Chapter XXIII: Section CLXVI: Wages.--Price of Common Labor

In the case of a commodity as universally desired as human labor is, the idea of the purchasers' capacity to pay (solvability) must be nearly commensurate with the national income, or to speak more correctly, with the world's income.[166-1] In regard to the different kinds of labor, and especially to common labor, it is evident that the different kinds of consumption require very different quantities of them. Here, therefore, we depend on the direction which national consumption takes, and this in turn is most intimately related to the distribution of the national income.[166-2] If all workmen were employed in nothing but the production of articles consumed by workmen, the rate of wages would be determined almost exclusively by the ratio between the number of the working population and the amount of the national income. But, if this were the case, landowners and capitalists would be obliged to live just as workmen do, and their highest luxury would have to consist in feeding idlers. (§ 226). The effect must be much the same, when the wealthy are exceedingly frugal and employ their savings as rapidly as possible in the employment of common home labor; while, on the other hand, the exportation of wheat, wood, and other articles, which the working classes consume, in exchange for diamonds, lace, champagne, diminishes the efficient demand for common labor in a country.[166-3]

The assumption frequently made, that the demand for labor depends on the size of the national capital, is far from exact.[166-4] Thus, for instance, every transformation of circulating into fixed capital, especially when the labor used in effecting this transformation is ended, diminishes the demand for other labor. That principle is not unconditionally true, even in the case of circulating capital. Thus, for instance, the rate of wages is wont to be raised by the transfer of capital from such businesses as require little labor into such as require much.[166-5] Only that part of circulating capital can have any weight here which is intended, directly or indirectly, for the purchase of labor and for the purchase of each kind of labor in particular.[166-6] The capital of the employer is, by no means, the real source[166-7] of the wages of even the workmen employed by him, It is only the immediate reservoir through which wages are paid out, until the purchasers of the commodities produced by that labor make good the advance, and thereby encourage the undertaker to purchase additional labor. Correlated to this is the fact, that other circumstances being the same, those workmen usually receive the highest wages who have to do most immediately with the consumer.[166-8]

[Footnote 166-1: _Senior_ denies this. Let us suppose that
agriculture in Ireland employs on every 200 acres ten
working men's families, one-half of whom are used to satisfy
the aggregate wants of the working people, and the other
half in the production of wheat to be exported to England.
If now the English market requires meat and wool instead of
wheat, the Irish landowner will, perhaps, find it
advantageous, of the ten laboring families, to employ one in
stock raising, a second in obtaining food, etc. to support
the laborers, and to discharge all the others. If, then, the
increased net product is employed in the purchase of other
Irish labor, all goes on well enough; but if, instead of
this, the landowners should import articles of English
manufacture, the demand for labor in Ireland would doubtless
decrease, notwithstanding the increase of its income.
(Outlines, I, 154.) _Senior_ here overlooks two things:
first, that in the supposed case, if eight-ninths of Irish
laborers are thrown out of employment, spite of the
increased income of the owners of landed estates, Ireland's
national income is on the whole probably diminished (§ 146),
and secondly, that, possibly, the demand for labor in
England experiences a greater increase than the decrease in
Ireland; since, with the addition to the world-income, there
would be an increase in the world-demand for labor.]

[Footnote 166-2: Compare _Hermann_, Staatswirthsch.
Untersuch., 280 ff. Earlier yet, _Malthus_, Principle of
Population, II, ch. 13.]

[Footnote 166-3: Thus, _Thomas More_, Utopia, 96, 197,
thinks that if every one was industrious and engaged in only
really useful business, no one would need to fatigue himself
very much; while, as it is now, the few real laborers there
are wear themselves out in the service of the vanity of the
rich, are poorly fed and worked exceedingly hard.]

[Footnote 166-4: _McCulloch_, Principles, 104, seq. 2d ed.]

[Footnote 166-5: Thus, in France, during the continental
blockade, distant ocean commerce declined, and manufactures
flourished instead. (_Lotz_, Revision, III, 134.)]

[Footnote 166-6: Thus, _Adam Smith_ divides "the funds
destined for the payment of wages" into two kinds: the
excess of employers' income over their own maintenance, and
the excess of their capital over the demands of their own
use of it. (Wealth of Nat, I, ch. 8.) _Senior_ considers it
a self-evident principle, that the rate of wages depends on
the size of the "fund for the maintenance of laborers
compared with the number of laborers to be maintained."
(Three Lectures on the Rate of Wages, 1830, Outlines, 153,
ff.) But what determines the quota of the aggregate national
wealth and national income that is to constitute this fund?
_Carey_, Rate of Wages, 1835, has a very exhaustive
commentary on _Senior_.]

[Footnote 166-7: _Watts_, Statist. Journal, 1861, 500,
asserts altogether too generally that an "increase of profit
increases the future wages-fund, and consequently the demand
for laborers;" and that therefore every new machine useful
in manufactures must also be of use to the laboring class.
The employer engaged in any enterprise who has grown richer,
_can_ pay more wages, but whether he _will_ do it depends on
other causes, and even his ability to do it, in the long
run, on his customers. When _John Stuart Mill_, Principles,
I, ch. 5, 9, says that only the capital which comes into the
hands of labor before the completion of their work
contributes to their support, it is as if he were to explain
the phenomena of prices by demand and supply, and nothing
else, denying the influence of the cost of production, of
value in use, and of the deeper determining causes upon
them. (_Supra_, § 107, note 1.) Compare _Roesler_, Z. Kritik
der Lehre vom Arbeitslohn, 1861, 104 ff. In England, the
superstition which to a great extent attached to the idea
"wages-fund," was first questioned by _F. Longe_, Refutation
of the Wages-Fund Theory of modern Political Economy, 1866.
See also _Thornton_, On Labour, II, ch. 1. Even _John Stuart
Mill_ dropped his earlier erroneous views on this subject.
(Fortnightly Review, May and June, 1869.) Not, however,
without exaggeration, as is proved by his well-known saying,
that laborers needed capital but no capitalists. Still, even
here, he tenaciously holds that a rise in wages which
increases the price of some classes of commodities, must
decrease the aggregate demand for commodities. But better
paid workmen may now increase their demand for commodities
to the same extent that the purchasers of labor who do not
gain as much as before, or the consumers of the goods whose
price has been enhanced diminish theirs. (_Brentano_, in
Hildebrand's Jahrbb., 1871, 374.) Only, this increase need
not affect the very commodities influenced by the decrease.]

[Footnote 166-8: Thus, the person who builds his own house
is wont to pay his workmen better than a contractor or
builder by profession; and the maker of the entire
manufactured article, as a rule, suffers less frequently
than the maker of only half of it. (_Hermann_, Staatsw.
Unters., II, Aufl., 471.)]