Front Page Titles (by Subject) Part II, Chapter XIII THE CAPITALIST CLASS: RETURNS OF CAPITAL: RENT AND INTEREST. - The Wages Question: A Treatise on Wages and the Wages Class
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Part II, Chapter XIII THE CAPITALIST CLASS: RETURNS OF CAPITAL: RENT AND INTEREST. - Francis Amasa Walker, The Wages Question: A Treatise on Wages and the Wages Class 
The Wages Question: A Treatise on Wages and the Wages Class (London: Macmillan, 1888).
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Part II, Chapter XIII
|1. The Wages Class||Wages.|
|2. The Capitalist Class||Returns of Capital (Rent: Interest).|
|3. The Employing Class||Profits.|
Are the returns of capital already at or near the minimum? A very common answer to complaints respecting the inadequacy of wages, or to schemes for securing their increase, is that the returns of capital are already as low as it is for the interest of the laborers themselves they should go; that if a smaller annual return were to be made to the capitalist for the use of his accumulated wealth, the disposition to save would be so far affected thereby as to reduce the store of capital, and thus diminish employment. I am embarrassed in making quotations from economical writers to show the direction of this argument, by the fact that they generally use the word profits80 to express the returns of capital (including remuneration for its risk), but with always a possible addition of "the wages of supervision and management." It is, therefore, difficult to say whether, in a specific instance, the rate of interest is referred to alone, or the remuneration of the man of business, after estimating the proper returns of capital, is also included. But as the latter element is treated as of comparatively slight importance, I think I may assume that, when Professor Cairnes says "Profits are already at or within a hand's breadth of the minimum,"81 he refers chiefly, if not wholly, to the returns upon capital. Of course, if profits be at the minimum, any increase of wages which involved a further reduction in the returns of capital,82 would unquestionably be detrimental. Prof. Fawcett thus works out the effects of such a reduction: "If profits are diminished, there is not so great an inducement to save, and the amount of capital accumulated will decrease; the wages fund will consequently be diminished, and there will be a smaller amount to distribute among the laboring classes."83
But I fail wholly to understand what evidence Prof. Cairnes can have had that the returns of capital are at o[???] near the minimum. If he had in view the fact that in England the rate of interest and the returns from capital invested in land are now so low that a continually increasing amount of capital is going abroad to newer countries, this is undoubtedly true; but it affords no proof that the rate of interest in England has reached the point where a further reduction would touch the principle of frugality in the quick. Every dollar of British capital fortunately invested in Australia or the United States helps to cheapen the materials of British manufactures, and to widen the market for British products. So long as these new countries enjoy such extraordinary natural advantages, English capital will doubtless continue to go abroad; but were these countries filled up with capital, so as to bring the rate of interest down to what it is in England, where is the reason for believing that Englishmen would not save their wealth for the sake of an annual return lower than the present? The return to an investor in the British consols, which are regarded as the ideal security, is about three and three-sevenths per cent. per annum. The insurance companies realize about four and one-half per cent. on their investments. Railway shares paying five per cent. a year sell ordinarily close on 100. Could Prof. Cairnes have meant that, if Englishmen could not get five per cent. for their capital, or at least three and three-sevenths per annum, they would consume it in self-indulgence? But we know that the Dutch have accumulated vast savings on still lower inducements, for the rate of interest in Holland long ruled at two and one-half per cent., while the government borrowed freely at two per cent. Nor have we any grounds for assuming that even a lower rate might not find people still saving, be it from profits, from wages, or from the returns of previously existing capital.
