The Online Library of Liberty

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• Preface.
• Lecture I.
• Lecture II.
• Lecture III.
• Lecture IV.
• Lecture V.
• Lecture VI.
• Lecture VII.
• Lecture VIII.
• Lecture IX.
• Lecture X.
• Lecture XI.
• Appendix.
• Note On Page 32.
• Page 37.
• Page 39.
• Page 57.
• Page 65.
• Page 133.
• Page 145.
• Page 149.
• Page 164.
• Page 175.
• Page 183.
• Page 203.
• Page 223.

LECTURE VIII.

Gentlemen,—

It is frequently complained of as an unjust and an unreasonable thing, that the labourer, who seems to produce every thing by his toil, should not in return receive the entire, or at least a much greater part than he does receive, of what he has assisted to produce. That his wages are so low, is sometimes attributed to the wicked combination of employers, who take advantage of his necessities or his ignorance, to impose unreasonable and unequal terms upon him, in order thereby to secure enormous profits to themselves. Such arguments are, I believe, principally propagated by men who are conscious of their invalidity, and whose object it is to create disturbance, by stimulating the passions of the poor and ignorant, and persuading them that their poverty is caused by oppression or misrule. I shall not apply myself now to the consideration of those arguments, persuaded as I am that they never can make any impression upon those who hear me now, and that those who adopt such arguments, or who acquiesce in them, are in general inaccessible to any considerations of justice, or to any arguments except those which are addressed to their own immediate interests. Still it is for other reasons important that we should investigate the circumstances which determine the amount of profits and wages, and then we shall incidentally observe that they both are confined within limits which it is beyond the power of the legislature, by any direct exertion of their authority, to extend. Here legislation and combination may do mischief, but cannot do good. They may destroy a source of revenue, but they cannot transfer it to another class. Violent, and unjust, and turbulent proceedings may extinguish profits, but they will not thereby increase wages: or they may depress wages, but will not thereby increase the rate of profits. Those propositions will, I trust, be made evident, when we shall have ascertained what profits are, what are the circumstances from which they are derived, and what it is that regulates their amount. The rules of justice do not appear to have much concern with the matter.

If the labourer should argue that the contract under which he received such low wages was unequal and unjust, and that he had a right to repudiate it, and to demand employment at a higher rate of wages, since it is to him and his exertions that the fertility of the land is to be ascribed, let him however say how great a portion he could cultivate with the powers given him by nature, unassisted by any other instrument. With the spade and other implements of husbandry, he could do something considerable. But the spade could do nothing without the man, and the man could do very little without the spade. What shall determine to which the work is to be attributed. If a man’s energies are rendered 50 times more productive by the assistance of this instrument, is the owner therefore entitled to demand and receive 49 parts out of every 50 which the workman executes. Certainly not, the workman would say, for I can procure a spade for 2s. 6d. from my neighbour the smith. Granted: but will such a price give the smith such a remuneration in proportion to his toil, as you think you are entitled to for yours. Well, the labourer might answer, I will grant to others the justice which I claim for myself, and give the smith 10s. for the spade, and that will not deduct much from the produce of my labour. But could the smith afford to sell a spade even at that price, if he were compelled himself to extract the ore from the bowels of the earth, to convert it into iron, to bring it to his forge, and to give it form and fashion. The labour of a life would scarcely be sufficient for such an enterprize.

A further addition therefore must be made to the price of the spade, to pay the liberal wages which are to be received by those who toil to extract the ore from the mine, to convert it into iron, to bring it to the forge, to make the roads, the carriages, the ships which gave the means of transport, and above all, to those who erected and built the stupendous machinery which was employed in some of those undertakings, and the machinery again by whose aid the other machines were made. The man who buys a spade pays his proportional part of all those person’s wages.

