Chapter 66 APPENDIX X Wage Fund Doctrine

Section 1 A century ago, the scarcity of capital caused economists to overemphasize the role played by the supply of capital in determining wages. In the early nineteenth century, although the British people were very poor, the people of European countries were even poorer.Most countries are sparsely populated, so food is cheap; but, even so, they are starved and unable to finance their own troops.France, after its first few victories, lived by blackmailing other countries.And the countries of central Europe could not maintain their armies without the help of England.Even America, young and strong with national resources, is not rich; she cannot subsidize the military on the mainland.

The economists of the day sought an explanation: and held that it was chiefly due to the accumulated capital of Great Britain, which, though small by today's standards, was at that time greater than that of any other country. much.Other countries envy England and want to emulate her; but they are unable to do so, partly for other reasons, but chiefly because they do not have sufficient capital.Their annual income is used for direct consumption.In these countries there are not large numbers of men, who store up a great deal of wealth which they do not need to consume at once, and which they employ in the manufacture of machinery and other things which assist labor, and enable it to produce large quantities of goods for future consumption.Due to the lack of capital everywhere (even in England), due to the increasing dependence of labor on the assistance of machinery, due to the nonsense of Rousseau's disciples (who tell the working class that if they have no capital at all, their lives will be greatly improved), Give their sayings a special tone.

Therefore, the economists at that time strongly emphasized that, firstly, labor needs the maintenance of capital, that is, new clothes that have been produced, etc.; secondly, labor needs the assistance of capital in the form of factories, raw material storage, etc.Of course, the worker may supply himself with capital, but in reality he has only a few pieces of clothing and furniture, and perhaps a few simple tools of his own.In other respects he was dependent on other people's savings.Laborers received ready-made clothes, bread to eat, or money to buy these.The capitalist gets the spinning of wool, the weaving of wool into cloth, or the cultivation of the land, and only in a few cases commodities for immediate use, clothes for ready-to-wear, or bread for eating.It is true that there are some important exceptions, but the general transaction between employer and employee is that the latter gets what is for immediate use, and the former gets what helps in the manufacture of what is to be used later.Economists express these facts as follows: All labor requires the maintenance of capital, whether this capital belongs to oneself or to others; Paid to him in advance—by advance, I mean not until what the workman is engaged in making is ready for immediate use.These simple propositions have been much criticized, but they have never been denied by anyone, provided he takes them in their original sense.

The older economists, however, went on to say that the amount of wages is limited by the amount of capital. And this proposition is untenable; at best it is a crude statement.It had given the idea that there was a fixed amount of wages a country could pay in, say, a year.If a group of workers raises their wages by the threat of a strike or otherwise, they are told that the other mass of workers loses an amount equal to the increase in their wages.Those who say this are probably thinking of agricultural products that are only harvested once a year.If the wheat at one harvest must be eaten up before the next harvest, and if no wheat is imported into the country, it is true that if any one man's share of wheat increases, others will lose just the same share.But this does not serve as a pretext for the proposition that the amount of wages payable in a country is determined by the capital of that country, a doctrine known as "the theory of wage funds in vulgar form."

The exaggeration of the second section can be seen in the second "Theory of Wages" before Mill's "Theory of Value"; but in the fourth "Theory of Distribution", there is no such expansion.Partial symmetry of the interrelationships between capital and labor, and between production and labor. It has been pointed out earlier (Part I, Chapter IV, Section 7) that in his later years, under the influence of Comte and the socialists and the general trend of popular opinion, Mill was engaged in emphasizing the human nature of economics as opposed to mechanical factors. factor.He wanted to draw attention to the influence of the constant changes of custom and society, and of human nature on human behaviour; he agreed with Comte that the former economists had underestimated the variability of human nature.It was this desire that drove him to engage in economic research work in his later years, and this kind of work was different in nature from when he wrote "A Collection of Unresolved Problems"; it was also this desire that induced him to assign Distinguished from exchange, and asserting that the laws of distribution depend on "particular human institutions" and tend to change as human emotions, thoughts, and actions pass from one state to another.He thus opposed the law of distribution to the law of production, which he believed to be based on an immutable natural basis, and to the law of exchange, which he believed to be very similar to the universality of mathematics.Indeed, he sometimes speaks as if economic science is primarily concerned with the production and distribution of wealth, and thus seems to imply that he regards the theory of exchange as part of the theory of distribution.But in fact he distinguishes the two theories; he discusses "Distribution" in Parts 2 and 4 of the Principia, and "The Machine of Exchange" in Part 3 (cf. Principles, Section 1 of Chapter 1 of Book II and Section 6 of Chapter 16).