One consideration of importance, which is often lost sight of in this connection, is that the motive to save contains an element besides the expectation of an annual income from the accumulation. Saving is also in the nature of an insurance against the casualties of life. The strength of this motive to self-denial for the sake of insurance alone, is seen in communities where there are no banks, as in many of the departments of France, and no means of ordinary investment, where yet vast sums are accumulated by the peasantry.84 Not the less in countries where banks afford the safe and sure means of deriving present revenue from savings, does this desire to save, as an insurance against the inevitable ills of life, constitute a considerable part of the motive to accumulation. Men would in a degree provide against old age and sickness, provide for the possible widowhood and orphanage of those dependent on them, were there no interest on money; and saving thus, a very low rate of interest on absolutely safe investments would call their funds into productive use.
Now this view, the justice of which cannot, I think, be questioned, affords the means of judging somewhat more critically the statement of Prof. Fawcett just quoted. Prof. Fawcett says, If wages are enhanced, profits are diminished, and hence less capital will be accumulated. But we know, both from the reason of the case and from the statistics of the savings banks, that capital may be accumulated from wages as well as from profits, whether we understand by that term, the returns of capital, or the gains of business. Does any one say, a reduction in the rate of interest would affect the disposition of the laborers to save out of their wages equally with the disposition of the capitalist or the employers, to save out of their earnings? I answer, no, decidedly not. The motive to save, for the sake of insurance, operates with far greater force among the laboring class than among the more fortunate classes. Thus, taking the case of a hundred laborers working for one employer, can it be doubted that the desires of all these individuals, even if we make deduction of spendthrifts and drunkards, to provide against old age, sickness, and the premature death of the bread-winner, would constitute a stronger force to direct towards savings an extra thousand pounds of wages, than would the corresponding desire on the part of the single employer, in the matter of an extra thousand pounds of profits? That this would be so in France or Germany, would not, I think, be questioned by any Frenchman or German. If it should not prove so in England, it would be in no small degree due to the fact that the tenure of the land, the true savings banks of the people, has been so much embarrassed by statute and by judicial fictions.
It should, of course, be expected that a large and sudden increase of wages, due to general industrial causes like that which took place four years ago in the iron and coal85 trades of Great Britain, would, most likely, human nature being what it is, be employed in ministering, more or less, to folly and vice, or squandered in expenditures, not perhaps hurtful in themselves, but unnecessary, and therefore, as against a strong reason for saving, mischievous. The possible increase of wages which I have in view is rather a steady advance due to the increasing mobility of labor from the growth of the industrial virtues, enabling the wages class to resort more promptly to their market, and to press their employers more closely with a truly effective competition. Wages thus won would, in general, be well employed.
So much for that desire to make savings as an insurance against the contingencies of life and health, which is one element of the principle of frugality. Of the other, and doubtless more important, element, the desire to secure an annual income from investments, or from the personal use of capital, it is not necessary to speak here at any length. I know no reason for believing that interest in any country has reached its minimum, that is, the point where the desire to spend overpowers the disposition to save, in such a proportion of instances as to waste capital, or to prevent it from increasing proportionally to population and to the opportunities for its reproductive use at current rates.
It is quite another question whether it makes any difference whether the returns of capital are at the minimum, or are very much above that point. I have already86 quoted a paragraph from Prof. Perry in which he takes the ground that if, from any cause, an undue amount of the product of industry goes to the share of the capitalist-employer, nothing can defeat the tendency that the excess shall be restored to wages. Prof. Cairnes, in his "Leading Principles," has expressed himself on the same question as follows:
"Thus, supposing," he says, "a group of employers to have succeeded, as no doubt would be perfectly possible for them, in temporarily forcing down wages by combination in a particular trade, a portion of their wealth previously invested would now become free—how would it be employed? Unless we are to suppose the character of a large section of a community to be suddenly changed in a leading attribute, the wealth so withdrawn from wages would, in the end, and before long, be restored to wages. The same motives which led to its investment would lead to its reinvestment, and once reinvested, the interests of those concerned would cause it to be distributed amongst the several elements of capital in the same proportion as before. In this way covetousness is held in check by covetousness, and the desire for aggrandizement sets limits to its own gratification."
