mr. Mill said, burst society asunder by a socialist 
 revolution, but the poor and their poverty it will leave 
 worse than it found them. 
 
 Yiew of Mr. Henry George. According to Mr. George 
 production is the mother of wages in political economy, 
 as freight is the mother of wages according to the maxim 
 of admiralty law. This view, in which I concur, and which 
 is now adopted by probably a majority of living economists, 
 he carries much further than sound economic principles 
 justify, for he maintains that not only are wages not paid 
 out of capital, but they are not, in any case whatever, even 
 advanced out of it. H- denies that industry is limited by 
 capital, and asserts that "the payment of ; n produc- 
 
 tion, no matter how long the process, never involves any 
 advance of capital, or even leflBeilfl capital.'' So far from 
 the capitalist advancing his wages to the labourer, he holds 
 that it is the labourer who makes an advance to his em- 
 ployer in all cases in which labour is rendered before wages 
 are paid. Take, lie says, a man at work on a steam-engine 
 or a ship. Every moment that he works he creates a value; 
 that is, makes a capital, which becomes immediately the 
 property of his employer, and the "advance of capital" 
 thus made by the labourer is repaid to him when he re- 
 ceives his wages. He compares the labourer to a depositor 
 in a bank, who must pay money in before he can draw upon 
 it. The real nature of the transaction between the workman 
 and his employer is, he thinks, obscured by the use of money. 
 In the exchange which takes place between them the work- 
 
62 THE VARIOUS THEORIES OF WAGES. 
 
 man gets money, the employer gets an increment of value in 
 the commodity, and since a man with money can buy com- 
 modities more easily than a man with commodities can buy 
 money, it seems to the vulgar apprehension that an advance 
 of capital to the workman has taken place. Mr. George here 
 misses, or perhaps does not choose to see, the real point, 
 which is that the workman receives his wages in such a 
 shape that he may go at once and buy his dinner with them, 
 whereas the master gets his increment of value in the com- 
 modity in such a shape that he must wait for months, it may 
 be for years, before he can get anything for it. If money 
 were unknown, and the labourer were paid in commodities 
 in a marketable shape, the only difference would be one of 
 convenience to the labourer in spending his wages. He 
 would still have received his wages in an available shape, 
 while the employer's increment of value would still be 
 imprisoned in the product, incapable of being realized until 
 it came to market. It might have been expected that these 
 views would land their author in a denial of the validity of 
 the capitalist's claim to any return upon his capital, and one 
 is curious to see how he evades that conclusion. Capital, 
 he informs us, aids labour in three ways ; (1) by adapting 
 natural products, and fitting them for satisfying human 
 desires; (2) by utilizing the vital forces of nature, as by 
 raising animals or plants; (3) by increasing the sum of 
 utility by exchange. Capital employed in the second and 
 third of these three ways has a moral claim to remuneration, 
 because the increase of value which its use causes springs 
 from the reproductive forces of nature and the capacity 
 
SOCIALIST THEORIES. 63 
 
 for exchange, and since capital, or rather abstinence, is re- 
 munerated when employed in the two latter ways it must 
 be remunerated when employed in the first, because neither 
 labour nor capital will seek any mode of employment while 
 any other mode is open to them which will yield a higher 
 return. Having in this way satisfied himself that interest 
 is a necessity, he proceeds to inquire how the rate of interest 
 is regulated. The maximum rate is that above which bor- 
 rowing would involve a loss; the minimum, that below which 
 accumulation would cease. The normal point lies between 
 these two, and must be such that, all things considered, 
 the reward of capital and labour will be equal, "labour 
 and capital being but different forms of the same thing 
 human exertion." Interest In-ing thus determined, wages 
 will depend on the productiveness of labour at the margin 
 of cultivation. Where land is " free," and labour works un- 
 aided by capital, wages will absorb the whole product minus 
 interest as above determined. Where rent exists, wages will 
 be equal to the product at the margin of cultivation, minus 
 rent and interest. In this last state of things, land having 
 become private property, and natural opportunities being 
 monopolized, wages may be forced down to the lowest point 
 at which the labourers will consent to reproduce. This 
 brings Mr. George to the real object of his book, which is 
 to show that private ownership of land is the cause, and 
 " free " land the cure, for the poverty which, he maintains, 
 accompanies progress. I need not say that he fails to es- 
 tablish his conclusion; and can only express my astonish- 
 ment that so able and ingenious a writer should be, 
 
