The Online Library of Liberty

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• Introduction
• Principles of Political Economy
• Introduction
• Chapter I: On the Definitions of Wealth and Productive Labour
• Chapter II: On the Nature and Measures of Value
• Chapter III: Of the Rent of Land
• Chapter IV: Of the Wages of Labour
• Chapter V: Of the Profits of Capital
• Chapter VI: Of the Distinction Between Wealth and Value
• Chapter VII: On the Immediate Causes of the Progress of Wealth

chapter iv

Of the Wages of Labour

section 1

Of the Dependance of the Wages of Labour upon Supply and Demand

[The wages of labour are the remuneration to the labourer for his personal services, and may be distinguished into nominal and real.

Nominal wages are the money earned by the labourer. Real wages are the necessaries and conveniences which that money will command.

Wages are determined by the demand and supply of labour, compared with the demand and supply of what is paid for labour.]

The principle of demand and supply is the paramount regulator of the prices of labour as well as of commodities, not only temporarily but permanently; and the costs of production affect these prices only as they are the necessary condition of the permanent supply of labour, or of commodities.

It is as the condition of the supply, that the prices of the necessaries of life have so important an influence on the price of labour. A certain portion of these necessaries is required to enable the labourer to maintain a stationary population, a greater portion to maintain an increasing one; and consequently, whatever may be the prices of the necessaries of life, the money wages of the labourer must be such as to enable him to purchase these portions, or the supply cannot possibly take place in the quantity required.

To shew that what may be called the cost of producing labour only influences wages as it regulates the supply of labour, it is sufficient to turn our attention to those cases, where, under temporary circumstances, the cost of production does not regulate the supply; and here we shall always find that this cost immediately ceases to regulate prices.(143)

When, from a course of abundant seasons, or any cause which does not impair the capitals of the farmers, the price of corn falls for some time to-|gether, the cost of producing labour may be said to be diminished, but it is not found that the wages of labour fall;* and for this obvious reason, that the reduced cost of production cannot, under sixteen or eighteen years, materially influence the supply of labour in the market. On the other hand, when the prices of corn rise from a succession of indifferent seasons, or any cause which leaves the demand for labour nearly the same as before, wages will not rise: because the same number of labourers remain in the market; and though the price of production has risen, the supply is not for some time affected by it. So entirely, indeed, does the effect of the cost of production on price depend upon the manner in which it regulates supply, that if in this, or any other country during the last twenty years, the production of labour had cost absolutely nothing, but had still been supplied in exactly the same proportion to the demand, the wages of labour would have been in no respect different. Of the truth of this position, we may be quite assured, by the instance alluded to in a former chapter, of a paper currency so limited in quantity as not to exceed the metallic money, which would otherwise have circulated, in which case, though the cost of the paper is comparatively nothing, yet, as it performs the same function, and is supplied | only in the same quantity as the money, it acquires the same value in exchange.

[Adam Smith’s position, that the money price of labour is regulated by the demand for labour, and the price of necessaries, is practically quite true; but it is of importance to keep constantly in view the mode in which the price of necessaries affects the price of labour.

In all the cases of different prices of labour in different employments, which Adam Smith has illustrated, the effect obviously depends upon causes which affect the supply of labour.]

Adam Smith has in general referred to the principle of supply and demand in cases of this kind, but he has occasionally forgotten it:—“If one species of labour,” he says, “requires an uncommon degree of dexterity and ingenuity, the esteem which men have for such talents will give a value to their produce, superior to what would be due to the time employed about it.”*(144) And in another place, speaking of China, he remarks, “That if in such a country, (that is, a country with stationary resources,) wages had ever been more than sufficient to maintain the labourer, and enable him to bring up a family; the competition of the labourers | and the interest of the masters, would soon reduce them to the lowest rate which is consistent with common humanity.”† The reader will be aware, from what has been already said, that in the first case here noticed, it is not the esteem for the dexterity and ingenuity referred to, which raises the price of the commodity, but their scarcity, and the consequent scarcity of the articles produced by them, compared with the demand. And in the latter case, it is not common humanity which interferes to prevent the price of labour from falling still lower. If humanity could have successfully interfered, it ought to have interfered long before, and prevented any premature mortality from being occasioned by bad or insufficient food. But unfortunately, common humanity cannot alter the resources of a country. While these are stationary, and the habits of the lower classes prompt them to supply a stationary population cheaply, the wages of labour will be scanty; but still they cannot fall below what is necessary, under the actual habits of the people, to keep up a stationary population; because, by the supposition, the resources of the country are stationary, not increasing or declining, and consequently the principle of demand and supply would always interfere to prevent such wages as would either occasion an increase or diminution of people. |

