Wages and Capital

The wages fund doctrine proper has now been done with, and, strictly, the end of our task has been reached. But there are some aspects of distribution at large so closely connected with the pros and cons of the wages fund controversy that they come within the scope even of an inquiry directed, as this is, to a very limited part of the general subject. There are some questions, also, as to the practical bearings of the discussion and its outcome, which call for careful consideration. These somewhat disconnected topics will serve also to make clear the significance and limitations of the conclusions reached, and the kind of aid which a discussion of the wages fund question can yield to economic theory in general.

It will be convenient to begin with the questions as to the practical bearing of the conclusions which have been reached in the preceding chapters. The general reader, and even the economist most intent on the larger generalizations of his subject, will not fail to ask himself, what light do these discussions throw on living subjects? What help do they give in reaching answers as to the right and wrong, the chances of success or failure, of strikes and lockouts? What basis do they give for settling disputes by arbitration or conciliation?

It may be said at once that the answer must be a disappointing one. The conclusions of the economist as to the theoretical relations of wages and capital have little or no bearing on the disputes between laborers and capitalists as they usually appear in the specific case. Though students of economic principles may see, without further discussion, the meaning and justification of this apparently paradoxical answer, a more detailed explanation may not be unwelcome to one or another set of readers.

Something was said, in the last chapter, as to the elasticity of the sources whence wages come, and as to the possibility of an immediate general rise at any given moment. The conclusion, whether as to money wages or real wages, was against any rigid predetermination of the funds whence the total wages of a given period are derived. But, as was then noted, this result is of value rather as illustrating the significance and the limitations of our general reasoning, than as answering any questions likely to arise in specific form. The attempt at a simultaneous advance in wages all along the line never is made. An all-inclusive combination of hired laborers (and to their case, for obvious reasons, the discussion can be confined) is not indeed inconceivable or impossible, but it is in the highest degree improbable. What takes place in fact in the dealings of workmen with their employers is a succession of isolated bargains and struggles. First one set of laborers, then another, strives for an advance; the practical question is as to the limits and obstacles which may be encountered by such separate endeavors.

It did indeed occur, in the older literature of our subject, that this sort of case was considered with reference to the relations of wages and capital in general. It was sometimes said that, while the laborers of a particular trade might very possibly get an advance of wages in consequence of a union and a strike, the advance would take so much more out of the general wages fund, and would thus be secured at the expense of the rest of the laborers. Such reasoning proceeded on the basis of a fixed fund, unalterable at the moment, whence alone laborers could be paid; it followed that if some got more, others must get less. It was not often made clear whether a money wages fund or a real wages fund was had in mind; nor was it explained how long the offsetting loss would continue, or what forces might tend to make it endure or disappear.*

Some degree of theoretic truth there may be in this reasoning. The reader will remember that while the source of wages, whether of money wages or of real wages, is elastic, it is elastic within limits. It is then true that a very great rise in the reward of a considerable set of laborers would take place, at least for a while, to the detriment of other laborers. As to money wages, the funds which the body of employers can turn to the hire of laborers are not indeed rigidly predetermined. They can be stretched to a certain extent, and can meet some new demands without curtailment in other directions; but any very great increase in the funds turned over to one group of laborers, carried far enough, must diminish those which go to the rest. The case with real wages, while presenting some variations, is in essentials the same. The flow of consumable goods whence all real income, whether wages or any other form of return, must come, is similarly elastic within limits. A rise in the money wages of a given group (taking place very possibly without a diminution in the money wages of others) would bring an increase in the total purchases of commodities by consumers. True, the new demand, if not very great, could be met by some hastening and stretching of the existing supplies of goods nearly finished or half finished. On the other hand, if any large group of laborers suddenly had the means of buying much more than before, — so much more that no stretching of the commodities available would suffice to meet their added demands, — less would be left for the others. Only, in this case, the losers would not necessarily be other laborers; they might be any receivers of money income. Who would lose, would thus depend on the kind and amount of commodities which are bought with their new money means by the fortunate laborers, and on the response of prices and supplies to their new demand.