The doctrine here seems to be that the desire for accumulation, or aggrandizement,87 is a constant force, and thus the effects of covetousness, through the employer's efforts to give the laborer as little as may be for his services, are compensated by the effects of covetousness through the employer's efforts to make a profit on the amount thus saved by again employing it in the purchase of labor. The motives to investment and reinvestment are therefore equal.
Now it seems to me that this doctrine is inconsistent with any recognition of the varying strength of the economical motives. While in particular instances, with persons of the miserly disposition, the passion for accumulation may grow with increasing wealth, the observation of every one must convince him that, with the vast majority of men, especially in this age of refinement and of artificial wants, the impulse to spend luxuriously acquires force, after the comforts and decencies of life are once provided for, faster than the impulse to save; that large incomes are not applied as severely and judiciously to further getting as are moderate incomes; that the rich expend their revenues with a lavishness, a capriciousness and a heed-lessness which are unknown to men of smaller means. If this be so, and, with full regard to no inconsiderable number of particular instances to the contrary, I do not think it will be denied, then the motives to reinvestment cannot be held to be necessarily equal to the motives to investment; and instead of covetousness being held in check by covetousness, luxuriousness comes in to consume a portion at least of such excessive gains.
It needs to be noted, moreover, that, upon Prof. Cairnes' own doctrine of "non-competing groups,"88 it would not follow that the sums thus taken from one body of laborers in excessive profits will be restored in wages to the class or classes suffering such losses. Capital having, on Prof. Cairnes' statement, a much higher degree of mobility than labor, the body of laborers to be benefited by such restoration of profits to wages, will not necessarily, or even probably, be identical with that which was in the first instance depleted. And if a right distribution of the products of industry be important to secure the highest industry and zeal in future production, then incontestibly, in addition to all considerations of the iniquity of thus bleeding one class for the benefit of others, we have a strictly economic argument against the theory of the practical indifference of the present proportions of wages and profits.
But we may go further and say that all this kind of reasoning in economics which makes the employing or the capitalist class, in a state of imperfect competition, the guardians of the wages class, in such a way that it really doesn't matter whether the laborer gets all the wages he might, or even, at any specified time, gets any at all, because excessive profits will further enrich those other classes who hold their wealth as a sort of sacred trust for him, so that at another time he will get all the more, if he gets less or nothing now—all this sort of reasoning is much to be distrusted. And I cannot sufficiently express my astonishment that an economist of Prof. Cairnes' eminent ability, who made the most important contribution ever offered in modification of the theory of competition, and who pointed out the frightful hiatus in Bastiat's composition of the Economical Harmonies,89 should have fallen into the trap at this point. Anything more contradictory of his own doctrine of the extensive failure of competition, and the want of harmony between the interests of the workman and the employer, as each understands his interests and is prepared to act with reference thereto, than this assumption of the certain restoration to wages of all sums taken for excessive profits, it would be impossible to conceive.
It is a poor rule that doesn't work both ways. Yet writers who hold it to be of no consequence at all that the "capitalists" should, by pressure brought upon the laborers, reduce their wages below the equitable point, since the extra profits thus acquired are certain to be restored to wages, seem to regard it as a subject of just apprehension lest laborers should, by trades unions or strikes, bring a pressure to bear, on their side, which might reduce profits unduly. But why should not such extra wages be restored to profits, just as certainly, peacefully, and automatically? What difference does it make if the "capitalist," in any given time or place, gets an inadequate profit, or indeed no profit at all? He will only get just so much more the next time. Certainly, if the laborer can wait to have excessive profits restored to wages, the "capitalist" can wait to have extra wages restored to profits.
This notion of a see-saw between wages and profits is well hit-off in a story which Governor Winthrop tells: "I may upon this occasion report a passage between one of Rowley and his servant. The master being forced to sell a pair of oxen to pay his servant his wages, told his servant he could keep him no longer, not knowing how to pay him the next year. The servant answered him that he would serve him for more of his cattle. But how shall I do (saith the master) when all my cattle are gone? The servant replied, you shall then serve me, and so you may have your cattle again."90 Surely, if a man becomes an employer in industry, only because he is a capitalist, and as he is a capitalist, the servant in this story was not more of a wag than of a political economist.
