17 JULY 1897, Page 22

WAGES AND CAPITAL.*

WE must confess to having nursed an erroneous conviction that the doctrine of a Wages Fund had been killed by the keen criticism of modern economists, and to having ex- perienced something like aggrieved surprise on finding that a book dubbed Wages and Capital, by an American Professor, has for its sub-title An Examination of the Wages Fund Doctrine. It appears, however, that this example of economic atavism is only another instance of the fact that the devotees of this mysterious science can deal with essentially different subjects under the same name. It seems that the Wages Fund doctrine as expounded by John Stuart Mill is really not only dead but buried, but there is another new doctrine which may be conveniently, for the further confusion of the student, dealt with under the title of the deceased theory. We have groped our way cautiously and carefully along the tortuous path that Professor Taussig has levelled, and have come to the following conclusions. First, that he has written a very interesting book, well worth the attention of those who have enough leisure to treat economics purely as a hobby, or enough reverence for it to raise it to the position of an end- in-itself. Second, that its net result, as far as our comprehen- sion could grasp it, is that we have left behind Mill's notion of a predeterminate, inelastic fund, the proportion of which to the labouring population determined the rate of wages ; that we have now to consider whether labour is paid out of the proceeds of its product, or out of capital ; and that Professor Taussig inclines to the latter view. And third, that the discussion is not worth one straw from a practical point of view.

We are well aware that only economic heretics would regard the third point as a criticism. The Professor himself admits its truth, but he seems to glory in it. He says in his summary that "in the concluding chapter of the first part, it was pointed out that, in its relations to other economic questions, whether practical or theoretical, the whole wages fund controversy was of comparatively little significance. Practical questions—on strikes, trade-unions, combinations —invariably arise as to particular wages, not as to wages at large ; while it is only to the questions of wages at large that general reasoning as to wages and capital can apply." We should have thought that the question of wages at large was one of the most practical that now require illumination, and that if the Professor had condescended to conduct his inquiry with a view to practical result, his deep erudition and rare gift of clear thinking might have helped to bring down economic science to earth, where it is sadly to seek. As it is, he has merely compiled another elaborate proof of the melancholy fact that it is the high priests of this cult who have exiled it to Saturn. He begins with new definitions of capital and wages. "It would seem best," he says, "to let the term capital stand simply for inchoate wealth ; for all the possessions that do not yet serve human wants." And again he speaks of commodities being " on the point of emerging from ctpital into income. They are in shopkeepers' hands awaiting purchase." Surely this is one of the most needless and futile distinctions with which an economist ever fuddled his own and his readers' brains. A book would thus be capital when it is in the bookseller's shop ; a customer comes and buys it, and so it is income, or wealth no longer "inchoate; " and all commodities would be capital that have not passed from the retailer to the ultimate buyer,—observe that it is the "shopkeeper," not the wholesale dealer, who transforms the article from capital to income. It is hardly necessary to point out that by thus speaking of wealth as " inchoate " until it is in the hands of the actual consumer, Professor Taussig writes himself down as ignorant of the fact that wealth is whatever can be exchanged. Gold is inchoate until it is coined into sovereigns, melted into plate, or used in the gentle art of dentistry, but bullion will fetch a price, and so is wealth. Grain is wealth, and so is flour, but the Professor would still dub them inchoate until they were developed into loaves and sold across the baker's counter. It is obvious that each a definition, if accepted, would preclude all further

• Wages and Capital : an Examination of the Wages Fund Doctrine. By F. W. Tanning, Professor of Political Economy in Harvard Univeraity, ac. London: 'Macmillan and Co

discussion as to whether labour is paid out of capital ; for the real wages of labour are the commodities which the artisan buys from the shopkeeper, and so, ex hypothesi, transforms from capital into something else.

To do him justice, however, the Professor, true to time- honoured economic tradition, is not hampered for one moment by his own definition. Throughout his book, except in a few bewildering passages in which he trips over his home-made tether, he uses capital in its ordinary sense, or senses. For instance, he points out that " looking simply at the surface phenomena of money wages and of the money market, it is easy to see that capital means different things in the two cases. In relation to money wages, it refers to the total money funds turned over by employers to the hire of laborers ; in the other, to the money funds in the hands of lenders, chiefly for short-time loans, and offered by them to the active manufacturer." In short, capital is as many- headed as Proteus ; besides being money funds and inchoate wealth, it is "the tangible apparatus for the production of wealth." In fact we may take our choice as long as we recognise that " in whatever sense we use the term capital, it will still appear that current wages, considered with reference to any but a very short period of time, are derived in the main from capital." As to wages, we have the same latitude of meaning. The Professor states, indeed, that "probably the best plan for the exposition of distribution at large is to describe all reward for exertion as wages," but he does not attempt to adhere to this promising new departure, by which he might have thrown much light on the vexed questions of distribution ; he goes on to distinguish between " incomes of independent producers, large and small," in- terest payments, rent payments, and wages of hired labourers ; all these are, ultimately, rewards of past or present exertion, and so should have all been wages according to the " best plan for the exposition." A distinction is even drawn between the hired workman and the independent labourer, and the former is said to be paid out of capital, while the latter is not; whereas if the independent worker had no capital to feed himself withal he would starve before he sold his work; the difference is that he is paid out of his own capital and the hired man out of another's. These:flaws and inconsistencies, however, are nearly all contained in the early part of the work, in which the Professor is apparently aiming at the construction of a new theory ; by far the best part of the book is his historical and critical survey of the Wages Fund doctrine and its treatment, from the time of Adam Smith down to the present day. These chapters are concise and lucid, and give an interesting history of a controversy which has played an important part in economic development.

The problem of the wages fund is, after all, a very simple one when once we recognise that it is so complicated that no formula can be found which will apply to all its conditions. The Professor has done well by laying stress on an obvious fact that is often forgotten, viz. :—

" The work of the 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 cf the labor being done at the present moment will bring con- sumable 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."

Exactly so, and this means that the present supply of enjoy- able goods depends on the amount of past activity and cannot be multiplied at will. In other words, there is a limited fund of goods ready for use, which constitutes the wages fund, out of which not only labour but all human exertion is rewarded.

But it does not follow that the fund for the remuneration of labour is more limited than any other ; labour may struggle for a larger share in the total fund, and may succeed as long as it does not reduce the rates of interest on capital and of profit on enterprise to famine point, or raise the price of its product to prohibition point. The question as to whether labour is paid from capital or from product is practically barren, for in either case labour may be justified in claiming more capital or more product. Bnt the answer to it is also very simple. In so far as there must be some store set aside before any enterprise can be started, labour is paid out of capital ; but in so far as labourers are only paid because their employer expects to recoup himself out of the product of their labour, they are paid out of anticipated product.