These conclusions are of the hopelessly inexact sort which exasperate the practical man, desirous of answers so precise as to admit of immediate concrete application. No one can say whether an advance of five, or ten, or twenty per cent in the wages of all the employees in textile industries, would cause a diminution either of money wages or of real wages for the rest of the laborers. To draw an exact line, — to say that so many millions of dollars and so many tons of goods, so much and no more, can be got without passing beyond the elastic limits of the general sources, — this is impossible. But it is safe to say that in concrete life it happens very rarely, probably never, that a specific rise in wages, secured by strike or trades-union pressure or simple agreement, can be shown to bring any offsetting loss in the wages of those not directly concerned. The sums involved in any particular case, though they may be absolutely large, are small in comparison with the total which must be considered if the general effects are to be examined. A rise of ten per cent in the wages of coal miners or of iron workers may mean a matter of mil1ions, and yet is only a small fraction of total wages payments and of total purchases of real income by consumers at large. The chances are that such an advance would bring real gain to the laborers involved, without loss to any of their fellows. Doubtless, if all the consequences of the change could be infallibly traced, some justification for the misgivings of the writers of the older school might be found. It might appear that the immediate employers were crippled by the added expenses, and had less to spend in hiring other sorts of workmen; or that the banks, which advanced them the funds for this expense among others, had less to lend to other employers. These are possibilities of the sort which the ultra-conservative would be disposed to make much of. But it is out of the question in any concrete case to follow all the might-have-beens, or trace the have-beens in their rapid interlacing with other forces and events. The chances, to repeat, are against any traceable loss which would offset the visible gain. Certainly an unbiased and judicious adviser, having the interest of all laborers at heart, would hesitate long before counselling any particular set of laborers against an endeavor to get better terms from their employers, on the ground that as an ulterior result of success, some of their fellows might suffer. If no other objection than this presented itself, he could safely assert that economic science had nothing to say against their endeavors, and much in favor of them.

The substantial obstacles which may prevent a rise in wages are to be found in another direction. The man of affairs would say that the success of a move for higher wages depended on the state of trade and prices. The economist would say the same thing in different language, by laying it down that consumers’ demand, or demand for commodities, mainly determined the share of income which could be got by any one group of laborers. Let us follow in brief review the chain of forces which would come into play in such a case.

Proximately, the success or failure of an attempt to get higher wages will depend much on the accidents of the particular situation. The extent to which the employers happen at the moment to be tied by contracts; the temper or pugnacity of one party or the other; the organization, the discipline, the available funds on either side, — such surface causes may decide the outcome in any given case. Forces of this sort are too often forgotten by the economists, intent as they are on the deeper currents of the industrial stream.

Even the forces next in order, likely to be referred to by the thoughtful man of affairs and the well-informed financial writer, are often neglected by the economists. The cautious everyday observer would describe these less accidental causes by saying that the success of the laborers’ effort depended on the state of the market: whether sales and profits were such as to make the employer prefer the additional expense of a higher wages bill to the loss of a satisfactory season’s trade. This, again, must depend largely on the expectations and previsions of the larger body of active capitalists of whom the direct employers are but one part. If the merchants, speculators, bankers, lenders, are all hopeful and eager, then trade will be good and the workmen may get a substantial slice of the profits of good times. Their share would probably be substantial, because not likely to go beyond the limits to which the real wages fund of available commodities could be stretched, and because they are likely to spend at once and so convert their money gains into immediate real enjoyment; whereas their employers, who habitually postpone the fruition of a large part of their income, may be overtaken by a financial revulsion before realizing and pocketing their profits.

Beyond such a stage as this in the play of social forces, the calculations and prophecies of those immediately concerned, whether workmen or employers, do not usually go. Only the most shrewd and thoughtful among them will go a step further, and point out that in the end the success of any particular group of workmen in permanently retaining a substantial advance in wages must depend on whether the consumers of the goods they make can and will pay more for them. The economist will say the same thing, though probably with a more distinct conception of who are consumers and what constitutes consumers’ demand. The man of affairs thinks of almost any buyers as consumers: the woollen manufacturer is a consumer of wool, and the shivering individual who buys a coat is a consumer of woollens. The careful economist thinks of the latter alone, — of the person who has immediate wants to satisfy, who weighs one want against another, and is in truth the only real consumer. His purchases are made at the counter of the retail shopkeeper. Evidently he is separated by a long and complicated series of middlemen from the various workmen whose successive efforts have combined in producing the final enjoyable commodity. Whether his demand is such as to make possible a rise in the wages of some or all of the workmen who have so combined, is to be ascertained not by the ups and downs of a season or two, but by a stretch of experience which to the man of business seems of secular length. The economists who have insisted on consumers’ demand as a determining cause or source of wages have not always set forth with sufficient emphasis the distance between the consumer and the chain of producers who combine to work for him. They have spoken of consumers’ demand as a cause closely affecting wages, — misled perhaps by an unconscious confusion between proximate purchasers and ultimate consumers. But it remains true that, in the end, the wages which any particular group of workmen can get depend on what the consumers are able and willing to pay for the commodities produced, and that a real, steady, and permanent rise in wages can be got by such a group only if the permanent conditions of the market — that is, of ultimate demand — are favorable to them.

