have failed to do. In short, the true theory of wages
must fully set forth the general principles upon which,
under all normal, social, and economic conditions, the
movement of wages takes place, and explain the law
or order of that movement, and the social influences
which tend to impel or retard it.

Before attempting to discuss the law by which wages
are governed, it may be well to explain what con-
stitutes wages, or, at least, what we wish the term to
be understood to mean when used in this work. This
is the more necessary, because there is no general
agreement, even among economists, as to the exact
meaning which, in economic science, is to be attached
to the term wages. It is held by some that everything
is wages which a person receives in return for his labor.
Because all wages are the return for labor, it is held



72 WEALTH AND PROGRESS.

that all return for labor is wages.* According to this
signification of the term, if a man plants corn or
catches fish, the corn raised or the fish caught, being
the return for his labor, are his " wages," just as much
as would be the amount he received when working for
an employer for a stipulated sum.

Now, this definition is not only inconvenient for the
purposes of economic reasoning, but it is incorrect ; be-
cause it regards two things as identical which are es-
sentially different, both in fact and in the influences by
which they are determined. It is true that the corn
or fish and the amount paid by the employer are each
the return for service, but the amount the laborer will
receive under the two sets of circumstances is governed
by different principles, and may be very different in
amount. The fisherman or farmer who works for him-
self receives the whole produce, be it little or much.
Hence his income is decided wholly by the product of
his own labor. But as the man who works for an em-
ployer does not own the products of his labor, he
receives as his reward a stipulated amount, which is
agreed upon in advance, and which may be either more
or less, but it is seldom the same, as the product.
Thus, while the income of the former is determined by
what his labor produces, that of the latter depends
upon what another will consent to give for it. In
other words, the man who works for himself sells the
products of his labor, while he who works for another
sells nothing but his labor, or service. Hence, the in-
come of the former is the whole value of what his labor
produces, while that of the latter is only the value or
price of his labor as such, which is commonly and very

* This is one of the first mistakes Mr. George makes in connection
with wages, See " Progress and Poverty," p. 39, popular edition.
Mr. Walker, however, does not make this mistake.



COMMON-SENSE USE OF THE TERM WAGES. 73

properly called wages. To confound these two kinds
of income, which are thus essentially different in char-
acter, and determined by different influences — one be-
ing a contingent and the other a stipulated amount —
must necessarily lead to confusion and error. There-
fore, in order to avoid all misunderstanding on this
point, I define wages as the value or price of labor, or
service as such. Value* (price), in modern society, or
wherever exchanges are made through the medium of
money, is essentially the same, whether applied to
commodities or labor. In economics value never ex-
presses anything but the ratio in which different quan-
tities will exchange for one another. Wages, the price
or value of labor, therefore, is not what the laborer pro-
duces, nor the value of that product, but what is actu-
ally and consciously given in exchange for the service,
per se. Robinson Crusoe might reap the full reward
or product of his labor, but he could not have wages.
For the same reason that there can be no value with-
out exchange, there can be no wages — in the sense the
term is here used — unless labor, as such, is bought and
sold.

Popular phrase, which is always the most direct
avenue to the mind of the masses, has for once as-
cribed the correct meaning to an important economic
term, enabling us to use the word wages in the same
sense that it is used in common language. This is al-
ways important, but it is especially so in relation to
the subject under consideration, that, more than all
others, is the one in which " unlettered laborers " are
most deeply interested ; hence they should be enabled



* The discussion of the whole question of value and price, both of
which relate to the ratio of exchange, will be found in the next volume.

5



74 WEALTH AND PROGRESS.

to clearly understand it. We shall, therefore, through-
out this work always use the term wages in the popu-
lar sense — i.e., as expressing the price of labor, leav-
ing it to those who desire to give the word a different
signification to show that something will be gained in
clearness by so doing.

