Besides originating the theory of population which bears his name, Malthus was the founder of that doctrine of wages which, under the name of the wage-fund theory, was accepted for fifty years in England. To ascertain what the theory is we may take Mill's statement of it, as given in his review of Thornton On Labour in 1869. 'There is supposed to be,' he says, 'at any given instant, a sum of wealth which is unconditionally devoted to the payment of wages of labour. This sum is not regarded as unalterable, for it is augmented by saving, and increases with the progress of wealth; but it is reasoned upon as at any given moment a predetermined amount. More than that amount it is assumed that the wages-receiving class cannot possibly divide among them; that amount, and no less, they cannot possibly fail to obtain. So that the sum to be divided being fixed, the wages of each depend solely on the divisor, the number of participants.' This theory was implicitly believed from Malthus's time to about 1870; we see it accepted, for instance, in Miss Martineau's Tales. And from the theory several conclusions were deduced which, owing to their practical importance, it is well to put in the forefront of our inquiry as to its truth. It is these conclusions which have made the theory itself and the science to which it belongs an offence to the whole working class. It was said in the first place that according to the wage-fund theory, Trades-Unions could not at any given time effect a general rise in wages. It was, indeed, sometimes admitted that in a particular trade the workmen could obtain a rise by combination, but this could only be, it was alleged, at the expense of workmen in other trades. If, for instance, the men in the building trade got higher wages through their Union, those in the iron foundries or in some other industry must suffer to an equivalent extent. In the next place it was argued that combinations of workmen could not in the long-run increase the fund out of which wages were paid. Capital might be increased by saving, and, if this saving Was more rapid than the increase in the number of labourers, wages would rise, but it was denied that Unions could have any effect in forcing such an increase of saving. And hence it followed that the only real remedy for low wages was a limitation of the number of the labourers. The rate of wages, it was said, depended entirely on the efficacy of checks to population.
The error lay in the premisses. The old economists, it may be observed, very seldom examined their premisses. For this theory assumes - (1) that either the capital of a particular individual available for the payment of wages is fixed, or, at any rate, the total capital of the community so available is fixed; and (2) that wages are always paid out of capital. Now it is plainly not true that a particular employer makes up his mind to spend a fixed quantity of money on labour; the amount spent varies with a number of circumstances affecting the prospect of profit on the part of the capitalist, such, for instance, as the price of labour. Take the instance of a strike of agricultural labourers in Ireland, given by Mr Trench to Nassau Senior. He was employing one hundred men at 10d. a day, thus spending on wages *25 a week. The men struck for higher pay - a minimum of 1s. 2d., and the more capable men to have more. Trench offered to give the wages asked for, but greatly reduced his total expenditure, as it would not pay to employ so many men at the higher rate. Thus only seventeen were employed; the other eighty-three objected, and it ended in all going back to work at the old rate. The fact is, that no individual has a fixed wage-fund, which it is not in his power either to diminish or increase. Just as he may reduce the total amount which he spends on labour, rather than pay a rate of wages which seems incompatible with an adequate profit, so he may increase that total amount, in order to augment the wages of his labourers, by diminishing the sum he spends upon himself or by employing capital which is lying idle, if he thinks that even with the higher rate of wages he can secure a sufficiently remunerative return upon his investment. Thus the workman may, according to circumstances, get higher or lower wages than the current rate, without any alteration in the quantity of employment given. When wages in Dorset and Wilts were 7s., the labourers, if they had had sufficient intelligence and power of combination, might have forced the farmers to pay them 8s. or 9s., for the latter were making very high profits. As a matter of fact, where the workmen have been strong, and the profits made by the employers large, the former have often forced the employers to give higher wages.
