It is to the newer countries-that is, to the countries where material progress is yet in its earlier stages-that labourers emigrate in search of higher wages, and capital flows in search of higher interest. It is in the older countries-that is to say, the countries where material progress has reached later stages-that widespread destitution is found in the midst of the greatest abundance. Go into one of the new communities where Anglo-Saxon vigour is just beginning the race of progress; where the machinery of production and exchange is yet rude and inefficient; where the increment of wealth is not yet great enough to enable any class to live in ease and luxury; where the best house is but a cabin of logs or a cloth and paper shanty, and the richest man is forced to daily work-and though you will find an absence of wealth and all its concomitants, you will find no beggars. There is no luxury, but there is no destitution. No one makes an easy living, nor a very good living; but every one can make a living, and no one able and willing to work is oppressed by the fear of want.

But just as such a community realises the conditions which all civilised communities are striving for, and advances in the scale of material progress -just as closer settlement and a more intimate connection with the rest of the world, and greater utilisation of labour-saving machinery, make possible greater economies in production and exchange, and wealth in consequence increases, not merely in the aggregate, but in proportion to population-so does poverty take a darker aspect. Some get an infinitely better and easier living, but others find it hard to get a living at all. The "tramp" comes with the locomotive, and alms-houses and prisons are as surely the marks of "material progress "" as are costly dwellings, rich warehouses, and magnificent churches. Upon streets lighted with gas and patrolled by uniformed policemen beggars wait for the passer by, and in the shadow of college and library and museum are gathering the more hideous Huns and fiercer Vandals of whom Macaulay prophesied.

This fact-the great fact that poverty and all its concomitants show themselves in communities just as they develop into the conditions towards which material progress tends-proves that the social difficulties existing whereever a certain stage of progress has been reached do not arise from local circumstances, but are, in some way or another, engendered by progress

itself.

And, unpleasant as it may be to admit it, it is at last becoming evident that the enormous increase in productive power which has marked the present century and is still going on with accelerating ratio, has no tendency to extirpate poverty or to lighten the burdens of those compelled to toil. It simply widens the gulf between Dives and Lazarus, and makes the struggle for existence more intense. The march of invention has clothed mankind with powers of which a century ago the boldest imagination could not have dreamed. But in factories where labour-saving machinery has reached its. most wonderful development, little children are at work; wherever the new forces are anything like fully utilised, large classes are maintained by charity or live on the verge of recourse to it; amid the greatest accumulations of wealth, men die of starvation, and puny infants suckle dry breasts; while everywhere the greed of gain, the worship of wealth, shows the force of the fear of want. The promised land flies before us like the mirage. The fruits of the tree of knowledge turn as we grasp them to apples of Sodom that crumble at the touch.

It is true that wealth has been greatly increased, and that the average of comfort, leisure, and refinement has been raised; but these gains are not general. In them the lowest class do not share.* I do not mean that the condition of the lowest class has nowhere nor in anything been improved; but that there is nowhere any improvement which can be credited to increased productive power. I mean that the tendency of what we call material progress is in nowise to improve the condition of the lowest class in the essentials of healthy, happy human life. Nay, more, that it is to still further depress the condition of the lowest class. The new forces, elevating in their nature though they be, do not act upon the social fabric from underneath, as was for a long time hoped and believed, but strike it at a point intermediate between top and bottom. It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.

This depressing effect is not generally realised, for it is not apparent where there has long existed a class just able to live. Where the lowest

*It is true that the poorest may now in certain ways enjoy what the richest a century ago could not have commanded, but this does not show improvement of condition so long as the ability to obtain the necessaries of life is not increased. The beggar in a great city may enjoy many things from which the backwoods farmer is debarred, but that does not prove the condition of the city beggar better than that of the independent farmer.

This association of poverty with progress is the great enigma of our times. It is the central fact from which spring industrial, social, and political difficulties that perplex the world, and with which statesmanship and philanthropy and education grapple in vain. From it come the clouds that overhang the future of the most progressive and self-reliant nations. It is the riddle which the Sphinx of Fate puts to our civilisation, and which not to answer is to be destroyed. So long as all the increased wealth which modern progress brings goes but to build up great fortunes, to increase luxury, and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent. action must come. The tower leans from its foundations, and every new story but hastens the final catastrophe. To educate men who must be condemned to poverty is but to make them restive; to base on a state of most glaring social inequality political institutions under which men are theoretically equal is to stand a pyramid on its apex.

The re

All-important as this question is, pressing itself from every quarter painfully upon attention, it has not yet received a solution which accounts for all the facts and points to any clear and simple remedy. This is shown by the widely varying attempts to account for the prevailing depression. They exhibit not merely a divergence between vulgar notions and scientific theories, but also show that the concurrence which should exist between those who avow the same general theories breaks up upon practical questions into an anarchy of opinion. Upon high economic authority we have been told that the prevailing depression is due to over-consumption; upon equally high authority, that it is due to over-production; while the wastes of war, the extension of railroads, the attempts of workmen to keep up wages, the demonetisation of silver, the issues of paper money, the increase of laboursaving machinery, the opening of shorter avenues to trade, etc., etc., are separately pointed out as the cause by writers of reputation.