It will be observed that this definition of wages in-
cludes the incomes, not only of the laborers who work
by the day, by the week, or by the month, but those
of all, without regard to sex or social status, who sell
their services as such. That is to say, wages cover all
stipulated, as distinguished from contingent, incomes
which are received in exchange for personal services.



Section II. — Real and Nominal Wages.

Before passing to the consideration of the economic
law by which wages are governed, it is important
to distinguish clearly between real wages and nominal
wages. The failure to recognize clearly the distinc-
tion between these two kinds of wages is the cause of
not a little of the chaos and confusion in which the
question of wages has hitherto been all but intermi-
nably involved.

By ''Real Wages" is meant the actual amount of
wealth (social well-being) obtainable for a day's labor.
By " Nominal Wages" is meant the amount of money
obtainable for a day's labor. The social well-being of
the wage-receiving portion of the community — which
is increasing as the complexity of society advances — is
always infallibly indicated by the general rate of real
wages. But this is not necessarily the case with nom-
inal wages. Whether or not a rise in the rate of



REAL AND NOMINAL WAGES. 75

nominal wages indicate an improvement in the social
condition of the wage-receivers depends entirely upon
whether or not it is accompanied by an equal rise of
real wages. This may or may not be the case. If,
e.g. , nominal wages should rise from one dollar to one
dollar and a half per day, and the price level of com-
modities upon which those wages were expended rose
in the same proportion, there would be no increase in
real wages, because the one dollar and a half would
exchange for no more of the various commodities
than the one dollar previously did. Consequently, no
more wealth could be obtained for a day's labor than
before, and hence no improvement in the social well-
being of the wage-receiver would ensue. And if, as
is frequently the case, the rise in the price level should
be relatively greater than that in the nominal wages,
the amount of wealth procurable for a day's labor
would be even less than before. Thus real wages
would actually have fallen, while nominal wages rose
fifty per cent. And, on the other hand, a fall of ten
per cent in the price level would, other things being
the same, constitute a rise of ten per cent in real wages
without any change in nominal wages.

It will thus be seen that nominal and real wages are
not only not identical, but that they may either of
them rise or fall without a similar movement in the
other, and that it is only by the change of the latter
that the economic and social condition of the masses
is really affected. Therefore, the relation of real and
nominal wages to each other and to the social condi-
tion of the masses may be briefly stated as follows :

(1) That the economic and social well-being of the
masses is always indicated by the general rate of real
wages, but not necessarily by that of nominal wages.



76 WEALTH AND PROGRESS.

(2) That the movement of nominal wages may or
may not be identical with that of real wages ; and that
it indicates a change in the social condition of the
masses, only to the extent that it reflects the movement
of real wages ; and

(3) That, therefore, nothing can improve the social
condition of the masses, whether it raises nominal
wages or not, which does not increase the general rate
of real wages, the degree of which may be universally
taken as the accurate measure of social progress. It is
therefore with the economic law governing real wages
that the economist, the statesman, the social reformer,
and, above all, the laboring classes are most deeply
concerned.

With this understanding of what constitutes wages,
per se, and the distinction between nominal and real
wages, we pass to the consideration of that still more
important, nay, most important, question connected
with social economics, viz., the law of wages.



Section III. — The Economic Laiv of Wages.

In order to observe distinctly the movement of wages,
and understand the law by which it is governed, we
must examine it in its earliest and simplest stages — be-
fore it has become involved in the subtleties of com-
plex social phenomena. Social industry in its progress
to its present state has assumed three distinctive
forms, which may be designated as savagery, slavery,
and wages. Each of these industrial systems, so-
called, had economic characteristics peculiar to it-
self, one of which was the relation the laborer sus-
tained to the product of his labor, and the condi-



THE SLAVERY AND WAGES SYSTEMS. 77

tions which determined the portion of it he should
receive.