section ii

Of the Causes which principally affect the Habits of the Labouring Classes

Mr. Ricardo has defined the natural price of labour to be “that price which is necessary to enable the labourers one with another to subsist, and to perpetuate their race, without either increase or diminution.”‡(145) This price I should really be disposed to call a most unnatural price; because in a natural state of things, that is, without great impediments to the progress of wealth and population, such a price could not generally occur for hundreds of years. But if this price be really rare, and, in an ordinary state of things, at so great a distance in point of time, it must evidently lead to great errors to consider the market-prices of labour as only temporary deviations above and below that fixed price to which they will very soon return.

The natural or necessary price of labour in any country I should define to be, “that price which, in the actual circumstances of the society, is necessary to occasion an average supply of labourers, sufficient to meet the average demand.” And the market-price I should define to be, the actual price in the market, which from temporary causes is sometimes | above, and sometimes below, what is necessary to supply this average demand.

[The condition of the labouring classes depends partly upon the rate at which the resources of the country are increasing, and partly upon the habits of the people.

Both these causes are subject to change, and often change together.

Still, however, habits are different with the same increase of resources; and an inferior mode of living is a cause as well as a consequence of poverty.

It would be desirable, though difficult, to ascertain the principal causes of the different modes of subsistence which prevail among the poor of different countries.

From high wages two results may arise—either a rapid increase of population, or a decided improvement in the mode of living.

Whatever tends to depress the character of the poor, contributes to the first of these results; whatever tends to elevate them, to the second.

The most efficient causes of depression are, despotism, oppression and ignorance; the most efficient causes of elevation are, civil and political liberty and education.

Of the causes which tend to generate prudential habits, the most essential is civil liberty; and to the maintenance of civil liberty, political liberty is generally necessary.

Education may prevail under a despotism, and be deficient under a free constitution; but it can do little under a bad government, though much under a good one.

Ireland is an instance where increasing produce has occasioned a rapid increase of population, without improving the condition of the people.

England, in the first half of the last century, is an instance of high wages leading to an improved mode of living, without a rapid increase of population.

The change from bread of an inferior quality to the best wheaten bread was probably aided by a change in the relative values of wheat, oats and barley, occasioned by adventitious circumstances.

When wheaten bread had become customary in some districts, it would spread into others, even at the expense of comforts of a different description.]

section iii

Of the Causes which principally influence the Demand for Labour, and the Increase of the Population

There is another cause, besides a change in the habits of the people, which prevents the population of a country from keeping pace with the apparent command of the labourer over the means of subsistence. It sometimes happens that wages are for | a time rather higher than they ought to be, in proportion to the demand for labour. This is the most likely to take place when the price of raw produce has fallen in value, so as to diminish the power of the cultivators to employ the same or an increasing number of labourers at the same price. If the fall be considerable, and not made up in value by increase of quantity, so many labourers will be thrown out of work that wages, after a period of great distress, will generally be lowered in proportion.(146) But if the fall be gradual, and partly made up in exchangeable value by increase of quantity, the money wages of labour will not necessarily sink; and the result will be merely a slack demand for labour, not sufficient perhaps to throw the actual labourers out of work, but such as to prevent or diminish task-work, to check the employment of women and children, and to give but little encouragement to the rising generation of labourers. In this case the quantity of the necessaries of life actually earned by the labourer and his family, may be really less than when, owing to a rise of prices, the daily pay of the labourer will command a smaller quantity of corn. The command of the labouring classes over the necessaries of life, though apparently greater, is really less in the former than in the latter case, and, upon all general principles, ought to produce less effect on the increase of population.(147)

This disagreement between apparent wages and the progress of population will be further aggravated in those countries where poor laws are es-| tablished, and it has become customary to pay a portion of the labourers’ wages out of the parish rates. If, when corn rises, the farmers and landholders of a parish keep the wages of labour down, and make a regular allowance for children, it is obvious that there is no longer any necessary connexion between the wages of day labour and the real means which the labouring classes possess of maintaining a family. When once the people are reconciled to such a system, the progress of population might be very rapid, at a time when the wages of labour, independently of parish assistance, were only sufficient to support a wife and one child, or even a single man without either wife or child, because there might still be both encouragement to marriage, and the means of supporting children.

