The Wages Question: A Treatise on Wages and the Wages Class
By Francis A. Walker
Francis A. Walker’s
The Wages Question is generally credited as having demolished the prior, antiquated “wages fund” theory of wages [see Book I, Chapters
IX]. In the process, Walker simultaneously laid the groundwork for
John Bates Clark’s definitive descriptions of the marginal products of labor and capital. His interest in the nature of the firm contributed to
Frank H. Knight’s work by clearly describing the factors of production and how to categorize their rewards into wages, rent, and profits.Walker’s work and influence served as models not only because he discussed production, labor, and wages with unusual clarity for his time, but also because his interest in monetary issues (influenced by his father, also an economist) enabled him to describe the
difference between nominal and real values. His clarifications of monetary issues coincided with concurrent national interests in
the gold/silver/bimetallism parity controversies of the late 1800s, and the meaning of money for an economy. Walker later wrote a textbook that was used in classrooms till the publication of
Principles of Economics.Walker became the first President of the
American Economic Association. His professorships at Yale and MIT changed the courses of their economics programs. His leadership abilities were evident in every realm of his life, including his stint as a General during the Civil War. His devotion to economics as a profession paved the way for many generations of U.S. economists.For all his contributions, Walker’s popularity may also have been one of the main sources of the promulgatation of many current misunderstandings. His views of
Thomas Robert Malthus’s writings may have been the source of the popular subsequent mis-association of Carlyle’s 1849 term, the
“dismal science,” with Malthus. (Walker’s interest in labor and wages naturally led him to consider population, but may also have caused him to emphasize pressures inherent in rapid population growth, race, and class distinctions over
Malthus’s original interest in the economic incentives that deter overpopulation.) Walker’s general views and influence may have led to other underlying divisions behind different strains in macro- and micro-economic research that persist to this day.Lauren F. Landsburg
First Pub. Date
London: Macmillan and Co.
The text of this edition is in the public domain. Picture of Young courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Front Matter
- Part I, Chapter 1
- Part I, Chapter 2
- Part I, Chapter 3
- Part I, Chapter 4
- Part I, Chapter 5
- Part I, Chapter 6
- Part I, Chapter 7
- Part I, Chapter 8
- Part I, Chapter 9
- Part II, Chapter 10
- Part II, Chapter 11
- Part II, Chapter 12
- Part II, Chapter 13
- Part II, Chapter 14
- Part II, Chapter 15
- Part II, Chapter 16
- Part II, Chapter 17
- Part II, Chapter 18
- Part II, Chapter 19
- Concluding Remarks
Part I, Chapter VIII
THE WAGES OF THE LABORER ARE PAID OUT OF THE PRODUCT OF HIS INDUSTRY.
A POPULAR theory of wages, of which we shall have hereafter to speak, is based upon the assumption that wages are paid out of capital, the saved results of the industry of the past. Hence, it is argued, capital must furnish the measure of wages. On the contrary, I hold that wages are, in a philosophical view of the subject, paid out of the product of present industry, and hence that production furnishes the true measure of wages. The difference may be found to be an important one; and I will therefore state the grounds of my belief.
An employer pays wages to purchase labor, not to expend a fund of which he may be in possession. He purchases labor not because he desires to keep it employed, but as a means to the production of wealth. He produces wealth not for the sake of producing it, but with a view to a profit to himself, individually, in that production. Doubtless there is a satisfaction in conferring benefits on the dependent, a pride in directing great operations, an enthusiasm of work, which make up a part of the compensation of many employers; but it is evident that these can not be relied upon to any great extent as motives to the systematic
and sustained production of wealth through wage-labor. Individual profit is, and must remain, the great reason for production. If a person have wealth, that of itself constitutes no reason at all to him why he should expend any portion of it on labor, on machinery, or on materials. It is only as he sees that he can increase that wealth through production that the impulse to employ it in those directions is felt. But for the profits by which he hopes thus to increase his store, it would be alike easier and safer for him to keep his wealth at rest than to put it in motion for the benefit of others.