Something more will be said of consumers’ demand in another place. This factor in the situation has played a curious and interesting part in the development of economic thought, elsewhere to be considered in detail.* Here it will suffice to point out what follows clearly enough from the reasoning of the preceding chapters, that it bears only on the wages obtainable by a particular set of laborers. The older economists had a fashion of expounding with elaborate emphasis the theorem that demand for commodities was not demand for labor, but only determined the direction of the demand for labor. They were right, even though they put their theorem in terms and with applications that made the result seem paradoxical to the practical man. Consumers’ demand, or demand for commodities, is the important force to be considered when we inquire whether and how a given set of workmen can get better wages, — whether more money wages, or their probable concomitant of more real wages. This is the last force involved in the specific struggles of the industrial world; for in practise we do not meet the attempt at a general advance in all wages. Yet the general advance alone would involve those wider questions as to the source of wages at large, and the relation of all wages to capital, which form the subject of the wages fund controversy. The form in which the concrete social question appears is in the efforts of this or that set of particular workmen, whose success will depend on the factors of closer or remoter operation which have just been described: on the accidents of the moment, on the state of trade, on consumers’ demand.

This analysis would need to be pushed still further if all the problems involved were to get their due share of attention. Back of consumers’ demand there are other forces, or other phases, of the same forces. Consumers’ demand, or the play of supply and demand as to enjoyable commodities, can be translated into terms of final utility, and can lead to that psychological analysis which has played so large a part in recent economic discussion. On the other hand, the extent to which laborers or their children can transfer their exertions from one industrial group to another; the nature and permanence of the obstacles in the way of such transfer; the chances of an eventual equalizing tendency, if the conditions of consumers’ demand have raised or lowered the returns of any one group, — here are other important aspects of the case. According as we do or do not conclude that an equalizing process exists, we get a different result as to the ultimate determining causes of the exchange values of commodities.* Every phase of the most intricate problems of value, as well as of production and distribution, would thus present itself before the final answer could be given to the questions raised by those successive isolated contests between laborers and employers which are carried on in the actual world.

All this, however, would carry us further and further from the subject in hand, and the object of the digression into the field of particular wages and of value has perhaps been sufficiently attained. As the causes that affect the share of income and enjoyment accruing to particular classes of society are different from those that affect the income of society as a whole, so the causes that determine the share which a particular set of laborers shall have are different from those that determine the total that goes to laborers as a whole. It is only with the total that the wages fund or the discussion of wages and capital has to do. In the nature of the case, the practical questions and the concrete social problems which press for immediate attention are more likely to be of the particular sort. They are questions as to the wages of one trade, one group, one district; struggles between the employers and workmen of a given time and place, affected by the accidents of temper, and the turns of trade often no less accidental, as well as by the remoter operation of consumers’ demand and final utility. On such topics the economist is not helpless; he may be able to give judicious advice, or at all events to bring a calm and farseeing mind to the consideration of the particular case. But the wages fund, and the theoretical relations of wages and capital, will not help him at all.

We may pass now to the other group of topics mentioned at the beginning of this chapter; namely, as to the connection between the wages fund controversy and some wider questions as to distribution. The relation of capital to wages has been much discussed, in recent years, in close association with another important subject, — the precise manner in which the machinery of distribution works, and more particularly the sense in which one or another share is to be regarded as residual. Here also the inquiry will lead to subjects far removed from that of the present essay: serving again to illustrate the limitations rather than the applications of its main conclusions.

A brief historical sketch will most conveniently introduce this part of the discussion. In the Ricardian analysis of distribution, profits were the residual element. Rent was fixed, very simply, by the differences between the natural sites in use. Wages, determined in the first instance by the ratio of capital to population, were fixed over any period but the shortest, by the standard of living or by what was “necessary” to maintain the laborers. Profits got the rest, and thus were the residual element in distribution; profits meaning what was got by capitalists actively engaged in the conduct of industry. In the long run profits would doubtless be affected by the rate of accumulation, and by the disposition of capitalists to accept a larger or smaller reward; but this only by a slow-working process. Virtually, profits got what did not go to wages or to rent.