And while professors thus disagree, the ideas that there is a necessary conflict between capital and labour, that machinery is an evil, that competition must be restrained and interest abolished, that wealth may be created by the issue of money, that it is the duty of government to furnish capital or tc furnish work, are rapidly making way among the great body of the people, who keenly feel a hurt and are sharply conscious of a wrong. Such ideas, which bring great masses of men, the repositories of ultimate political power, under the leadership of charlatans and demagogues, are fraught with danger; but they cannot be successfully combated until political economy shall give some answer to the great question which shall be consistent with all her teachings, and which shall commend itself to the perceptions of the great masses of men.

It must be within the province of political economy to give such an answer. For political economy is not a set of dogmas. It is the explanation of a certain set of facts. It is the science which, in the sequence of certain phenomena, seeks to trace mutual relations and to identify cause and effect, just as the physical sciences seek to do in other sets of phenomena. It lays its foundations upon firm ground. The premises from which it makes its deductions are truths which have the highest sanction; axioms which we all recognise; upon which we safely base the reasoning and actions of everyday life, and which may be reduced to the metaphysical expression of the physical law that motion seeks the line of least resistance-viz., that men seek to

gratify their desires with the least exertion. Proceeding from a basis thus assured, its processes, which consist simply in identification and separation, have the same certainty. In this sense it is as exact a science as geometry, which, from similar truths relative to space, obtains its conclusions by similar means, and its conclusions when valid should be as self-apparent. And although in the domain of political economy we cannot test our theories by artificially produced combinations or conditions, as may be done in some of the other sciences, yet we can apply tests no less conclusive by comparing societies in which different conditions exist, or by, in imagination, separating, combining, adding or eliminating forces or factors of known direction.

I propose in the following pages to attempt to solve by the methods of political economy the great problem I have outlined. I propose to seek the

law which associates poverty with progress, and increases want with advancing wealth; and I believe that in the explanation of this paradox we shall find the explanation of those recurring seasons of industrial and commercial paralysis which, viewed independent of their relations to more general phenomena, seem so inexplicable. Properly commenced and carefully pursued, such an investigation must yield a conclusion that will stand every test, and as truth will correlate with all other truth. For in the sequence of phenomena there is no accident. Every effect has a cause, and every fact implies a preceding fact. That political economy, as at present taught, does not explain the persistence of poverty amid advancing wealth in a manner which accords with the deepseated perceptions of men; that the unquestionable truths which it does teach are unrelated and disjointed; that it has failed to make the progress in popular thought that truth, even when unpleasant, must make; that, on the contrary, after a century of cultivation, during which it has engrossed the attention of some of the most subtle and powerful intellects, it should be spurned by the statesman, scouted by the masses, and relegated in the opinion of many educated and thinking men to the rank of a pseudo-science in which nothing is fixed or can be fixed-must, it seems to me, be due not to any inability of the science when properly pursued, but to some false step in its premises, or overlooked factor in its estimates. And as such mistakes are generally concealed by the respect paid to authority, I propose in this enquiry to take nothing for granted, but to bring even accepted theories to the test of first principles, and should they not stand the test, to freshly interrogate facts in the endeavour to discover their law.

I propose to beg no question, to shrink from no conclusion, but to follow truth wherever it may lead. Upon us is the responsibility of seeking the law, for in the very heart of our civilisation to-day women faint and little children moan. But what the law may prove to be is not our affair. If the conclusions that we reach run counter to our prejudices, let us not flinch; if they challenge institutions that have long been deemed wise and natural, let us not turn back.

BOOK I.-WAGES AND CAPITAL.

He that is to follow philosophy must be a freeman in mind.-Ptolemy.
CHAPTER I.

THE CURRENT DOCTRINE OF WAGES-ITS INSUFFICIENCY.

REDUCING to its most compact form the problem we have set out to investigate, let us examine, step by step, the explanation which political economy, as now accepted by the best authority, gives of it.

The cause which produces poverty in the midst of advancing wealth is evidently the cause which exhibits itself in the tendency, everywhere recognised, of wages to a minimum. Let us, therefore, put our inquiry into this compact form:

Why, in spite of increase in productive power, do wages tend to a minimum which will give but a bare living?

The answer of the current political economy is, that wages are fixed by the ratio between the number of labourers and the amount of capital devoted to the employment of labour, and constantly tend to the lowest amount on which labourers will consent to live and reproduce, because the increase in the number of labourers tends naturally to follow and overtake any increase in capital. The increase of the divisor being thus held in check only by the possibilities of the quotient, the dividend may be increased to infinity without greater result.

In current thought this doctrine holds all but undisputed sway. It bears the indorsement of the very highest names among the cultivators of political economy, and though there have been attacks upon it, they are generally more formal than real. It is assumed by Buckle as the basis of his generalisations of universal history. It is taught in all, or nearly all, the great English and American universities, and is laid down in textbooks which aim at leading the masses to reason correctly upon practical affairs, while it seems to harmonise with the new philosophy, which, having in a few years all but conquered the scientific world, is now rapidly permeating the general mind.

