Wages and Capital

Chapter I. Present Work and Present Wages

The subject of the present volume is the wages-fund doctrine and the immediate relation of capital to wages. To discuss adequately this topic it will not be necessary to consider every part of the theory of wages or of capital; yet some parts of the economic field will need to be traversed that may seem at first sight to lie beyond the limits chosen. More particularly, it will be necessary to begin with some description at large of the process of production, and of the manner in which the exertions of men yield them an enjoyable result. In the active controversy on the wages-fund doctrine which has been going on during the last quarter of a century, the question has gradually come more and more into the foreground whether wages come from the current product of labor or from a past product. This fundamental question must be disposed of before any real advance toward the truth of the matter can be accomplished.

In large part we are here on familiar ground, and might pass over it quickly and lightly. Yet the question is so important, and its bearing on the wages-fund controversy so vital, that no pains should be spared to set it in a clear light. The inquiry will therefore begin, in the present chapter, by considering with care and in detail what is the relation between the laborer’s immediate exertions, the laborer’s immediate product, and the laborer’s immediate reward: between the work of to-day, the output of to-day, and the pay of to-day.

The work of to-day and the output of to-day go together. Taking a survey of the varied activity of a great civilized community, let us see what the laborers now do and what they now produce. Evidently the most diverse things. Some laborers are at work in mines digging out ore and coal. Others are at work conveying coal and ore, which had been brought out days or weeks before, to the spot where they are to be used. Others, again, at that spot are engaged in converting materials of still earlier extraction into pig iron. Elsewhere, men are at work fashioning tools and machinery from iron and steel; or using the tools or machinery for spinning or weaving; or making up cloth into garments wherewith to protect us from cold and wet, and to satisfy our vanity or caprice. Or, to take another phase of production: at the moment when some laborers are at work digging out ore and coal, and others are transforming ore and coal of earlier extraction into iron, trees are felled at one spot, timber hewn and sawed and fashioned at another; ploughs are made of wood and iron, fields are tilled, grain is in process of transportation from granary to mill, other grain is ground into flour, flour is carried to the bakery, —bread, finally, is baked and sold.

We naturally picture the various sorts of productive effort, as they have just been sketched, as taking place in succession: the ore is first dug, the ploughs then made, the field next tilled, the bread comes at the end. In fact, looking at the work and the output of to-day, these operations are all taking place simultaneously. If we follow the history of a loaf of bread or a suit of clothes, we find them to be the outcome of a succession of efforts, stretching back a considerable time in the past. But if we take a section, so to speak, of what the world is now doing and now getting, we find that at any one moment all these various sorts of work are being done together, and all the various forms of wealth, from ore to bread, are being made simultaneously.

It was suggested long ago that production can be best described as the creation of utilities. Human effort cannot add or subtract an atom of the matter of the universe. It can only shift and move matter so as to make it serve man’s wants, — make it useful, or create utilities in it. Matter reaches the stage of complete utility when it is directly available for satisfying our wants; when it is bread that we can eat, clothes that we can wear, houses from which we can secure shelter and enjoyment. The object of ail production is to bring matter to this stage; or, to be more accurate, to yield utilities, whether embodied in matter or not, which give immediate satisfaction. But a great part of our wealth — indeed much the greater part of it — consists of things which are but partly advanced toward the final satisfaction of our wants. Consider the enormous quantities of commodities which are bought and sold, and which constitute huge items in the wealth of the community, in the form of plant and materials: coal and iron and steel, wool and cotton and grain, factories and warehouses, railways and ships, and ail the infinite apparatus of production that exists in the civilized countries of our day. All this is inchoate wealth. It serves as yet not to satisfy a single human want. It is not good to eat, nor pleasant to wear, nor agreeable to look on, nor in any way a direct source of enjoyment; unless, indeed, we make exceptions of the kind that prove the rule, for the cases where ships and railways are used for pleasure journeys, cotton soothes a burn, and grain yields the pleasure of feeding a household pet. Virtually, all the utilities embodied in such commodities are inchoate. These things, or others made by their aid, will in the future bring enjoyment; but for the present they satisfy no need and yield no pleasure. We are so habituated to the régime of exchange and sale, and to the continuous disposal of these forms of wealth by their owners for cash wherewith anything and everything can be bought, that we think of them ordinarily in terms of money value, and reckon them as equivalent to the possession of so much completed and enjoyable wealth. But, obviously, for the community as a whole, there is on hand at any given time a great mass of inchoate wealth which as yet can satisfy no want. And, at any given time, a great part of the labor of the community is devoted to making inchoate wealth, of which no part is directly of use or pleasure to any human being.