Social progress being a growth or an evolution, its
movement is necessarily gradual, and hitherto has
been very slow. Accordingly, industrial systems come
and go by insensible gradations ; and, while essentially
different in their main characteristics, some of the
features of each are naturally found to be common to
all. Consequently, we find much in slavery that is
common to savagery, of which it was the natural out-
come. This is equally true of the wages system. Be-
ing the outgrowth of the slavery system, it naturally
possesses many of the same characteristics.

Under both systems labor is an indispensable factor
in the production of wealth. Under both systems the
products belong to the master or employer, and not to
the laborer. Under both systems labor is bought and
sold, and as the service of labor is inseparable from the
laborer, under both the presence of the laborer is es-
sential to the delivery of the labor ; and as under
slavery the master could not obtain the service of the
slave without furnishing him with sufficient means to
keep him in working condition, so under the wages
system it is impossible for the employer to obtain the
service of the laborer for less than will afford him a liv-
ing.* Thus far the two systems are essentially the
same ; but at this point a change takes place. New
elements enter into the wages system which were un-
known to that of slavery. While under both systems
the employer, in order to obtain the service of the la-



* This much is conceded by all leading economists, both English
and Continental, and is what they have termed " natural " or " neces-
sary" wages.



78 WEALTH AND PROGRESS.

borer, is compelled to give him as much of the product
as will afford him a living, under slavery what should
constitute the standard of that living could be deter-
mined by the arbitrary will of the master. Under
the wages system his standard of living is determined
by the extent of his habitual wants and desires (i.e.,
the complexity of his social character), which may be
and are constantly increased according to the extent
and complexity of his social environment.

Although under both systems labor is bought and
sold, under slavery, in order to obtain the service, or
labor, the master bought the laborer as a commodity.
Under the wages system he buys only the labor as ser-
vice. The result of this new feature is that the person
of the laborer not only ceases to be the object of the
sale, but, instead of being the sold, as under slavery,
he becomes the seller. In other words, the employer,
under wages, instead of buying and selling laborers,
as under slavery, buys service and sells products, and
the laborer sells service and buys products. Thus,
service, instead of persons, began to be exchanged, and
the value or price was transferred from the laborer to
his labor* Thenceforth the laborer ceased to be a
commodity, and became a distinct social as well as an
economic factor, which constitutes the essential differ-
ence, as we shall hereafter see, between the two in-
dustrial systems.

It will thus be observed that during the social differ-
entiation in which slavery was superseded by wages,

* It will be observed that it is at this point that the interest of the
purchaser of labor, as such, ceases to reside in the personality of the
laborer. Whether he lives or dies is no longer a matter of any im-
portance to the buyer or employer of labor, because he now only pays
for the service the laborer actually renders or delivers.



THE LAW OF ECONOMIC PRICES. 79

service, as such, for the first time became an economic
entity, possessing value, and, consequently, subject to
the social laws of exchange. We have seen* that under
savagery the amount of wealth the laborer obtained —
which was the smallest he ever got — was determined by
what he produced, because he owned both the labor
and the product, such as it was ; that, under slavery,
the amount was determined by the master, for the
same reason, viz., that he owned both the laborer and
the product. How that is determined under the pres-
ent system, where the ownership of labor or service
and that of the product are separated, the laborer hav-
ing possession of the former and the employer that of
the latter, and each being able to obtain what he gets
from the other only by means of exchange, is now the
question.

Manifestly, labor being now subject to all the con-
ditions of exchange, its price (wages) must necessarily
be determined by the same general law governing that
of all other things in the domain of exchange. There-
fore, in seeking the economic law of wages, we are
really seeking the law of prices.

The full discussion of prices (value), exchange,
etc., in relation to commodities, will be found in an-
other part of this work, which, for reasons already ex-
plained, will be published separately, f For our pres-
ent purpose, therefore, we shall only briefly state the
law there elaborately established, and then apply it to
wages. It affirms :

(1) That value in economics refers exclusively to
the domain of exchange and includes both com-
modities and services, and always expresses the ratio

* Chapter I., Part I. f See preface.



8o WEALTH AND PROGRESS.

in which quantities, whether of commodities or ser-
vices, or both, will exchange for one another.