Thus entrenched in the upper regions of thought, it is in cruder form even more firmly rooted in what may be styled the lower. What gives to the fallacies of protection such a tenacious hold, in spite of their evident

* This seems to me true of Mr. Thornton's objections, for while he denies the existence of a predetermined wage fund, consisting of a portion of capital set apart for the purchase of labour, he yet holds (which is the essential thing) that wages are drawn irom capital, and that increase or decrease of capital is increase or decrease of the fund available for the payment of wages. The most vital attack upon the wage fund doctrine of which I know is that of Professor Francis A. Walker (The Wages Question: New York, 1876), yet he admits that wages are in large part advanced from capital-which, so far as it goes, is all that the staunchest supporter of the wage fund theory could claim-while he fully accepts the Malthusian theory. Thus his practical conclusions in nowise differ from those reached by expounders of the current theory.

inconsistencies and absurdities, is the idea that the sum to be distributed in wages is in each community a fixed one, which the competition of "foreign labour" must still further subdivide. The same idea underlies most of the theories which aim at the abolition of interest and the restriction of competition, as the means whereby the share of the labourer in the general wealth can be increased; and it crops out in every direction among those who are not thoughtful enough to have any theories, as may be seen in the columns of newspapers and the debates of legislative bodies.

And yet, widely accepted and deeply rooted as it is, it seems to me that this theory does not tally with obvious facts. For, if wages depend upon the ratio between the amount of labour seeking employment and the amount of capital devoted to its employment, the relative scarcity or abundance of one factor must mean the relative abundance or scarcity of the other. Thus, capital must be relatively abundant where wages are high, and relatively scarce where wages are low. Now, as the capital used in paying wages must largely consist of the capital constantly seeking investment, the current rate of interest must be the measure of its relative abundance or scarcity. So, if it be true that wages depend upon the ratio between the amount of labour seeking employment and the capital devoted to its employment, then high wages (the mark of the relative scarcity of labour) must be accompanied by low interest (the mark of the relative abundance of capital), and reversely, low wages must be accompanied by high interest.

This is not the fact, but the contrary. Eliminating from interest the element of insurance, and regarding only interest proper, or the return for the use of capital, is it not a general truth that interest is high where and when wages are high, and low where and when wages are low? Both wages and interest have been higher in the United States than in England, in the Pacific than in the Atlantic States. Is it not a notorious fact that where labour flows for higher wages, capital also flows for higher interest? Is it not true that wherever there has been a general rise or fall in wages there has been at the same time a similar rise or fall in -interest ? In California, for instance, when wages were higher than anywhere else in the world, so also was interest higher. Wages and interest have in California gone down together. When common wages were 5 dols. a day, the ordinary bank rate of interest was twenty-four per cent. per annum. Now that common wages are 2 dols. or 2 dols. 50 cents a day, the ordinary bank rate is from ten to twelve per cent.

Now, this broad, general fact, that wages are higher in new countries, where capital is relatively scarce, than in old countries, where capital is relatively abundant, is too glaring to be ignored. And although very lightly touched upon, it is noticed by the expounders of the current political economy. The manner in which it is noticed proves what I say, that it is utterly inconsistent with the accepted theory of wages. For in explaining it such writers as Mill, Fawcett, and Price virtually give up the theory of wages upon which, in the same treatises, they formally insist. Though they declare that wages are fixed by the ratio between capital and labourers, they explain the higher wages and interest of new countries by the greater relative production of wealth. I shall hereafter show that this is not the fact, but that, on the contrary, the production of wealth is relatively larger in old and densely populated countries than in new and sparsely populated countries. But at present I merely wish to point out the inconsistency. For to say that the higher wages of new countries are due to greater proportionate production is clearly to make the ratio with production, and not the ratio with capital, the determinator of wages.

Though this inconsistency does not seem to have been perceived by the class of writers to whom I allude, it has been noticed by one of the most logical of the expounders of the current political economy. Professor Cairnes endeavours in a very ingenious way to reconcile the fact with the theory, by assuming that in new countries, where industry is generally directed to the production of food and what in manufactures is called raw material, a much larger proportion of the capital used in production is devoted to the payment of wages than in older countries where a greater part must be expended in machinery and material, and thus, in the new country, though capital is scarcer (and interest is higher), the amount determined to the payment of wages is really larger, and wages are also higher. For instance, of 100,000 dols. devoted in an old country to manufactures, 80,000 dols. would probably be expended for buildings, machinery and the purchase of materials, leaving but 20,000 dols. to be paid out in wages, whereas in a new country, of 30,000 dols. devoted to agriculture, etc., not more than 5,000 dols. would be required for tools, etc., leaving 25,000 dols. to be distributed in wages. In this way it is explained that the wage fund may be comparatively large where capital is comparatively scarce, and high wages and high interest accompany each other.

