Wages and Capital

With the younger Mill’s Principles of Political Economy we may advantageously begin a fresh chapter. Not that the book can be said by itself to have made any substantial change in the discussion of the wages fund. On this topic, as on most others of economic theory in its narrower sense, Mill hardly did more than to set forth and codify the accepted views of his time. But his exposition dominated economic thought for near a generation, and, moreover, gave the impetus both to the first bold attack on the wages fund doctrine and to the first deliberate attempt at its rehabilitation. As an indication of the stage at which the doctrine stood for many years, and as the point of departure for the later movement, Mill’s position then deserves an attentive examination. For the present, it will be convenient to limit the examination to Mill’s views as they were formed at the time when he published the Principles of Political Economy; leaving for later consideration, in connection with the next stage in the discussion, his recantation of the doctrine.

What Mill’s views were, and how he reached them and presented them, is to be gathered from various passages in the Political Economy: not only from the chapters dealing directly with wages, but from those on the place of labor in production, on capital, on changes in distribution under the influence of progress, and on other related topics. These passages are not always consistent. They give unmistakable evidence of Mill’s failure to revise his book in cool blood, and so to give coherence to the scattered discussions of the same subject as it was approached from different points of view. The two large volumes were composed in a surprisingly short space of time, — less than two years.* In that regard they constitute a remarkable intellectual feat; but they suffered from the hasty composition. It is true that Mill’s mind had been busy with economic topics almost from childhood, and that on some subjects he had written out in early manhood much that he incorporated in the Principles. Yet he had never attempted an exposition of the subject at large; and when he came to dash it off in the evenings of two busy years, he could not bring the whole into consistent unity.

It might be expected that the dependence of wages on capital would be set forth by a writer like Mill, deliberately engaged on an exposition of economic doctrine at large, in connection with the element of time in production. The fact that the operations of production are spread over a long stretch of time, though it underlies the whole classic theory of the relation of wages to capital, had rarely received, since the days of Adam Smith, more than passing attention. Mill is not much more explicit than his predecessors. In one place and another, he presents the fundamental point with sufficient clearness; but usually as an incident to the discussion of other matters. At the very outset, in describing labor as an agent in production, he remarks that the labor “employed in producing subsistence, to maintain the labourers while they are engaged in production, requires particular notice. This previous employment of labour is an indispensable condition to every productive operation, on any other than the very smallest scale. ... Productive operations require to be continued a certain time, before their fruits are obtained.”* Here Mill takes the first important step in the analysis of the functions of capital in production; but almost at once he moves off in another direction, by proceeding to consider the nature of the return secured by the persons possessing that subsistence, produced by previous labor, which is needful for present labor. By thus passing at once to the “remuneration for abstinence,” he anticipates, probably to the confusion of readers fresh to the subject, the discussion of profits and interest; while he fails to describe with clearness the mode in which different steps in production, of necessity succeeding each other and so spread over some length of time, result finally in the finished and enjoyable commodity. The simple and fundamental fact is but obscurely presented; the more complicated corollary, though its discussion occupies some pages, is yet insufficiently explained.

This failure to develop simple and fundamental truths, while emphasizing abstruse doctrines of uncertain sound, appears throughout the treatment, in the earlier chapters, of capital in relation to wages. “What capital does for production,” says Mill at the outset, “is to afford the shelter, protection, tools and materials which the work requires, and to feed and otherwise maintain the labourers during the process.”* Thence he proceeds at once to another and much more complicated proposition, — that the distinction between wealth which is capital and wealth which is not, depends solely on the intention of the owner. Little space is given to that function of capital which is all-important for Mill’s later reasoning on wages, — the furnishing of food and maintenance for laborers. Only as an afterthought, at the close of another section of the same chapter, does Mill bethink himself to touch again on this simple but essential matter. “It will be observed,” he says, “that I have assumed that the labourers are always subsisted from capital; and this is obviously the fact, though the capital need not necessarily be furnished by a person called a capitalist,”† — after which there is no further reference to a fact so obvious.