64 THE VAKIOUS THEORIES OF WAGES. 
 
 apparently, unable to see that in populous countries rent 
 must exist whether the land is held by the state or by 
 private owners, and that a transfer of it can only benefit 
 the person to whom, and injure the person from whom, 
 it is transferred, unless full compensation is given. If the 
 land of England were nationalized to-morrow, rent would 
 not be annihilated, and as the margin of cultivation would 
 remain where it is, and as Mr. George holds that wages 
 depend on the productiveness of labour at that margin, 
 it is not easy to see how the nationalization of land would, 
 on his principle, benefit the labourer. It is to be observed 
 that by making land "free," Mr. George does not mean 
 releasing it from the absurd fetters with which the real 
 property law of England has bound it, which check the 
 investment of capital in agriculture, and impede the transfer 
 of land to those who would make it more productive. This, 
 no doubt, would do something to improve the lot of the 
 labourer, and Mr. George would have nothing to say against 
 it ; but by free land Mr. George means at one time land in 
 the ante-rent stage of cultivation, at another, land which is 
 the property of the state ; and to speak of land as free be- 
 cause it is owned by the state, and to speak of it as free 
 because it is unlimited, is to confuse two perfectly distinct 
 ideas. A large addition of fertile land to the soil of England 
 would make labour at the margin of cultivation more pro- 
 ductive, would raise wages, or give room for an increased 
 population at existing wages. But how these consequences 
 would follow from making land free in the other sense Mr. 
 George has not shown. When he shall have devised a plan 
 
SOCIALIST THEORIES. 65 
 
 for making land free in the sense of being fertile and un- 
 limited in quantity, lie will have brought the working 
 classes to the goal to which he is now trying to bring them 
 by a road which does not lead there at all. 
 
 As to Mr. George's account of the conditions which <1 
 mine the rate of interest, the objections to it are obvious. 
 We possess no common denominator by which to compare 
 the sacrifice of the labourer with that of the capitalist, or 
 the sacrifice involved in any given labour with that 
 involved in the labour which produce. 1 tin- capital which 
 aids it. It is thus absurd to speak ol interest settling at 
 a point "which will give an equally attractive result for 
 the exertion ,,r sacrifice incurred" by labourer and capitalist, 
 and Mr. George may well say that it is "perhaps impossible 
 to formulate this point, are habitually estimated in 
 
 (plant ity, and interest in a ratio." The difficulty as to the 
 earnings of the entivpivm-ur Mr. GeOT| ..: ire ly ignored, 
 
 an omission which is the more remarkable on account of the 
 admirable manner in which this part of the subject has been 
 dealt with by his countryman, Professor Walker. In such a 
 country as America, where trade is constantly changing its 
 channels, versatility and vigilance on the part of those 
 "captains of industry," whose business it is to watch and 
 profit by these industrial transitions, is of peculiar import- 
 ance, and the functions of the entrepreneur and the nature 
 of his earnings claim in a special degree the attention of 
 economists. On the whole, it seems to me that Mr. George's 
 theory of wages, although it contains a portion of truth, is 
 still very defective; and his remedy for low wages is one 
 
 5 
 
66 THE VAKIOUS THEORIES OF WAGES. 
 
 in the efficacy of which it is difficult to believe that he can 
 be himself an entire believer. 
 
 13. The connection between money wages and 
 efficient work clearly established by Cairnes and 
 Senior. It is a remarkable fact in the history of the wages 
 question that by no writers has the connection between 
 money wages and the efficiency of work been placed in a 
 more clear and striking light than by Senior and Cairnes, 
 two of the stoutest champions of the wages-fund theory. 
 Senior, in his admirable lecture on the cost of obtaining 
 money, has shown that what its money costs to a nation is, 
 to use Adam Smith's expression, " the toil and trouble of ac- 
 quiring it." If a country possesses gold and silver mines, 
 the cost of money to it is regulated by the fertility of the 
 mines and the efficiency of mining industry. If it does not 
 possess them, then the cost of its money depends on the 
 efficiency of its labour in producing whatever commodities 
 command the highest value in the mining countries; and 
 wherever the cost of obtaining money is low, wages that is, 
 money wages will be high, and they will be low where that 
 cost is high. So also Cairnes, in his essays on the gold trade, 
 has, with singular felicity, applied Senior's principles to the 
 solution of the problems to which the Australian and Cali- 
 fornian discoveries gave birth. Regarded in its economic 
 aspects, he tells us, the discovery of gold in Australia may 
 be described as an occurrence by which a common labourer 
 was enabled, with little capital or skill, to obtain about 
 a quarter of an ounce of gold in a day. The immediate 
 result was a great rise of money wages throughout the 
 
