It will thus be seen that if the consumption of fish
had remained stationary, the small demand of 100
pounds per day could have been supplied at two cents
a pound cheaper by the old method than by the new ;
while if the consumption had grown to 200 pounds a
day, by investing as much capital in boats, nets, etc.,
as would pay for the labor of two men, the product of
fish would be doubled, and the cost to the consumer
reduced forty per cent. And if the consumption had
risen to 300 pounds a day, the same investment of cap-
ital would have trebled the product, and reduced the
price of the fish sixty per cent. It will thus be seen
that with the small consumption (low wages) the prod-
ucts of hand labor were cheaper than those of natural
forces (tools) ; and in proportion as consumption en-
larged (wages rose) increasing returns for the use of
capital became possible, and consequently the products
of natural forces (boats, nets, etc.) became cheaper
than those of hand labor. Manifestly, therefore, the
social utility and hence the economic possibility of
adopting improved methods of production finally de-
pends upon the increased consumption of wealth by
the community â€” by the masses â€” which, in modern so-
ciety, means increasing zvages.
Therefore, instead of the increased wages and im-
proved social condition of the laboring classes being
in any true sense due to the " sacrifice" and wisdom
DEAR LABOR PROMOTES MACHINERY. 29
of the employing class, by investing their capital in
machinery, the successful use of capital to any consid-
erable extent, and hence the income of the entrepreneur
class, ultimately depends upon increasing the economic
capacity of the masses to consume wealth â€” i.e., the rise
of real wages.
Accordingly, we find that among the American Ind-
ians, Esquimaux, Patagonians, and other barbarian
tribes there is practically no use for the employing and
capitalist class. They cannot get a living among those
people, and why ? Simply because the consumption
of wealth per capita is so small that they can supply
their wants with hand labor or by means of the rudest
tools cheaper than with modern machinery. And in
India and China, where the consumption per capita is
a little larger, the chance for the entrepreneur class to
obtain a living is a little better. It is a little better
still in Russia, Austria, Italy, and Spain, where wages
are higher ; still better in France and Germany, and
best of all in England and the United States, where
the wages and consumption per capita are the largest
in the world.*
* According to Mulhall, in India, with wages at 60 to 70 cents a
week, the capital invested in production is only about $35 per head
of the population. In Russia, with wages at $3.60 per week, it is
$190 per capita. In Austria, Italy, Spain, and Portugal, with wages
at $3.76, it is about $350 per capita. In Germany, with wages at $3.84,
it is $540 per capita. In France, with wages at about $5, the capital
invested is about $1010 per capita, and in England, with wages at
$7.74 per week, it is $1300 per capita. Accordingly, in England
78.16 per cent of the products are made by steam as against 10 per
cent in Russia, 29 per cent in Austria, 34 per cent in Italy, Portugal,
and Scandinavia, and 36 per cent in all Continental countries. And
in England and America 4^ per cent of the product is made by hand
labor as against 23.19 per cent in Spain, 33.67 per cent in Italy, and
42.37 per cent in Portugal.
30 WEALTH AND PROGRESS.
An increase in the general rate of wages tends to in-
fluence the use of improved methods of production in
two ways simultaneously. It not only makes improved
machinery possible through a larger consumption, but
at the same time, through its tendency to increase the
cost of labor, it makes the use of machinery necessary
in order to reduce the price as well as increase the
quantity of wealth produced.
This fact has been partially recognized, but its eco-
nomic importance has never been fully understood.
Economists have fully recognized the economic advan-
tage of improved machinery and extensive markets,
but they have utterly failed to recognize the necessity
of high wages as a means to that end. Adam Smith
clearly saw that the division of labor and the use of
machinery are " limited by the extent of the market ;"
but neither he nor any of the able writers who followed
him appear to have perceived the more important
double fact â€” viz. : (i) that the extent of the market is
mainly determined by the consumption of the labor-
ing class, who it is estimated consume about eighty
per cent of the machine-made products of the world,
and (2) that it is only in proportion as real wages rise
and labor becomes dear that it is worth saving, and the
use of cheaper methods (machinery) becomes an eco-
This partial view is largely due to the mistake of
constantly regarding the laborer as only a factor in
production and ignoring him as an element in con-
sumption, and consequently viewing wages as an ex-
penditure, as a cost that should be reduced, instead of
regarding them as an element of demand and a purchas-
ing force in the market, which should be steadily
increased. This fact once thoroughly understood by
ECONOMIC EFFECT OF RAISING WAGES. 31
the employing class they would soon radically change
their attitude toward the labor movement. They
would then see that their economic interest and pros-
perity is finally identified with rising and not with fall-
ing or even stationary wages.