It may serve still further to show in what manner Mill handled this part of his subject, if we follow some of the reasoning which rested on it. The deduction on which most stress is laid in the earlier part of his book, and which he probably had most at heart in the earlier part of his career, was that the luxurious expenditure of the rich did not benefit the poor. It was to dispose of this notion that he endeavored at such length to show that capital could find indefinite employment in advances to labor, or in his own words, that “the portion [of capital] which is destined to the maintenance of labourers may be indefinitely increased without creating an impossibility of finding the employment.” The same motive led him to the elaborate proof that demand for commodities is not demand for labor.‡ This much-maligned proposition is a simple corollary from the axiom (such to Mill’s mind it seemed) that laborers are supported by the product of previous labor, dubbed capital. There is much more to say than is found in Mill’s pages of the part which luxuri­ous expenditure and demand for commodities play in the working machinery of modern society. The economist of our own day would be likely to connect the discussion of demand for commodities with the general law of demand, with final utility, with non-competing groups among laborers, and with the general interaction of exchange and distribution. And, so far as expenditure by the rich is concerned, he would not think it necessary to linger long, in the earlier stages of his exposition, on the notion that luxurious expenditure, which is the concrete result of unequal distribution, can be of essential advantage to those whose share in distribution is small. But Mill not only lingered over this topic: he pushed the reasoning in another direction, and to topics of the greatest difficulty and complexity. From the statement that the real demand for labor was to be found once for all in the commodities turned over to the laborers for their use, he proceeded to the doctrine that capitalists could turn over an indefinitely large quantity of commodities to laborers, without encountering any obstacle or embarrassment. This was the point at which the whole discussion was aimed. What he meant was that “a market” for such goods could be found without difficulty in supplying all possible wants and whims of the laborers. He failed to consider, — failed at least in this discussion, — that a stage might be reached where it no longer was profitable to increase the advances.

We have here one illustration, — a multitude such might be found, — of Mill’s tendency, partly the result of early training, in part doubtless inborn, to follow to its last conclusion one single line of reasoning, regardless of the mode in which other considerations must be taken into account, if we would have, not merely an irrefragable train of argument, but a sufficient explanation of real phenomena. In this particular case, the steady advance of an increasing quantity of commodities to laborers would not continue unless they produced something over and above what was handed to them; and in the end the possibility of steadily enlarging the advances, must depend on a steady increase in productive powers among the laborers, either by an increase in numbers or a gain in efficiency. This ultimate regulation of wages (i.e., of advances from capitalists to laborers) by what the laborers produce, is touched by Mill in later chapters; but it is hardly more than touched. At all events, in his first presentation of the relation of wages to capital, he never hinted at any bearing of product on wages or profits. He confined himself to the axiom that saving means the making of advances to laborers, and to the deduction that laborers would consume any quantity of goods if they had the chance. Thus the discussion, like so much of the deductive reasoning of the classic school, has an unreal tone and a paradoxical end; and even taken at its best, is but a haIf treatment of a subject which particularly needs full and complete treatment.

This digression from our main subject may serve to make clear how Mill, in his first grappling with the relation of capital to wages, gave much more prominence to other questions than the immediate forces at work. He simply took it for granted that wages were paid from capital. We may proceed now to consider in what way he used this proposition when he came to the specific treatment of wages; and more especially whether he gave it more precise and definite form than his predecessors and contemporaries.

Mill’s brief statement of the causes on which wages depend, familiar as it is, may be quoted once again: not only because it is significant in itself, but because we shall have occasion to refer to it when considering the writers who came after Mill. After a preliminary statement that competition, not custom, must be regarded in the present state of society as the principal regulator of wages, he proceeds thus:

“Wages, then, depend mainly upon the demand and supply of labour; or, as it is often expressed, on the proportion between population and capital. By population is here meant the number only of the labouring class, or rather of those who work for hire; and by capital, only circulating capital, and not even the whole of that, but the part which is expended in the direct purchase of labour. To this, however, must be added all funds which, without forming a part of capital, are paid in exchange for labour, such as the wages of soldiers, domestic servants, and all other unproductive labourers. There is unfortunately no mode of expressing by one familiar term, the aggregate of what may be called the wages fund of a country; and as the wages of productive labour form nearly the whole of that fund, it is usual to overlook the smaller and less important part, and to say that wages depend on population and capital. It will be convenient to employ this expression, remembering, however, to consider it as elliptical, and not as a literal statement of the whole truth.

“ With these limitations of the terms, wages not only depend on the relative amount of capital and population, but cannot, under the rule of competition, be affected by anything else. Wages (meaning, of course, the general rate) cannot rise, but by an increase of the aggregate funds employed in hiring labourers, or a diminution in the number of competitors for hire; nor fall, except either by a diminution of the funds devoted to paying labour, or by an increase in the number of labourers to be paid.”*

Here we have some promise of an analysis, more detailed than was common among previous writers, of the “funds” which make up the demand for labor. Only a part of circulating capital is to be considered; and all funds with which “unproductive” laborers are paid are also to be taken into account. Both of these qualifications of the usual statement had been mentioned by other writers. Ricardo had spoken of “circulating” capital as alone belonging to the demand for wages; Adam Smith, Malthus, Senior still more, had referred, in one way or another, to the unproductive laborers. So far Mill was on much-trodden ground.

