Note to page 6.

Few doctrines appear to me more evidently erroneous than that any considerable variation in the amount of wages can be compensated by a rise or fall of profits. The usual supposition is, as I observed in the text, that the capitalist, at an average, advances the wages of his labourers for one year, and receives, after deducting rent, one-tenth of the value of what they produce. I am inclined to think, that the average rate of profit is rather greater, and the average period of advance rather less. After making many inquiries on these subjects in Manchester, I found the general opinion to be, that the manufacturing capitalist turns his capital, at an average, twice in the year, and receives on each operation a profit of 5 per cent.; and that the shopkeeper, at an average, turns his capital four times in a year, and receives on each operation a profit of about 3½ per cent. On these data, the labourer’s share would, of course, be much greater than according to the ordinary estimate. We will suppose, however, that estimate to be correct, and that, after rent has been deducted, the labourer receives, at an average, nine-tenths of the value of what he produces. Under these circumstances, a rise in the amount of wages, amounting to one-tenth, or from 10s. to 11s. a week, if that rise is to be deducted from the capitalist’s share, would utterly destroy all profit whatever. Edition: current; Page: [93] A rise of one-fifth, or from 10s. to 12s. a week, would occasion to the capitalist a loss equal to the whole amount of his former profit. A fall in wages of one-tenth would double profits; a fall of one-fifth would treble them. Now we know that general variations in the amount of wages to the amount of one-tenth or one-fifth, or to a greater extent, are not of unfrequent occurrence. Yet who ever heard of their producing such an effect on profits?

And yet this doctrine has received the sanction both of theoretic and practical men. Mr. Francis Place is asked by the Committee on Artizans and Machinery (First Report, p. 46)*, “Do not the masters in consequence of a rise of wages raise their prices?”

“No,” he answers, “I believe there is no principle of political economy better established than this of wages; increase of wages must come from profits.”

Did Mr. Place ever apply this doctrine when his men asked for higher wages on a general mourning? Even the Committee appear to have taken this view of the question. The subject is so important, that I will venture to extract the following passage from the Report made in the following Session:—

“Those eminent persons, who, during the last fifty years, have reduced the rules that govern the operations of trade and industry to a science, undertake to show, by arguments and facts, that the effect of low wages is not a low price of the commodity to which they are applied, but the raising of the average rate of Edition: current; Page: [94] profits in the country in which they exist. The explanation of this proposition occupies a large portion of the justly-celebrated work of the late Mr. Ricardo, on the Principles of Political Economy; and is also ably set forth in the following evidence of Mr. M‘Culloch, to which your committee particularly desire to draw the attention of the house:

“ ‘Have you turned your attention to the effect of fluctuations in the rate of wages on the price of commodities?—I have.

“ ‘Do you consider that when wages rise, the price of commodities will proportionally increase?—I do not think that a real rise of wages has any effect whatever, or but a very imperceptible one, on the price of commodities.

“ ‘Then, supposing wages to be really lower in France than in this country, do you think that that circumstance would give the French any advantage over us in the foreign market?—No, I do not; I do not think it would give them any advantage whatever. I think it would occasion a different distribution of the produce of industry in France from what would obtain in England, but that would be all. In France, the labourers would get a less proportion of the produce of industry, and the capitalists a larger proportion.

“ ‘Could not the French manufacturer, if he gets his labour for less than the English manufacturer, afford to sell his goods for less?—As the value of goods is made up wholly of labour and profit, the whole and only effect of a French manufacturer getting his Edition: current; Page: [95] labour for less than an English manufacturer, is to enable him to make more profit than the English manufacturer can make, but not to lower the price of his goods. The low rate of wages in France goes to establish a high rate of profits in all branches of industry in France.

“ ‘What conclusion do you come to in making a comparison between wages in England and wages in France?—I come to this conclusion, that if it be true, that wages are really higher in England than in France, the only effect of that would be to lower the profits of capital in England below their level in France, but that will have no effect whatever on the price of the commodities produced in either country.

“ ‘When you say that wages do not affect prices, what is it that does affect prices?—An increase or diminution of the quantity of labour necessary to the production of the commodity.

“ ‘Supposing that there was a free export of machinery, so that France could get that machinery, do you think that under those circumstances we should retain those advantages which we possess at the present moment?—Yes, we should; for the export of the machinery would not lower our wages, or increase the wages in France, so that we should preserve that advantage to the full extent that we have it at this moment.