As time went on, as less abstract modes of investigation made their way, as the march of concrete events brought with it an unmistakable rise in general wages, a different mode of describing the working of distribution was gradually adopted. The return to capital was described as depending on the effective desire of accumulation, and was associated more closely with the inactive investor whose revenue comes solely and simply as a recompense for saving or waiting. Profits, in this sense, being fixed by the strength of the disposition to save, wages became more variable, and got the benefit of any general increase in the output of industry. This shift in the point of view was introduced insensibly, and at first without any change in the old doctrine as to the payment of wages from capital; the change being simply in the assumption that the amount of capital turned over to laborers accommodated itself quickly and easily to variations in what the laborers produced.*

Next, when the wages fund doctrine had been effectively attacked and undermined, it was a natural step to describe the laborers, already given are residual position in essentials, as the direct and immediate receivers of so much of the product of industry as did not go elsewhere. The other sharers got parts sliced off in accord with principles supposed to be settled. The receivers of wages were then the residual holders in the distribution of total income, with or without a further carving-out of employers’ profits from the general mass. Thus we have the residual theory of wages, which during the last ten years has been so much in vogue.

But if the description of the machinery of distribution given in the preceding pages is accurate, this new version of the industrial situation is not tenable; not tenable, that is, as a description of the facts of modern industry. More especially, it is not in accordance with the facts of that case which is chiefly had in mind by every one who discusses the economics of modern times, — the régime of employing capitalists and hired workmen.

We have seen that, directly, the hired laborers, and the inactive investors as well, get stipulated money shares. They take no chances; they have been promised so much, and so much they receive, — barring bankruptcy on the part of the managing employer. Under the conditions which prevail so preponderantly in the modern industrial world, the true residual sharer, certainly in the first instance, is the active capitalist, the business man. He has made his bargains for stipulated payments to investors and to laborers. Usually he has interlacing obligations with other business men which affect his operations, past and future, so intricately that he can know where he stands only by elaborate and sometimes deceptive bookkeeping. Indeed, he rarely knows where he really stands: for how much he is finally to secure, depends on the outcome of operations still in progress. But what proves to be left is his own. He wins or loses, according as the industrial venture turns out well or ill. Doubtless what he finally gets, or, in the phrase of the business world, what he makes, is not a simple income such as the economist of the present day would label with a single word. Ricardo would have called it profits, simply. A writer of the present generation would describe it, with a view to final classification and explanation, as consisting partly of interest on his own capital invested, partly of wages for work done; these wages, again, being susceptible of elaborate analysis, according to distinctions sometimes substantial and sometimes fanciful. But, however classified, and however susceptible or unsusceptible of accurate measurement at any given time, the income of the season appears as a net sum, the residual outcome of the operations of the season. The hired laborer gets his fixed wages, the investor his stipulated income: the managing business man takes the rest.

No doubt, as to independent laborers, the description of their situation as residual is accurate; but it fits the case, not because they are laborers, but because they are independent producers. They are owners of part of the gross output of society. They sell what they turn out, and so become holders in the first instance of part of the money income of society. They may have wages to pay, or interest or rent to meet: what is left is then their own. In their case, as in that of their fellow business managers on a larger scale, the gains received may be resolvable, when analyzed with regard to permanent causes, into wages and interest and rent. It may be a question, too, how far the returns for labor, which are received by the petty independent workmen, are in essentials similar to the wages of the hired laborers, and how far they are to be classed with the net returns’ for work which the great employers earn. But their place in the direct process of distribution is the same as that of the business man with whom business earnings or business profits are usually associated.

If, then, setting aside the case of the independent workman carrying on operations in such small ways as to deprive him of the dignity of the capitalist’s place, we attend to that part of the community’s industry which is conducted on a large scale by business managers, we have a result bearing some surface resemblance to Ricardo’s. The net gains of this class, which he called profits, are the direct residual element. The resemblance to Ricardo’s version of the case, however, is obviously more apparent than real. He reached his conclusions by reasoning which assumed wages to be fixed and unvarying: and the residual position of profits held good, if not as the definitive outcome of distribution, at least for very considerable periods. In the reasoning just set forth that residual position is assigned to the business manager simply in the first stage of distribution: in the division of that money income which is the first step toward the concrete assignment to one hand or to another of the real income of the community.