In what follows I think I shall be able to show that this expla

* Some Leading Principles of Political Economy Newly Expounded, Chapter 1, Part 2

nation is based upon a total misapprehension of the relations of labour to capital—a fundamental error as to the fund from which wages are drawn; but at present it is only necessary to point out that the connection in the fluctuation of wages and interest in the same countries and in the same branches of industry cannot thus be explained. In those alternations known as "good times" and "hard times" a brisk demand for labour and good wages is always accompanied by a brisk demand for capital and stiff rates of interest. While, when labourers cannot find employment, and 'wages droop, there is always an accumulation of capital seeking investment at low rates.* The present depression has been no less marked by want of employment and distress among the working classes than by the accumulation of unemployed capital in all the great centres, and by nominal rates of interest on undoubted security. Thus, under conditions which admit of no explanation consistent with the current theory, do we find high interest coinciding with high wages and low interest with low wages -capital seemingly scarce when labour is scarce, and abundant when Jabour is abundant.

All these well-known facts, which coincide with each other, point to a relation between wages and interest, but it is to a relation of conjunction, not of opposition. Evidently they are utterly inconsistent with the theory that wages are determined by the ratio between labour and capital, or any part of capital,

How, then, it will be asked, could such a theory arise? How is it that it has been accepted by a succession of economists, from the time of Adam Smith to the present day?

If we examine the reasoning by which in current treatises this theory of wages is supported, we see at once that it is not an induction from observed facts, but a deduction from a previously assumed theory—viz., that wages are drawn from capital. It being assumed that capital is the source of wages, it necessarily follows that the gross amount of wages must be limited by the amount of capital devoted to the employment of labour, and hence that the amount individual labourers can receive must be determined by the ratio between their number and the amount of capital existing for their recompense.+ This reasoning is valid, but the conclusion, as we have seen, does not correspond with the facts. The fault, therefore, must be in the premises. Let us see.

I am aware that the theorem that wages are drawn from capital is one of the most fundamental and apparently best settled of current political economy, and that it has been accepted as axiomatic by all the great thinkers who have devoted their powers to the elucidation of the science. Nevertheless, I think it can be demonstrated to be a fundamental error-the fruitful parent of a long series of errors, which vitiate most important practical conclusions. This demonstration I am about to attempt. It is necessary that it should be clear and conclusive, for a doctrine upon which so much important reasoning is based, which is supported by such a weight of authority, which is so plausible in itself, and is so liable to recur in different forms, cannot be safely brushed aside in a paragraph.

The proposition I shall endeavour to prove is:

That wages, instead of being drawn from capital, are in reality drawn from the product of the labour for which they are paid.‡

Now, inasmuch as the current theory that wages are drawn from capital also holds that capital is reimbursed from production, this at first glance may seem a distinction without a difference-a mere change in terminology, to discuss which would be but to add to those unprofitable disputes that render so much that has been written upon politico-economic subjects as barren and worthless as the controversies of the various learned societies about the true reading of the inscription on the stone that Mr. Pickwick found. But that it is much more than a formal distinction will be apparent when it is considered that upon the difference between the two propositions are built up all the current theories as to the relations of capital and labour; that from it are deduced doctrines that, themselves regarded as axiomatic, bound, direct, and govern the ablest minds in the discussion of the most momentous questions. For, upon the assumption that wages are drawn directly from capital, and not from the product of the labour, is based, not only the doctrine that wages depend upon the ratio between capital and labour, but the doctrine that industry is Times of commercial panic are marked by high rates of discount, but this is evidently not a high rate of interest, properly so-called, but a high rate of insurance against risk. + For instance, McCulloch (Note VI to Wealth of Nations) says: "That portion of the capital or wealth of a country which the employers of labour intend to or are willing to pay out in the purchase of labour may be much larger at one time than another. But whatever may be its absolute magnitude, it obviously forms the only source from which any portion of the wages of labour can be derived. No other fund is in existence from which the labourer, as such, can draw a single shilling. And hence it follows that the average rate of wages, or the share of the national capital appropriated to the employment of labour falling, at an average, to each labourer, must entirely depend on its amount as compared with the number of those amongst whom it has to be divided." Similar citations might be made from all the standard economists.

We are speaking of labour expended in production, to which it is best for the sake of simplicity to confine the inquiry. Any question which may arise in the reader's mind as to wages for unproductive services had best therefore be deferred.

limited by capital-that capital must be accumulated before labour is employed, and labour cannot be employed except as capital is accumulated; the doctrine that every increase of capital gives or is capable of giving additional employment to industry; the doctrine that the conversion of circulating capital into fixed capital lessens the fund applicable to the maintenance of labour; the doctrine that more labourers can be employed at low than at high wages; the doctrine that capital applied to agriculture will maintain more labourers than if applied to manufactures; the doctrine that profits are high or low as wages are low or high, or that they depend upon the cost of the subsistence of labourers; together with such paradoxes as that a demand for commodities is not a demand for labour, or that certain commodities may be increased in cost by a reduction in wages or diminished in cost by an increase in wages.