It is true that an employer may for a time produce without profits, or even at a loss; but this will be for the sake of holding together his working force, or his body of customers, in the hope of better times when he can make himself good for present hardship, or because he has formed contracts or engagements which law or business-honor compel him to fill at any sacrifice. These cases do not constitute a substantial exception to the principle that the motive to the purchase of labor is found in the profits of production.
But again it is evident that an employer will be disposed to produce, within the limits of the agencies at his command, all that he can produce at a profit to himself. So long as additional profits are to be made by the employment of additional labor, so long a sufficient reason for production exists; when profit is no longer expected, the reason for production ceases. At this point the more fact that the employer has capital at his command no more constitutes a reason why he should use it in production when he can get no profits, than the fact that the laborer has legs and arms constitutes a reason why he should work when he can get no wages.
We repeat, the employer purchases labor with a view to the product of the labor; and the kind and amount of that product determine what wages he can afford to pay. He must, in the long run, pay less than that product, less by a
sum which is to constitute his own profits. If that product is to be greater, he can afford to pay more; if it is to be smaller, he must, for his own interest, pay less. It is, then, for the sake of future production that the laborers are employed, not at all because the employer has possession of a fund which he must disburse; and it is the value of the product, such as it is likely to prove, which determines the amount of the wages that can be paid, not at all the amount of wealth which the employer has in possession or can command. Thus it is production, not capital, which furnishes the motive for employment and the measure of wages.
But it may be said, we grant that wages are really paid out of the product of current industry, and that capital only affects wages as it first affects production, so that wages stand related to product in the first degree and to capital in the second degree only; still, does not production bear a certain and necessary ratio to capital? and hence may not the measure of wages be derived from capital virtually—though not, it is true, directly—through its determination of the product? By no means. It would be easy to adduce many successive reasons why capital bears no certain or constant ratio to production, but two will abundantly serve our turn.
a) The ratio which capital bears to the product of industry varies, all other things remaining equal, with the scantiness or abundance of natural agents. One hundred laborers having the use of a capital which we will represent by 10
x may not, in one set of circumstances, be able to produce anywhere near twice as much as 50 laborers using the same amount of capital; or, under a different set of circumstances, they may be able to produce far more than twice as much. With unlimited natural agents, as in new countries like America and Australia, the 100 may, through the minuter subdivision of labor and the more effective co-operation which their numbers allow, produce twice as much as 50 with a capital of 12
x, or as 60 with a capital
x. On the other hand, with limited natural agents, after the condition of “diminishing returns” has been reached, the 100 may be able to produce only twice as much as 50 with a capital of 8
x, or as 40 with a capital of 10
b) The differences in the ratio between capital and the product of industry which are caused by the economical quality of a people, their intelligence, sobriety, and thrift, their capacity for self-direction and industrial organization, their manual dexterity and mechanical aptitude, are greater even than those due to the bounty of nature. Given machinery, raw materials, and a year’s subsistence for 1000 laborers, does it make no difference with the annual product whether those laborers are Englishmen or East-Indians? Certainly if only one quarter part of what has been adduced under the head of the efficiency of labor be valid, the differences in the product of industry arising out of differences in the industrial quality of distinct communities of laborers are so great as to prohibit us from making use of capital to determine the amount that can be expended in any year or series of years in the purchase of labor.
I have no wish to disparage the importance of the service rendered in production by capital, the saved results of the industry of the past; but I firmly deny that it furnishes the measure of wages.
But while wages must in any philosophical view of the subject be regarded as
paid out of the product of current industry, wages are, to a very considerable degree, in all communities,
advanced*28 out of capital, and this from the very necessity of the case; while in those countries which have accumulated large stores of wealth, wages are, in fact, very generally, if not universally, so advanced, equally for
the convenience of employers and of the employed. Yet even where the entire amount of the weekly or monthly pay-roll is taken out of a store of wealth previously gathered and husbanded, it is not capital out of which wages are borrowed, but production out of which they are finally paid, to which we must look to find their true measure.