(2) That the ratio in which quantities of different
commodities will exchange for one another is not deter-
mined by supply and demand, as popularly taught, but
that it is primarily governed by the cost of production.

This doctrine does not mean that the price at which
each article is actually sold is determined by the cost
of producing that particular article. In that case there
would be no profits, as everything would be sold for
exactly what it cost to make it ; or, if a specific rate
of profit is included in the cost, the actual price of
every individual article would vary precisely according
to the difference in the cost of making it ; in which case
everybody would obtain exactly the same rate of
profit. Hence there would be no losses, and, conse-
quently, no failures or bankruptcies ; but we know that
there are profits, and that they are not uniform ;
that in some cases they are very large and in others
very small, and that there are many losses, failures, and
bankruptcies.* What we mean by saying that prices
are determined by the cost of production, is that the
general price of any given class of articles is determined
by the cost of producing or replacing that portion of
the necessary supply of that commodity which is pro-
duced under the greatest disadvantage. In other
words, the normal price of any commodity in a given
market is determined by the cost of producing the
most expensive portion of it. Nor is the reason for
this difficult to understand. No one can continuously
sell an article for less than it costs to produce it ; con-
sequently, that portion of the general supply of a com-

* It is estimated that over ninety per cent who go into business fail.



THE LAW OF PRICES ILLUSTRATED. 81

modity which costs the most to produce it must be
sold at a price high enough to at least cover the cost
of its production. The price at which the most ex-
pensive portion of the general supply must be sold is,
of course, that at which the balance can be sold.
And, as no one will voluntarily sell for less than the
highest price he can with certainty obtain, it follows
that the balance will be sold at that price. Conse-
quently, that portion of the necessary supply of a com-
modity which, from closer proximity to the market,
improved machinery, easier access to the raw material,
or whatsoever, is produced at less than the maximum
cost, yields a proportionately larger profit.

Suppose, for example, that A, B, C, and D supplied
a given market with shoes of a certain quality ; and
suppose, also, that A, with the capital, tools, etc., at
his command, can barely make these shoes and get his
own back at one dollar a pair, and that B, C, and D,
through larger capital, superior machinery, favorable
location, or any other cause, can furnish the same grade
of shoes at ninety-five, ninety, and eighty-five cents a
pair respectively. Now, it is very clear that A must
sell his shoes at one dollar a pair or leave the business.
If A can sell his shoes at one dollar a pair, there is no
economic force to prevent B, C, and D from selling
theirs at the same price. True, they could afford to
sell theirs at less than A, but as they have nothing to
gain, and five, ten, and fifteen cents a pair respectively
to lose by so doing, they cannot be expected to do so.
In fact, they will not do so as long as they can sell
their whole product at one dollar a pair.

Suppose, however, D, seeing that by increasing his
sales one fourth he could enlarge his factory or put in
improved machinery, and in this way be able to



82 WEALTH AND PROGRESS.

produce the shoes two and a half cents a pair cheaper,
actually increase his aggregate profits, and sell the
shoes five cents a pair lower, and, in order to .under-
sell his competitors and accomplish this object, he
should reduce the price of his shoes to ninety-five cents
a pair ? Now, other things being equal, people will
not give one dollar a pair for shoes when they can get
them for ninety-five cents ; therefore, in order to sell
their shoes, C, B, and A must compete with D and re-
duce the price. As C and B had ten and five cents a
pair profit respectively, they can afford to do so by
lowering their profits ; but A, who was getting no
profits — his shoes costing him one dollar a pair to make
them — could make no reduction in the price ; hence, he
is undersold and driven from the market. Now that
A is gone, B's product becomes the most expensive
portion of the necessary supply. The minimum at
which B can make shoes being ninety-five cents a pair,
so long as his shoes are needed ninety-five cents a
pair must be paid for them ; and for the same reason
that B, C, and D could sell for a dollar a pair so long
as A's product constituted a part of the necessary sup-
ply, C and D can sell at ninety-five cents, and that will
therefore be the normal price of the shoes so long as
B's product, which is now the most expensive portion
of the supply, continues to be required. This is what
is constantly taking place in every open market in the
world.