In short, all the teachings of the current political economy, in the widest and most important part of its domain, are based more or less directly upon the assumption that labour is maintained and paid out of existing capital before the product which constitutes the ultimate object is secured. If it be shown that this is an error, and that on the contrary the maintenance and payment of labour do not even temporarily trench on capital, but are directly drawn from the product of the labour, then all this vast superstructure is left without support and must fall. And so likewise must fall the vulgar theories which also have their base in the belief that the sum to be distributed in wages is a fixed one, the individual shares in which must be necessarily decreased by an increase in the number of labourers. The difference between the current theory and the one I advance is, in fact, similar to that between the mercantile theory of international exchanges and that with which Adam Smith supplanted it. Between the theory that commerce is the exchange of commodities for money, and the theory that it is the exchange of commodities for commodities, there may seem no real difference when it is remembered that the adherents of the mercantile theory did not assume that money had any other use than as it could be exchanged for commodities. Yet in the practical application of these two theories, there arises all the difference between rigid governmental protection and free trade,

If I have said enough to show the reader the ultimate importance of the reasoning through which I am about to ask him to follow me, it will not be necessary to apologise in advance either for simplicity or prolixity. In arraigning a doctrine of such importance-a doctrine supported by such a weight of authority, it is necessary to be both clear and thorough. Were it not for this I should be tempted to dismiss with a sentence the assumption that wages are drawn from capital. For all the vast superstructure which the current political economy builds upon this doctrine is in truth based upon a foundation which has been merely taken for granted, without the slightest attempt to distinguish the apparent from the real. Because wages are generally paid in money, and in many of the operations of production are paid before the product is fully completed, or can be utilised, it is inferred that wages are drawn from pre-existing capital, and, therefore, that industry is limited by capital-that is to say that labour cannot be employed until capital has been accumulated, and can only be employed to the extent capital has been accumulated,

Yet in the very treatises in which the limitation of industry by capital is laid down without reservation and made the basis for the most important reasonings and elaborate theories, we are told that capital is stored up or accumulated labour" that part of wealth which is saved to assist future production.' If we substitute for the word "capital" this definition of the word, the proposition carries its own refutation, for that labour cannot be employed until the results of labour are saved becomes too absurd for discussion.

Should we, however, with this reductio ad absurdum, attempt to close the argument, we should probably be met with the explanation, not that the first labourers were supplied by Providence with the capital necessary to set them to work, but that the proposition merely refers to a state of society in which production has become a complex operation.

But the fundamental truth, that in all economic reasoning must be firmly grasped and never let go, is that society in its most highly developed form is but an elaboration of society in its rudest beginnings, and that principles obvious in the simpler relations of men are merely disguised and not abrogated or reversed by the more intricate relations that result from the division of labour and the use of complex tools and methods. The steam grist mill, with its complicated machinery exhibiting every diversity of motion, is simply what the rude stone mortar dug up from an ancient river bed was in its day—an instrument for grinding corn. And every man engaged in it, whether tossing wood into the furnace, running the engine, dressing stones, printing sacks or keeping books, is really devoting his labour to the same purpose that the prehistoric savage did when he used his mortar-the preparation of grain for human food.

And so, if we reduce to their lowest terms all the complex operations of modern production, we see that each individual who takes part in this infinitely subdivided and intricate network of production and exchange is really

doing what the primeval man did when he climbed the trees for fruit or followed the receding tide for shellfish-endeavouring to obtain from nature by the exertion of his powers the satisfaction of his desires. If we keep this firmly in mind, if we look upon production as a whole--as the co-operation of all embraced in any of its great groups to satisfy the various desires of each, we plainly see that the reward each obtains for his exertions comes as truly and as directly from nature as the result of that exertion as did that of the first

man.

To illustrate: In the simplest state of which we can conceive, each man digs his own bait and catches his own fish. The advantages of the division of Yet labour soon become apparent, and one digs bait while the others fish. evidently the one who digs bait is in reality doing as much towards the catching of fish as any of those who actually take the fish. So when the advantages of canoes are discovered, and instead of all going a-fishing, one stays behind and makes and repairs canoes, the canoe-maker is in reality devoting his labour to the taking of fish as much as the actual fishermen, and the fish which he eats at night when the fishermen come home are as truly the product of his labour as of theirs. And thus when the division of labour is fairly inaugurated, and instead of each attempting to satisfy all of his wants by direct resort to nature, one fishes, another hunts, a third picks berries, a fourth gathers fruit, a fifth makes tools, a sixth builds huts, and a seventh prepares clothing-each one is, to the extent he exchanges the direct product of his own labour for the direct product of the labour of others, really applying his labour to the production of the things he uses-is in effect satisfying his particular desires by the exertion of his particular powers; that is to say, what he receives he in reality produces. If he digs roots and exchanges them for venison, he is in effect as truly the procurer of the venison as though he had gone in chase of the deer and left the huntsman to dig his own roots. The common expression, "I made so and so," signifying "I earned so and so," or "I earned money with which I purchased so and so," is, economically speaking, not metaphorically, but literally true. Earning is making.