Although it is not possible for employers, as such, to
arbitrarily raise wages, they would then see that it is
alike to their interest and their duty to use all their
social and political influence in promoting instead of
retarding the free operation of the economic and social
forces, which tend to naturally, and therefore gradually
and permanently, increase the general rate of wages.
It should always be remembered that a general
rise of real wages can never be brought about by any
arbitrary and artificial means ; but, as we shall hereafter
see, it is always due to the unconscious operation of
social influences. Hence the movement, when natural,
is always subtle, complex, and very gradual. Conse-
quently, it never injuriously disturbs the economic re-
lations of any class in the community.
Although the upward movement of wages is always
subtle and composite, taking place in almost in-
sensible gradations, it is none the less positive and
aggressive. The first economic effect arising from
the laborer demanding more wages is to increase the
pressure upon the employer's profits or the capitalist's
interest. The manufacturer, endeavoring to move in
the direction of the least resistance, at once tries to
avoid this pressure bypassing it on to the consumer in
the form of higher prices, and the consumer, acting
upon the same principle, endeavors to resist the
higher prices by refusing to purchase or by buying a
smaller quantity of the products. Thus, what the
manufacturer gains by increased prices he loses by de-
32 WEALTH AND PROGRESS.
creased sales. On the other hand, if the employer at-
tempts to resist the upward tendency of wages he is
met by the stoppage of his works, which involves an
economic loss and a social disturbance, which is always
very disagreeable and often ruinous, and will only be
encountered as a last resort. Ultimately, therefore,
the employer is compelled to choose between the use
of an improved process of production, by which his
commodities can be made cheaper, or the lowering
and perhaps the loss of his profits.
The latter, involving as it does his own impoverish-
ment, is naturally the last thing he will consent to do ;
consequently, in obedience to the same law of self-
interest which impelled the laborer to demand higher
wages and the community to refuse to pay higher
prices, he turns for relief to the use of improved
machinery* as a means of production.
This result having been reached by the constant,
gradual, and almost insensible action and reaction of
social influence, he does it not with any conscious re-
luctance, as a desperate last resort to escape ruin, but
rather as an agreeable act of economic strategy, in the
laudable endeavor to improve his condition by moving
in the direction of the least resistance.
.By doing this he unconsciously avoids all the dan-
gers that would beset him in other directions. As in
the case of the fisherman in our illustration, by invest-
ing as much capital in improved tools and implements
as he previously paid in wages to one-fourth of his
* Or to a more extensive use of the present machinery, such as a
larger factory, etc., by which means he can produce the same amount
with less waste, less cost in superintendence, less cost in motive
power, etc., which has the same influence on the cost of production
as improved machinery.
HIGH WAGES THE BASIS OF LOW PRICES. 33
laborers, he is enabled to produce the same amount at
a much less cost. By this means he is not only able
to comply with the demand of the laborers for higher
wages without any diminution of his profits, but he is
also enabled to greatly reduce instead of increase the
price of the commodities.
This enables him to sell the products at a lower
price and puts them within reach of another large class
who were unable to consume them before, thereby
greatly extending the market, thus enlarging his in-
come without raising the rate of profits, and at the
same time increasing the demand for labor.