Here also a new element of complexity is introduced. The labourer who extracts the ore from the mine, cannot conveniently wait for his wages until it has gone through every process, and is sold to the consumer in its finished form. Were he compelled to do so, this circumstance would in itself be a considerable disadvantage, affecting those engaged in that occupation. It would diminish the competition among those labourers, and would justly and necessarily procure them a higher rate of wages. This, of course, would add to the price of the spade, and the effect would be the same if any person advanced to the miner the value of his work, to be reimbursed by the sale of the finished article. The person who makes the advance is only induced to do so by the expectation of a profit, otherwise he will not take the trouble, or run the risk, or deprive himself in the mean time of the use of the money which he might possibly require for the satisfaction of his own wants. I have said enough to shew how soon the price of all things would rise beyond the power of the labourer to calculate, if any alterations should be made by law in the wages of all classes of workmen. What indeed the workman generally has in his mind, when he adopts the pernicious argument to which I alluded, is such a state of things as would increase his wages, without at the same time proportionally increasing the wages of those who produced commodities for his use. This would never take place for all, or for any class. If the wages of the labourer were arbitrarily increased by law, the commodities on which he expended them would rise in a still greater proportion, both on account of the increased wages of those employed in producing them, and the general waste and destruction of capital which an arbitrary interference with contracts never fails to produce.

What are the principles which regulate the contract between the capitalist and the labourer, and in the absence of legislative interposition, distributes the fruits of past and present industry between profits and wages? This subject at first appears a little confused, and there is some difficulty in any attempt to elucidate it. But I think that the causes of obscurity here, consist rather in a difficulty of expressing certain propositions, than in any difficulty of conceiving or demonstrating them. Let us attend carefully to the important part which capital performs in the work of production, and we shall see how long a period must frequently elapse before certain labour has produced its full effects.

To analyze, for example, the cost of production of a cotton gown. The expense of freight forms part of the expense of the raw material. The price of the ship is paid by the freight of the different cargoes; among the rest, by the cargo of which the raw materials of the gown formed a part. Of this freight, part is applied to the expenses of navigating the ship, and part to replace with the usual profits, the original cost of production of the ship. Of this cost of production, the price of the nails, for example, which were used in building the ship, forms a part. Again, part of the expense of making those nails, is the price of the machinery which raised the ore. Carry on this analysis in your mind, as far as your imagination dares to wander, and you will find in the most distant ages, certain employments of labour, and accumulation of capital, indirectly contributing to the production of this cotton gown. So that it is hardly too much to say that the first capital accumulated in the empire may have had its effect in producing this gown; and what is more extraordinary, that remote capital may not have yielded all its profits until that gown was worn by its present possessor.

This last assertion may appear to be a startling or an obscure paradox. Let us examine it more minutely. If I fail to convince you of its truth, let me at least make it intelligible. All the commodities which men consume, and which can be made the subject of exchanges, owe their existence and their value to labour. The exceptions to this are very trifling, and are of such a nature that they do not vitiate any of the conclusions drawn from it. On the other hand, all labour, properly so called, has consumption for enjoyment, or what I shall call unproductive consumption, ultimately in view. In making use of this expression, I am anticipating the subject of production and consumption, which I do not intend to enter fully upon for several months. To explain merely what I mean by unproductive consumption will serve my present purpose. I consider every consumption unproductive, where the value of the commodity consumed is destroyed, and is not transferred to some other commodity. In such consumption consists all the enjoyment that man derives from wealth. Thus, the food eaten by the labourer is unproductively consumed, its value is not transferred to any other commodity. It is true that the labourer, by his toil, may create an equal or a greater value than what he has consumed. But it is the value of his labour, not of his food, that reappears in the articles he produces. Whether he saves or spends his wages, the value of his work will be the same. What he does spend is consumed for his enjoyment. But there is also a consumption where the value of the article consumed is not destroyed, but is transferred to some other commodity. This I call reproductive consumption. Thus the coal consumed in working a steam engine employed in making cotton goods, is reproductively consumed. It forms part of the cost of production of the muslin or calico, and its value reappears in the increased value it gives to the article which was produced by its means. I think it right to apprise you, that I do not employ those terms exactly in the same sense as some other writers, and that they would call the consumption of food by a labourer productive, while I call it unproductive. It would be out of place now for me to prove that such a use of the terms is inconsistent and inconvenient. It involves a false hypothesis, and renders it impossible to distinguish between productive and unproductive consumption. For my present purpose it is enough to state the sense in which I use them, and the distinction I make between them. The question to be asked is this—Is enjoyment or reproduction the immediateobject of the consumption? By enjoyment I understand every advantage or pleasure which the consumer derives from the use of the article, without the mediation of any exchange.