[The actual application of a greater quantity of food of some kind or other, to the maintenance of labouring families, is necessary to an increase of population; and may generally be traced.

The increase of population in America, Ireland, England and Scotland, of late years, may be traced to this cause.]

What is mainly necessary to a rapid increase of population, is a great and continued demand for labour; and this is occasioned by, and proportioned to, the rate at which the whole value of the capital and revenue of the country increases annually; because, the faster the value of the annual produce increases, the greater will be the power of purchasing fresh labour, and the more will be wanted every year.(148)

It has been sometimes thought, that the demand for labour can only be in proportion to the increase of the circulating, not the fixed capital; and this is no doubt true in individual cases:* but it is not necessary to make the distinction in reference to a whole nation; because where the substitution of fixed capital saves a great quantity of labour, which cannot be employed elsewhere, it diminishes the value of the annual produce, and retards the increase of the capital and revenue taken together.(149)

If, for instance, a capitalist who had employed £20,000 in productive labour, and had been in the habit of selling his goods for £22,000, making | a profit of 10 per cent., were to employ the same quantity of labour in the construction of a machine worth £20,000, which would enable him to carry on his business without labour in future, except as his machine might require repair, it is obvious that, during the first year, the same value of the annual produce and the same demand for labour would exist; but in the next year, as it would only be necessary for the capitalist, in order to obtain the same rate of profits as before, to sell his goods for a little more than £2,000 instead of £22,000, the value of the annual produce would fall, the capital would not be increased, and the revenue would be decidedly diminished; and upon the principle that the demand for labour depends upon the rate at which the value of the general produce, or of the capital and revenue taken together, increases, the slackness of the demand for labour under such circumstances would be adequately accounted for.(150)

In general, however, the use of fixed capital is extremely favourable to the abundance of circulating capital; and if the market for the products can be proportionally extended, the whole value of the capital and revenue of a state is greatly increased by it, and a great demand for labour created.

The increase in the whole value of cotton products, since the introduction of the improved machinery, is known to be prodigious; and it cannot for a moment be doubted that the demand for labour in the cotton business has very greatly increased during the last forty years. This is indeed | sufficiently proved by the greatly increased population of Manchester, Glasgow, and the other towns where the cotton manufactures have most flourished.

A similar increase of value, though not to the same extent, has taken place in our hardware, woollen, and other manufactures, and has been accompanied by an increasing demand for labour, notwithstanding the increasing use of fixed capital.

Even in our agriculture, if the fixed capital of horses, which, from the quantity of produce they consume, is the most dis-advantageous description of fixed capital, were disused, it is probable, that a great part of the land which now bears corn would be thrown out of cultivation. Land of a poor quality would never yield sufficient to pay the labour of cultivating with the spade, of bringing manure to distant fields in barrows, and of carrying the products of the earth to distant markets by the same sort of conveyance. Under these circumstances, as there would be a great diminution in the quantity of corn produced, there would be a great diminution in the whole value of the produce; and the demand for labour and the amount of the population would be greatly diminished.(151)* |

On the other hand, if, by the gradual introduction of a greater quantity of fixed capital, we could cultivate and dress our soil and carry the produce to market at a much less expense, we might increase our produce very greatly by the cultivation and improvement of all our waste lands; and if the substitution of this fixed capital were to take place in the only way in which we can suppose it practically to take place, that is, gradually, there is no reason to doubt that the value of raw produce would keep up nearly to its former level; and its greatly increased quantity, combined with the greater proportion of the people which might be employed in manufactures and commerce, would unquestionably occasion a very great increase in the exchangeable value of the general produce, and thus cause a great demand for labour and a great addition to the population.(153)