No, in a state of imperfect competition, the employer is not the laborer's guardian, or the trustee of his earnings. The workman's legitimate wages are a great deal better in his own pocket, or standing in his own name on the books of the savings bank, than paid into the hands of the employer as extra profits. The reasoning to the contrary, on the assumption of a vital harmony of interests, cannot fail to remind one of the economical plea, with which it is point by point identical, once so widely urged, that the owner's interest would abundantly protect the slave against physical abuse or privation. It is also closely analogous with the political plea by which the privileged classes have always sought to show that it really didn't matter how much political power was entrusted to them; that the interests of rich and poor, high and low were indissolubly bound up together, so that if one suffered, all must suffer with it; and that, therefore, the class most intelligent, most apt for government, having most leisure for public affairs, with, moreover, the largest stake in society, might safely be trusted to make and execute all laws, their own true and permanent interests prohibiting them from any and every course prejudicial to the lower classes, who could not, it was urged, be in any way oppressed but that social and industrial disorders would afford immediate retribution for the neglect of duty or abuse of power on the part of their self-constituted guardians.
The argument is a very pretty one, but alas! and alas! what a dreary and sickening tale is that of the exactions and oppressions of the Old Regime! There is no class fit to determine its own rights and prescribe the duties of others. Inevitably will tyranny be engendered, whenever there is weakness or helplessness on the one side. Noblesse oblige; and the sentiments of compassion and charity go far to mitigate the natural severity of legislation and administration; but, after all, there is only one way in which the rights of any body of men can be secured, and that is by being placed in their own keeping.
[74.]Ricardo's theory of rent applies to land only as it is assumed to be unimproved. Differences of fertility wrought by actual applications of capital, are to be compensated on the same principles as investments of equal safety and permanence.
[75.]Mr. Ricardo makes this distinction in respect to the banker himself. "The distinctive function of the banker begins as soon as he uses the money of others." Yet, though it is the use of other people's money that characterizes the banker, it is important that he should be known or supposed to have money of his own to afford guaranty of his good faith and prudence.
[76.]E.g., Lawyers, physicians, clergymen, architects, engineers, government officials, and the like.
[77.]Bagehot's Lombard Street, p. 12.
[78.]"Profits proper, or interest."—Prof.Rogers, Pol. Econ., p. 189. "The return for abstinence is profit."—Prof.Cairnes' "Some Leading Principles," etc., p. 48.
[79.]As Mr. Amasa Walker is the only systematic writer on political economy, with whose work I am familiar, who recognizes the employers of labor as constituting a distinct industrial class, so he is the only one who gives the word Profits the significance it has in the text, "By the term profits we mean that share of wealth, which, in the general distribution, falls to those who effect an advantageous union between labor and capital... the parties, then, to production are (1) the laborer, (2) the capitalist, (3) the employer, or manager. Each has a distinct province and a separate interest."—Science of Wealth, pp.279-80.
[80.]"Profit: a word which, like many others in political economy, is very loosely applied."—Prof. Rogers' Pol. Econ., p. 5.
[81.]"Some Leading Principles," etc., p. 258.
[82.]It has been shown that it is possible that an advance of wages may be made in several ways without involving a reduction either in profits or in the returns of capital.
[83.]Pol. Econ., p. 243.
[84.]European financiers have been more than once astonished by the enormous accumulations of the French peasantry, when these were tapped by a popular loan.
[85.]Coal rose, between July 1871, and February, 1872 in the proportion of 100 to 256, iron following, though at a considerable interval.
[88.]See p. 194.
[89.]See p. 164.
[90.]History of New England, II. 219-20.