In doing so, he lets the more human zeal of economics override his judgment and drive him to work without full analysis.Because he placed the main theory of wages before the explanation of supply and demand, thus depriving him of any opportunity of discussing it satisfactorily; , "wages depend chiefly on the ratio of population to capital"; or even, as he later explained, on "the size of the wage-earning class" and "the proportion of the total so-called wage fund composed of that part of the circulating capital employed in employing labour. " The fact is that the theories of distribution and exchange are closely related to slightly more than two sides of the same problem; Factors which vary or will vary from time to time and from place to place. If Mill had recognized this great truth, he would not, as he did in Part II, seek to substitute the raising of the wages problem for its solution, but perhaps will combine his description and analysis in Part II with the masterly study of the factors determining national income in Part IV;

In fact when his friend Thornton, following in the footsteps of Lange, Cliff Leslie, Jevons, and others, convinced him that his wording in the second part was wrong, he fully accepted the opinion and exaggerated Recounts his own past mistakes and the concessions he had to make to his enemies.He says (Proceedings, Vol. 4, p. 46), "There is no such law of nature which makes it impossible for wages to rise to the point where it not only swallows up the fund in business, and devouring all the private expenses he has left except the necessities of life. The real limit of this rise is the practical consideration of how much it will hurt him or drive him out of business, and not the fixed Wage fund boundaries." He did not specify whether he was referring to immediate or eventual results, the short-term or the long-term, but in either case the claim seemed untenable.

In the long run, the limit is too high for wages to rise so long as to eat up almost as much national income as is here indicated.In the short run, the limit is not set high enough: for in a critical moment a well-organized strike can demand for a short time from the employer a value of the entire output that exceeds the payment of the raw materials for that period, thereby making him Gross profit at the time became negative.Indeed, neither the older nor the newer forms of wage theory are directly related to any particular problem of struggle in the labor market.It depends on the balance of power between the two sides in the struggle.Wage theory, however, has much to do with the general policy of labor relations.For it shows which policies do or do not contain elements of their eventual failure; which policies can be sustained by proper organization;

Soon Keynes, in his Fundamentals, sought to revive the wage-fund doctrine in a narrative form which he believed would avoid attack.Although in most of his account he avoids the former pitfalls, he is only able to do so by explaining away all the features of the doctrine, so that very little of what remains is worthy of the name.However, he says (p. 203), "ceteris paribus, the rate of wages changes in inverse proportion to the supply of labor".As a direct result of the dramatic increase in the supply of labor, his argument is correct.However, in the general process of population growth, not only is there a certain increase in the supply of capital, but at the same time the division of labor becomes finer and more efficient.His use of the term "inversely proportional change" was wrong.He should have said "at least in the opposite direction for a short period of time".He proceeds to arrive at a "unanticipated consequence" that an increase in the supply of labor (such as that employed with fixed capital and raw materials) would cause the wage fund to "decrease as the number of wage earners increases".But this is only the result if the sum of wages is not affected by the sum of production; which is in fact the most powerful of all those factors which affect wages.

The third section continues. It may be pointed out that the extreme form of the wage fund represents wages as determined entirely by demand, although demand is crudely expressed as being dependent on the amount of capital.However, some popular commentators of economics seem to advocate both the wage fund theory and the iron law of wages (thinking that wages are strictly determined by people's training fees).Of course they could transform both theories and make a more or less harmonious whole, as Keynes later did.But it seems they don't. The proposition that industry is limited by capital has often been interpreted in practically the same sense as the theory of wage funds.It can be interpreted correctly, but a similar interpretation would make the phrase "capital limited by industry" equally correct.And Mill's use of it is mainly related to the contention that protective tariffs or other means of keeping people from satisfying their needs in the way they prefer generally do not increase the total amount of labor employed.The effects of protective tariffs are too complex to discuss here; but Mueller is clearly right.As a general rule, the capital employed to maintain or assist labor in any new industry established by any protective tariff "must have been withdrawn from or ceased to be some other industry in which it employs or necessarily employs as much labor as it employs in the new industry'.Or to put the argument in a more modern form: Such legislation obviously increases neither the national income nor the share of national income attributed to labour.Because it does not increase the supply of capital, nor does it increase the marginal efficiency of labor relative to that of capital.Consequently, the interest payable in employing the capital is not lowered; the national income is not increased (indeed, it is almost certainly reduced); and since neither labor nor capital receives a new benefit in contracting for the distribution of the national income, the , none of them would benefit from such legislation.