On the other hand, part of the labor of to-day is given to the close and immediate satisfaction of our wants. The baker bakes bread, the tailor makes clothes. The shopkeeper sells us things necessary or convenient or agreeable, and so brings them to the point where they finally meet our desires. The servant waits on our needs or contributes to our ease. In a multitude of directions it is the housewife through whom the last stage toward satisfaction is reached. Her labors have been celebrated less by economists than by poets; yet they play a very large part in that final activity through which a long series of past efforts is at last brought to fruition.

Compare now for a moment these two things: on the one hand, that part of the work of to-day which is given to inchoate wealth or uncompleted utilities; on the other hand, that part which serves directly to give satisfaction. Clearly the former is much the larger in volume. It must be remembered that commodities serve to give real satisfaction only when they reach the hands of those who use and enjoy them. That iron and stone, factories and furnaces, raw wool and cotton, grain in the bin, are not available for use or consumption, is obvious enough. It is equally certain, though not so obvious, that flour and cloths and boots are no more available, when simply carried to the stage of completion in the mill or factory. To reach the consumer, they must first pass through the hands of one or two carriers and two or three sets of middlemen, whose labors form part of the operation of production quite as much as those of the tillers of the soil and the workers in the factories. It is hardly worthwhile to lay down any hard-and-fast line in matters of this sort, or to try to define with precision where the very last step comes which brings completion of the products, and so satisfaction to the body of consumers. Ordinarily this stage would not be reached until the goods had been disposed of to purchasers by the retail dealer. While in the shopkeeper’s hands, arranged by him and cared for by him, kept and stored in supply large enough and varied enough to meet regular and irregular demands, they are still to be considered as possessing only inchoate utility. Under the conditions of a complicated division of labor, those workers whom in common speech we call producers, as distinguished from the merchants and traders, advance matters a step nearer the end, but usually bring nothing to fruition. The small producer who deals directly with the consumer has not indeed disappeared; but in the communities of advanced civilization the consumer satisfies most of his wants by going to a shop where he finds commodities that have left the factory weeks or months before. The stores of goods that are accumulated in the warehouses of merchants, both of the large dealers and the petty tradesmen, are still on their way to completion, and still form part of the great mass of inchoate wealth. And, to repeat, this mass of inchoate wealth, in any moment, forms much the largest part of the possessions of the community.

It follows that most of the work which is being done at a given moment is work of no immediate service to any one. A few laborers are engaged in putting the finishing touches to commodities on which a complicated series of other laborers have been at work for years, or even decades, in the past. These few alone work to supply our immediate wants. The great mass of workers are engaged in producing tools, materials, railways, factories, goods finished but not yet in the place where the consumer can procure them — inchoate wealth of all sorts.

All this is part of the division of labor; it is, in fact, the most important form of the division of labor. While a few men put the finishing touches, the great mass are busy with preparatory work which is parcelled out among them in an infinity of trades and occupations. It is conceivable that some such apportionment of labor might have developed without a corresponding division of the different stages among different individuals. The same man might first mine the ore, then smelt it, then fashion his tool, then use it, and finally make his own clothing or secure his own food. But historically, the process by which so preponderant a part of the labor going on at any one moment has been devoted to preparatory work or inchoate wealth, has been accompanied by a corresponding growth and diversification of the division of labor. It may serve to make our subject clearer if we consider it for a moment in this aspect.

