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• Principles of Political Economy: Book III: Exchange
• Chapter I: Of Value
• Chapter II: Aofa Demand and Supply, In Their Relation to Value
• Chapter III: Of Cost of Production, In Its Relation to Value
• Chapter IV: Ultimate Analysis of Cost of Production
• Chapter V: Of Rent, In Its Relation to Value
• Chapter VI: Summary of the Theory of Value
• Chapter VII: Of Money
• Chapter VIII: Of the Value of Money, As Dependent On Demand and Supply
• Chapter IX: Of the Value of Money, As Dependent On Cost of Production
• Chapter X: Of a Double Standard, and Subsidiary Coins
• Chapter XI: Of Credit, As a Substitute For Money
• Chapter XII: Influence of Credit On Prices
• Chapter XIII: Of an Inconvertible Paper Currency
• Chapter XIV: Of Excess of Supply
• Chapter XV: Of a Measure of Value
• Chapter XVI: Of Some Peculiar Cases of Value
• Chapter XVII: Of International Trade
• Chapter XVIII: Of International Values
• Chapter XIX: Of Money, Considered As an Imported Commodity
• Chapter XX: Of the Foreign Exchanges
• Chapter XXI: Of the Distribution of the Precious Metals Through the Commercial World
• Chapter XXII: Influence of the Currency On Athea Exchanges and On Foreign Trade
• Chapter XXIII: Of the Rate of Interest
• Chapter XXIV: Of the Regulation of a Convertible Paper Currency
• Chapter XXV: Of the Competition of Different Countries In the Same Market
• Chapter XXVI: Of Distribution, As Affected By Exchange
• Book IV: Influence of the Progress of Society On Production and Distribution
• Chapter I: General Characteristics of a Progressive State of Wealth
• Chapter II: Influence of the Progress of Industry and Population On Values and Prices
• Chapter III: Influence of the Progress of Industry and Population, On Rents, Profits, and Wages
• Chapter IV: Of the Tendency of Profits to a Minimum
• Chapter V: Consequences of the Tendency of Profits to a Minimum
• Chapter VI: Of the Stationary State
• Chapter VII: On the Probable Futurity of the Labouring Classes
• Book V: On the Influence of Government
• Chapter I: Of the Functions of Government In General
• Chapter II: Aona the General Principles of Taxation
• Chapter III: Of Direct Taxes
• Chapter IV: Of Taxes On Commodities
• Chapter V: Of Some Other Taxes
• Chapter VI: Comparison Between Direct and Indirect Taxation
• Chapter VII: Of a National Debt
• Chapter VIII: Of the Ordinary Functions of Government, Considered As to Their Economical Effects
• Chapter IX: The Same Subject Continued
• Chapter X: Of Interferences of Government Grounded On Erroneous Theories
• Chapter XI: Of the Grounds and Limits of the Laisser-faire Or Non-interference Principle
• Appendices
• Appendix a
• Appendix B
• Appendix C
• Appendix D
• Appendix E
• Appendix F: the Ms of the Principles
• Appendix G: John Stuart Mill—harriet Taylor Mill Correspondence
• Appendix H: John Stuart Mill—john E. Cairnes Correspondence and Notes
• Appendix I: Bibliographic Index of Persons and Works Cited In the Principles, With Variants and Notes

Appendix D

Book IV, Chapter vii (“On the Probable Futurity of the Labouring Classes”), §§ 5-6, 2nd edition (1849), collated with the 1st edition.¹

§ 5. [Examples of the association of the labourers in the profits of industrial undertakings] ^aIt is this feeling, almost as much as despair of the improvement of the condition of the labouring masses by other means, which has caused so great a multiplication of projects for the “organization of industry” by the extension and development of the co-operative or joint stock principle: some of the more conspicuous of which have been described and characterized in an early chapter of this work. It is most desirable that all these schemes should have opportunity and encouragement to test their capabilities by actual experiment. There are, in almost all of them, many features, in themselves well worth submitting to that test; while, on the other hand, the exaggerated expectations entertained by large and growing multitudes in all the principal nations of the world, concerning what it is possible, in the present state of human improvement, to effect by such means, have no chance of being corrected except by a fair trial in practice. The French Revolution of February 1848, at first seemed to have opened a fair field for the trial of such experiments, on a perfectly safe scale, and with every advantage that could be derived from the countenance of a government which sincerely desired their success. It is much to be regretted that these prospects have been frustrated, and that the reaction of the middle class against anti-property doctrines has engendered for the present an unreasoning and undiscriminating antipathy to all ideas, however harmless or however just, which have the smallest savour of Socialism. This is a disposition of mind, of which the influential classes, both in France and elsewhere, will find it necessary to divest themselves. Socialism has now become irrevocably one of the leading elements in European politics. The questions raised by it will not be set at rest by merely refusing to listen to it; but only by a more and more complete realization of the ends which Socialism aims at, not neglecting its means so far as they can be employed with advantage.