Such unproductive consumption is the end which all labour has ultimately in view. The workman himself may not have this object in view. He works, because he his employed and paid by the manufacturer, who employs him and pays him, because he hopes to sell to a merchant the produce of his work. The merchant may sell to the retailer, and it may be the subject of fifty exchanges, but each person buys it either to sell it again or to consume it. But every person who buys and sells it, does so for the sake of profit, and except in the peculiar case of money, it cannot be bought by every body merely for the sake of selling it again, and thus be continually increasing in price. It at last comes into the hands of a person who purchases and consumes it for the sake of the enjoyment it affords him. Until that event takes place, the labour which produced it has not been productive of any enjoyment or utility to man. And all those who were employed in producing or exchanging it, must have derived their wages and profits from some other productive source. And this is not the less true, although centuries should intervene before the ultimate consumption takes place. Neither the labourer nor the capitalist however can remain so long a time without his wages or profits. Let us examine how this is obviated. The labourer is paid by the manufacturer who employs him, and he can then expend his wages in any manner he thinks proper, and consume something produced by the toil of others, although nothing produced by him has yet been consumed by any one. He is subsisting on an advance derived from some person who, for the sake of profit, abstains from an enjoyment within his reach. The manufacturer, in like manner, sells to the merchant, the latter to the retailer, who sells again to the consumer. Each receives the amount of his advances, with a profit, from the next person into whose possession the article comes, and each pays the preceding owner with goods previously existing, which, instead of thus expending for profit, he might have converted into a source of enjoyment. But there is a suspension of enjoyment from this article, until it comes into the possession of the unproductive consumer. He pays for the labour of making it, and all the intermediate profits. He need not pay this out of revenue existing prior to the manufacture of the article. But he pays more for it, in consequence of the delay. And although each labourer or capitalist has only the sale to his immediate successor in view, yet it is the unproductive consumer that sets the whole in motion; and if all hopes of its unproductive consumption were destroyed, the whole system of makers and sellers would stop, and the goods, without the possibility of sale, or of further labour or capital being expended upon them, would remain in their existing state, in the possession of the existing proprietors. No direct advantage is produced by any goods, except at the moment when all or some part of their value is being destroyed.

A confusion of ideas is here very apt to arise, if we do not distinguish, with sufficient care, between the sources from which commodities are derived, and the occasions on which they are distributed. With such a confusion, an answer might be given to what I have said, by replying that labour might be productive of enjoyment long before the value produced by it is acquired by the unproductive consumer, that it might set other labourers in motion, and that they are thus enabled to support their families, &c. Without denying this, or interfering in the least with any doctrine respecting the importance of finding occupation for the labourer, I shall for the present only request you to keep in mind the distinction to which I have drawn your attention, and you will perceive that in all such cases those employments do not produce the goods which the labourers consume, but are only the occasions on which they are distributed. The goods must have been previously in existence, independent of the labour by which, on those occasions, they are earned. Thus, although from unproductive consumption the consumer alone derives any advantage, yet labour is only useful so far as it supplies or produces the materials for unproductive consumption. And this remains equally true, although the value produced may have been repeatedly transferred from one commodity to another. Political-Economy regards value only. The commodities are the substances in which this important quality resides. In this respect there is no essential difference between the cases in which the substance is changed, or remains the same. To the ship is transferred the value of the timber of which it is composed, which has only undergone a mechanical alteration, and part of the value of the machinery employed in constructing it, and of the coal burnt in those processes where fire is required, although not a single particle of that machinery or that coal forms part of the ship to which their value has been transferred.

Now, the labourer who produces goods ultimately destined for consumption, cannot wait for his wages until those goods are ready to be consumed, and then consume them, or what he can receive in exchange for them. He cannot wait so long, and where several have contributed directly or indirectly at different intervals, it would be impossible to settle their contending claims. All this difficulty is removed, the employer pays wages to the labourer according to a contract made between them. He pays the wages immediately, and in return receives the value of his labour, to be disposed of to the best advantage. The employer does this for the sake of the profit which he expects to make by the transaction. Hence the value of the labour fixed in, or transferred to, any article, is greater than the wages of that labour. The difference is the profit made by the capitalist for his advances: it is, as it were, the discount which the labourer pays for prompt payment. It is in the capacity of consumer that the labourer has any concern with the rate of profits. The addition which the delay makes to the value of the labour, is exactly equal to the subtraction from its wages made for prompt payment. If the labourer, owing to profits being high, receives only 5s. for making an article which sells for 6s. it is owing to those profits that the article sells so high as 6s. instead of 5s.