Neither is it true that there is in the hands of the community as a whole, at any given time, a fixed quantity of capital for supplying the wants of the labourers, so much food, boots, hats, clothes, etc., which neither employers nor workmen can increase. It used to be said that a rise in money wages would simply mean that the price of all the commodities purchased by the labourers would rise proportionately, owing to the increase of demand, and that their real wages, i.e. the number of things they could purchase with their money, would be no greater than before. But, as a matter of fact, the supply can be increased as fast as the demand. It is true that between two harvests the available quantity of corn is fixed, but that of most other commodities can be increased at a short notice. For commodities are not stored up for consumption in great masses, but are being continually produced as the demand for them arises.
So far I have been speaking of the theory as applied to wages at a particular time. Now, what did it further imply of wages in the long-run? According to Ricardo's law, which has been adopted by Lassalle and the Socialists, wages depend on the ratio between population and capital. Capital may be gradually increased by saving, and population may be gradually diminished; but Ricardo thought that the condition of the labourer was surely on the decline, because population was advancing faster than capital. While admitting occasionally that there had been changes in the standard of comfort, he yet disregarded these in his general theory, and assumed that the standard was fixed; that an increase of wages would lead to an increase of population, and that wages would thus fall again to their old rate, or even lower. The amount of corn consumed by the labourer would not diminish, but that of all other commodities would decline. Later economists have qualified this statement of the supposed law. Mill showed that the standard of comfort was not fixed, but might vary indefinitely. This being the case, the labourer might sink even lower than Ricardo supposed possible, for population might increase till the labourer had not only less of everything else, but was forced down to a lower staple of life than corn, for instance, potatoes. And this has, as a matter of fact, taken place in some countries. But, on the other hand, the standard might rise, as it has risen in England; and Mill thought that it would rise yet more. At first this was his only hope for the working classes. At a later period he trusted that the labourer, by means of co-operation, might become more and more self-employing, and so obtain both profits and wages.
It is interesting to inquire how this wage-fund theory grew up. Why was it held that employers could not give higher real wages? Its origin is easy to understand. When Malthus wrote his essay on population, there had been a series of bad harvests, and in those days but small supplies of corn could be obtained from abr Thus year after year there seemed to be a fixed quantity of food in the country and increasing numbers requiring food. Population was growing faster than subsistence, and increased money wages could not increase the quantity of food that was to be had. Thus in 1800, when corn was l27s. the quarter, it was clear that the rich could not help the poor by giving them higher wages, for this would simply have raised the price of the fixed quantity of corn. Malthus assumed that the amount of food was practically fixed; therefore, unless population diminished, as years went on, wages would fall, because worse soils would be cultivated and there would be increased difficulty in obtaining food. But the period he had before his eyes was quite exceptional; after the peace, good harvests came and plenty of corn; food grew cheaper, though population advanced at the same rate. So that the theory in this shape was true only of the twenty years from 1795 to 1815. But, when it had once been said that wages depended on the proportion between population and food, it was easy to substitute capital for food and say that they depended on the proportion between population and capital, food and capital being wrongly identified. Then when the identification was forgotten, it was supposed that there is at any given moment a fixed quantity of wage-capital-food, boots, hats, furniture, clothes, etc. - destined for the payment of wages, which neither employers nor workmen can diminish or increase, and thus the rate of wages came to be regarded as regulated by a natural law, independent of the will of either party.
