ARTICLE IV.-RECENT THEORIES OF WAGES.

It is a long step

SOCIAL movements have a doctrinal basis. from a faulty theory of capital to a communistic revolution; but the connection is traceable. Society cannot, indeed, be overturned by the stroke of a theorist's pen; but it may suffer changes through the general acceptance of an abstract principle having an application to the facts of life. It is not mere inequality that is likely to create tumults. The wild partizans of labor talk to the wage workers not merely about sufferings, but about wrongs. Something is said to be unjustly withheld from them; there is a question of equity involved, and this requires an appeal to abstract principles.

The baldest questions of material interest become, thus, moral questions; and some of the subtlest of these are presented in the theory of wages. They involve the validity of the title to every form of property that is created by the joint action of capital and labor; and that includes, in practice, nearly all property. There is a question concerning wages which, rightly settled, tends to public order, wrongly settled, tends to communism, and unsettled, tends to agitation and uncertainty. The point at issue is the source of the remuneration of labor, or the true relation of wages to capital and to products.

One answer to this question has been given by Mr. Henry George, in his suggestive work entitled Progress and Poverty. In this work it is clearly demonstrated that labor creates the value by which it is repaid, and that the laborer, as a rule, receives nothing from his employer until he has transferred something to the employer. The truth thus established is followed by misleading errors respecting the function of capital and the nature of wages. "As the employer generally makes a profit," says Mr. George, "the payment of wages is, so far as he is concerned, but the return to the laborer of a portion of the capital he has received from the labor. So far as the employee is concerned, it is but the receipt of a portion of the

capital his labor has previously produced." Some one other than the wage worker must, then, receive a portion of the fruit of the laborer's efforts. Wages come from the direct product of the labor itself; and they constitute only one part of that product.

An opposite answer to this far-reaching question has been. given by Professor W. G. Sumner, in a recent Article in the Princeton Review. This Article maintains that wages are paid solely from capital antecedently accumulated, and that they stand in a relation to products which is remote and not ascertainable. This divorcement of wages and products is made the ground of inferences so important as to justify the closest examination of the principles from which they are derived. It is because wages come from capital and are disconnected from products that it is at once inferred: "(1) that all questions whether the laborer gets his share of the product or not are, under the wages system, nonsensical. (2) That the appeals, often made in England, to workmen to take lower wages, so that the English products can be sold cheaper in foreign markets, are founded on false conceptions of wages and ought to have no weight. (3) That the arguments of American protectionists, drawn from comparative rates of wages, are all fallacious. (4) That the attempt to connect wages with the price of products, by a sliding scale or otherwise, is founded on no true relations and is doomed to failure."

Can, then, this complete separation of wages and products be maintained? The answer to this question decides the fate of the above inferences and of others, and it will, therefore, be interesting to examine the effective argument by which the theory is supported. It is proposed by Professor Sumner to divide time into intervals termed periods of production, including, in each case, the time required for the completing of a productive operation and the realizing of its returns. In agriculture the interval would be a season; in manufacturing it would be whatever time might be required, in order to buy materials, and to transform and sell them. Capital is regarded as fixed, in quantity, at the beginning of the operation, as consumed during the process, and as replaced, with a surplus, which is profits, from the products. Products do not exist until the close of the

period; and as wages are paid throughout, they can come from capital only, and are, in fact, one of the modes by which it is consumed; they are analogous, in this respect, to other wastes involved in the productive process. As profits come from products, and wages from capital, the two are not parts of one whole.

After one productive period has been completed, another commences; products of the first period are converted into capital of the second; and if this capital has been made larger than the preceding, by the addition of profits, the increase will now produce its effect on the labor market. Wages may be raised during the second interval by the profits of the first, but only as these are added to original capital; they can have no effect anterior to their existence. In the determining of wages, the productiveness of capital is not a present consideration; it will affect the quantity of future capital, and, thus, the rate of future wages, as past productiveness has determined present capital and present wages. During any one period the quantity of capital, and not its "fecundity," is decisive in determining the demand for labor, and in fixing its market price.