Mill did not go beyond this familiar stage. The sentences just quoted contain all that he ever said directly and explicitly on the theory of the wages fund. He passes at once from this simple statement, of which no part evidently seemed to him to need proof or explanation, to the dissection of certain notions inconsistent with it. This was Senior’s method; in fact, the whole modus operandi appears so far to be copied from Senior. After brushing aside the inconsistent doctrines, which are again disposed of with reasoning unimpeachable as far as it goes and inconclusive because not going far enough, he proceeds to the point which he conceived really to need proof and emphasis and all possible illustration, — the principle of population and the standard of living. For three long chapters every phase of this topic is discussed and re-discussed. The persistence with which it is hammered at, compared with the light and rapid touch on the constitution of the wages fund, indicates that Mill thought the fund a matter of little moment for the really important problems of wages. For most of his reasoning, as for that of almost all writers after the time of Malthus and Ricardo, the details of the process by which an increase in numbers lowered wages were not of much moment. It made little difference whether wages were said to depend proximately on capital, or subsistence, or wealth, or product. The main moral deduced from the dependence of wages on the funds for paying them was that the growth of population must be restrained and the standard of living raised.*

Thereafter, through the greater part of the Principles, the simple and familiar formula is applied. As Mill summarizes it in the first chapter of the series in which wages are treated: “Wages depend, then, on the proportion between the number of the labouring population, and the capital or other funds devoted to the purchase of labour; we will say, for shortness, the capital.”† Like Ricardo, Malthus, and Senior, not to mention lesser lights, Mill began by using “ capital “ consciously as an “elliptical expression.” Before long, he used it, more or less unconsciously, as a complete and sufficient statement of what constituted the demand for labor.

When Mill came to use and apply, in other directions, the proposition that capital was, once for all, the source of immediate demand for labor, he followed, in the main, the lines on which Ricardo had reasoned. In the third chapter of the fourth Book, on the “Influence of the Progress of Industry and Population on Rents, Profits, and Wages,” the proximate cause determining wages is conceived to be simply the relative growth of capital and population.’’ Let us first suppose that population increases, capital and the arts of production remaining stationary. One of the effects of this change of circumstances is sufficiently obvious: wages will fall.” This chapter is an elaboration, with no essential additions, of Ricardo’s Essay on the Influence of a Low Price of Corn; and Mill, in following up Ricardo’s conclusions, accepted the practice which his master had adopted even in this early essay, of dismissing “market” wages summarily as determined by capital and population. Unlike Ricardo, Mill had keen social interests and sympathies. But he had been inured from boyhood to Ricardo’s rigid and quasi-mathematical reasoning; and his own intellectual bent was in the same direction. In his discussion of distribution, he was absorbed, as his exemplar had been, in deducing certain consequences as to profits and rent which rested on the assumption that real wages were fixed at a stationary point by ingrained habits of the laborers. The wider views to which he was led by his social sympathies were never brought into direct connection with this comparatively narrow reasoning. At all events, they did not serve to bring his attention more closely to the problem of the immediate and direct determination of wages.

There is, however, another aspect of Mill’s teaching on capital, which deserves notice: his conception of the relation between the general advance of capital to all laborers on the one hand, and the payment of wages by individual employers on the other; and, in connection with this, his conception of the rigidity or predetermination of the funds for hiring laborers.

Reference has already been made to Mill’s distinction between capital and non-capital, as resting solely on the intention of the owner. This mode of defining capital he inherited, like other doctrines, chiefly from Ricardo, who had defined capital briefly as “that part of the wealth of a country which is employed in production.” M’Culloch had tried an independent flight by propounding the doctrine that anything which might conceivably be used for further production was capital; Malthus had brought him to earth by answering that only that wealth was capital which was in fact used for production. Whatever these varieties in the tradition of the day, Mill followed its main trend in insisting on the intention of the owner as the decisive element in determining whether a particular quantum of wealth was or was not capital.