On the particular point specially considered in the present chapter, those means have been, to a certain extent, put in practice in several departments of existing industry; by arrangements giving to^a [every one who contributes to the work,]² whether [by labour or by pecuniary resources,]^3b [a partner’s interest in it,]⁴ proportionally [to the value of his contribution. It is already a common practice to remunerate those in whom peculiar trust is reposed by means of a percentage on the profits; and cases exist in which the principle is, with]⁵ the most [excellent success, carried down to the class of mere manual labourers.

In the American ships trading to China, it has long been the custom for every sailor to have an interest in the profits of the voyage; and to this has been ascribed the general good conduct of those seamen, and the extreme rarity of any collision between them and the government or people of the country. An instance in England]⁶ itself[, not so well known as it deserves to be, is that of the Cornish miners. “In Cornwall the mines are worked strictly on the system of joint adventure; gangs of miners contracting with the agent, who represents the owner of the mine, to execute a certain portion of a vein, and fit the ore for market, at the price of so much in the pound of the sum for which the ore is sold. These contracts are put up at certain regular periods, generally every two months, and taken by a voluntary partnership of men accustomed to the mine. This system has its disadvantages, in consequence of the uncertainty and irregularity of the earnings, and consequent necessity of living for long periods on credit; but it has advantages which more than counterbalance these drawbacks. It produces a degree of intelligence, independence, and moral elevation, which raise the condition and character of the Cornish miner far above that of the generality of the labouring class. We are told by Dr. Barham, that ‘they are not only, as a class, intelligent for labourers, but men of considerable knowledge.’ Also, that ‘they have a character of independence, something American, the system by which the contracts are let giving the takers entire freedom to make arrangements among themselves; so that each man feels, as a partner in his little firm, that he meets his employers on nearly equal terms.’ . . . With this basis of intelligence and independence in their character, we are not surprised when we hear that ‘a very great number of miners are now located on possessions of their own, leased for three lives or ninety-nine years, on which they have built houses;’ or that ‘281,541l. are deposited in]⁷ savings [banks in Cornwall, of which two-thirds are estimated to belong to miners.’ ”^*

Mr. Babbage, who also gives an account of this system, observes^† that the payment to the crews of whaling ships is governed by a similar principle; and that “the profits arising from fishing with nets on the south coast of England are thus divided: one-half the produce belongs to the owner of the boat and net; the other half is divided in equal portions between the persons using it, who are also bound to assist in repairing the net when required.” Mr. Babbage has the great merit of having pointed out the practicability, and the advantage, of extending the principle to manufacturing industry generally.]⁸ I venture to quote the principal part of his observations on the subject.

“The general principles on which the proposed system is founded, are—1st. That a considerable part of the wages received by each person employed, should depend on the profits made by the establishment; and 2nd. That every person connected with it should derive more advantage from applying any improvement he might discover, to the factory in which he is employed, than he could by any other course.

“It would be difficult to prevail on the large capitalist to enter upon any system, which would change the division of the profits arising from the employment of his capital in setting skill and labour in action; any alteration, therefore, must be expected rather from the small capitalist, or from the higher class of workmen, who combine the two characters; and to these latter classes, whose welfare will be first affected, the change is most important. I shall therefore first point out the course to be pursued in making the experiment; and then, taking a particular branch of trade as an illustration, I shall examine the merits and defects of the proposed system as applied to it.

“Let us suppose, in some large manufacturing town, ten or twelve of the most intelligent and skilful workmen to unite, whose characters for sobriety and steadiness are good, and are well known among their class. Such persons will each possess some small portion of capital; and let them join with one or two others who have raised themselves into the class of small master-manufacturers, and therefore possess rather a larger portion of capital. Let these persons, after well considering the subject, agree to establish a manufactory of fire-irons and fenders; and let us suppose that each of the ten workmen can command forty pounds, and each of the small capitalists possesses two hundred pounds: thus they have a capital of 800l., with which to commence business, and for the sake of simplifying, let us further suppose the labour of each of these twelve persons to be worth two pounds a week. One portion of their capital will be expended in procuring the tools necessary for their trade, which we shall take at 400l., and this must be considered as their fixed capital. The remaining 400l. must be employed as circulating capital, in purchasing the iron with which their articles are made, in paying the rent of their workshops, and in supporting themselves and their families until some portion of it is replaced by the sale of the goods produced.

