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A POPULAR theory of wages, of which we shall have hereafter to speak, is based upon the assumption that wages are paid out of capital, the saved results of the industry of the past. Hence, it is argued, capital must furnish the measure of wages. On the contrary, I hold that wages are, in a philosophical view of the subject, paid out of the product of present industry, and hence that production furnishes the true measure of wages. The difference may be found to be an important one; and I will therefore state the grounds of my belief.

An employer pays wages to purchase labor, not to expend a fund of which he may be in possession. He purchases labor not because he desires to keep it employed, but as a means to the production of wealth. He produces wealth not for the sake of producing it, but with a view to a profit to himself, individually, in that production. Doubtless there is a satisfaction in conferring benefits on the dependent, a pride in directing great operations, an enthusiasm of work, which make up a part of the compensation of many employers; but it is evident that these can not be relied upon to any great extent as motives to the systematic

· The substance of this and the following chapter appeared in the North American Review for January, 1875; art., The Wage-Fund Theory.

and sustained production of wealth through wage-labor. Individual profit is, and must remain, the great reason for production. If a person have wealth, that of itself constitutes no reason at all to him why he should expend any portion of it on labor, on machinery, or on materials. It is only as he sees that he can increase that wealth through production that the impulse to employ it in those directions is felt. But for the profits by which he hopes thus to increase his store, it would be alike easier and safer for him to keep his wealth at rest than to put it in motion for the benefit of others.

It is true that an employer may for a time produce without profits, or even at a loss; but this will be for the sake of holding together his working force, or his body of customers, in the hope of better times when he can make himself good for present hardship, or because he has formed contracts or engagements which law or business-honor compel him to fill at any sacrifice. These cases do not constitute a substantial exception to the principle that the motive to the purchase of labor is found in the profits of production.

But again it is evident that an employer will be disposed to produce, within the limits of the agencies at his command, all that he can produce at a profit to himself. So long as additional profits are to be made by the employment of additional labor, so long a sufficient reason for production exists; when profit is no longer expected, the reason for production ceases. At this point the mere fact that the employer has capital at his command no more constitutes a reason why he should use it in production when he can get no profits, than the fact that the laborer has legs and arms constitutes a reason why he should work when he can get no wages.

We repeat, the employer purchases labor with a view to the product of the labor; and the kind and amount of that product determine what wages he can afford to pay. He must, in the long run, pay less than that product, less by a aum which is to constitute his own profits. If that pro duct is to be greater, he can afford to pay more; if it is to be smaller, he must, for his own interest, pay less. It is, then, for the sake of future production that the laborers are employed, not at all because the employer has possession of a fund which he must disburse; and it is the value of the product, such as it is likely to prove, which determines the amount of the wages that can be paid, not at all the amount of wealth which the employer has in possession or can command. Thus it is production, not capital, which furnishes the motive for employment and the measure of wages.

But it may be said, we grant that wages are really paid out of the product of current industry, and that capital only affects wages as it first affects production, so that wages stand related to product in the first degree and to capital in the second degree only; still, does not production bear a certain and necessary ratio to capital ? and hence may not the measure of wages be derived from capital virtually—though not, it is true, directly—through its determination of the product ? By no means. It would be easy to adduce many successive reasons why capital bears no certain or constant ratio to production, but two will abundantly serve our turn.

(a) The ratio which capital bears to the product of industry varies, all other things remaining equal, with the scantiness or abundance of natural agents. One hundred laborers having the use of a capital which we will represent by 100 may not, in one set of circumstances, be able to produce anywhere near twice as much as 50 laborers using the same amount of capital ; or, under a different set of circumstances, they may be able to produce far more than twice as much. With unlimited natural agents, as in new countries like America and Australia, the 100 may, through the minuter subdivision of labor and the more effective co-operation which their numbers allow, produce twice as much as 50 with a capital of 122, or as 60 with a capital of 10x. On the other hand, with limited natural agents, after the condition of “diminishing returns” has been reached, the 100 may be able to produce only twice as much as 50 with a capital of 8x, or as 40 with a capital of 10x.

(6) The differences in the ratio between capital and the product of industry which are caused by the economical quality of a people, their intelligence, sobriety, and thrift, their capacity for self-direction and industrial organization, their manual dexterity and mechanical aptitude, are greater even than those due to the bounty of nature. Given machinery, raw materials, and a year's subsistence for 1000 laborers, does it make no difference with the annual product whether those laborers are Englishmen or East-Indians ? Certainly if only one quarter part of what has been adduced under the head of the efficiency of labor be valid, the differences in the product of industry arising out of differences in the industrial quality of distinct communities of laborers are so great as to prohibit us from making use of capital to determine the amount that can be expended in any year or series of years in the purchase of labor.

I have no wish to disparage the importance of the service rendered in production by capital, the saved results of the industry of the past; but I firmly deny that it furnishes the measure of wages.

But while wages must in any philosophical view of the subject be regarded as paid out of the product of current industry, wages are, to a very considerable degree, in all communities, advanced out of capital, and this from the very necessity of the case ; while in those countries which have accumulated large stores of wealth, wages are, in fact, very generally, if not universally, so advanced, equally for

1“ Elle doit être avancée par le capitaliste et le retrouver, par conséquent, dans la valeur du produit obtenu.”-A. E. Cherbuliez, Précis de la Science Économique, i. 415.

the convenience of employers and of the employed. Yet even where the entire amount of the weekly or monthly pay-roll is taken out of a store of wealth previously gathered and husbanded, it is not capital out of which wages are borrowed, but production out of which they are finally paid, to which we must look to find their true measure.'

I have said that in all communities wages are, by the very necessity of the case, advanced to a considerable extent out of capital. It is only in a few industries, mainly of the class termed "extractive," and in these only when pursued under circumstances peculiarly favorable, that the laborer can eat of the product of his labor for the day. The fisherman, indeed, or the hunter may live from hand to mouth, catching and killing as he eats, though always at the imminent risk of privation and even of starvation. But the tiller of the soil must abide in faith of a harvest, through months of ploughing, sowing, and cultivating; and his industry is only possible as food has been storod up from the crop of the previous year. The mechanical laborer is also removed by a longer or a shorter distance from the fruition of his labor. So that almost universally, it may be said, the laborer as he works is fed out of a store gathered by previous toil, and saved by the self-denial of the possessor. The extent of this provision, thus made the primary condition of industry, may be rudely measured by the interval between harvests. And this provision is one which is not made without great sacrifice, even in the most advanced stages of industry. Vast and varied as is the accumulated

"Mr. F. D, Longe, in his Refutation of the Wage-Fund Theory, insists on this distinction of the wealth or capital used " for the maintenance of laborers while employed in producing new goods or wealth," he says, it " may come either from their (the laborers') own resources or those of their employers, or be borrowed from bankers or elsewhere." Of the wealth * to be used for the purchase of their work," he says, it * may consist of funds belonging to the consumer or of funds belonging to the employer, or both, or may even be taken out of the very goods which the laborers produce, or their money value,"

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