Now, if we follow these principles, obvious enough in a simpler state of society, through the complexities of the state we call civilised, we shall see clearly that in every case in which labour is exchanged for commodities, production really precedes enjoyment; that wages are the earnings-that is to say, the makings of labour-not the advances of capital, and that the labourer who receives his wages in money (coined or printed, it may be, before his labour commenced) really receives in return for the addition his labour has made to the general stock of wealth a draft upon that general stock which he may utilise in any particular form of wealth that will best satisfy his desires; and that neither the money, which is but the draft, nor the particular form of wealth which he uses it to call for, represents advances of capital for his maintenance, but on the contrary represents the wealth, or a portion of the wealth, his labour has already added to the general stock.

Keeping these principles in view, we see that the draughtsman who, shut up in some dingy office on the banks of the Thames, is drawing the plans for a great marine engine, is in reality devoting his labour to the production of bread and meat as truly as though he were garnering the grain in California or swinging a lariat on a La Plata pampa; that he is as truly making his own clothing as though he were shearing sheep in Australia or weaving cloth in Paisley, and just as effectually producing the claret he drinks at dinner as though he gathered the grapes on the banks of the Garonne. The miner who, two thousand feet under ground in the heart of the Comstock, is digging out silver ore, is, in effect, by virtue of a thousand exchanges, harvesting crops in valleys five thousand feet nearer the earth's centre; chasing the whale through Arctic icefields; plucking tobacco leaves in Virginia; picking coffee berries in Honduras; cutting sugar cane on the Hawaiian Islands; gathering cotton in Georgia or weaving it in Manchester or Lowell; making quaint wooden toys for his children in the Hartz Mountains; or plucking amid the green and gold of Los Angeles orchards the oranges which, when his shift is relieved, he will take home to his sick wife. The wages which he receives on Saturday night at the mouth of the shaft, what are they but the certificate to all the world that he has done these things-the primary exchange in the long series which transmutes his labour into the things he has really been labouring for?

All this is clear when looked at in this way; but to meet this fallacy in all its strongholds and lurking places we must change our investigation from the deductive to the inductive form. Let us now see if, beginning with facts and tracing their relations, we arrive at the same conclusions as are thus obvious when, beginning with first principles, we trace their exemplification in complex facts,

CHAPTER II.

THE MEANING OF THE TERMS.

BEFORE proceeding further in our inquiry, let us make sure of the meaning of our terms, for indistinctness in their use must inevitably produce ambiguity and indeterminateness in reasoning. Not only is it requisite in economic reasoning to

66

give to such words as wealth,' capital," "rent," "wages," and the like, a much more definite sense than they bear in common discourse, but, unfortunately, even in political economy there is, as to some of these terms, no certain meaning assigned by common consent, different writers giving to the same term different meanings, and the same writers often using a term in different senses. Nothing can add to the force of what has been said by so many eminent authors as to the importance of clear and precise definitions, save the example (not an infrequent one) of the same authors falling into grave errors from the very cause they warned against. And nothing so shows the importance of language in thought as the spectacle of even acute thinkers basing important conclusions upon the use of the same word in varying senses. I shall endeavour to avoid these dangers. It will be my effort throughout, as any term becomes of importance, to clearly state what I mean by it, and to use it in that sense and in no other. Let me ask the reader to note and to bear in mind the definitions thus given, as otherwise I cannot hope to make myself properly understood. I shall not attempt to attach arbitrary meanings to words, or to coin terms, even when it would be convenient to do so, but shall conform to usage as closely as is possible, only endeavouring to so fix the meaning of words that they may clearly express thought.

What we have now on hand is to discover whether, as a matter of fact, wages are drawn from capital. As a preliminary, let us settle what we mean by wages and what we mean by capital. To the former word a sufficiently definite meaning has been given by economic writers, but the ambiguities which have attached to the use of the latter in political economy will require a detailed examination.

As used in common discourse "wages" means a compensation paid to a hired person for his services; and we speak of one man “working for wages," in contradistinction to another who is "working for himself." The use of the term is still further narrowed by the habit of applying it solely to compensation paid for manual labour. We do not speak of the wages of professional men, managers, or clerks, but of their fees, commissions, or salaries. Thus the common meaning of the word wages is the compensation paid to a hired person for manual labour. But in political economy the word wages has a much wider meaning, and includes all returns for exertion. For, as political economists explain, the three agents or factors in production are land, labour, and capital, and that part of the produce which goes to the second of these factors is styled by them wages.

Thus the term labour includes all human exertion in the production of wealth, and wages, being that part of the produce which goes to labour, includes all reward for such exertion. There is, therefore, in the politico-economic sense of the term wages no distinction as to the kind of labour, or as to whether its reward is received through an employer or not, but wages means the return received for the exertion of labour, as distinguished from the return received for the use of capital, and the return received by the landholder for the use of land. The man who cultivates the soil for himself receives his wages in its produce, just as, if he uses his own capital and owns his own land, he may also receive interest and rent; the hunter's wages are the game he kills; the fisherman's wages are the fish he takes. The gold washed out by the selfemploying gold-digger is as much his wages as the money paid to the hired coal miner by the purchaser of his labour,* and, as Adam Smith shows, the high profits of retail storekeepers are in large part wages, being the recompense of their labour and not of their capital. In short, whatever is received as the result or reward of exertion is "wages.”

