Wages and Capital
Chapter VI. Before Adam Smith
We enter now on the second part of the investigation: the history of the wages fund doctrine, and of the mode in which the relation of wages to capital has been treated by writers of the past and present.
The history of some parts of economic thought goes far back into the past. But theoretic inquiry as to the causes which affect distribution under the conditions of modern industry is of very recent date. It does not reach back farther than the second half of the eighteenth century, and virtually begins with Adam Smith. With a single exception, presently to be mentioned, we find in the writers before Adam Smith hardly a trace of the sort of reasoning which has been applied during the last hundred years to wages and the return to capital, and to most of the modern phenomena of distribution.
No branch of knowledge, it is true, is without its link of connection with the past. Adam Smith was not an isolated growth. He began where his predecessors left off, and rested his new work solidly on what they had already accomplished. But in his case, as often happens, the fresh growth was in a different direction from the old, and in some respects was of an entirely novel sort. Of the points of connection between the great Scotchman and his predecessors something more will be said in the next chapter. So far as the subject of this inquiry is concerned, the connection between earlier and later thought happens to be singularly slight. The earlier writers had virtually done no more than to clear some parts of the field, and so make it easier for an acute and original thinker to take a fresh start.
On the direct subject of wages, then, and on capital in its relation to wages, we find practically nothing in the earlier writers. Scattered through the literature of the seventeenth and eighteenth centuries there are casual allusions to wages, usually implying that they are determined by the price of food. Subjects connected with money and international trade mainly occupied the attention of the writers of those times. On the problems of distribution they gave no more than incidental expression to opinions half-consciously formed. Probably as explicit a statement as can be found on the subject of wages is that of Mildmay. “As plenty and scarcity will in general determine the price of provisions, so the price of provisions will, in general, determine the wages of labour, and the price of labour will determine the price of all productions and commodities whatsoever.”* Some such opinion as this seems to have been entertained usually, though not universally, by the writers of Mildmay’s period. Petty had indeed intimated a different view. “When corn is extremely plentiful, the Labour of the poor is proportionally dear: and scarce to be had at all (so licentious are they who labour only to eat, or rather to drink).”† But as great a mind as Locke’s had accepted opinions like those of Mildmay,* and most of the mercantile writers did the same. They stated, or implied, that a low price of food made low wages, — a result desirable in that it brought low prices and ready exports. Such remarks, however, as a rule, were simply incidental to the discussion of money and the balance of trade. It is significant that writers like Child, Gee, and Steuart have not a word on the general causes that affect wages, or on capital as connected with wages. To all intents, the discussion of this phase of economics had not begun.
This blank among the earlier writers on the topic which in our own time has become the crucial one in economic theory, is to be explained in two ways. In part, it was due to their narrow point of view. They were concerned chiefly with the power of the sovereign, and the greatness and resources of the country in its dealings with foreign nations. As wars and international relations chiefly engrossed the attention of statesmen in the period from the Reformation to the French Revolution, so the nature and profit of dealings with foreign countries chiefly interested those who thought on economic subjects. The statesman of the nineteenth century is occupied with constitutional and social questions; the economist, similarly, with the problems of distribution.
Another cause of the silence of the earlier writers lies in the economic conditions of their time. The feudal régime and the industrial organization of the middle ages were gone. The modern conditions, while fast developing, had not yet emerged with distinctness. The phenomena which arose as employers and capitalists were unfettered and as labor became free, had not existed long enough to compel specific examination. Consequently even those writers whose point of view was wider and more humane than that of the typical mercantilists, did not strike the modern note. Vauban and Boisguillebert take the social point of view; they consider the causes of the condition of the masses; but of wages in the modern sense they have nothing to say. Even the Physiocrats, important as is the place which they take in the development of modern economic thought, yield nothing on this topic. Quesnay rarely touches on wages, never on the nature and functions of capital or on the relations between capital and wages. English writers, like Hume, Cantillon, and Tucker, joined the Physiocrats in attacking the mercantile ideas on money and international trade, and in directing attention to abundance of commodities and productiveness of labor as the true sources of prosperity. But the problems of social happiness, as connected with internal prosperity, which lead to a discussion of wages, did not attract their notice.
To this general silence on the subject of our inquiry before the time of Adam Smith, there is one noteworthy exception: Turgot, great in everything that he touched, made his mark here also. In the Réflexious sur la Formation et Distribution des Richesses, published in 1767, we have a theory of capital which may justly be called the first modern discussion of the subject.* It is true that Turgot’s discussion begins from the old point of view. He is led to a consideration of capital from his discussion of money; the whole treatment of capital is an episode in his examination of money, interest, and the “disposable” class. But the treatment is a long step beyond anything reached before his time. The function of capital is to make the advances which become necessary when a great number of arts “exigent que la même matière soit ouvrée par une foule de mains différentes, et subisse très longtemps de préparations aussi difficiles que variées.” The hallmark of the Physiocrats appears in the curious doctrine that in agriculture there was, strictly speaking, no need of an advance; since land always produced a “revenu” or “superftu,” which enabled its cultivators to dispense with advances. According to Turgot, it is only when a large part of society no longer cultivated the soil and “n’eut que ses bras pour vivre,” that advances became necessary. Materials, implements, buildings, and subsistence must be provided, — say for making leather; “et qui fera vivre jusqu’ à la vente des cuirs ce grande nombre d’ouvriers”? The constant advance or consumption of capital, its constant reproduction and return to the hands of the capitalist, the source of capital in “l’epargne,” the distinction between money and capital, the absence of connection between the rate of interest and the quantity of money, the futility of attempts to regulate the rate of interest, — these varied subjects are presented with an insight far beyond that of any writer before the time of Turgot, and not less than that of many writers who have had the benefit of a century of further discussion.*
But while Turgot thus took an important step toward beginning the modern analysis of capital, he is silent on that aspect of the subject which bas most prominence in the later discussions of distribution, — on the relations of capital to wages. It is true that he says more than once that capital provides subsistence for laborers, as well as materials, implements, and buildings. Some expressions which show that this function of capital was clearly in his mina have just been quoted. But that there might be here a mode of approaching the problem as to what determined the wages of laborers, never seems to have occurred to him. Turgot’s theory of wages is very briefly stated in the first pages of the Réflexions; it is the same as was held, so far as any was held, by all writers of this earlier period. “En tout genre de travail il doit arriver et il arrive en effet que le salaire de l’ouvrier se borne à ce que lui est nécessaire pour lui procurer sa subsistence.” There is no hint of any Malthusian ground for the doctrine. It rests on the fact that the employer pays the laborer as little as he can, and has “choix entre grand nombre d’ouvriers.”* Thus it serves chiefly to clear the way for the discussion of net income, of the disposable class, and of the physiocratic conclusions as to taxation and economic reform. In all this the laborers are not thought to need much attention. They get only what serves to subsist them, and have no share in net revenue. In short, they are simply eliminated from the problem.
Directly, therefore,* Turgot left the subject of wages and capital almost untouched, and so left a clear field for Adam Smith. Doubtless it would be possible to find scattered hints and pregnant sentences in other writers: embryos which never developed, and never would attract notice, had not the full-grown thought appeared elsewhere from another beginning. Doubtless, too, the general speculations of the Physiocrats and of their contemporaries on distribution at large had their share in directing thought into new and better ways, and stimulated inquiry into deeper and more substantial causes of prosperity than had been commonly examined by earlier writers. But, when all is said, it remains substantially true, as one of the great Scotchman’s immediate followers said, that “the theory of capital is new, and entirely of Adam Smith’s creation”: and to the examination of his views we may now proceed.