We have already seen that this theory is false; we have now to substitute for it some truer theory, and explain thereby the actual phenomena of the labour market, such, for instance, as the fact that wages at Chicago or New York are twice as high as they are in England, while the prices of the necessaries of life are lower. Though modern economists have pointed out the fallacies of the old wage-fund theory, no economist has yet succeeded in giving us a complete theory of wages in its place. I believe indeed that so complicated a set of conditions as are involved cannot be explained by any one formula, and that the attempt to do so leads to fallacies. Yet I am also aware that the public seem to feel themselves aggrieved that economists will not now provide them with another convenient set phrase in place of the wage-fund theory, and are inclined to doubt the validity of their explanations in consequence. Now, wages in a given country depend on two things: the total amount of produce in the country, and the manner in which that produce is divided. To work out the former problem we must investigate all the causes which affect the whole amount of wealth produced, the natural resources of the country, its political institutions, the skill, intelligence, and inventive genius of its inhabitants. The division of the produce, on the other hand, is determined mainly by the proportion between the number of labourers seeking employment and the quantity of capital seeking investment; or, to put the case in a somewhat different way, instead of saying that wages are paid out of stored-up capital, we now say that they are the labourer's share of the produce. What the labourer's share will be depends first on the quantity of produce he can turn out, and secondly, on the nature of the bargain which he is able to make with his employer. We are now in a position to explain the question put above, why wages in America are double what they are in England. An American ironmaster, if asked to give a reason for the high wages he pays, would say that the land determines the rate of wages in America, because under the Free Homestead Law, any man can get a piece of land for a nominal sum, and no puddler will work for less than he can get by working on this land. Now, in the Western States the soil is very fertile, and though the average yield is lower than in Wiltshire, the return in proportion to the labour expended is greater. Moreover, labour being scarce, the workman has to be humoured; he is in a favourable position in making his bargain with the employer, and obtains a large share of the produce. Thus agricultural wages are very high, and this explains also the cause of high wages in the American iron-trade and other American industries. In consequence of these high wages the manufacturer is obliged to make large use of machinery, and much of our English machinery, e.g. that of the Leicester boot and shoe trade, has been invented in America. Now, better machinery makes labour more efficient and the produce per head of the labourers greater. Further, according to the testimony of capitalists, the workmen work harder in America than in England, because they work with hope; they have before them the prospect of rising in the world by their accumulations. Thus it is that the produce of American manufactures is great, and allows of the labourer obtaining a large share. High wages in America are therefore explained by the quantity of produce the labourer turns out being great and by the action of competition being in his favour.
There are, however, other causes influencing the rate of wages in America which are less favourable to the workmen. Protection, for instance, diminishes real wages by enhancing the cost of many articles in common use, such as cutlery. It is owing to Protection also that capitalists are able to obtain exceptionally high profits at the expense of the workmen. By combining and forming rings they can govern the market, and not only control prices but dictate the rate of wages. Six or seven years ago, the whole output of Pennsylvanian anthracite was in the hands of a few companies. Hence it was that, in the Labour War of 1877, the workmen declared that, while they did not mind wages being fixed by competition, they would not endure their being fixed by rings, and that such rings would produce a revolution. And the monopoly of these companies was only broken through by a great migration of workmen to the West. The experience of America in this instance is of interest in showing how, as industry advances, trade tends to get concentrated into fewer hands; hence the danger of monopolies. It has even been asserted that Free Trade must lead to great natural monopolies. This may be true of a country like America which has internal but not external free trade, but only of such a country; for foreign competition would prevent a knot of capitalists from ever obtaining full control of the market.
I have shown why wages are higher in America than in England. We may go on to inquire why they are higher in England than in any other part of Europe. The great reason is that the total amount of wealth produced in this country is larger, and that from a variety of causes, material and moral. The chief material causes are our unrivalled stores of coal and iron, and perhaps, above all, our geographical position. On the moral side, our political institutions, being favourable to liberty, have developed individual energy and industry in a degree unknown in any other country. On the other hand, it has been said that the exclusion of the labourer from the land in England must have tended to lower wages. And no doubt the adoption of a system of large farms has driven the labourers into the towns, and made the competition for employment there very keen. But, to set against this, the efficiency of English manufacturing labour is largely due to this very fact, that it is not able to shift on to the land. While in America the whole staff of a cotton factory may be changed in three years, in England the artisan 'sticks to his trade,' and brings up his children to it; and thus castes are formed with inherited aptitudes, which render labour more efficient, and its produce greater. I believe the higher wages obtained in England, in comparison with the Continent, are mainly due to greater efficiency of labour - that this is the chief cause why the total produce is greater. But if we go further, and ask what determines the division of the produce, the answer must be: mainly competition. To return to the comparison with America, the reason why the English labourer gets lower wages than the American is the great competition for employment in the overstocked labour-market of this country.