This is the way all improved methods of production
have come into existence. It was upon this principle
that, as an instrument of production, the plough be-
came cheaper than the spade, the mowing-machine
cheaper than the scythe, the factory cheaper than the
hand-loom and spinning-wheel, the sewing-machine
cheaper than the needle, the ocean steamer cheaper
than the sailing vessel, and the railroad cheaper than
the stage-coach. And it was upon the same principle
and in the same manner that woven garments of flax,
wool, cotton, and silk became cheaper than skins of
animals ; that parlor matches were made more econom-
ical than the tinder-box, gas undersold tallow candles,
and electricity will ultimately be cheaper than either.
This explains why machinery, which produces wealth
so cheaply in England and America, cannot be em-
ployed in Asia. In short, it is a universal law in the
world of economics that the use of machinery ultimately
depends upon the consumption of wealth by the masses,*
* For a more extended treatment of the economic relation of con-
sumption to the production of wealth, the reader is referred to the
chapter of the " Law of Production" in the next volume.
34 WEALTH AND PROGRESS.
and consequently can only be successfully extended
as the general rate of real wages is permanently ad-
vanced. Hence, to promote this is really the first
step toward the abolition of enforced idleness and the
elimination of poverty.
Therefore, as poverty can only be permanently di-
minished as the production of wealth per capita is in-
creased, and that can only take place as the use of im-
proved methods of production are extended, which in
turn depends upon wages, it is very clear that the first
step toward the elimination of poverty is to promote
the general permanent increase of real wages.
THE LAW OF WAGES STATED AND HISTORICALLY
POPULAR THEORIES OF WAGES CONSIDERED.
Section I.'â€” The Wages-Fund Theory.
The " wages-fund " theory is, briefly stated, the
doctrine of " supply and demand " applied to wages.
This theory, which was suggested by Adam Smith,
and subsequently developed by Ricardo, McCulloch,
and Mill, constitutes one of the cardinal dogmas upon
which the industrial policy of the present century has
According to this doctrine, a certain portion of the
capital of every country is set apart exclusively for the
payment of wages, which is called the " wages fund."
More than that amount, it is held, the laborers cannot
receive, and less than that amount the employers can-
not pay.* That is to say, the aggregate amount paid
in wages in any country, at any given time, is neither
more nor less than that contained in this fund, and
that, therefore, the rate of wages is regulated solely
* Mill, in the Fortnightly Review for May, 1869.
36 WEALTH AND PROGRESS.
by the proportion between the number of the laboring
population and the amount of this " wages fund."
This being granted, it is held that wages can only be
increased by one of two ways : either by increasing
that portion of capital devoted to the payment of
wages (the wages fund) or by reducing the number
of laborers among whom that fund is to be divided.
" The well-being and comfort of the laboring classes
are, therefore, especially dependent on the relation
which their increase bears to the increase of the capital
that is to feed and employ them. If they increase
faster than capital, their wages will be reduced ; and
if they increase slower, they will be augmented. . . .
A nd every scheme for improving the condition of the labor-
er which is not bottomed on this principle, or which has
not an increase of the ratio of capital to population for
its object, must be Completely nugatory and ineffectual."*
" If wages are higher at one time or place than at
another, if the subsistence and comfort of the class of
hired laborers are more ample, it is for no other reason
than because capital bears a greater proportion to popu-
lation. . . . The condition of the class can be bettered
in no other way than by altering that proportion to
their advantage ; and every scheme for their benefit
which docs not proceed on this as its foundation is, for
all permanent purposes, a delusion." f
American writers have mainly followed in the same
strain.^; Professor Perry, who may be taken as more
* McCulloch's " Principles of Political Economy," Part III., sec.
7. P- 174-
f Mill's " Principles of Political Economy," Book II., ch. 11, Â§3.
% F. A. Walker is an exception, and although not the first to reject
the wages-fund theory, was the first to present a counter-theory, which
will be considered in the next section.
IT IS THE DOCTRINE OF LOW WAGES. 37
than an average representative of American econ-
omists, accepts this theory of wages as taught by the
English writers without qualification.* This theory
furnishes the employer with an ever-available defence
against raising wages. If a single workman asks for
an increase of wages, the employer may sympathiz-
ingly assure him that his condition ought to be im-
proved ; but on the authority of political economy he
can philosophically say : " I would gladly raise your
wages if there was anything in the wages fund with
which to do it ; but you know the wages fund is all di-
vided among you laborers, and, therefore, I could only
increase your wages by reducing those of some other
laborer, and that would be a great injustice to him."