MONEY WAGES AND EFFICIENT WORK. 67 
 
 country. "Why," he asks, "is the price of labour so high 
 in Australia? The answer is because the cost of gold is 
 low, the rate of money wages always rising and falling as the 
 facilities for producing gold increase or diminish." The 
 arguments by which these two writers have established 
 the connection between money wages and the efficiency of 
 labour in the production (or acquisition) of gold are plainly 
 unanswerable, and they admit of a wider application. For 
 if the cost of obtaining gold, that is the efficiency of labour 
 in the production of it, is what fixes money wages, it follows 
 that the cost of obtaining any commodity, that is, the effi- 
 ciency of the labour whu-h produces it, must regulate wages 
 measured in that commodity. If, in a country which grows 
 corn, the cost of producing corn falls, corn wages will rise 
 just as money wages rose in Australia. If the country does 
 not produce corn, corn wages will rise upon any occurrence 
 which enables it to obtain its corn more cheaply. For it is 
 important to notice that a labourer benefits not only by any 
 which renders his own labour more efficient in pro- 
 ducing necessaries, but by whatever makes that labour more 
 efficient which produces commodities for his consumption. 
 Corn wages would rise in England as a consequence of any 
 event which facilitated the production of corn in America, 
 or which cheapened the production of the commodities by 
 the instrumentality of which we obtain our imported supply 
 of corn. If we want to know whether wages measured in 
 any particular commodity have risen, we must inquire, (1) 
 whether the production of that commodity has become 
 cheaper, (2) whether labour has become more efficient in 
 
68 THE VARIOUS THEORIES OF WAGES. 
 
 the production of other things by the exchange of which 
 the commodity in question can be obtained. As Mr. Shad- 
 well has well observed, "The power of the labourer to 
 obtain any commodity depends on its cost of production, 
 and his general command over commodities is the complex 
 result of the efficiency of labour in many different employ- 
 ments." 
 
 1$. The connection between real wages and 
 efficient work recognized by almost all economists. 
 It is a striking tribute to the substantial truth of the 
 theory according to which wages depend on the efficiency 
 of work, together with the intensity of the demand on the 
 part of the capitalists for the aid of labour, that, of the 
 theories which I have noticed in the preceding pages, all, 
 with the exception of the theories of Professor Rogers and 
 Karl Marx, recognize a connection, more or less intimate, 
 between the efficiency of work and the amount of wages. 
 Adam Smith must have perceived the connection when he 
 said that what a thing really costs is the toil and trouble 
 of acquiring it, for it follows from this that a reduction in 
 the toil and trouble to the labourer of producing the articles 
 which constitute his wages, that is, an increase in his effi- 
 ciency, is equivalent to a rise of wages. Again, in speaking 
 of the original state which precedes the accumulation of 
 stock and the appropriation of land, he admits that "the 
 produce of labour constitutes its natural recompense," and 
 he tells us that had this state continued, "the wages of 
 labour would have improved with all those improvements 
 of its productive power to which the division of labour 
 