I must notice an objection to the theory of wages as stated above. Wages, I have explained, are the labourers' share of the produce, and are paid out of it. But, it may be said, while our new Law Courts, or an ironclad, are being built - operations which take a long time before there is any completed result - how can it be correctly held that the labourer is paid out of the produce? It is of course perfectly true that he is maintained during such labours only by the produce of others; and that unless some great capitalist had either accumulated capital, or borrowed it, the labourer could not be paid. But this has nothing to do with the rate of wages. That is determined by the amount of the produce and is independent of the method of payment. What the capitalist does is merely to pay in advance the labourer's share, as a matter of convenience.
We will next inquire what are the limits to a rise of wages in any particular trade? The answer depends on two thing. First, is the capitalist getting more than the ordinary rate of profits? If he is not, he will resist a rise on the ground that he 'cannot afford' to pay more wages. This is what an arbitrator, for instance, might say if he examined the , and he would mean by it that, if the employer had to raise his wages, he would have to be content with lower profits than he could make in other trades. As a matter of fact, however, capitalists often do make exceptionally high profits, and it is in such cases that Trades-Unions have been very successful in forcing them to share these exceptional profits with their men. Secondly, though the employer be getting only ordinary profits, his workmen may still be strong enough to force him to give higher wages, but he will only do so permanently if he can compensate himself by raising the price of his commodity. Thus the second limit to a rise in wages in a particular trade is the amount which the consumer can be forced to pay for its products. Workmen have often made mistakes by not taking this into account, and have checked the demand for the articles which they produced, and so brought about a loss both to their masters and themselves. In a particular trade then the limit to a rise in wages is reached when any further rise will drive the employer out of the trade, or when the increased price of the commodity will check the demand. When dealing with the general trade of a country, however, we can neglect prices altogether, since there can be no such thing as a general rise in prices while the value of the precious metal is stationary. Could, then, the whole body of the workmen throughout the kingdom, by good organisation, compel employers to accept lower profits? If there was a general strike, would it be the interest of the employers to give way? It is impossible to answer such a question beforehand. It would be a sheer trial of strength between the two parties, the outcome of which cannot be predicted, for nothing of the kind has ever actually taken place. And though there is now a nearer approximation than ever before to the supposed conditions, there has as yet been nothing like a general organisation of workmen.
Assuming, however, that the workmen succeeded in such a strike, we can then ask what would be the effect of a general rise of wages in the long-run? One of several results might ensue. The remuneration of employers having declined, their numbers might diminish, and the demand for labour would then diminish also and wages fall. Or again the decline in the rate of interest might check the accumulation of capital, thus again diminishing the demand for labour. Or, on the other hand, the rise in wages might be permanent, the remuneration of employers still proving sufficient, and the accumulation of capital remaining unchecked. Or lastly, higher wages might lead to greater efficiency of labour, and in this case profits would not fall. It is impossible to decide on a priori grounds which of these results would actually take place.