So much is direct and unquestionable fact. If it be maintained that the independent producer, — that is, under typical modern conditions, the managing capitalist, — is not the residual sharer of the social income, regard must be had to some other than the first steps in distribution, — to some later and more obscure steps. But in analyzing such further steps, it is indispensable to keep close to the facts of the living world, and to follow the concrete manner in which income reaches the hands of those who are to enjoy it. The first actual step in the process by which the distribution of income takes place in the modern world is the payment of money sums by the business man to laborers and investors, and the retention in his own hands of the residual share.

Consider now the case as to real income. This reaches the member of an advanced society only by the expenditure of money income. Is there any ground for treating the real income of the community and of its various members in a different manner from their money income?

In the stage that immediately follows the distribution of money income, it would seem that no ground for a different statement of the case can be found. The finished and enjoyable commodities which are coming to market in a continuous stream constitute the real income which brings substantial satisfaction. The total volume of the stream is settled by the efficiency of a succession of productive efforts made in the past. The quality and quantity of the individual constituents have been adapted to satisfy the expected tastes and means of consumers. The money income which reaches various hands goes to the purchase of the inflowing commodities. Produced though these must have been with regard to the probable demand of purchasers, no precise determination of shares to one or another kind of income can appear; least of all can any part be said to be residual. None of the real income is settled in advance to be wages, or interest, or rent, or employers’ profits. There is no residual share at all: there is a miscellaneous assortment of commodities which go to one person or another, according to the money means and the money expenditure of each one. In fact, the conception of a residual share would seem to be applicable only to the case of money income. There is nothing corresponding to it in the machinery by which real enjoyable income is secured.

There is still another sense in which a residual share may be spoken of. It might be maintained that one or another set of persons secure the main benefit of advances in the arts; not by any direct or quick-working process, b as the permanent outcome of the forces which eventually shape distribution. They would thus be in a position to receive what is left after other classes have received their settled shares. It may be contended that the laborers have the residual place in this sense; the incomes going to capitalists and rent-receivers being so determined by permanent forces that the progress of industry inures mainly to the laborers’ benefit. Or it may be asserted, with the socialists, that the condition of the laborers tends to remain unimproved as the arts advance, and that the well to-do classes, — investors, business men, and rent-receivers taken together, — monopolize the material gains of advancing civilization.

We are concerned here chiefly with the relation which these divergent views as to the permanent outcome of the march of progress bear to the wages fund discussion; and the answer is simply that the relation is nil. The residual position of laborers or of others, in this sense, has nothing to do with that direct and immediate relation of wages to capital which gave rise to the wages fund doctrine. Wages may be paid from capital or from product, may come from a rigid or an elastic fund of capital: whatever the answer, it will throw light only on the machinery by which their remuneration is secured, not on the nature and relative strength of the forces which move the machinery. If we would know whether the tendency in an advancing society is for the receivers of wages or interest or rent to become the chief beneficiaries of improvement, we must inquire as to the causes which in the long run determine the one or other sort of income. As to interest, for example, the inquiry must be mainly as to the promptness with which accumulation responds to a higher or lower rate of return. If capital is saved and invested rapidly when a certain rate of return is exceeded, and if its accumulation is promptly checked when that rate is not yielded, we may say that interest is fixed by a constant force at one point, and that the share of income going to the owners of capital is determined by a simple multiplication of the principal by the rate. Again, as to the earnings of managing business men (if these are to be regarded as a distinct class, as doubtless for many purposes they must be), we should need to consider, first, how great a degree of regularity and conformity to law exists in this special form of income; next, how far the qualities which mainly enable it to be earned are the result of education and training, how far of the traditions and the environment of the well-to-do classes, how far of varying degrees of inborn and unchangeable ability. On such lines we might reach a conclusion as to the extent to which this sort of return is likely to be kept at a fixed point. The examples need not be pushed further. What has been said suffices to indicate how the permanent causes which determine the distribution of income must be followed if we would know whether one class or another gets greater or less gain from the general progress of society. The cool and unbiased observer would probably find it equally difficult to accept either the optimistic view which makes the laborer, if only he be intelligent and alert, the chief beneficiary of the advance, or the pessimistic view which represents him as hopelessly excluded, under the régime of private property, from any real improvement in his lot. However this might be, he would find no ground for one conclusion or the other from the analysis of capital and wages, or from the position of hired laborers and other laborers with relation to past product and inchoate wealth. The wages fund discussion, stripped of non-essentials, throws light simply on the process by which, in any advanced organization of the productive arts, the yield of an intricate succession of efforts finally reaches the consumer and becomes real income. What in the end determines real income and its apportionment to one class in society or another, is a very different question, or, rather, a mass of different questions, much less easy to answer, and at all events involving other and wider premises.