This is all it is now necessary to note as to 'wages," but it is important to keep this in mind. For in the standard economic works this sense of the term wages is recognised with greater or less clearness only to be subsequently ignored.

But it is more difficult to clear away from the idea of capital the ambiguities that beset it, and to fix the scientific use of the term. In general discourse, all sorts of things that have a value or will yield a return are vaguely spoken of as capital, while economic writers vary so widely that the term can hardly be said to have a fixed meaning. Let us compare with each other the definitions of a few representative writers :

"That part of a man's stock," says Adam Smith (Book II, Chap. 1), "which he expects to afford him a revenue is called his capital," and the capital of a country or society, he goes on to say, consists of (1) machines and instruments of trade which facilitate and abridge labour; (2) buildings, not mere dwellings, but which may be considered instruments of trade-such as shops, farmhouses, etc.; (3) improvements of land which better fit it for tillage or culture; (4) the acquired and useful abilities of all the inhabitants; (5) money ; (6) provisions in the hands of producers and dealers, from the sale of which they expect to derive a profit; (7) the material of, or partially completed, manufactured articles still in the hands of producers or dealers; (8) completed articles still in the hands of producers or dealers. The first four of these he styles fixed capital, and the last four circulating capital, a distinction of which it is not necessary to our purpose to take any note.

*This was recognised in common speech in California, where the placer miners styled their earnings their "wages," and spoke of making high wages, or low wages, according to the amount of gold taken out.

Ricardo's definition is:

"Capital is that part of the wealth of a country which is employed in production, and consists of food, clothing, tools, raw materials, machinery, etc., necessary to give effect to labour."—Principles of Political Economy, Chapter V.

This definition, it will be seen, is very different from that of Adam Smith, as it excludes many of the things which he includes-as acquired talents, articles of mere taste or luxury in the possession of producers or dealers; and includes some things he excludes-such as food, clothing, etc., in the possession of the

consumer.

McCulloch's definition is:

"The capital of a nation really comprises all those portions of the produce of industry existing in it that may be directly employed either to support human existence or to facilitate production."-Notes on Wealth of Nations, Book II, Chap. I.

This definition follows the line of Ricardo's, but is wider. While it excludes everything that is not capable of aiding production, it includes everything that is so capable, without reference to actual use or necessity for use-the horse drawing a pleasure carriage being, according to McCulloch's view, as he expressly states, as much capital as the horse drawing a plough, because he may, if need arises, be used to draw a plough.

John Stuart Mill, following the same general line as Ricardo and McCulloch, makes neither the use nor the capability of use, but the determination to use, the test of capital. He says:

"Whatever things are destined to supply productive labour with the shelter, protection tools and materials which the work requires, and to feed and otherwise maintain the labourer during the process, are capital."-Principles of Political Economy, Book I, Chap.

IV.

These quotations sufficiently illustrate the divergence of the masters. Among minor authors the variance is still greater, as a few examples will suffice to show. Professor Wayland, whose "Elements of Political Economy" has long been a favourite text book in American educational institutions, where there has been any pretence of teaching political economy, gives this lucid definition :

"The word capital is used in two senses. In relation to product it means any substance on which industry is to be exerted. In relation to industry, the material on which industry is about to confer value, that on which it has conferred value; the instruments which are used for the conferring of value, as well as the means of sustenance by which the being is supported while he is engaged in performing the operation."-Elements of Political Economy, Book I, Chap. I.

Henry C. Carey, the American apostle of protectionism, defines capital as the "instrument by which man obtains the mastery over nature, including in it the mental and physical powers of man himself." Professor Perry, a Massachusetts free trader, very properly objects to this that it hopelessly confuses the boundaries between capital and labour, and then himself hopelessly confuses the boundaries between capital and land by defining capital as "any valuable thing outside of man himself from whose use springs a pecuniary increase or profit." An English economic writer of high standing, Mr. Wm. Thornton, begins an elaborate examination of the relations of labour and capital ("On Labour ") by stating that he will include land with capital, which is very much as if one who proposed to teach algebra should begin with the declaration that he would consider the signs plus and minus as meaning the same thing and having the same value. An American writer, also of high standing, Professor Francis A. Walker, makes the same declaration in his elaborate book on "The Wages Question." Another English writer, N. A. Nicholson ("The Science of Exchanges," London, 1873), seems to cap the climax of absurdity by declaring in one parapraph (p. 26) that "capital must of course be accumulated by saving," and in the very next paragraph stating that "the land which produces a crop, the plough which turns the soil, the labour which secures the produce, and the produce itself, if a material profit is to be derived from its employment, are all alike capital." But how land and labour are to be accumulated by saving them he nowhere condescends to explain. In the same way a standard American writer, Professor Amasa Walker (p. 66, "Science of Wealth"), first declares that capital arises from the net savings of labour and then immediately afterwards declares that land is capital. I might go on for pages, citing contradictory and self-contradictory definitions. But it would only weary the reader. It is unnecessary to multiply quotations. Those already given are sufficient to show how wide a difference exists as to the comprehension of the term capital. Anyone who wants further illustration of the "confusion worse confounded which exists on this subject among the professors of political economy may find it in any library where the works of these professors are ranged side by side. Now it makes little difference what name we give to things, if when we use the name we always keep in view the same things and no others. But the difficulty arising in economic reasoning from these vague and varying definitions of capital is that it is only in the premises of reasoning that the term is used in the peculiar sense assigned by the definition, while in the practical conclusions that are reached it is always used, or at least it is always understood, in one general and definite sense. When, for instance, it is said that wages are drawn from capital, the word capital is understood in the same sense as when we speak of the scarcity or abundance, the increase or decrease, the destruction or increment, of capital-a commonly understood and definite sense which separates capital from the other factors