It has already been explained, in the first part of this volume,* how far Mill and his contemporaries were right, how far wrong. They were wrong in supposing that, at any given moment, the intention of the owner settles whether a particular item of wealth is or is not capital. Under any possible definition, plant and materials can be nothing but capital. It has indeed been sometimes suggested that the owner of a machine may sell it, and squander the proceeds: thus it would cease to be capital simply by his change of intention. Obviously, however, such a process would be a mere shifting of the ownership of the capital from one hand to another: the machine still remains inchoate wealth and capital. The real and important truth which underlies this part of the classic doctrine appears only when it is brought into connection with another part, — the proposition that all wealth is perpetually produced and consumed. That proposition, originating with the Physiocrats and Adam Smith,† was set forth by Mill in lucid terms; yet, curiously enough, he failed to apply it to that other proposition, on the determination of capital by intention, which, standing by itself, could be so misleading. In the long run only, and in view of the steady waste and steady reproduction of all wealth, is it true that the intention settles what shall be capital and what shall not be. On this topic, as on others, Mill followed Ricardo’s example of sliding rapidly over the concrete details by which the truth of his propositions appeared in real life: with results sometimes confusing to himself, and certainly confusing to later students of his writings.

The cause of confusion in this case was that Mill’s vague doctrine as to capital and intention prevented him from making any clear distinction between the advance of money wages by employers, and the advance of real wages from the flow of the community’s consumable goods. We have seen that he did not linger long on those causes which, in the nature of complex production, make necessary the support of laborers from past product. It was natural, therefore, that he should fail to separate sharply the real provision of consumable goods which maintains laborers during the prolonged period of production, from the immediate advance of funds by the individual employer to the laborer directly hired by him. Usually he simplifies the matter after Ricardo’s method, by getting far away from the facts of concrete industry, and supposing the capitalist to possess so many quarters of wheat which he advances to laborers. This is the plan which he followes in the discussion of the effects of the conversion of circulating capital into fixed, — “circulating” capital there meaning wages fund. But in presenting and illustrating the doctrine that intention determines whether wealth shall or shall not be capital, he considers the case in more realistic fashion.

“A manufacturer, for example, has one part of his capital in the form of buildings. Another part he has in the form of machinery. A third consists, if he be a spinner, of raw cotton, flax, or wool: if a weaver, of flaxen, woollen, silk, or cotton, thread: and the like, according to the nature of the manufacture. Food and clothing for his operatives, it is not the custom of the present age that he should directly provide. … Instead of this, each capitalist has money, which he pays to his work people, and so enables them to supply themselves: he has also finished goods in his warehouse, by the sale of which he obtains more money, to employ in the same manner, as well as to replenish his stock of materials, to keep his buildings and machinery in repair, and to replace them when worn out. His money and finished goods, however, are not wholly capital, for he does not wholly devote them to these purposes: he employs a part of the one, and of the proceeds of the other, in supplying his personal consumption and that of his family, or in hiring grooms and valets, or maintaining hunters and hounds, or in educating his children, or in paying taxes, or in charity. What then is his capital? Precisely that part of his possessions, whatever it be, which he designs to employ in carrying on fresh production. It is of no consequence that a part, or even the whole of it, is in a form in which it cannot directly supply the wants of labourers.”*

Here the capital of the community is analyzed in a manner that implies that it is all in the hands of the employers who directly hire laborers, or under their control: the money and the proceeds of the finished goods being the sources from which wages are paid. In the next paragraph Mill illustrates his reasoning by supposing the case of a hardware manufacturer whose

“stock in trade, over and above his machinery, consists at present wholly in iron goods. Iron goods cannot feed labourers. Nevertheless, by a mere change of the destination of the iron goods, he can cause labourers to be fed.”

The attentive reader of the passages that follow this statement will see that Mill did not fall into the error of supposing that laborers could be fed without the wherewithal to feed them. If there is no additional food in the country,

“ it must be imported, if possible; if not possible, the labourers will remain for a season on their short allowance; but the consequence of this change in the demand for commodities, occasioned by the change in the expenditure for capitalists from unproductive to productive, is that next year more food will be produced, and less plate and jewels.”