In general, therefore, there is little to fear that the introduction of fixed capital, as it is likely to take place in practice, will diminish the effective demand for labour; indeed it is to this source that we are to look for the main cause of its future in-|crease. At the same time, it is certainly true, as will be more fully stated in a subsequent part of this volume, that if the substitution of fixed capital were to take place very rapidly, and before an adequate market could be found for the more abundant supplies derived from it and for the new products of the labour that had been thrown out of employment, a slack demand for labour and great distress among the labouring classes of society would be universally felt.(154) But in this case, the general produce, or the capital and revenue of the country taken together, would certainly fall in value, owing to a temporary excess of supply compared with the demand, and would shew that the variations in this value, compared with the previous value paid in wages, are the main regulators of the power and will to employ labour.(155)

In the formation of the value of the whole produce of a country, a part depends upon price, and a part upon quantity. That part which depends merely upon price is in its nature less durable and less effective than that which depends upon quantity. An increase of price, with little or no increase of quantity, must be followed very soon by a nearly proportionate increase of wages; while the command of these increased money wages over the necessaries of life going on diminishing, the population must come to a stop, and no further rise of prices can occasion an effective demand for labour.(156)

On the other hand, if the quantity of produce be increased so fast that the value of the whole | diminishes from excessive supply, it may not command so much labour this year as it did in the last, and for a time there will be no demand for workmen.(157)

These are the two extremes, one arising from increased value without increased quantity; and the other from increased quantity without increased value.

It is obvious that the object which it is most desirable to attain is the union of the two. There is somewhere a happy medium, where, under the actual resources of a country, the increase of wealth and the demand for labour are a maximum; but this point cannot be ascertained. An increase of quantity with steady prices, or even slightly falling, is consistent with a considerable increase of the general value of produce, and may occasion a considerable demand for labour; but in the actual state of things, and in the way in which the precious metals are actually distributed, some increase of prices generally accompanies the most effective demand for produce and population. It is this increase both of quantity and price which most surely creates the greatest demand for labour, excites the greatest quantity of industry, and generally occasions the greatest increase of population.|

section iv

Of the Effect of a Fall in the Value of Money upon the Demand for Labour, and the Condition of the Labourer

[The unfavourable effects of a fall in the value of money on the condition of the labourer, are not so certain as have been supposed.

The fall in the real wages of labour, from the end of the 15th to the end of the 16th century, contemporary with the fall in the value of money, is proved from authentic documents.

But the question is, which wages were the most extraordinary, the high or the low.

During the reign of Edward III. the real wages of labour seem to have been as low as in the reign of Elizabeth.

In the intermediate period, they varied considerably with the varying prices of corn and labour; but from 1444 they were uniformly very high to the end of the century.

The very slight rise in the nominal price of grain, from the middle of the 14th to the end of the 15th century, in no respect made up for the diminished quantity of silver in the coin, so that the bullion price of corn fell considerably.

But the bullion price of labour rose considerably during the time that the bullion price of corn fell; and if Adam Smith had taken either labour or a mean between corn and labour as his measure, instead of corn, his conclusions respecting the value of silver would have been very different.

But to shew that the wages of labour were peculiar during the last sixty years of the 15th century, it is necessary further to compare them with periods after the depreciation of money had ceased.

The earnings of the labourer, during the last sixty years of the 17th century, after the depreciation of money had ceased, were lower than in the reigns of Elizabeth and Edward III.

From 1720 to 1750 the price of corn fell and the wages of labour rose, but still they could command but little more than the half of what was earned in the 15th century.

From this period corn began to rise, and labour not to rise quite in proportion; but during the forty years from 1770 to 1810 and 11, the wages of labour in the command of corn seem to have been nearly stationary.]

section v

On the Conclusions to be drawn from the preceding Review of the Prices of Corn and Labour during the Five last Centuries

[From this review it appears, that the great fall of labour in the 16th century must have been occasioned more by the unusual elevation it had before attained, than by the discovery of the American mines; and that the high wages of the 15th century could only have been occasioned by some temporary causes, which increased the relative supply of corn compared with labour.

Such high wages, whatever might have been their causes, must have fallen during the next century, if the American mines had not been discovered.

There is reason to think that a rise in the price of corn, occasioned merely by a fall in the value of money, would not injure the labouring classes for more than a few years.

Another inference which we may draw from this review is, that, during the last 500 years, the corn wages of labour in England have been more frequently under than above a peck of wheat.