Nevertheless, by way of illustrating still further the relation between the permanent forces of distribution and the channels through which they work out their effects, we may follow in rapid review, on the lines of the reasoning presented in the last chapter, the mode in which a change in the permanent forces may bring about, proximately or remotely, a rise in general wages.

Money income, which, as the key to real income, must be followed in any such review, goes directly and in the first instance to the independent producers, and among these, in more or less complete preponderance in different communities, to the capitalist employers. Through their hands it passes to the others, hired workmen and investors, whose incomes have been classed as dependent. The most effective way in which any considerable and permanent change to the advantage of laborers can come about is by causes which increase this proximate source of their income; either through directly larger receipts accruing in the hands of active capitalists, or through the less direct process of larger money sums being turned over to the capitalists by investors. It may be admitted that, even in the absence of conditions swelling these sums, a general rise in wages is not impossible. The money means which employers can advance to laborers are not fixed or predetermined; the residual share which they are to retain is probably not at the absolute minimum, and certainly is not fixed by any rigid law; and well-directed pressure on them may squeeze out something which the laborers would not otherwise get. But it is still true that the money funds which the active employers can turn over to laborers are at any given time subject to a limit which, even though it be elastic, is not distant; and that a considerable and permanent gain in general money wages can come only when larger money means flow into the hands of the employing class.

This holds good, whatever the causes of the larger money means: even though it be only a greater plentifulness of money or of its substitutes. A general advance in prices, due to monetary causes, inures first to those who have products to sell. It reaches those who are in receipt of dependent incomes only by a secondary process, which usually works out its results after a longer or shorter interval. No phenomenon is more familiar in monetary history than the slow advance of money wages, as compared with the prices of goods, when a sudden increase of inconvertible money causes a depreciation of the circulating medium. This is not a necessity of the case; put it is a result which, obviously, is very likely to ensue from the position of the active manager of industry at the primary source of money income. When a general advance in total money income takes place by some more gradual process, it goes again first to the managing producers, and through their hands is again transferred, more or less slowly, to those whose incomes are derivatory.

An increase in the total money revenue of the community may bring also a substantial gain in its real revenue of consumable goods. Thus a more ample production of goods may sell for a larger total, even though prices are declining; the increase in quantity more than offsetting the decline in prices. Such has been the course of events during the last generation in almost all civilized countries. The larger gross money incomes of the active managers of industry, brought about in this way, have been the source of that unmistakable rise in money wages, as well as in other sorts of income, which has taken place concurrently with the fall in prices. Whether the position of the active capitalists at the starting point of the gain has enabled them to reap advantages similar to those which they almost invariably get from a sudden rise in prices, is not easily to be ascertained. The probabilities are that some substantial pickings have not failed, for a time at least, to remain in their hands. The optimist may assert, not without a good show of reason, that such gains are the justified reward of the initiative taken by the business man in those multiform improvements of the arts whose accumulated effect has been the general increase of well-being; while the philosophic observer may accept them as the outcome, inevitable even though not always agreeable, of the régime of private property, taking their place among the mixed results whose balance on the whole serves to justify the existing order of things. However this may be, the fact of the case is that the increase of the money receipts of the active managers of industry has been the proximate source and the main cause of the gain in secondary money incomes. The general and continued advance in money wages could not have taken place if the money inflow to the capitalist employers had not also enlarged.

No doubt, side by side with the general progress of the arts which has increased the total income of the community, other causes may have been at work to divert a larger part of that income to the laborers: causes which might have led to a result similar in kind, though less marked in degree, even if there bad been no general progress. The interest which from time to time has been paid to investors may have been such as to move these latter to save more, and put more money means into the hands of the active business class. The residual income which has been retained by that class, again, may have been so great and so tempting as to induce them directly or indirectly to enlarge their ventures. From either source would come larger money means for industrial operations, and so the proximate causes of a rise in money wages: always supposing the number of hired laborers remains ‘the same, or does not increase as much as the funds directed to their hire. How far the advance in money wages has in fact been due simply to the general advance in production and in the community’s total income; how far an increasing disposition to accumulate and invest among capitalists, active and idle, has had its share; how far trades unions have been efficacious in securing for laborers a quicker and greater advance than unorganized workmen could have got, — these must be matters largely of conjecture. The facts of the situation, so far as they can be made out, would seem to warrant no large generalizations as to the absorption of the whole gain by one class in society or another, and so confirm neither an optimistic nor a pessimistic view as to any residual shares. All hands have gained, and the proximate cause of the gain for all has been in the general and continued increase of the gross revenues which flow first into the hands of capitalist employers.