Here we have a sufficiently explicit hint that it may take home for the intention of the capitalists to work out its effects on the form which the community’s possession shall have; and it is surprising that Mill did not come back to this point when in the next chapter he dilated on the perpetual consumption and reproduction of capital. As it was, his language might be easily interpreted to mean that the sources from which wages came were the funds or proceeds in the hands of the immediate employer: an interpretation freely made by later writers, and, as we shall see, the source of a long and unprofitable controversy.*

The same lack of precise statement as to the way in which capital performs its function of supporting laborers, appears in other parts of these earlier chapters on capital. Such terms as “funds,” “sums,” “capital paid out,” are used, in a manner that, not unfairly construed, connotes money; and the reader is led to think of money available for paying wages as the important thing for the welfare of laborers. When a great loan is raised for war purposes, “it must have been wholly drawn from the portion employed in paying labourers”; and “if they produce as much as usual, having been paid less by so many millions sterling, these millions are gained by their employers.”* The attentive reader will here again read between the lines, — and indeed in places within the lines, — that Mill was really intent on the consumption for military purposes of food and other consumable goods that would otherwise have gone to productive laborers; the breach in the capital of the country coming from the “unproductive” consumption of these commodities. Even from this point of view, it would need to be explained that the unproductive consumption is a matter of no consequence to the mass of the laborers at the outset; during the first year, or the first cycle of production, it makes no difference to them whether they get their food in exchange for the work of tilling the ground or of destroying human life. Only in the next stage, when no food has been created in place of that destroyed, will the final effects of the wastefulness of war be felt. But Mill’s language is of capital in millions sterling, and of funds borrowed and spent. Whether his own thought was confused, or — as is more likely — he was so intent on other parts of the reasoning that he half-unconsciously adopted a convenient short cut at this stage, he certainly bred confusion in the minds of his later expounders and critics.

So, in discussing the conversion of circulating capital into fixed, Mill does indeed often describe this circulating capital in terms of so many quarters of corn; but he refers to the possibility that the fixed capital may be created, “not by withdrawing capital from actual circulation, but by the employment of the annual increase.”* As a matter of fact, the mode in which the steady growth of savings supplies the resources for increasing real capital without entailing even a temporary diminution of the commodities constituting “circulating capital,” is very complicated, and can be understood only by analyzing the operations of production over a considerable period. But Mill here again made a short cut for himself and his readers by considering both the circulating capital and the fresh accumulations in terms of money. The same thing is implied in the passage in which Mill refutes those who maintained that an income tax, while apparently falling on the rich alone, really takes from them what they would otherwise have spent among the poor.* Mill makes a distinction: “So far, indeed, as what is taken from the rich in taxes, would, if not so taken, have been saved and converted into capital, ... to that extent the demand for labour is no doubt diminished. ... But even here the question arises, whether the government, after receiving the amount, will not lay out as great a portion of it in the direct purchase of labour, as the tax-payers would have done.” This looks again to the money in the hands of one or another set of spenders as the thing whose volume and movement should be considered, if we would ascertain whether the laborers’ wages will be raised or lowered.

In a paragraph immediately succeeding that last quoted, Mill remarks that “error is produced by not looking directly at the realities of the phenomena, and attend­ing only to the outward mechanism of paying and spending.” Unfortunately, that outward mechanism was all too prominent in his own exposition; especially in discussions of the effects of any specific measure which involved an incidental consideration of the mechanism of payment, as to laborers and their welfare. On the relation between the money funds or proceeds held by the immediate employer, and the food, clothes, and enjoyments, constituting the community’s real “circulating capital,” he gave ambiguous and unsatisfactory statements, from which only a sympathetic interpreter could patch up a consistent and tenable doctrine.†

Some further light on the form which the wages fund doctrine assumed in Mill’s hands, may be had, finally, by considering one question more, — his views on that rigidity or predetermination of the fund which was so hotly discussed by later writers.

In the chapter specifically devoted to wages, the passages quoted above show no stress on the rigidity of the fund, and indeed hardly give an indication one way or the other as to Mill’s opinion. Like his contemporaries, he did not stop to consider the point. He passed so quickly from “market’’ wages to normal or “natural” wages, that he was not led to ask deliberately whether market wages at a given period were or were not predetermined. We have just seen how often, in other passages than those which were expressly concerned with wages, he discussed the relations between capitalists and laborers as if the essential thing were the advance of money funds or proceeds by the individual employers. On this basis, he could hardly have entertained the notion of any rigid source of wages; for he had set forth that these funds would shrink or swell with the capitalist’s change of intention, and had implied that they varied with his control over immediate money funds. In the main there is thus little direct indication in the body of the Political Economy of any iron-clad doctrine, and certain proof that such a doctrine, if entertained at all, was far from prominent in Mill’s own thinking.