The division of labor may be classified, for the present purpose, as of two sorts, contemporaneous and successive. We may designate as contemporaneous that division by which one man does all the work of getting the food, another all that of making the clothes, a third all that of providing shelter, and so on; each carrying out all the steps, from beginning to end, involved in the production of his particular commodity. Under such an arrangement each worker would become expert in his trade and would work at it uninterruptedly. It is conceivable that in a primitive community, where all work was devoted to securing a finished commodity at short order, and few steps intervened between the beginning and the end of production, the productiveness of labor might be considerably increased by such a division of it. But vastly more important in the history of the arts and of civilization is that division which involves a separation of successive related acts — the division in which various steps in production are carried on, one after another, by different hands, and through which each commodity becomes the product of the complex and combined labors of a great number of men.* A set of porters, making a profession of carrying packs, develop their muscles and wind to an extraordinary degree, and become capable of carrying those heavy burdens which astonish the traveller in backward countries. Yet their achievements are as nothing compared with those of the successive divisions of labor. When one set of men attend to the making of roads, another to the rearing of horses, another to the procuring of iron and timber, others to wheels, wagons, harness, — we get in the end, through transportation by wheeled vehicles, an enormous diminution in the labor required for a given result. The contrast is still more striking if we consider the successive division of labor in the last form to which the art of transportation has been carried in the present century. The operations extending over a series of years for cuttings, embankments, tunnels, bridges, not to mention the tools for these, which engaged the energies of a still earlier series of workers; the making of iron and steel, of engines and cars, of the endless variety of railway apparatus, — all finally bring that extraordinary cheapening of transportation which has so completely revolutionized the industry of modern times. To find out how much labor has been given under these methods to any one wagon load or any one car load, we should need to consider, in due measure, all the successive steps. We should need to assign some slight fraction of the labor given to the making of the wagon-road or roadbed of the railway; a fraction, less small, of the labor for making the wagons, or the cars and engines; the whole of the labor of those, like the drivers of the horses or the trainmen of the railway, who are engaged immediately in transportation. To carry out directly a calculation of the labor involved in the carriage of a single ton or wagon load would be impossible; but an infallible test, — the price at which the service can be rendered, — shows how enormously more effective is the more extended and complicated mode of doing the work.

It would be difficult to find an historical example of the bare and uncomplicated use of the contemporaneous division of labor. The earliest form doubtless was more or less of the successive sort, and the two have developed hand in hand with the progress of the arts. The contrast between the primitive porter and the railway is obviously a contrast not between the contemporaneous and the successive division of labor, but between two phases of the successive division. The transporting of goods means only that materials are carried to those who are to manipulate them, or tools to those who are to use them, or enjoyable goods to those who are to consume them or sell them to consumers. It means but one step, — sometimes an early step, sometimes a late one, — in the successive division of labor. But it illustrates the contrast between shorter and longer ways of attaining a given end, and the mode in which the progress of invention has caused a long stretch of time to elapse between the first step and the last toward the satisfaction of human wants.

So overpoweringly great have been the results of the successive division of labor, that it is natural to think of its extension as a cause, or at least as a necessary incident, in the increase of the powers of mankind and the abundance of enjoyable goods. In a great number of striking cases we see the progress of the arts taking a direction similar to that which has just been sketched as to the art of transportation. The spinning wheel and the hand loom, easily and simply made, have given way to the jenny and the mule and the power loom, fixed in a great building, and moved by complicated machinery; all involving a longer stage of preparatory effort, and yielding the enjoyable commodity in the end on easier terms. Savages grind corn by rubbing it between two heavy stones which nature happens to have provided in something like the needed shape. The grist mill, with its hewn stones and its simple machinery, serving its own limited neighborhood, represents a considerable extension in time of the productive process, and a great increase in its efficiency. The modern steam mill, with its huge plant, its warehouses and machinery, with the enormous apparatus of railways and steamers for bringing the grain from the four quarters of the globe and transporting the flour to distant consumers, carries both consequences still further. Hence it has been laid down as a general proposition, by one of the ablest and most ingenious writers of our own day, that every increase in the efficiency of labor brings with it an extension in time of the process of production.* But it may be questioned whether anything like a connection of cause and effect can be traced, or anything more than a fact of usual experience found. In the past, those inventions and discoveries which have most served to put the powers of nature at human disposal have indeed often taken the form of greater and more elaborate preparatory effort. The railway, the steamship, the textile mill, the steel works, the gas works and electric plant, — in all these, invention has followed the same general direction. But that it will do so in the future, or has always done so in the past, can by no means be laid down as an unfailing rule. The railway, the telegraph, and the telephone, have served to shorten many steps in production; and elaborate machines, though it takes time to make them, do their work, once made, more quickly than simpler tools. Invention in the future may dispense with steps now thought indispensable; or it may enable elaborate plants to be dispensed with, as would be the case if the success of flying machines made the costly roadbed of the railway unnecessary. It would be rash to say that the productive process, under the successive division of labor, is likely to be either lengthened or shortened; for the ferment in the world of invention, and the glimpses of new processes in almost every direction, make either outcome possible. But it is in the highest degree improbable that any changes the future may bring will affect that feature of the industrial situation which is important for the subject here under discussion. Under any methods of production, considerable quantities of materials will be provided in advance, tools will be made with much labor, and consumable commodities will be brought to completion at the end of long stages of productive effort.