And should the laborers generally ask for an increase
of wages, this theory furnishes the employer with an
equally conclusive reply. He can say to them : " If
you want an increase of ten per cent in your wages,
you must first do one of two things : either increase my
wages fund ten per cent, or reduce your own numbers
one tenth." Unless they will accept one of these al-
ternatives, he can, with the full authority of economic
science, declare that no increase in wages is possible.
This doctrine, together with the theory taught by
these writers, " that the rate of profits can never be in-
creased but by a fall in zvages," f goes far to excuse if
not sustain the charge " that the current political econ-
omy, instead of being a social science, is little else but
a specious argument for low wages."
It maybe said that this doctrine has been exploded.
* " Political Economy," isted., pp. 122, 123.
f Ricardo, " Political Economy and Taxation," ch. 7, p. 75. See
also Mill, " Principles of Political Economy," Book II., ch. 15, Â§ 7.
38 WEALTH AND PROGRESS.
This is a great mistake. No doctrine can properly be
regarded as exploded so long as it is the recognized
basis of the industrial policy of the civilized world.
The theory that wages are determined by the supply
and demand of labor is not only acted upon by the
capitalists, but it is accepted by the workingmen and
reasoned upon by standard economists down to this
In fact, the idea that the price of commodities and of
labor rise according as the demand is greater and falls
as it is less than the supply, is all but universally ac-
cepted. Every argument by economists for limiting
the population, every effort by capitalists to corner
commodities or regulate the output of products, is
based entirely upon this idea. And every strike for
higher wages is only the practical application of the
same doctrine by the workingmen. It is simply an
effort to increase the price of labor by limiting the
When the laborers combine to strike and prevent
others from taking their places, they are doing exactly
what the capitalists do when they attempt to corner
commodities, or arbitrarily regulate the output of prod-
ucts, or impose high tariffs upon competing producers.
The employers, economists, and editors, when pouring
out their unlimited censure upon the heads of the
workingmen for inflicting injury upon themselves and
the community by the mistaken notion that strikes can
ever permanently increase wages, should remember
that in doing this the workingmen are only logically
applying the vicious doctrine that for a whole century
has been, by both practice and precept, ground into
them by the employing classes.
It is true that several writers have taken more or
JOHN STUART MILL'S HALF CONVERSION. 39
less pronounced exception to certain phases of this
theory, the most vigorous and successful of which was
made by Mr. Thornton in his work " On Labor,"*
which was sufficiently strong to convert John Stuart
Mill, who was its most zealous and able exponent.
Even Mr. Thornton, however, only rejected one half
of the theory. While he objected to that part of the
doctrine which affirms that " no less than the full
amount of the wages fund can be paid in wages," both
he and Mr. Mill continued to cling to the other half,
which says, " More than that amount cannot possibly
be paid in wages."
But as neither of them offered any substitute for
that portion of the doctrine they had rejected except
the vague idea of competition, for which Thornton
declares " there is no law," the original theory sub-
stantially retains its place in current political economy
as the law of wages.
So pronounced is this that Professor Perry, one of
the leading economists in this country, in a revised
edition of his works (1883) reaffirms the whole doc-
trine, and Professor Cairnes, one of England's most
learned economists, in his recent work f makes an
elaborate attempt to defend the wages-fund theory in
its original entirety.
In his argument Professor Cairnes squarely admits
that there is no economic law or force to prevent any
employer from appropriating all or any portion of the
wages fund in his possession to any other purpose than
that of paying wages if he chooses so to do, and says :Â£
* London, 1869.
t " Some Leading Principles in Political Economy," ch. 1, Part II.
X Ibid., p. 182.
4o WEALTH AND PROGRESS.