There do not lack intimations, however, that underneath, and without much emphasis on the matter in his own mind, Mill held to a doctrine of the iron-clad sort. In the very discussion of the effect of the owner’s intention on the increase or decrease of capital, he suggests that it will take time to alter the existing supply of food; the food being treated, in Ricardian fashion, as the one essential constituent of real wages. The implication is that in any one season, this “circulating capital” is so much and can be no more. The same uncompromising view appears more explicitly in the chapter in the fifth Book which treats of combinations among laborers. There it is reasoned that even if a general combination of all laborers could be effected,

“ they might doubtless succeed in diminishing the hours of labour, and obtaining the same wages for less work. But if they aimed at obtaining actually higher wages than the rate fixed by demand and supply — the rate which distributed the whole circulating capital of the country among the entire working population — this could only he accomplished by keeping a part of their number permanently out of employment. As support from public charity would of course be refused to those who could get work and would not accept it, they would be thrown for support upon the trades union of which they were members; and the work-people collectively would be no better off than before, having to support the same numbers out of the same aggregate wages. In this way, however, the class would have its attention forcibly drawn to the fact of a superfluity of numbers, and to the necessity, if they would have higher wages, of proportioning the supply of labour to the demand.”*

Here we have something like the stern and ominous wages fund which rouses the ire of the friend of the working-man. The succeeding paragraphs of the same section show with equal plainness that, sometimes at least, Mill had clearly in mind the doctrine that for the time being the total demand for labor was fixed unalterably. He argues that a partial rise in wages — i.e., a rise in the wages of a particular group of laborers — may indeed be secured without corresponding loss to other laborers; but only in the end, not for the moment. It is only after the lapse of some time that this happy result can be secured.

“It may appear, indeed, at first sight, that the high wages of type-founders (for example) are obtained at the general cost of the labouring class. This high remuneration either causes fewer persons to find employment in the trade, or, if not, must lead to the investment of more capital in it, at the expense of other trades: in the first case, it throws an additional number of labourers on the general market; in the second, it withdraws from that market a portion of the demand; effects, both of which are injurious to the working classes. Such, indeed, would really be the result of a successful combination in a particular trade or trades, for some time after its formation; but when it is a permanent thing, the principles so often insisted on in this treatise, show that it can have no such effect. The habitual earnings of the working classes at large can be affected by nothing but the habitual requirements of the labouring people: these, indeed, may be altered, but while they remain the same, wages never fall permanently below the standard of these requirements, and do not long remain above that standard.”

In other words, general wages are fixed definitively at any one period by the wages fund. Only after a lapse of time can any other factor enter; and then the factor which is important is that which all the thinkers of this generation held to be promptly decisive: the standard of living.

In Mill’s case, as in Ricardo’s, it would be unfair to lay too much stress on brief passages of this sort, interjected into a discussion of the policy which the legislature ought to pursue in regard to labor unions. But they show clearly how natural to Mill was the Ricardian way of unrelenting reasoning from an assumed premise: and one premise was that in any given season there was so much “circulating capital” in the community, and could be no more. They show, too, how Mill, like Ricardo, lingered but for a moment on this phase of the wages question, touching it so briefly that we can not be sure how rigorously he would have maintained his doctrines if pressed to a more explicit and emphatic statement. Like Ricardo again, he passed at once to that other phase of the wages question which seemed to him of pressing importance: the “habitual requirements of the labouring people,” which constituted the one force to be made prominent in the statement of the laws governing general wages.

So much for the theory as Mill left it. The wages fund doctrine is stated briefly and boldly; its foundation in the nature of civilized production is hardly noticed; its teaching is aimed chiefly at the need of repressing numbers. Its application in other directions is cumbered and confused by references to funds and capital in terms of money, which obscure the essential truths of the doctrine, and became the source of the memorable but fruitless controversy which resulted in Mill’s recantation.

Before proceeding to the next chapter, in which that controversy is to be taken up, we may glance for a moment at Mill’s more immediate followers. Little is to be learned for our purposes from an examination of the popularizers who belong to this period of placid content with the perfect completeness of economic teaching. In the main, they repeated what Mill had said, with slight individual variations. A very few words as to one or two typical expounders of what was then supposed to be established truth, will suffice to indicate the stage at which the wages fund doctrine stood in England for near twenty years.