The beginning and the end of the process of production have been just spoken of; but clearly these are limits more easily described in general terms than fixed with precision in a particular case. The end of the process of production is indeed not difficult to fix. It comes when enjoyment begins, when the consumer gets the wherewithal to feed, to clothe, to shelter himself, to minister to his satisfaction or pleasure in any way. Ordinarily this stage comes, as to tangible goods, when they pass from the shelf of the retail dealer into the hands of the purchaser. But it is by no means easy to put the finger on the point where the process of production has its beginning. Bread is made from flour, and flour from grain; the sowing of the seed is our starting point in the process of production; but seed was grown a season before, and comes from an earlier stage of effort. The plough, too, was provided before the seed was sown, and that plough was made with tools which came from still an earlier application of labour. The mill in which the grain was ground into flour was erected years before, and the railway which carried the grain to the mill stands for another previous application of labour. Where shall we say that the process of production begins? If we would be mathematically accurate, we should need to carry it ages back, to the time when the first tool was made; for tools are made with tools, and each is in some infinitesimal part the result of labor applied to its predecessor of a thousand years ago. For practical purposes, to be sure, we can in large part dismiss this consideration. The labor given fifty years ago to smelting iron that was made into tools, which again served to make other tools, is so infinitesimal a part of the labor involved in producing the consumable commodities of the present, that we may say, De minimis non curat lex. But the complications of the labor of the present and of the immediate past are no less puzzling. The carpenter works one day at the frame of a steel mill, which will turn out steel beams to be used in buildings or ships; years may elapse before the first completed commodity emerges. The next day he makes a piece of furniture, or, rather, does his share in the making of it, — which conduces to the comfort of a householder within a week. The railway carries ore which represents a very early stage in the process of production; it carries wool, which may be made into a coat and may warm its wearer within three months; and passengers who at the moment are enjoying a pleasure jaunt. To measure exactly where the labor which builds and operates a railway stands in the process of production is practically impossible.

Hence it is practically impossible to measure how long the average process of production is,-to say how long an interval has elapsed between the time when all the consumable commodities now available were begun and the time when they were completed. We can, indeed, conceive of the meaning of such an average. We can say that the labor of the domestic servant issues in enjoyment very quickly; that of the operative in a woollen mill, after a few weeks or months; that of the farmer, after a year; that of the ship carpenter or steel worker, after years or even decades. If we could take the balance of short processes and long processes, we should ascertain how long, on the average, it had taken to make our present enjoyable possessions. We can even do more than picture to ourselves this possible grouping and offsetting of the various processes. We can say, from general observation, that the tendency of invention has been to lengthen the average. The process of production, as a whole, has probably tended to become longer; and if invention follows the same lines in the future as in the past, the process, on the average, will become still longer. But it is impossible to say how long it now is, whether two years or five or ten. The complications of the case make any statement in figures out of the question. When we consider the immediate history of the most common sources of satisfaction,-food, clothes, shelter; and reflect how long a time has elapsed, even after the needed tools were on hand, since the grain and cotton were sown, the sheep raised for the wool, and the cattle for the leather, the bricks made, the trees felled, — we may be sure that the average period of production must be stated in terms of years. And this vague conclusion, unsatisfactory as it would be for statistical purposes, is sufficient for the purpose now in hand. It is clear that production is spread over a period of years; and it is clear that the greater part of present labor is given to production at stages preceding by a longer or shorter interval the attainment of the enjoyable result.