The rate of profits depends upon the proportion which exists between the advance made by the capitalist, and the return which he receives, and the length of time for which that advance is made. For the sake of simplicity, let us suppose that all advances are made at the same interval, say a year, from the time of sale; and having by this abstraction removed all consideration of the length of time, we shall say that the rate of profit depends upon the proportion between the advance made by the capitalist, and the return which he receives. Let us also suppose that this advance is always made in the form of wages paid to the labourer, and it will follow, that the rate of profit depends upon the proportion in which the value of any commodity is divided between the labourer and the capitalist; since, on the suppositions I have made, the one will represent the absolute amount of the advances made by the capitalist, the other the absolute amount of his profit. This proposition may be considered useless or untrue, as depending upon false suppositions. It is, however, true in those cases in which it does apply, and all other cases may, with a little care, be reduced to them. And such reduction must be made, whenever we resort to labour as a common measure for comparing the values of commodities. Whatever advances are not made in labour, must be reduced to the measure of labour. If a capitalist expends £50 in raw materials, it must be considered as so much advanced on account of labour. In order to make use of labour as a measure of value, we, as it were, reduce every thing else of value to that denomination. This is similar to what we naturally do when we measure a person’s property, and compute how much money it is worth, and say a man is worth £100,000, although his property consists of various commodities besides money.

Mr. Torrens’s objection to the proposition in question arises entirely from his not understanding it in this sense. I shall give his argument in his own words, in the introduction to his Essay on the External Corn Trade, page 15—“The doctrine that profits rise and fall, as wages fall and rise, Mr. Hill gives up in all cases, except those in which the terms are used, not according to their accustomed acceptation, but with reference to proportions. It may be easily shewn, however, that the doctrine that profits depend on wages is equally untenable, whether the terms alteration of wages, alteration of profits, are employed with a reference to proportions, or whether they are used in relation to quantities. Let us suppose that a capitalist advances to a labourer 20 quarters of corn as wages, and 20 quarters as seed, and let the produce returned to the capitalist at the end of the year be 60 quarters. In this case, if we deduct from the whole produce, as Mr. Hill contends we should, what is necessary to replace the seed, 40 quarters will remain to be divided between wages and profits: and as by the supposition, wages are 20, profits must be 20 also; that is, as the whole advances of the capitalist for wages and seed were 40 quarters, and as he has 20 quarters remaining over and above the replacement of those advances, the rate of his profit will be 50 per cent. Now let us vary our suppostion, and assume that while the quantity of labour employed, and the quantity of produce obtained remain exactly as before, an improvement takes place in cultivation, which enables the farmer to crop his field with 10 quarters of seed, instead of with 20 quarters. In this case, when from the whole produce of 60 quarters, the 10 quarters required to replace capital, in Mr. Hill’s sense of the term, are deducted, 50 quarters will remain to be divided between wages and profit. Let these 50 be equally divided, as the 40 quarters formerly were, between the labourer and capitalist, each getting 25 quarters, and then the shares or proportions will remain exactly as before. But though the proportions or proportional wages remain unchanged, yet profits will have risen from 50 to upwards of 70 per cent. The capitalist, after replacing his expenditure of 25 quarters for wages, and 10 quarters for seed, will have a surplus of 25 quarters remaining, while in the former case, after replacing an expenditure of 20 quarters for wages, and 20 quarters for seed, he had a surplus of only 20 quarters remaining.”

Now in all this I perfectly agree with Mr. Torrens, with this slight verbal difference, that in the two cases which he supposes, I would not say that proportional wages remained the same, because I should consider the sums spent in seed as spent in wages. This supposition is necessary in order to take up production from the very commencement. The value of the corn consumed as seed may be measured in wages and profits; and so much as consists of profits, adds to the total profits of the capitalist, but adds nothing to the rate of profits, since this addition is compensated by the greater length of time during which the capitalist is deprived of his advances. We use the term capitalist and labourer, although there has been a succession of capitalists and many labourers employed in production.

To the principal proposition, all verbal objections may be obviated, if it is stated thus. If all advances are made at the same interval, say a year before the sale of the article, and consist exclusively of the wages of labour, the rate of profits will depend upon, or will be the proportion between, the shares of the value of the complete article received by the labourer and the capitalist. But if some of the advances are made for other purposes than the payment of wages, the same proposition will be true, by considering such advances as if they were so much money then paid as wages, and if the advances were made at different intervals from the sale, the average of those intervals must be taken, and in proportion as that average is less or more than a year, the rate of profits must be considered as increased or diminished in the same proportion. Of those two qualifications, the second is clearly understood in every statement, and the first is only used in order to prevent the necessity of taking into consideration the succession of capitalists from the beginning to the complete work. The nature of those two corrections, and their effect, are the same, whatever the rate of profit is; and therefore it is usual, still having those corrections in view, but not expressing them, to say, that the rate of profit depends upon the proportion of the shares of the final value received by the labourer and the capitalist.