I have said that in all communities wages are, by the very necessity of the case, advanced to a considerable extent out of capital. It is only in a few industries, mainly of the class termed “extractive,” and in these only when pursued under circumstances peculiarly favorable, that the laborer can eat of the product of his labor for the day. The fisherman, indeed, or the hunter may live from hand to mouth, catching and killing as he eats, though always at the imminent risk of privation and even of starvation. But the tiller of the soil must abide in faith of a harvest, through months of ploughing, sowing, and cultivating; and his industry is only possible as food has been stored up from the crop of the previous year. The mechanical laborer is also removed by a longer or a shorter distance from the fruition of his labor. So that almost universally, it may be said, the laborer as he works is fed out of a store gathered by previous toil, and saved by the self-denial of the possessor. The extent of this provision, thus made the primary condition of industry, may be rudely measured by the interval between harvests. And this provision is one which is not made without great sacrifice, even in the most advanced stages of industry. Vast and varied as is the accumulated
wealth of the most highly-civilized communities, the store of food which must be kept on hand to meet the necessities of the year’s subsistence constitutes no insignificant part of the aggregate value; while among nations which comprise, probably, two thirds of the human race, so severe is the struggle with nature, so hard are the conditions of life, so many its enemies, that, after all the painful accumulations of centuries, spring remains as it was in the days of Alkman, “the season of short fare,” when the progress of the growing crop is eagerly watched, not with eyes greedy of gain, but with eyes hollow from hunger.
To the extent of a year’s subsistence, then, it is necessary that some one should stand ready to make advances to the wage-laborer out of the products of past industry. All sums so advanced come out of capital; but it is important to note that it need not be the capital of the employer. The laborer himself may be a capitalist to this extent. Where the reward of industry is as liberal as it is in America and Australia, there is no reason why a laborer should not save enough out of three or five years’ wages to be a year beforehand, and thus, so far as the employer is concerned, that man’s labor be thereafter freed from this condition of provisional maintenance. Moreover, even where the laborers’ dependence on the employer for the year’s subsistence is entire, it should be clearly noted (for it has been strangely overlooked,
*31 with most unfortunate results in the
popular theory of wages) that this by no means involves the payment of his entire wages in advance of the harvesting of the crop or the marketing of the goods. There is nothing in the need the laborer has of provisional maintenance which defeats his claim to a payment, over and above the mere cost of his subsistence, out of the product when completed. It may be that poor Piers, the ploughman, must, as Professor Fawcett says, depend daily until harvest upon the squire for bread out of the crop of the last year; but surely that constitutes no reason why Piers should not at harvest receive some sheaves as his own. And in the case of all laborers of a higher class, whose wages may be perhaps twice or three times the cost of their bare subsistence, it is evident that, in countries where capital is scarce, the advances which are likely to be made to them during the year will leave a very considerable portion of the wages to be taken out of the product at the close of the year.
But how largely, in fact, are wages advanced out of capital? In old countries, to a very great extent certainly. Yet even in these there is but a small proportion of cases where wages are paid oftener than once a week—that is, where the laborer does not trust his employer with six days’ work. And in some exceptional industries it happens that the employer realizes on his product
*32 in a shorter
time than this, so that the laborer is not only paid out of the product of his industry, but actually advances to the employer a portion of the capital on which he operates. Quite as common, probably, even yet in countries which we may call old, as weekly payments are monthly payments; and here the probability that the laborer may receive his wages out of the price of this marketed product increases with the quadrupled time given the employer to dispose of it. Yet even here the cases are doubtless exceptional where the employer does not have to “stand out,” for a longer or a shorter time, of the amount which he pays in wages, though always, be it remembered, in the expectation of a reimbursement out of the product when marketed, the anticipated price of the product determining the amount which he can safely thus advance.