Before leaving this subject one further circumstance may be noted in regard to the length of time over which, under the modern division of labor, the operations of production extend. One part of the period, the last of all, is perhaps susceptible of measurement. To repeat what has already been said, the work of the merchant and trader is as fully productive as that of the artisan and carrier. Each does his share toward bringing commodities to the stage where enjoyment finally begins. It would doubtless be possible to ascertain how long the last stage endures; to find how long a period elapses, on the average, between the moment when goods pass from the hands of the manufacturer and artisan into the hands of the dealer, and that at which they pass from the last dealer into the hands of the consumer. The great mass of commodities pass through the hands of two or three middlemen; they go first to the wholesale dealer or agent, then to the jobber, finally to the retailer. Each of these keeps them a space. Barring perishable commodities, like meats and vegetables, a turn-over of more than six or eight times in the year is unusual; as to many articles, one of three or four times a year is common. The inference is plain. Months elapse, on the average, between the time when goods are finished, in the everyday sense of the word, and the time when they reach that stage of enjoyment which is the real aim and end of all effort.

So much as to the first part of the inquiry undertaken in the present chapter, — the relation between the work of to-day and the output of to-day; an inquiry which has proved to involve some consideration of the work of yesterday as well. Whether as to the work now being done, or the work which yields the consumable goods now available, we have the same result. The work of to-day is applied preponderantly to inchoate wealth, to preparatory stages in production; and the output of to-day consists mainly of goods not yet in enjoyable form. Most of the labor being done at the present moment will bring consumable goods at some time in the future; while the consumable goods now available are mainly the product of past labor. The whole process of production is extended over a period not, indeed, to be measured with accuracy, yet certainly to be stated in terms of years.

We may turn now to the second part of the inquiry: what is the pay of to-day?

The answer here is simple, and could be given in the briefest terms. The immediate reward for the exertion of labor consists of completed and enjoyable commodities. Food, clothing, shelter, things that satisfy our needs and our desires, — these are the pay of to-day. The laborer’s bread and meat, his tobacco and his whiskey, his house and his clothes, things that may do him good or harm, but are at all events desired by him, constitute the reward he now gets.

This is so simple that it would seem not to need another word of explanation. Yet on the subject of wages, as on many others in economics, it is the failure to bear in mind very simple and obvious facts that most frequently causes error. In discussions of wages, of the source whence they are paid and the factors that affect their amount, nothing has been more common than to consider only the machinery by which laborers are enabled to get their real wages. The cash paid them by an employer, or received by them in direct pay for their product, has been mainly thought of. The obvious distinction between real wages and money wages makes its appearance in every book on the elements of economics, but it is too often forgotten when the causes determining wages come to be examined. When a question arises as to the relation between the laborer’s output and his pay, it is common to speak of his product and of his pay in terms of money. When it is asked whether the laborer is paid out of capital or out of product, the first impulse is to think of capital as money funds in the hands of the employer and of product as the money value of what is being turned out. In answer to the proposition, attributed more or less justly to the older English economists, that laborers get their wages from a rigidly predetermined source, it is often said that the wages which employers can pay may be increased by quicker sales or by the use of credit, — which obviously refers to money wages. The inquiry as to the direct relation between laborers and employers, and as to that first step in the apportionment of wages which comes through money payments from one to the other, is important and fruitful, as will elsewhere appear. But on the crucial question of the cause pf general high wages in the sense of general real prosperity among laborers, it leads only to confusion. If we would learn what makes wages high, in the sense which is mainly important for the workmen as a class and for the community as a whole, we must bear in mind that real wages alone are to be thought of,-things consumable and enjoyable.

What is true of the laborers is true of all classes in the community. All, whether idlers or workers, get their real reward from the same source — the completed commodities which satisfy human wants. These, as they appear in recurrent supply, form the net income of the community. Whether there can be any possibility of separation of this net income into parts destined for any one set of persons, or appropriated to them; whether one part of the available supply can be said to constitute a wages fund, another a profit fund, a third an interest fund, a fourth a rent fund, — these are questions that will engage our attention at a later stage. Here we may content ourselves with the simple and unquestionable proposition, that all real income of any sort comes in the form not of money, but of goods and wares that minister to our wants.