Returning to our period, we may apply these principles to explain the fall in wages between 1790 and 1820. During this period, while rent was doubled, interest also was nearly doubled (this by the way disproves Mr George's theory on that point), and yet wages fell. We may take Mr Porter's estimate. 'In some few cases there had been an advance of wages, but this occurred only to skilled artisans, and even with them the rise was wholly incommensurate with the increased cost of all the necessaries of life. The mere labourer... did not participate in this partial compensation for high prices, but was... at the same or nearly the same wages as had been given before the war.' In 1790 the weekly wage skilled artisans and farm labourers respectively would buy 82 and 169 pints of corn: in 1800 they would buy 53 and 83. According to Mr Barton, a contemporary writer, wages between 1760 and 1820, 'estimated in money, had risen 100 per cent.; estimated in commodities, they had fallen 33 per cent.' What were the causes of this fall? Let us first take the case of the artisans and manufacturing labourers. One cause in their case was a series of bad harvests. To explain how this wOUld affect wages in manufactures we must fall back on the deductive method, and assume certain conditions from which to draw our conclusions. Let us suppose two villages side by side, one agricultural, the other manufacturing, in the former of which the land is owned by landowners, and tilled by labour employed by farmers. Suppose the manufacturing village to be fed by its neighbours in exchange for cutlery. Then, if there is a bad harvest in the agricultural village, every labourer in the manufacturing village will have to spend more on corn. The owners of land will gain enormously; the farmers will be enriched in so far as they can retain the increased prices for themselves, which they will do, if holding on leases. But every one else will be poorer, for there has been a loss of wealth. In order to get his corn, the labourer will have to give more of his share of the produce; and hence the demand for all other goods, which are produced for the labourers' consumption, will diminish. Nothing affects the labourer so much as good or bad harvests, and it is because of its tendency to neutralise the consequences of deficient crops at home, that the labourer has gained so much by Free Trade. When we have a bad harvest here, we get plenty of corn from America, and the labourer pays nearly the same price for his loaf, and has as much money as before left to spend on other commodities. Still, even at the present day, some depression of trade is generally associated with bad harvests. And though Free Trade lessens the force of their incidence on a particular locality, it widens the area affected by them-a bad harvest in Brazil may prejudice trade in England.
The next point to be taken into consideration is the huge taxation which fell upon the workmen at this time; even as late as 1834 half the labourers' wages went in taxes. There was also increase in the National Debt. During the war we had nominally borrowed *600,000,000, although owing to the way in which the loans were raised, the actual sum which came into the national exchequer was only *350,000,000. All this capital was withdrawn from productive industry, and the demand for labour was diminished to that extent. Lastly, the labourer was often actually paid in bad coin, quantities of which were bought by the manufacturers for the purpose; and he was robbed by the truck system, through which the employer became a retail trader, with power to over-price his goods to an indefinite extent.
Some of these causes affected the agricultural and manufacturing labourers alike; they suffered, of course, equally from bad harvests. But we have seen in former lectures that there were agrarian and social changes during this period, which told upon the agricultural labourer exclusively. The enclosures took away his common-rights, and where the land, before enclosure, had been already in cultivation, they diminished the demand for his labour, besides depriving him of the hope of becoming himself a farmer, and, to mention a seemingly small but really serious loss, cutting off his supply of milk, which had been provided by the 'little people' who kept cows on the commons. He was further affected by the enormous rise in cottage rents. Mr Drummond, a Surrey magistrate, told the Commission on Labourers' Wages in 1824, that he remembered cottages with good gardens letting for 30s. before the war, while at the time when he was speaking the same were fetching *5, *7, or *10.
This rise was due to causes we have before had in review, to the growth of population, the expulsion of servants from the farmhouses, and the demolition of cottages in close villages. When the labourers, to meet the deficiency, built cottages for themselves on the wastes, the farmers pulled them down, and, if the labourers rebuilt them, refused to employ them, with the result that such labourers became thieves and poachers. Again, during this period, it was not uncommon for the farmers absolutely to determine what wages should be paid, and the men in their ignorance were entirely dependent on them. Here are two facts to prove their subservience. In one instance, two pauper families who had cost their parish no less than *20 a year each, were given instead an acre of land rent free, and the rates were relieved to that amount; but though successful, the experiment was discontinued, 'lest the labourer should become independent of the farmer.' And this is the statement of an Essex farmer in 1793: 'I was the more desirous to give them an increase of pay, as it was unasked for by the men, who were content with less than they had a right to expect.' The agricultural labourer at this time was in an entirely helpless condition in bargaining with his employer. Nor were the farmers the only class who profited by his deterioration; for the high rents of the time were often paid out of the pocket of the labourer. The period was one of costly wars, bad seasons, and industrial changes. The misfortunes of the labouring classes were partly inevitable, but they were also largely the result of human injustice, of the selfish and grasping use made of a power which exceptional circumstances had placed in the hands of landowners, farmers, and capitalists.
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