A third inference is, that the seasons have a very great influence on the prices of corn, and the real wages of labour, not only for two or three years occasionally, but for fifteen or twenty years together.

The periods of the lowest wages have generally occurred when a rise in the price of corn has taken place under circumstances not favourable to a rise in the price of labour; it was the rapid increase of population during the reigns of Henry VIII. and Elizabeth, which prevented wages from rising with the price of corn.

If the discovery of the American mines had found the people earning less than a peck of wheat instead of half a bushel, the increase of resources, during the 16th century, would have raised the corn price of labour, notwithstanding the increasing money price of corn.

If the price of labour from 1793 to 1814 had not been kept down by artificial means, it would have risen quite in proportion to the price of corn.]

In considering the corn wages of labour in the course of this review, it has not been possible to | make any distinction between the effects of a fall in the price of corn and a rise in the price of labour. In merely comparing the two objects with each other, the result is precisely similar; but their effects in the encouragement of population are sometimes very dissimilar, as I have before intimated. There is no doubt that a great encouragement to an increase of population is consistent with a fall in the price of raw produce, because, notwithstanding this fall, the exchangeable value of the whole produce of the country may still be increasing compared with labour; but it may sometimes happen that a fall in the price of raw produce is accompanied by a diminished power and will to employ labour; and in this case the demand for labour and the encouragement to population will not be in proportion to the apparent corn wages of labour.

If a labourer commands a peck instead of ¾ of a peck of wheat a day in consequence of a rise of wages occasioned by a demand for labour, it is certain that all labourers may be employed who are willing and able to work, and probably also their wives and children; but if he is able to command this additional quantity of wheat on account of a fall in the price of corn which diminishes the capital of the farmer, the advantage may be more apparent than real, and though labour for some time may not nominally fall, yet as the demand for labour may be stationary, if not retrograde, its current price will not be a certain criterion of what might be earned by the united labours of a large | family, or the increased exertions of the head of it in task-work.(158)

It is obvious, therefore, that the same current corn wages will, under different circumstances, have a different effect in the encouragement of population.(159)

[Wheat has been taken, as the usual grain consumed in this country, but wherever or whenever that is not the case, wheat wages are not the proper criterion of the encouragement given to population.

The quantity of the customary food which a labouring family can actually earn throughout the year, is at once the measure of the encouragement to population, and of the condition of the labourer.

The prudential habits of the poor can alone give them the command over a fair proportion of the necessaries and conveniences of life, from the earliest stage of society to the latest.]

I have said nothing of the value of labour as measured by the criterion assumed by Mr. Ricardo, that is, by the labour which has been expended in procuring the earnings of the labourer, or the cost in labour of the labourer’s wages; because it appears to me, that what I have called the real and nominal wages of labour include every thing which relates to the condition of the labourer, the encouragement to population, and the value of money, the three great points which chiefly demand our attention. According to Mr. Ricardo’s view of the subject, nothing can be inferred on these points either from high or from low | wages.(160) Such high or low wages serve only to determine the rate of profits, and their influence in this respect will be fully considered in the next chapter. |

[* ]The fall in the price of labour which took place in 1815 and 1816 was occasioned solely by the diminution of demand, arising from the losses of the farmers, and in no respect by the diminished cost of production.

[* ]Wealth of Nations, Book I. ch. vi. p. 71. 6th edit.

[† ]Wealth of Nations, Book I. chap. vii. p. 108.

[‡ ]Polit. Econ. c. v. p. [93]. 2d edit.

[* ]See an ingenious pamphlet on the condition of the labouring classes by Mr. Barton.

[* ]It has lately been stated, that spade cultivation will yield both a greater gross produce and a greater neat produce. I am always ready to bow to well established experience; but if such experience applies in the present case, one cannot sufficiently wonder at the continued use of ploughs and horses in agriculture. Even | supposing however that the use of the spade might, on some soils, so improve the land, as to make the crop more than pay the additional expense of the labour, taken separately; yet, as horses must be kept to carry out dressing to a distance and to convey the produce of the soil to market, it could hardly answer to the cultivator to employ men in digging his fields, while his horses were standing idle in his stables.(152) As far as experience has yet gone, I should certainly say, that it is commerce, price and skill, which will cultivate the wastes of large and poor territories—not the spade.