Still further to emphasize this elementary yet all-important proposition, we may consider for a moment where we should find, in any given community, this immediate reward of the laborer. It must proceed chiefly from the stocks in the hands of the retail dealers. Their wares are in the last stage which production goes through, and are on the point of ripening into full completion. A good part of wages, no doubt, must come from elsewhere. House shelter, partly a necessity and partly a source of comfort and luxury, is ordinarily already on hand, needing no further labor toward complete fruition than occasional repairs. If owned by another person, as is commonly the case with the house occupied by the hired laborer, that person is in possession of the source whence so much of real wages is derived. If the laborer owns his own house, he spends the money received for present labor in other ways. The shelter and comforts of the house he owns form no part of his real reward for the work of to-day; they are the reward of past labor, or past claims or rights of some sort, and no more form part of his pay for present work than the enjoyments which the idle rich buy with their money incomes form reward for any present exertion. His wages for present exertion are what he buys with the cash which, under a money regime, he receives for the day’s or week’s work; and questions as to the sources of his real wages, their limits, their flexibility or predetermination, are questions as to limits and determinateness of the stocks or forthcoming supplies of goods now chiefly in the hands of shopkeepers, which he will buy with his money wages.

We are now in a position to give an answer to one part of the question with which this chapter opened: whether wages are or are not paid from present or current product. The answer to the other part of the question, — whether or not they are paid from capital, — must still be postponed, requiring, as it does, some further consideration of the definition and function of capital. But wages are certainly not paid from the product of present labor; they are paid from the product of past labor. Present labor produces chiefly unfinished things; but the reward of present labor is finished things. Real wages are, virtually to their full extent, the product of past labor. At this moment, or within a few days, the last touches toward completion have indeed been given to the commodities now being enjoyed. But the great bulk of the labor whose product all of us, whether laborers or idlers, now enjoy, was done in the past.

This fact is obscured, in our everyday thought, in two ways: we think of the product in terms of money, and we think of the laborer who gives the finishing touches in production as the “maker” of the article. When we want to compare the amount which a laborer produces with the amount which he receives, the simplest and most obvious way is to compare the money value of the two: a method the more tempting because for many purposes, not least for the business ends of the individual employer, it is all-sufficient. Thus we think of product and wages as similar things, and of product as preceding wages; forgetting that in concrete reality they are different things, and that present real wages must be on hand long before present product is completed. On the other hand, the baker is said to make bread, the tailor to make clothes, the carpenter to make furniture; though, with the inconsistency characteristic of that early stage of classification which is crystallized in common speech, we never speak of the merchant or shopkeeper as “making” anything. In fact, the baker and the tailor do no more than their small shares in the making of bread and clothes; a long series of farmers and wool-growers, manufacturers, merchants, and carriers constitute with them the complete chain of the producers of the articles.

There is a sense, it is true, in which we may speak with accuracy of wages as coming from current product; and it is one which deserves attention, because it brings out the relation between some older speculations on wages and capital and the more recent turn of the discussion.

The classic economists were in the habit of speaking of the commodities consumed by laborers as a fund or stock, described in a way that implied a great store on hand, ready and available at once, likely to be replaced after a season by another similar store. This, at least, as their practice when they described the wages fund as a concrete thing, made up of commodities which would yield real wages. Too often they spoke and thought of funds and capital in the money sense, and of wages as coming from the employing capitalists’ money means, thereby introducing a confusion which runs through almost the whole of the century’s literature on the subject. Ricardo, however, and the abler of Ricardo’s followers, usually kept to the first conception, of a wages fund made up of commodities, not of money. In the Ricardian system, again, wages were measured in terms of food, and especially of grain or corn; and the wages fund consisted of a stock of food. For shortness of reasoning and of statement (too often with the result of confusion in both) this stock was reasoned about as if it were owned by the immediate employers and handed over by them directly to laborers who ate it. The miller and the baker were put aside; and, what was more dangerous to accurate thought, it was assumed for brevity that the capitalists who employed the laborers were the individuals who owned the grain. The source of wages was then easily conceived as a fund stored up, all ready for use, controlled by employers, limited in amount for the time being, and entirely the product of past labor. The seasonal harvesting of the crops made it impossible this year to procure more than had been sown and harvested; and the real wages fund had nothing to do with current work and product.