REAL WAGES AND EFFICIENT V\'ollK. 69 
 
 gives occasion." So also Kicardo, as I have already noticed, 
 admits a connection between efficient work and high wages, 
 saying, "that in ..different stages of society the accumulation 
 of capital or the means of employing labour is more or less 
 rapid, and must in all cases depend on the productive powers 
 of labour;" and his implied admission that the natural rate 
 of wages varies with the margin of cultivation is a recognition 
 of the same fact. Cairnes and S.-nior, as I have shown, not 
 only recognize the causal connection between efficiency of 
 labour and money wages, but strongly insist on it, and con- 
 clusively prove it. Professor Sid^wirk lias asserted (Pol. 
 . p. 312) that the wap^-fund theory not only does 
 not make efficiency of labour a prominent element in the 
 determination of wages, but leaves it entirely out of account. 
 This, I think, is too strongly stated, for no advocate of that 
 theory has, so far as I know, denied that an jnerease, in the 
 efficiency of labour is favourable to the growth of the wages- 
 fund. Thus we find Senior stating (Lectures on Wagexj In- 
 troduction, p. iv.) that "the principal means by which the 
 fund for the maintenance of the labourers is increased is by 
 increasing the productiveness of labour;" and again (Lectures 
 on Wayrs, p. 48), "If machinery be applied to the produc- 
 tion of commodities used by labourers, the rate of wages 
 will rise." Cairnes, too, admits (Leading Principles, Etc. 
 p. 232) that " everything that tends to increase wealth and 
 render industry more productive must favour the growth of 
 the wages-fund," and he is never tired of asserting that, 
 viewing production as a continuous act, the product is the 
 fund from which the remuneration of capital and labour 
 
70 THE VARIOUS THEORIES OF WAGES. 
 
 is derived. Mr. Mill also, and indeed all economists with, 
 hardly an exception, when explaining the high rate of wages 
 usually prevailing in new countries, do so by reference to the 
 productiveness of labour in raising food and other necessaries 
 for the labourer. 
 
 15. Summary. I have endeavoured in the foregoing 
 pages to show that although Adam Smith and Eicardo cannot 
 be said to have themselves held the doctrine of the wages- 
 fund, nevertheless that theory was the result of the direction 
 given by them to the current of economic thought, joined to 
 the condition of the English industrial world at the com- 
 mencement of the present century. I have shown that as 
 that theory owed its rise to the tendencies of economic 
 speculation and to certain external conditions which favoured 
 its growth, so it owed its fall more to a general change in 
 those tendencies and in those conditions than to the direct 
 attacks of the writers to whom its destruction is commonly 
 ascribed. It is even possible that Mr. Mill's conversion may 
 have been due, more than he was himself aware, to the 
 effect produced by a change in the general tone of thought 
 upon a mind singularly open to new convictions, and a 
 nature far too loyal to truth ever to sacrifice it to the pride 
 of an obstinate consistency. I have shown that, the theory 
 having been abandoned by its most powerful champion, an 
 attempt was made by one of his favourite disciples to re- 
 habilitate it and establish it on a sounder basis. I have 
 shown that, this attempt having, in the opinion of most 
 persons, proved a failure, not indeed from any want of 
 ability in the writer who undertook it, but from the diffi- 
 
 
SUMMARY. 71 
 
 culty or impossibility of the task, various theories were put 
 forward to fill the gap which had been created in economic 
 doctrine. That of Jevons, which is the first of these that I 
 have noticed, resembled in many points the theory which 
 Longfield had, apparently without the knowledge of Jevons 
 or any English writer, advocated in the earlier part of the 
 century; and the theories of Walker and Marshall, who 
 may, I think, be described as the inheritors of the traditions 
 of the classical English school, are developments of the 
 theory of Jevons. These theories all a-ivc in the great 
 prominence which they give to the connection between 
 wages and the efficiency of work a doctrine, the importance 
 of which in its bearing on the future of the labour question 
 seems to me incalculably great. It teaches the labouring 
 classes that, although their interests require that population 
 should be kept within due bounds, and that capital should 
 be plentiful, there is also hope for them in the infinite possi- 
 bilities of the future in the education of the labourer, in 
 the march of invention, in the ever- extending dominion of 
 man over matter. It teaches the labourer (at least as Walker 
 taught it) that the successful entrepreneur is not his rival but 
 his ally, by whose aid inventions will be turned to the best 
 account, industry will be made more productive, and the 
 best markets will be secured. Surely it is no small thing 
 that the labourers, instead of expending their force, and 
 often wasting it, in a struggle with their employers for a 
 share of the product, should learn to use it in co-operating 
 with their employers in trying to increase to the utmost the 
 product from which both are paid ; and surely it is well, as 
 
72 
 
 THE VARIOUS THEORIES OF WAGES. 
 
 Professor Walker has said, that the labourer should look 
 upon his wages as finding their measure, not in a past, of 
 which the accumulations have "been plundered by class legis- 
 lation and wasted by dynastic wars, but in the available 
 present, in the larger, the freer, the more fortunate future. 
 (Walker on Wages, p. 411.) 
 
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