of production, land and labour, and also separates it from like things used merely for gratification. In fact, most people understand well enough what capital is until they begin to define it, and I think their works will show that the economic writers who differ so widely in their definitions use the term in this commonly understood sense in all cases except in their defi nitions and the reasoning based on them.

This common sense of the term is that of wealth devoted to procuring more wealth. Dr. Adam Smith correctly expresses this common idea when he says: "That part of a man's stock which he expects to afford him revenue is called his capital." And the capital of a community is evidently the sum of such individual stocks, or that part of the aggregate stock which is expected to procure more wealth. This also is the derivative sense of the term. The word capital, as philologists trace it, comes down to us from a time when wealth was estimated in cattle, and a man's income depended upon the number of head he could keep for their increase.

The difficulties which beset the use of the word capital, as an exact term, and which are even more strikingly exemplified in current political and social discussions than in the definitions of economic writers, arise from two facts-first, that certain classes of things, the possession of which to the individual is precisely equivalent to the possession of capital, are not part of the capital of the community; and, second, that things of the same kind may or may not be capital, according to the purpose to which they are devoted.

With a little care as to these points, there should be no difficulty in obtaining a sufficiently clear and fixed idea of what the term capital as generally used properly includes; such an idea as will enable us to say what things are capital and what are not, and to use the word without ambiguity or slip.

Land, labour, and capital are the three factors of production. If we remember that capital is thus a term used in contradistinction to land and labour, we at once see that nothing properly included under either one of these terms can be properly classed as capital. The term land necessarily includes, not merely the surface of the earth as distinguished from the water and the air, but the whole material universe outside of man himself, for it is only by having access to land, from which his very body is drawn, that man can come in contact with or use nature. The term land embraces, in short, all natural materials, forces, and opportunities, and, therefore, nothing that is freely supplied by nature can be properly classed as capital. A fertile field, a rich vein of ore, a falling stream which supplies. power, may give to the possessor advantages equivalent to the possession of capital, but to class such things as capital would be to put an end to the distinction between land and capital, and, so far as they relate to each other, to make the two terms meaningless. The term labour, in like manner includes all human exertion, and hence human powers whether natural or acquired can never properly be classed as capital. In common parlance we often speak of a man's knowledge, skill, or industry as constituting his capital; but this is evidently a metaphorical use of language that must be eschewed in reasoning that aims at exactness. Superiority in such qualities may augment the income of an individual just as capital would, and an increase in the knowledge, skill, or industry of a community may have the same effect in increasing its production as would an increase of capital; but this effect is due to the increased power of labour and not to capital. Increased velocity may give to the impact of a cannon ball the same effect as increased weight, yet, nevertheless, weight is one thing and velocity another. Thus we must exclude from the category of capital everything that may be included either as land or labour. Doing so, there remain only things. which are neither land nor labour, but which have resulted from the union of these two original factors of production. Nothing can be properly capital that does not consist of these-that is to say, nothing can be capital that is not wealth.

But it is from ambiguities in the use of this inclusive term wealth that many of the ambiguities which beset the term capital are derived.

As commonly used the word "wealth" is applied to anything having an exchange value. But when used as a term of political economy it must be limited to a much more definite meaning, because many things are commonly spoken of as wealth which in taking account of collective or general wealth cannot be considered as wealth at all. Such things have an exchange value, and are commonly spoken of as wealth, insomuch as they represent as between individuals, or between sets of individuals, the power of obtaining wealth; but they are not truly wealth, inasmuch as their increase or decrease does not affect the sum of wealth. Such are bonds,. mortgages, promissory notes, bank bills, or other stipulations for the transfer of wealth. Such are slaves, whose value represents merely the power of one class to appropriate the earnings of another class. Such are lands, or other natural opportunities, the value of which is but the result of the acknowledgment in favour of certain persons of an exclusive right to their use, and which represents merely the power thus given to the ownersto demand a share of the wealth produced by those who use them.