In new countries, by which we mean those to which men have gone with the industrial ideas and ambitions of older communities, but with an amount of capital which, from the necessity of the case, is more or less inadequate to the undertakings for which their skill and labor qualify them, the wages of labor are paid only partially out of capital. The history of our own country so amply illustrates this statement that we need not go elsewhere for examples. From the first settlement of the colonies down to the discovery of gold in California, laborers, whether in agriculture or in manufactures, were, as a rule, hired by the year, and paid at the end of the year. Bare subsistence might be furnished by the employer meanwhile; small amounts of money might be advanced “for accommodation;” the laborer’s tax bill or doctor’s bill might be settled by the employer; but these payments were not to such an extent (except in case of protracted sickness or sudden misfortune) but that the employer was always in debt to his laborer.
I have before me a considerable collection of accounts taken from the books of farmers in different sections as late as 1851. These show the hands charged with advances of the most miscellaneous character. There are charges for grain and salted meats from the product of the previous year, for cash for minor personal expenses, for bootmaker’s bills, grocer’s bills, apothecary’s bills, doctor’s bills, and even town-tax bills, settled by the employer, for the use of teams for hauling wood for the laborer, or breaking up his garden in the spring. Yet in general the amount of such advances does not exceed one third, and it rarely reaches one half, of the stipulated wages of the year. Now it is idle to speak of wages thus paid as coming out of capital. At the time these contracts were made the wealth which was to pay these wages was not in existence. At the time these services were rendered, that wealth was not in existence. It came into existence only as the result of those contracts and the rendering of those services.
Not less distinctly did this system of paying wages prevail in the department of manufacturing industry during the same period. Extensive inquiries have satisfied me that manufacturers in New-England did not generally leave off paying their workmen by the year until after 1854 or 1855. Some of the more successful were able to make the change to quarterly or monthly payments as early as 1851. A gentleman conducting one of the largest, oldest, and most successful manufacturing establishments in Massachusetts informs me that, up to the earliest of the dates mentioned, his firm paid their workmen yearly; and any hand requiring an advance of wages on work done was
charged interest at current rates to the end of the year.
Now in this there was nothing unjust or ungenerous. Such an arrangement was the very condition on which alone the industry could be prosecuted, on which alone employment could be given. Capital was scarce, because the country was comparatively new; and if wages had been
measured by capital, wages must have been low; but at the same time production was large,
*33 because natural agents were copious and efficient, and labor was intelligent and skilful, and as it is production, not capital, which affords the measure of wages, wages were high; but the workmen had to wait for them till the crop was harvested or the goods sold. And this they gladly did, and never for an instant suspected they were being paid out of capital; indeed, they knew better, for they had seen growing under their hands that in which they were finally paid. In the Middle States the change referred to came a few years later than in New-England; yet by the outbreak of the civil war monthly or weekly payment of wages had probably become more general than payment by the year.
Farther to the West and South the change to monthly and weekly payments has, in many sections, not yet begun. In these parts of our country the payment of wages out of capital is scarcely more common than it was in New-England a hundred years ago. The employer advances to the laborer such provisions and cash as are absolutely required from time to time; but the “settlement” does not take place until the close of the season or of the year, and the final payment is often deferred until the crop is not only harvested but sold.
But whether wages are advanced out of capital in whole, or in part, or not at all, it still remains true that it is the product to which the employer looks to ascertain the amount which he can afford to pay: the value of the product furnishes the measure of wages.
When the employer shall pay is a financial question;
what he shall pay is the true industrial question with which we have to do in treating wages. This is determined by the efficiency of labor under the conditions existing at the time and place.
The Wage-Fund Theory.
fed with the wealth which
his master has saved; or,
in other words, the master pays his laborer’s
wages from the wealth which he has previously saved.”—Prof. Fawcett, Political Economy, p. 19.
Here we find asserted or assumed, (1) the necessity of the laborer for maintenance while the crop is growing; (2) his entire dependence on the employer for that maintenance; (3) the natural equivalency of subsistence and wages.
Part I, Chapter IX