“ ‘Will you explain to the committee why you are of opinion that the French manufacturer would not undersell the English, seeing that his profits are larger Edition: current; Page: [96] than the English manufacturer?—Because if he were to offer to undersell the English, he can only do it by consenting to accept a less rate of profit on his capital, than the other French capitalists are making on theirs, and I cannot suppose a man of common sense would act upon such a principle.

“ ‘Are the committee to understand, that although a French manufacturer pays half the wages to his men in France, which our manufacturers do in England, yet that his wages being on a par, or a level, in general, with the other wages in France, will render his profits on a par with them, and consequently he would not undersell the English merchant by lowering his profits below the average rate of profits in France?—Precisely so. I believe, in point of fact, there is no such difference; but he could not undersell the English manufacturer unless he took lower profits than all other producers in France were making. I might illustrate this by what takes place every day in England, where you never find the proprietor of rich land, in order to get rid of his produce, offering it in Mark-lane at a lower rate than that which is got by a farmer or proprietor of the very worst land in the kingdom.

“ ‘Would it not produce a larger sale if the French manufacturer were to sell at a less price?—Supposing that to be so, the greater the sale the greater would be the loss of profit.’ ”*

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I have extracted this passage rather as indicative of the views of the Committee, than of those of Mr. M‘Culloch. Mr. M‘Culloch, as will appear on turning to his evidence, meant by wages really high and really low, not a larger or a smaller amount, but a larger or a smaller proportion. But the Committee appear to have understood him to mean a larger or a smaller amount.

Mr. Bradbury had previously stated the common day wages in France to be about half the wages paid in England.

He was asked—“In what way do you consider that lower wages in France give the French manufacturers an advantage over English manufacturers?

“I conceive that, if they pay 3d. a pound for spinning to the operative spinner, and we pay 6d., that would give them an advantage of 3d. a pound in the cost.

“You mean to say, that the French would be able to sell the article they make, in consequence of paying lower wages, cheaper than the English could sell it?

“They could afford it 3d. a pound cheaper.

“You mean to say, that, according to the rate of wages paid, the price of the article for which they are paid is high or low?

“It may be afforded higher or lower, I should imagine, as the cost be more or less.

“Therefore, the whole reason and ground on which you think that low wages give them an advantage, is, Edition: current; Page: [98] that low wages contribute to enable them to sell the article cheaper than if they paid higher wages?

“Yes; labour constituting a material feature in the cost.

“You conceive that increased cost would be a loss to the party, if the price was not increased in proportion?

“I should imagine so.

“Might not the profits of the proprietor be lessened?

“They might be lessened, which is in effect a loss.

“Might not that enable him to bear the loss which the difference of wages produces*?

“If he chose to make that sacrifice.

“Might not the profits be lessened until there were no profits at all?†

“Very easily I should think.”—(Fifth Report of the select Committee on Artizans and Machinery, p. 547, 549, 550.)

It was with reference to this evidence that Mr. Edition: current; Page: [99] M‘Culloch was examined. His examination commences thus:

“Have you read the evidence which has been given before this Committee?

“I have read portions of it only.

“Have you read the evidence given by Mr. Bradbury?

“A part of it.

“That part in which he conceives that foreigners have an advantage over the English manufacturers in consequence of wages being lower in France?

“Yes, I have read that”

And then follows the question:

“Have you turned your attention to the effect of fluctuations in the rate of wages on the price of commodities?”

Now if the committee understood Mr. M‘Culloch to mean, by high or low wages, not a great or small amount, but a great or small proportion, his evidence and that of Mr. Bradbury had nothing in common.

The whole of the confusion has arisen from a verbal ambiguity. Mr. Ricardo has demonstrated that, in the absence of natural or artificial monopoly, all that is produced is divided between the capitalist and the labourer, and that, cæteris paribus, the rate of profit depends on the proportion of the produce which the capitalist receives in return for having advanced, for a given time, the labourers’ wages. This doctrine, though, like almost all other truths in political science, when once stated, almost self-evident, is one of the most important discoveries of modern times. It has given to the subject of profits the Edition: current; Page: [100] clearness which the discoveries of Mr. Malthus and Sir Edward West gave to that of rent. Most unfortunately, however, Mr. Ricardo applied the terms high wages, and a rise of wages, and low wages and a fall of wages, to an increase or diminution of the labourer’s proportion, whether the amount of what he received were or were not diminished or increased.