But Mr. M‘Culloch’s argument against this proposition not only contains that misapprehension of its meaning and qualification which I have already remarked, but also involves a serious miscalculation, from which, I conceive, another very considerable error has originated. I shall give his argument in his own words—“Suppose an individual employs a capital of 1,000 quarters, or £1,000 in cultivation, that he lays out the half of this capital in the payment of wages, and obtains a return of 1,200 quarters, or £1,200. In this case, assuming he is not affected by taxation, his profits will amount to 200 quarters, or £200, being at the rate of 20 per cent., and will be to wages in the proportion of 2 to 5. Suppose now that the productiveness of industry is universally doubled, and let it be further supposed that the additional 1,200 quarters, or £1,200, is divided between the capitalist and his labourers in the former proportion of 2 to 5, or that the capitalist gets 343 quarters, or £343, of additional profits, and the labourer 857 quarters, or £857, of additional wages. In this case, both parties will obtain the same proportion of the produce of industry as before, and if we look only to them, we must say that neither wages nor profits had risen. But when we compare, as is invariably done in estimating profits, the return obtained by the capitalist with the capital he employs, it will be found, notwithstanding the constancy of proportional wages, that the rate of profit has increased from 20 to 54 per cent.”—Prin. of Pol. Econ. p. 481.

The first remark to be made upon this argument is, that it does not make the correction which is necessary, and therefore so far his argument, if correct, does not concern me, since we do not take proportional wages in the same sense. The correction must be made by supposing that the 500 quarters expended in seed, implements, &c. are as so much wages paid to the labourer. In any other sense, proportional wages cannot be the same in different employments. But the error which I am now about to point out is more serious in itself and in its consequences. Mr. M‘Culloch calculates the rate of profits, after this increase of productiveness of labour, as if the advances of the capitalist remained exactly as before; the profit is £543, and he supposes the advance to remain £1,000; whereas, on his supposition, the advance made by the capitalist is £500 for seed, and £500 for the old wages, and £857 for the additional wages, in all £1,857; and the rate of profit is only 30 per cent. instead of 54; and even this increase of profit is caused by the diminution of proportional wages. This calculation has led Mr. M‘Culloch constantly to assume, that an increased productiveness of industry is one of the causes of a rise of profits. But I think that an accurate analysis of the subject would lead to the conclusion, that if the productiveness of industry were universally doubled, the condition of the labourer would be considerably improved, but the rate of profits would remain the same as before. The wages of labour, and therefore the advances of the capitalist, would be doubled, and as his receipts would be also doubled, the rate of profits would remain as before. At the same time, I think it is utterly impossible to attach any precise meaning to the expression, “that the productiveness of industry is universally doubled.” In the example which I have just cited from Mr. M‘Culloch, I should be disposed to say that the productiveness of labour was more than doubled, since the produce is doubled, while the advances measured in labour were diminished.

In general, by capital is understood all wealth devoted to production or exchange for profit; and by stock is meant such wealth as is devoted to unproductive consumption. This distinction is not always adhered to. Capital is frequently used to signify what may be capital, although it is not used as such. Capital and profits are so analogous to principal and interest, that in furtherance of the analogy, the word capital is frequently used in an extended sense. Thus, if a man spends annually the interest of his money, or the profits of his capital, he will neither increase nor diminish his wealth; but if he spends more, he will become poorer; and as in the one case he is said to be spending his principal, so in the other he is said to spend his capital, although, properly speaking, he does not spend his capital, but converts to stock, and uses as such, what ought to be employed as capital. That may be capital at one time, and for one person, which at another time, and for another person, is stock; but this does not prevent the things themselves from being distinct, even although there are a few cases in which a thing may appear to partake of the nature of both. It is the use to which any thing is dedicated that determines whether any thing is to be considered as capital or stock. I shall not now enter into any consideration of the question—What regulates profits, and determines their amount? I have attempted merely to shew what they are, and how their amount is to be calculated. My next lecture shall be entirely devoted to the investigation of the laws which determine their actual amount.