The error of this view is one of degree rather than of kind, of insufficiency rather than of inaccuracy. It is no grievous departure from literal truth if we speak of grain as consumable by laborers, omitting for brevity, the operations of transporting and grinding and baking it. And we may perhaps fairly think of the grain on hand this season as fixed in amount, incapable of being increased or diminished. Doubtless there are here some elastic limits: a heavy crop may be carried over in part to another season, and a lean one consumed at once to the last bushel m anticipation of better times soon to come. This sort of averaging of the yield certainly could take place under modern methods of storage and preservation, and may have taken place even in the days when Ricardo wrote. It is more important to correct the older view in other directions. Food is not the only article consumed by laborers; none of the various commodities that make real wages, not even breadstuffs, exist in the shape of accumulated stores of finished goods. Further, the capitalists who directly employ laborers have usually no ownership of the commodities which make real wages. If these real wages come from capital, the capital is certainly not in the hands of the employers.

Considering both of the last-mentioned facts in the situation, — the variety of the commodities which go to make real wages, and the widely distributed ownership of these tangible commodities, — we reach the conception of a flow rather than a fund of real wages. The community possesses at any given moment a quantity of goods in all stages of completion: some just begun, some half finished, some very nearly or quite finished. The last touches are being given at every moment; enjoyable commodities each day are consumed, new commodities advance each day to take their place. We have no great stores of completely finished goods, but, as Professor Marshall has happily said, a steady flow of accruing real income.

No doubt the old conception of a fund fits the facts of the case in some regards quite as accurately as the new one of a flow. The distinguished Austrian writer who has contributed so much to the clearer understanding of this part of the machinery of production, has suggested that all the possessions of the community may be reduced to an equivalent in terms of subsistence or other finished goods. What he calls the general subsistence fund is made up of all wealth whatsoever, — machines, materials, completed goods. Its volume may be measured by ascertaining how much labor is embodied in this sum total of wealth, and how long the wealth, completed and enjoyable, which so much labor could produce, would continue to satisfy the wants of the community at its habitual rate of consumption. In this sense we may say that the community owns at any given time a subsistence fund for, say, five years; meaning not that there are stores of finished goods which will last five years, but that the wealth on hand has embodied in it five years of the community’s labor, and, simply carried to completion without the initiation of a stroke of new work, would last for a long period.* Here we have a statement of the case, useful for some purposes, which looks to a fund rather than to a flow. And from still another point of view the conception of a fund has its justification. The stock of available finished commodities, if a flow, is affected in its volume by sources which possess some of the characteristics of a reservoir or fund. The number of loaves that can be put forth from day to day depends on the season’s stock of grain; that of clothes, on the wool and the sheep on hand, and on the machinery available for manipulating the materials; that of boots, on the hides and the cattle and the available machinery. — How far the volume of consumable goods now obtainable is limited by such conditions; how far determined once for all by the materials and tools of past making; how far capable of enlargement or diminution by changes in the labor of the moment, — these are questions which may engage our attention at a later stage. For the present it is necessary only to get a clear conception of the sense in which there is on hand at any given time a supply or stock of finished goods for the consumption of laborers and others. It is a flow of finished goods from goods partly finished, constantly wasting away and constantly renewed; greatly affected, perhaps determined once for all, by the mode in which past labor has been given to tools and materials; yet certainly not without some degree of flexibility at any given moment, and certainly not an accumulated or rigid fund.

We can see now in what sense it is true that wages, — or any other form of income, for that matter, — are paid out of current product. The goods which laborers get, or, to be literally accurate, the goods which they buy with their money wages, in a sense are made from day to day; they are current product in the sense that the last touches are given them from day to day. Something of this sort has doubtless been in the minds of the writers who have maintained that wages are derived from present or current product. Unquestionably a confusion between real wages and money wages has also had its share in the adoption of their view. Current money wages obviously do come largely from the money value of the present product, and the proposition that wages are paid from the current yield of industry in this sense is as undeniable as it is immaterial so far as the source of real wages is concerned.