“It is according to the division of the whole produce of the land of any particular farm between the three classes of landlord, capitalist, and labourer, that we are to judge of the rise or fall of rent, profit, and wages, and not according to the value at which that produce may be estimated in a medium which is confessedly variable.

“It is not by the absolute quantity of produce obtained by either class that we can correctly judge of the rate of profit, rent, and wages, but by the quantity of labour required to obtain that produce. By improvements in machinery and agriculture the whole produce may be doubled; but if wages, rent, and profit be also doubled, the three will bear the same proportions to one another as before, and neither could be said to have relatively varied. But if wages partook not of the whole of this increase; if they, instead of being doubled, were only increased by one-half; if rent, instead of being doubled, were only increased three-fourths, and the remaining increase went to profit, it would, I apprehend, be correct for me to say, that rent and wages had fallen while profits had risen; for if we had an invariable standard by which to measure the value of Edition: current; Page: [101] this produce, we should find that a less value had fallen to the class of labourers and landlords, and a greater to the class of capitalists, than had been given before. We might find, for example, that though the absolute quantity of commodities had been doubled, they were the produce of precisely the former quantity of labour. Of every hundred hats, coats, and quarters of corn produced, if

The labourers had before25The landlords25And the capitalists50100

and if, after these commodities were double the quantity, of every one hundred

The labourers had only22The landlords22And the capitalists56100

in that case I should say, that wages and rent had fallen and profits risen; though, in consequence of the abundance of commodities, the quantity paid to the labourer and landlord would have increased in the proportion of 25 to 44. Wages are to be estimated by their real value, viz., by the quantity of labour and capital employed in producing them, and not by their nominal value either in coats, hats, money, or corn. Under the circumstances I have just supposed, commodities would have fallen to half their former value, and if money had not varied, to half their former price. If, then, in this medium, which had not varied in value, the wages of the labourer should be found to have Edition: current; Page: [102] fallen, it will not be less a real fall, because they might furnish him with a greater quantity of cheap commodities than his former wages*.”

According to this nomenclature, if one labourer were to receive 30l. a year, and the produce of his labour to sell at the end of the year for 40l., and another were to receive 60l. a year, and the produce of his labour to sell for 100l., the first labourer would be said to receive higher wages than the second; and if the wages of the second were to be altered from 60l. to 40l. a year, and the commodity to sell for 50l., the alteration must be termed a rise of wages. According to this nomenclature, the wages of the best workmen are always the lowest, for it is known to be more profitable to employ them. This strange use of words must have been perplexing, even if Mr. Ricardo’s language had been consistent. But it is almost impossible to affix to terms of familiar use a perfectly new meaning, and not from time to time to slide into the old one. When Mr. Ricardo says, that “nothing can affect profits but a rise of wages,” p. 118; that “whatever raises the wages of labour lowers the profits of stock,” p. 231; that “high wages invariably affect the employers of labour by depriving them of a portion of their real profits,” p. 129; that “as the wages of labour fall the profits of stock rise, and they are together always of the same value,” p. 499, he means by high wages a large proportion. But when he speaks of the “encouragement which high wages give to the increase of population,” pp. 88, 361; when he admits, that “on Edition: current; Page: [103] an increase of population wages fall,” p. 494; he means by high or low wages a large or small amount.

Mr. M‘Culloch has stated, with great clearness, the difference between proportional wages and real wages, or wages estimated in money or in quantities of produce. And he adds, with equal accuracy, “If the productiveness of industry were to diminish, proportional wages might rise, notwithstanding that real wages, or the absolute amount of the produce of industry falling to the share of the labourer, might be diminished; and if, on the other hand, the productiveness of industry were to increase, proportional wages might be diminished, while real wages might, at the same time, be increased.” Principles, &c. p. 365. And he generally uses the words “high and low wages” to express, not a large or small proportion, but a large or small amount. It is in this sense that he contrasts (p. 353) the low wages of Hindostan with the high wages of America. But is this use of language consistent with his statement (p. 322) that the high wages we pay to our workmen cause low profits? Or, is it consistent with the inferences drawn by the Committee from his evidence?

Printed by William Clowes, Stamford Street.

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