Continuing such an investigation as to the mode in which the condition of hired laborers may advance and has advanced, we should have to consider real wages: the flow of consumable goods to whose purchase money income is devoted. That flow, so far as the production of one or another sort of commodity is concerned, folio the apportionment of money income; not indeed with mechanical exactness, but, given time, with sufficiently accurate response. The traders buy, and the more distant producers turn out, such finished goods as are demanded by the purchasing consumers. For any one season the quantity and quality of consumable goods that may go to real wages are largely predetermined; but with the lapse of time, with the continual consumption of commodities now on hand, and the continual production of new commodities, we find the flow of real income responding to the apportionment of money income. The volume of real wages will then depend partly on the proportion of the productive efforts of the community which the laborer’s share in money income will direct to the satisfaction of their wants, and partly on the efficiency of the productive efforts so directed. If one half of the revenue of society gets into the hands of laborers, probably one half of the work of society will be directed to making commodities for laborers’ use.* How much of such commodities they will get will then depend further on the extent to which the arts make this part of society’s work effective. If inventions and improvements happen to be applied with great effect to the commodities bought and consumed by laborers, their substantial real wages will be so much greater. The further possible developments of the situation, in case of a rise in money wages which brings also a rise of real wages, will readily suggest themselves. Population may or may not increase in such mode as eventually to neutralize the advance. The real happiness finally yielded to the laborers may or may not grow: the ethical philosopher and the psychologist, as well as the speculative economist, would have something to say at this point. No subject among the humanities involves a wider or more difficult set of questions: none needs to be approached with greater diffidence and caution.

The complication of causes and conditions which need to be considered for a full understanding of all that bears on the welfare of laborers, or indeed of any class in society, is thus almost infinite. To follow these causes and conditions would be to write a book not only on distribution, but on social philosophy at large. The present volume has a much more modest task, and this digression into the larger field has been meant chiefly to show, by comparison, the limitations of the subject now in hand. The fundamental questions as to wages and distribution; as to what makes wages high or low; as to the ultimate effects of the march of progress in bringing special benefit to one or another class in the community, — these can not be settled by any inquiry as to the wages fund or as to the proximate source of wages. Some aid in answering them must indeed be got by following the course of concrete industry. It is indispensable to any inquiry which shall bring solid results that not only the fundamental forces at work shall be discovered, but that the precise mode in which they work out their effects shall be traced step by step. It is here, and here only, that the analysis of the relation of wages to capital, as set forth in the preceding pages, may help us: pointing out the mode in which production and distribution take place in modern societies, and the machinery through which the abiding moral and material forces work out their effects.

This, then, is the conclusion of our inquiry. The old doctrine of the wages fund had a solid basis in its conception, incomplete yet in essentials just, of the payment of present labor from past product. The new theories which disregard this fundamental fact, and seek to explain distribution by considering labor as paid directly from its own present product, begin with a false premise and distort the facts of the actual world. But the analysis of the mode in which labor yields enjoyable products, of the grounds for considering the capital of the “Community as the source of real wages, of the relation of the money funds of employers to the wages of hired laborers, — all this is to take only the first step toward an understanding of the situation. To use a phrase which has already been applied, it describes the machinery of production and distribution, not the forces which move the machinery and cause its parts to shift and change. The wages fund theory — if that name can be given to the form in which it has here been set forth — shows the steps by which wages get into the laborer’s hands, and so points to the nearest and most obvious causes which affect them. It shows what is the process by which goods are produced in the great and complicated organism of modern society, and what are the channels by which the enjoyable commodities reach the hands of its various members. To understand that process, to follow those channels, is indispensable to truth and accuracy of knowledge. But it does not tell the whole story.

• *a*b*c*d*eAn unequivocal example of this sort of reasoning is in Mill’s Political Economy; see the discussion of the passage in fra at pp. 233–235.