This law, which is fully explained elsewhere,* affords
an adequate explanation of the constant tendency of
prices of a given commodity toward a common level — ■
the great difference in profits in the same industry —

"* See chapter on " Price and Profits," Vol. II.



THE LA W OF PRICES APPLIED TO LABOR. S3

the losses, failures, and bankruptcies — the constant
tendency toward the concentration of capital into large
enterprises, and the consequent crowding out of small
ones, with other familiar phenomena in the world of
prices and profits, that are inexplicable upon any other
theory.

It will thus be seen that the normal price of any
commodity is determined by the cost of production,
which includes reproduction, but not the cost of mak-
ing or replacing each particular article, nor the average
cost of making that kind of article, but by the cost of
making or replacing that portion of the necessary sup-
ply which is produced at the greatest cost.

Having found the law of prices (of commodities),
let us apply that law to labor, and see if it will afford
an adequate explanation of the multifarious and hith-
erto inexplicable phenomena in the sphere of wages.
It will be remembered that in economics, when using
the term " law" we do not use it as applying to exact
quantities, but only to general tendencies. Hence,
when speaking of the " law of prices" or the " law of
wages," we only mean the law which determines the
tendency of prices or wages to move in a given direc-
tion. According to the principle we have been con-
sidering, the law of prices is, " that under normal con-
ditions" the price of commodities always tends toward
the cost of production. Applied to labor, then, this
law is, that the price of labor (wages) constantly
tends toward the cost of producing labor or service.
By the cost of a thing, it will be remembered, is al-
ways meant what its owner gave for it, or would have
to give to replace it. Now, what constitutes the cost
of labor to its owner, the laborer ? Obviously the cost
of his living. Upon the same principle that producers



84 WEALTH AND PROGRESS.

cannot or will not consent to continuously sell a com-
modity for less than it cost to produce it, or than it
would cost to replace it, the laborer cannot or will not
long consent to sell his services for less than it cost
him — i.e., for less than will afford him a living. The
cost of labor to the laborer, therefore, is the cost of his
living ; and, other things being the same, the cost of
his living will be determined by the number of his
habitual wants.

It is not only true that the laborer cannot or will
not continuously sell his labor for less than it costs him,
i.e., for less than will supply his socially established
wants, but it is equally true that he cannot for any
considerable time together sell it for more than that
amount.

All economic movement may be expressed, as Bastiat
truly observes, in " Wants, Efforts, and Satisfactions."
This statement not only composes the course of eco-
nomic movement, but it also expresses the order in
which it takes place, (i) Wants, (2) Efforts, (3) Sat-
isfactions. Want supplies the motive, effort the action,
and satisfaction is the result. Thus, the only end and
aim of effort is satisfaction of some want or desire ; no
effort is ever put forth for any other purpose.

Want is thus not only the sole motive, but it is also
the only measure of effort. For the same reason that
no effort will be put forth except to satisfy some want,
no more effort will be put forth than is necessary to sat-
isfy that want. It is in obedience to this principle that
we refuse to give something for nothing, or object to
pay for that which we can have free. It is through
the operation of the same principle that man every-
where endeavors to obtain the maximum result for the
minimum effort, as is exemplified in every division



ARBITRARY RISE OF WAGES IMPOSSIBIE. 85

of labor and improvement in the methods of produc-
tion. Wants being thus the motive and measure of
effort, and wages the price given for the effort, mani-
festly the laborer's wages can never be permanently
much above his wants, as expressed in the standard
of his living. Not only is there no motive for him to
push the price of his service above the level of what
would satisfy his wants,* but if it was arbitrarily raised
above that point without his aid it could not long re-
main so. If, for instance, the general rate of wages in