Charles Morrison published in 1856 An Essay on the Relations between Labour and Capital which reflects faithfully the attitude likely to be taken by one trained in the economics of the day and not possessed of the will or capacity to follow the current doctrines to their roots. Wages are regulated by the ratio between capital and labor. The fund for paying wages is “that part of the active or productive capital of the nation which is not required for some other employment necessary to the business of production” [i.e., not for plant and materials]. The division is determined by” the nature of things”; hence the wages fund is” a definite proportion of the entire active capital.” So much the employers, it is implied, must pay away to laborers. Even if they were “universally misers,” and were trying to get “the greatest possible profit,” this would “not diminish the sum expended in labour; and consequently would not lower the rate of wages.”*

As to combinations and strikes, Morrison argues that they are only harmful. True, some employers might be forced to pay higher than “competitive” wages; but “according to the laws which govern wages,” such a result could not be permanent. Yet it is noted that “the existing generation of manufacturers might be ruined before the last results of the process were worked out”: which seems to admit that for a while at least, and perhaps a good while, the conditions determining wages might not be so absolutely rigid after all.† There is an admission of a similar sort, again made without any glimpse of the consequences to which it might lead, in a curious bit of reasoning as to the possible effects of confidence and credit in swelling the wages fund. During a period of universal confidence a given fund would be turned over quickly by each capitalist. Thus a wages capital of £10,–000 would be turned over perhaps five times in an active year, three times in a dull one; the virtual wages fund would be £50, 000 in the first case, £30,000 in the second. Hence the source of wages is defined, in a later summary, as “the funds available for their [the laborers’] payment, multiplied by the average rapidity with which those funds are turned over.” Morrison considered this an important addition to the laws regulating wages: its innuendo as to the evil effects of strikes and disturbances is obvious enough.* Clearly it conceives the wages fund in terms of money or funds in the hands of the capitalist. But from this point of view, it is also clear that the wages fund might be flexible, not merely because of variations in confidence and commercial activity, but from pressure from the trades-union or any one of a dozen imaginable causes. That no turn of this sort in the reasoning occurred to Morrison, a man of candid intelligence and real public spirit, shows how rare after all is the capacity for even comparatively simple steps in independent thinking.

Of a different type, and worth noting because of the prominent place which he long held as an authoritative text-book writer, is Henry Fawcett. His Manual of Political Economy, first published in 1863,† was for near a generation an accepted text-book for those not able to undertake Mill’s larger and more abstruse volumes; and its dilution of the strength of the original has caused it to be described, not unfairly, as “Mill and water.” Here capital is defined as the fund from which labor is remunerated; it follows at once that “wages in the aggregate depend on a ratio between capital and population.” This is not qualified or explained, as it was by Mill, as an “elliptical expression”: it simply serves to introduce, without delay, the Malthusian proposition. On the other hand, practically nothing is made of the wages fund when Fawcett comes to the question of trade-unions and their effect on wages, — questions which absorbed public attention when he wrote, and led him to more pointed writing than was possible in the simple process of condensing Mill. In the discussion of these living questions, Fawcett’s views, so far as they bear on the wages fund, are certainly not excessively orthodox. The slow and imperfect working of competition is explained, and the greater tactical strength which laborers get from combination is fully set forth. On the other hand, as to strikes and their success, the wages fund simply does not appear at all.

Much the same is the case in Fawcett’s volume on the Economic Position of the British Labourer, published in I865. Here again we find at the outset the old and wearisome phrase as to the ratio between population and circulating capital; and with it an equally wearisome phrase to the effect that “the laws regulating wages are as certain in their effects as those which control physical nature.” But in the chapter on Trade-Unions, the wages fund and the natural laws fade away into nothingness. ‘’Natural” wages, it is explained, do not result at once or even quickly from mere competition. Combinations have their effects, among masters as well as among men. The tendency of profits to a minimum, and the check to accumulation from a fall in profits, — these, rather than the wages fund, are the obstacles in the way of deep-reaching effects from combinations and strikes. Of profits and their minimum and the accumulation of capital we shall hear more in due time: what the classic writers and their expounders had to say on this topic was stated better and more fully by Cairnes, whose position we shall consider in the next chapter. It is significant, as to Fawcett, that we find in him little of the disposition to fling the wages fund at the head of the laborers which is so much associated with the orthodox doctrines. We have seen that writers of the previous generation, — Torrens, M’Culloch, and their fellows,  — made little use of it in this direction. Like them, and like his master, Mill, Fawcett thought of it but little in connection with disputes about wages, and used it chiefly as a means of inculcating the need of that prudence in multiplication which seemed to all of these men the main instrument of social salvation.