The doctrine may be turned upside down, and say that the labor required to drive capital in a new industry established by a protective tariff must have been drawn from or ceased to exist in some other industry in which it set in motion or was bound to The quantity of capital set in motion may be equal to that which it sets in motion in the new industry.Although this statement is equally correct, it is not easily accepted by ordinary people.Because buyers of goods are usually considered to give special benefits to sellers, although in fact buyers and sellers provide each other with equal services in the long run.Likewise, employers are often said to confer special benefits on workers, although employers and employees render each other equal services in the long run.The causes and effects of these two events will be vigorously discussed in our subsequent studies. Some German economists have made the argument that employers pay their wages from consumers.But this appears to be a misunderstanding.This statement may apply to a consumer if he pre-orders what is produced by a particular employer.But in fact the opposite is true; Consumers often pay past due, and buy ready-made commodities with only a deferred right of control over them. It cannot be denied that if the producer is unable to sell his goods, he may for a short time be unable to employ workers; but this only means a partial breakdown in the organization of production.If one of the links of the machine is broken, it can come to a standstill, but that doesn't mean the link is the prime mover for the machine. Nor is the amount of wages paid by the employer at any time determined by the price the consumers pay for his goods, though it is generally greatly influenced by the employer's expectation of the price the consumers are about to pay.It is true that under long-run normal conditions consumers pay the same price as they will pay.But when we move from the special payment of one employer to the normal payment of employers in general (which is really the only payment we are talking about at the moment), the consumers cease to be a separate class, since everyone consumes By.When the wool or the printing press is transferred from the storehouse or workshop to the woolen manufacturer or printer, we say, in a broad sense, that they pass into the sphere of consumption, and this national revenue is devoted to the consumer.And these consumers are also producers, that is to say, owners of the factors of production, labor, capital and land.Children and others they support and the governments that tax them consume only part of their income.It is certainly correct, therefore, to think that the funds of ordinary employers are ultimately drawn from ordinary consumers.But that is just another way of saying the following facts.All funds are part of the national revenue, and they are made suitable for deferred use rather than immediate use.If some of these are now used for other purposes than for direct consumption, they must be replaced (with additions or profits) by inflows of national income. Mill's first basic proposition is closely related to his fourth basic proposition that commodity demand is not labor demand.However, this proposition did not express his opinion well.Those who purchase a particular commodity, indeed, generally do not supply the capital which is required to assist and maintain the labor which produces those commodities.They merely divert capital and employment from other enterprises to that enterprise whose products are necessary for their increased demand.But Mill does not content himself with proving this; he seems to say that it is more profitable for the laborer to spend money in employing labor than in buying commodities.This is an opinion with a grain of truth in it.For the price of the commodity includes the profits of the industrialist and the middleman; if the buyer acts as employer, he slightly reduces the demand for the services of the employing class, and increases the demand for labour, just as he buys hand-made lace instead of machine-made lace. As required.But this argument assumes that wages are paid in the course of the work, as usual, and that the prices of commodities are, as usual, paid after they have been produced.We find that on the various occasions Mill uses to illustrate his doctrine, his arguments imply, though he himself does not seem to know, that the consumer, in turning from the purchase of commodities to the employment of labour, pushes back the date of his own consumption of the fruits of his labour. later.And the same deferment yields the same benefit to the laborer, if the way in which the buyer spends his money is not changed. The fourth section discusses the relationship between industrial capital and other forms of wealth and wages. Throughout the discussion of the national income, the kitchen utensils in restaurants and the kitchen utensils in private homes have been implicitly treated in the same relation to hired cooks.That is to say, in terms of capital in a broad sense, it is not limited to industrial capital.However, a little more discussion is needed on this issue. People tend to think that although workers who have accumulated little or no wealth of their own benefit greatly from the increase of capital, capital here is capital in a narrow sense, and it is roughly the same as industrial capital that maintains and assists labor in work. of.But they benefit little from the increase in other forms of wealth that they do not own.Undoubtedly, there are several kinds of wealth, the existence of which hardly affects the working class; but they are directly affected by almost every increase of (industrial) capital.For the greater part of the capital passes through their hands as the instruments and materials of their work; and at the same time a greater part is directly employed, or even consumed, by them.Thus, the working class seems bound to gain when other forms of wealth become industrial capital, and vice versa.But that's not the case.If the general private no longer buys cars or boats, but rents them from capitalists, the demand for hired labor will inevitably decrease.For what formerly was paid as wages now belongs to the intermediary as profit. It may be objected that, if other forms of wealth take the place of industrial capital on a large scale, there would be a shortage of what is needed to assist or maintain labor.This is perhaps the real danger in some Eastern countries.But in the countries of the West, and especially in England, the sum of capital is equal in value to the sum of commodities consumed by the working class over many years.A slight increase in the demand for those forms of capital which are more directly adapted to the needs of the working class than other forms, either imported from other countries or adapted to the new demand And specially produced.So we don't need to worry about this.If the marginal efficiency of labor remains high, its net product is high, and thus its wages are also high. The resulting national revenue will be divided into corresponding parts, one part will always provide a sufficient supply of commodities for the immediate consumption of the workers, and the other part will use those commodities produced as a large stock of tools.When the general conditions of supply and demand determine what parts of the national income the other classes of society may spend as they please, and when the tastes of those classes determine how much to expend for present and how much for future gratification, then, It does not matter to the working class whether the bluegrass comes from a private greenhouse or a professional gardener's glasshouse (hence, it is industrial capital).