We may now summarize the results of this chapter by a graphic representation of the course of production and enjoyment in a modern community. A diagram showing the relation between the work of to-day, the output of to-day, and the pay of to-day may be constructed thus: let A represent the workers who stand in the earliest stage of production, say the miners and lumbermen; let B represent those in the next stage, say the makers of pig iron and of sawed timber; let C designate those who carry on operations in the next stage toward completion; D, those in the next; and E, finally, those who give the finishing touches and bring to market a consumable commodity. The same letters may indicate the products turned out by the different producers, A standing for the iron ore, and E for the bread and meat. A, B, C, D, E may represent the workers and their output in a first year; A., B., C., in a second year; and so on. We could then array the operations of a series of years in this fashion:

 

In each year all the various operations are going on simultaneously. A, B, C, D, E are at work on their separate tasks, and are turning out all shades of products, from the crudest material to the ripened commodity. In successive years the A’s and the E’s continue alike to repeat their work: the miners remain in the mine, the shopkeepers serve their customers in the shops. In any one year the community, while producing all the products A, B, C, D, E, has at its disposal only the commodities E. These alone are consumable and enjoyable; these alone can constitute real wages or real profits or real income of any sort. In the year 1890 E would be available; in 1892, E2. The question whether wages in 1894, which must come out of E4, are the product from past or present labor, can be answered by inquiring what labor produces the E commodities of any one year; say E4 of 1894. If we suppose present labor, then E4 will be the product of the work indicated by the horizontal line A4, B4, C4, D4, E4. If past labor, or chiefly past labor, then E4 will be the product of the work indicated by the diagonal line A, B1, C2, D3, E4. It needs no argument to show that the workers E4 can not be completing the material which A4 are bringing forth at the same time. Each stage in the successive division of labor requires time. E4 must be at work on products which came from D of an earlier period, say the D3 of 1893; D3 got them, partly advanced toward completion, from C2 of 1892; the first steps were taken five years ago by A of 1890. The diagonal line marks the labor which yields the enjoyable commodities of 1895 — labor mainly of the past, and only in small part of the present.

It hardly needs to be explained again that a simple scheme of this sort is far from corresponding to the complexities of real life. The earliest and the latest stages of production are so interwoven that any brief statement or simple diagram can give no more than a crude and inaccurate picture. The commodities which we have typified in the E’s, and which are represented as lately finished, after having gone through a regular series of previous operations, are sometimes made very largely with recent labor, sometimes very largely with past labor. Personal or domestic service is an important source of enjoyment; as productive of satisfaction, and therefore of wealth in the important sense, as the labor that makes bread and wine. Here exertion and satisfaction are coincident; there is no chain of successive producers. On the other hand, the shelter and comfort which are now yielded by a dwelling are in greatly preponderant proportion due to labor exerted in varying stages of progression in the past. And at the other end of the scale, commodities in the early stages of unripeness may reach fruition by a longer or shorter route. Pig iron may be made into a stove and may serve to diffuse grateful warmth within a month; or it may be made into a machine which will be used in making another machine, and may not issue in a consumable commodity for years. Any scheme, or diagram, or classification of the stages in production must have a rigid and arbitrary character, and can not conform to the endless complexities of the living industrial world. Nonetheless, it may bring into distinct relief the general truth which underlies all the variety of detail, — that production proceeds by successive stages, and that the community at present is supplied with necessaries and comforts made mainly by the labor of the past.

  • *This distinction is effectively brought out in Menger’s Grundsätze der Volkswirthsaftslehre, chapter i, § 5. Compare what is said below, Part II, Chapter XIV of the services of the Austrian writers in this part of economic analysis.
  • *Professor Böhm-Bawerk’s brilliant analysis, in the opening chapters of the PositiveTheory of Capital, has done more than any other single discussion to emphasize the significance of the lengthened period of pro­duction. It is due to this able thinker to note that he describes in these chapters the connection between the extension of production over time and its increasing efficiency as a simple fact of experience, not as part of the nature of things; but in the corollaries drawn from the proposition in his later reasoning it is treated as if universally true. Compare, how ever, what he has said, in reply to some American critics, in the Quarterly Journal of Economic, for January, 1896.
  • *As to the relation between the amount of the subsistence fund, measured by the quantity of labor embodied in it, and the number of years over which it may enable production on the average to be spread, see the Positive Theory of Capital, book vi, chapter v, and the appendix at the close of that volume. The refinements of this calculation, however, are not likely to lead to results useful for the explanation of concrete phenomena, and at nil events are not important for the purpose of the discussion in the text.