" Undoubtedly ' there is no specific portion of any in-
dividual's capital which the owner must necessarily ex-
pend upon wages.' ' There is no law fixing the
amount ' of any man's ' domestic expenditure, and
thereby fixing likewise the balance available for in-
dustrial operations. ' Nor is any man ' bound to spend '
in the payment of labor ' the utmost he can afford to
Then, after expressing his surprise that any one
should ever have so understood the wages-fund theory,
he endeavors to show that the error of the assailants
of this doctrine all arises from a misunderstanding of
the words " determination" and " predetermination."
Speaking of Mr. Thornton in particular, he says :*
" His reasoning from beginning to end proceeds upon
a radically erroneous conception of the nature of an
economic law, of what is meant by ' predetermination '
and ' limitation' in the sphere of economic action.
A ' law ' in political economy does not mean either
legal coercion or physical compulsion, or yet moral
obligation, nor does the ' determination' expressed
in economic law mean the necessary realization of cer-
tain results independently of the human will. What an
economic law asserts is, not that men must do so and
so, whether they like it or not, but that in given
circumstances they will like to do so and so ; that their
self-interest or other feelings will lead them to this re-
sult. The ' predetermination ' in question is of that
sort which leads a hungry man to eat his dinner or an
honest man to pay his debts, and depends for its ful-
filment not upon external compulsion of any sort, but
upon the influence of certain inducements on the will,
* " Some Leading Principles in Political Economy," pp. 84, 85.
PROF. CAIRNES'S DEFENCE EXAMINED. 41
our knowledge of which enables us to say how in given
circumstances a man will act. It is in this sense," he
adds, " that, speaking for myself, I understand the
' predetermination ' of a certain portion of the wealth
of a country to the payment of wages." " It is in
this sense," he says, " that I understand 'predeter-
mination.' ' Exactly ; but what is " this sense "f The
explanation still needs explaining. In fact, this state-
ment is more ingenious than logical, and tends to elude
rather than elucidate the point ; or, to use Mr. Cairnes's
own expression, it is simply beside the mark."
The question at issue is not what are the causes
which " predetermine" the amount paid in wages ; but
is the amount so paid " predetermined " at all by any
cause? Of what economic importance is it that "a
man does so and so whether he likes it or not," or
" that he likes to do so and so "? How can it affect
the question under consideration whether wages are
paid through " external compulsion"or through " the
influence of certain inducements on the will," if they
are paid ? The question is not as to whether or not
men " like to do so and so," but whether they always
do "so and so." What difference does it make to the
laborer or the community whether an employer pays
wages against his will or not ?
In truth, men seldom pay wages because " they like
to do so," but because they must do so or forego some-
thing they like still better. Economic law, Mr.
Cairnes's opinion to the contrary notwithstanding, does
not recognize motives, or likes and dislikes ; it is con-
cerned only with causes and their effects.
But what would Mr. Cairneshave us understand the
term "predetermination" to mean? When he talks
of " the predetermination of a certain portion of the
42 WEALTH AND PROGRESS.
wealth of a country to the payment of wages," does he
not mean that from the operation of some cause, of
whatever nature, it is decided, in advance, that the
whole of this fund must or will surely be paid out as
wages ? If so, in what does his position differ from
that of Mr. Mill and other wages-fund advocates? If
by this statement Mr. Cairnes means that, through
"the influence of certain inducements on the will,"
that amount is sure to be spent in wages, it is logically
the same as that of Mr. Mill when he said " that
amount and no less they (the wage-receivers) cannot
but obtain." And his statement that "there is no
specific portion of any individual's capital which the
owner must necessarily expend upon wages, . . . nor
is any man bound to spend in the payment of labor
the utmost he can afford to spend," is as complete,
though less candid, a surrender of at least that half of
the wages-fund doctrine as that of Mr. Mill. If, how-
ever, on the other hand, by "the 'predetermination*
of a certain portion of the wealth of a. country to the
payment of wages," it is not intended to mean that it
is previously " determined " or decided that that
amount will surely be spent in wages, but only that it
may and possibly or even probably will be so spent,
what construction are we to put upon the following
statement : " The predetermination in question is of the
sort which leads a hungry man to eat his dinner or an
honest man to pay his debts."
If every employer is as sure " to spend in the pay-
ment of labor the utmost he can afford to spend " as a