• *The Political Economy was commenced in the autumn of 1845, and was ready for the press before the end of 1847. In this period of little more than two years there was an interval of six months, during which the work was laid aside, while I was writing articles in the Morning Chronicle urging the formation of peasant properties on the waste lands of Ireland.” — Mill’s Autobiography, p. 235.
       Dr. Ingram remarks with justice in his History of Political Economy (p. 150) that Mill never succeeded in fusing his economic theories with his social and philosophic views. It is equally true that he never succeeded in entirely welding together his strictly economic views.
• *Book i, ch. ii, § 2.
• *Book I, ch. iv, § I.
• *Political Economy, Book II, ch. xi, § I.
• *Professor Nicholson remarks (in his Principles of Political Economy, vol. i, p. 341): “It follows, then, according to this view (the wages fund doctrine] that wages can only rise either owing to an increase of capital or a diminution of population, and this accounts for the exaggerated importance attached by Mill to the Malthusian theory of population.” The converse seems to me nearer the truth: it was the exaggerated importance attached to the Malthusian theory which accounts for the stress laid on the wages fund doctrine.
• *See Part I, Chapter III, pp. 61–62, 67–68.
• *Book I, iv, § I.
• *In the earlier Essays on Some Unsettled Questions of Political Economy written in 1829 and 1830, though not published till 1844, there is a passage which deserves to be read in connection with those quoted in the text. In the second of the essays, the question of gluts is taken up, and, as part of it, the effect of a “brisk demand” on production. Mill presented, in the main, the orthodox view, but conceded something to Malthus, by admitting that a brisk demand might serve virtually to increase the community’s capital. Capital he defines, as he did later in the Political Economy, by intention: it is “all wealth which the individual or nation has in possession for the purpose of reproduction. ... All unsold goods, therefore, constitute a part of the national capital, and of the capital of the producer or dealer to whom they belong. … If, after having sold the goods, I hire labourers with the money, and set them to work, I am surely employing capital, though the corn, which in the form of bread those labourers may buy with the money may be now in the warehouse at Dantzig, or perhaps not yet above the ground.” This is dubious doctrine; and the consequences which Mill draws from it show how he confounded the advantages from a rapid succession of the different stages in production, with a real increase in the community’s productive apparatus. “An additional customer, to most dealers, is equivalent to an increase of their productive capital. He enables them to convert a portion of their capital which was lying idle (and which never could have become productive in their hands until a customer was found) into wages and instruments of production: and if we suppose that the commodity, unless bought by him, would not have found a purchaser for a year after, then all which a capital of that value [note this phrase] can enable men to produce during a year is clear gain, — gain to the dealer or producer, and to the labourers whom he will employ, and thus (if no one sustains corresponding loss) gain to the nation.” — Essays, p. 54.
       From this sort of reasoning as to capital, it would clearly follow that the circulating capital whence wages are paid, so far from being a rigid quantity, is a very flexible and expansible one. Although Mill published the essay in 1844, he did not incorporate the matter of it, as he did that of others, in the Political Economy, printed in 1849. Indeed, the chapter on excess of supply (Bk. III, ch. xiv) does not mention the effects of brisk demand among the things that might palliate Malthus’s errors. Perhaps, on maturer consideration, the reasoning of the essay struck him as unsatisfactory.
   
• *Book I, ch. v, § 8.
• *Book I, ch. v, § 10.
• *Book V, ch. x, § 5.
• *Essays, pp. 19, 20.
• *See chapters xvii and xviii of Morrison’s Essay. His doctrine here is virtually the same as that which Mill set forth in his Essays in Political Economy, but did not see fit to retain in the Political Economy. See the note to p. 229, above.
• †Ibid., §2, at the end.
• †Book II, ch. xi, § 3.
• †See Cannan, History of Theories of Production and Distribution, p. 15, and Wealth of Nations, Book II, ch. iii, p. 149. Compare Mill’s Principles, Book I, ch. v, § 6.
• †A characteristic passage, illustrative of the uncertain tone with which Mill spoke, is the following, taken from the chapter on the Consequences of the Tendency of Profits to a Minimum. I have italicized some significant words. “What is laid out in the bona fide construction of the railway itself is lost and gone: when once expended, it is incapable of ever being paid in wages or applied to the maintenance of labourers again; as a matter of account, the result is that so much food and clothing and tools have been consumed, and the country has got a railway instead. But what I would urge is that sums so applied are mostly a mere appropriation of the annual overflowing which would otherwise have gone abroad,” and so on. — Political Economy, Book IV, chapter v, § 2.
• †Ibid., p. 99.
• †I have read the third edition, published in 1867. The passages referred to are in Book II, chapters iv, v, ix.
• ‡In § 9 of chapter iv, Book I.