It is obvious that, even according to this mode of statement, wages, during each period, are paid from the products of the preceding, although those products, in their new relation, must, by accepted definitions, take the name of capital. If the industrial process be completed in a month, the wages of February are paid from the products of January, those of March from the products of February. The total wages of the year from February the first to February the first are paid from the total products of the year from January the first to January the first, of the same general dates. The aggregate wages of a decade are paid from the products of a decade which lacks but a month of coinciding with it in the times of beginning and of ending. Though wages for a month and profits for that month be, as stated, not parts of one whole, aggregate wages and aggregate profits are parts of one whole, namely, the sum total of products. If the relation of employed and employers, as sharers in the returns of a joint industry, do not appear to exist during a single month, considered separately, it exists during a year, a decade or a working life-time, which is more impor

tant.

Now each of the conclusions above cited has reference to that which is permanent, rather than to that which is transient. When the question is raised whether the laborer gets his share of products or not, it is usually intended to consider whether, year after year, he gets his share of the continuous supply of wealth which results from industry. The attempt of the English exporters to retain the control of foreign markets, by lowering wages, and that of the American protectionist to introduce manufactures, in spite of high wages, have in each case, reference to a permanent national policy that shall operate for decades, including an indefinite number of periods of production. If the fallacy of these measures is to be demonstrated by establishing the separation of wages and products, that independent relation should be shown to hold true of the aggregate wages and the aggregate products of an indefinite interval. Moreover, the sliding scale of wages sometimes advocated is a permanent arrangement, whereby the workmen may share in the benefits of a time of continuous prosperity, and bear their proportions of the burdens of continuous adversity. It would seem that whatever inferences as to the success of the plan are to be drawn from the relation of wages to products should be based on the relation of continuous wages to continuous products, rather than on that of a particular fraction of the one to a particular fraction of the other.

Again, as the employer, during a single month, takes from a reserve of capital the sum which he pays to the workman, in the expectation of replacing it from products, it would seem. that the replacement, rather than the mere advance, is the virtual payment. The water drawn from the reservoir of a city comes, in effect, from the river, which is the source of supply. There is a series of temporary displacements; but it is the permanent withdrawal of water from its ultimate source that constitutes the process of supplying the draught, though the particular drops taken from the river may not reach the city for some time. The reservoir contains a more or less constant quantity of hydraulic capital; it is its function to make advances, to change the time when a draught from the perennial source among the hills shall produce its effect at the hydrants of the city. If we are justified in saying that the

river supplies the city, though every draught come from the reservoir, we are justified in saying, as Mill and others have done, that products are the source of wages, though every payment be from capital.

The connection between wages and products is, however, closer and more literal than this. It appears not only when the two are considered in the aggregate, but when they are analyzed into their component parts; the successive increments of each are as closely connected as the sum total. The ultimate returns of the industry are the indirect source of wages; but there is a direct product which is their immediate source. This will appear from an analysis of the process of distribution.

When the value created by a joint operation is divided among persons who have acted simultaneously to produce it, the process may be termed simple or direct distribution. It is thus that barrels of oil are shared by the crew of the returned whaling ship. There is a single bargain, including all the parties concerned, before the commencement of the operation, and a single distributing act in fulfillment of the contract, at its close.

Both production and distribution ordinarily take place, not by a single operation, but by a succession of many. One producer begins with crude nature, and so modifies it as but partially to prepare it for rendering its service to men; another and another continue the operation. The ultimate result of the agency of all is a completed product, and the particular change effected by each may be distinguished as a sub-product. The process by which the total value of the completed product is divided among all who have acted successively to create it, may be termed complex or indirect distribution. It is thus that the value of finished garments is distributed among tailors, merchants, manufacturers, wool dealers, and farmers. The farmer gets his share in that total value in obtaining the market price for his wool. The manufacturer receives his portion in obtaining the market value of the increment of utility imparted to the wool by its transformation into cloth; and as the wool and the increment of utility constitute two distinct sub-products, this distributing process resolves itself into a succession of sales, in which, in each case, a producer buys all the ante