“Now the first question to be settled is, what proportion of the profit should be allowed for the use of capital, and what for skill and labour? It does not seem possible to decide this question by any abstract reasoning: if the capital supplied by each partner is equal, all difficulty will be removed; if otherwise, the proportion must be left to find its level, and will be discovered by experience; and it is probable that it will not fluctuate much. Suppose it to be agreed that the capital of 800l. shall receive the wages of one workman. At the end of each week, every workman is to receive one pound as wages, and one pound is to be divided amongst the owners of the capital. After a few weeks the returns will begin to come in; and they will soon become nearly uniform. Accurate accounts should be kept of every expense and of all the sales; and at the end of each week the profit should be divided. A certain portion should be laid aside as a reserved fund, another portion for repair of the tools, and the remainder being divided into thirteen parts, one of these parts would be divided amongst the capitalists and one belong to each workman. Thus each man would, in ordinary circumstances, make up his usual wages of two pounds weekly. If the factory went on prosperously, the wages of the men would increase; if the sales fell off, they would be diminished. It is important that every person employed in the establishment, whatever might be the amount paid for his services, whether he act as labourer or porter, or as the clerk who keeps the accounts, or as book-keeper employed for a few hours once a week to superintend them, should receive one-half of what his service is worth in fixed salary, the other part varying with the success of the undertaking.

“The result of such arrangements in a factory would be,

“1. That every person engaged in it would have a direct interest in its prosperity; since the effect of any success, or falling off, would almost immediately produce a corresponding change in his own weekly receipts.

“2. Every person concerned in the factory would have an immediate interest in preventing any waste or mismanagement in all the departments.

“3. The talents of all connected with it would be strongly directed to improvement in every department.

“4. None but workmen of high character and qualifications could obtain admission into such establishments, because when any additional hands were required, it would be the common interest of all to admit only the most respectable and skilful, and it would be far less easy to impose upon a dozen workmen than upon the single proprietor of a factory.

“5. When any circumstance produced a glut in the market, more skill would be directed to diminishing the cost of production; and a portion of the time of the men might then be occupied in repairing and improving their tools, for which a reserved fund would pay, thus checking present, and at the same time facilitating future production.

“6. Another advantage, of no small importance, would be the total removal of all real or imaginary causes for combinations. The workmen and the capitalist would so shade into each other—would so evidently have a common interest, and their difficulties and distresses would be mutually so well understood, that instead of combining to oppress one another, the only combination which could exist would be a most powerful union between both parties to overcome their common difficulties.

“One of the difficulties attending such a system is, that capitalists would at first fear to embark in it, imagining that the workmen would receive too large a share of the profits: and it is quite true that the workmen would have a larger share than at present: but at the same time, it is presumed the effect of the whole system would be, that the total profits of the establishment being much increased, the smaller proportion allowed to capital under this system would yet be greater in actual amount, than that which results to it from the larger share in the system now existing.

“A difficulty would occur also in discharging workmen who behaved ill, or who were not competent to their work; this would arise from their having a certain interest in the reserved fund, and perhaps from their possessing a certain portion of the capital employed; but without entering into detail, it may be observed, that such cases might be determined on by meetings of the whole establishment; and that if the policy of the laws favoured such establishments, it would scarcely be more difficult to enforce just regulations than it now is to enforce some which are unjust by means of combinations either amongst the masters or the men.”^[*]

In this imaginary case, it is supposed that each labourer brings some small portion of capital into the concern: but the principle is equally applicable to the ordinary case, in which the whole capital belongs to an individual capitalist. An application of it to such a case is actually in progress, by a Paris tradesman, a house-painter, M. Leclaire.^* The intelligent author of this meritorious experiment, published a pamphlet in the year 1842, descriptive of his system of operations; to which attention was first directed by M. Duveyrier, in his Lettres Politiques, and a full abstract of which has been published in Chambers’ Journal.^† M. Leclaire [employs on an average two hundred workmen, whom he pays in the usual manner, by fixed wages or salaries. He assigns to himself, besides interest for his capital, a fixed allowance for his labour and responsibility as manager. At the end of the year, the surplus profits are divided among the ^c body, himself included, in the proportion of their ^d salaries.^‡ The reasons by which M. Leclaire was led to adopt this system are]⁹ interesting and [instructive. Finding the conduct of his workmen unsatisfactory, he first tried the effect of giving higher wages, and by this he managed to obtain a body of excellent workmen, who would not quit his service for any other. “Having thus succeeded” (I quote from]¹⁰ the [abstract] [in Chambers’ Journal,] “in producing some sort of stability in the] arrangements [of his establishment, M. Leclaire expected, he says, to enjoy greater peace of mind. In this, however, he was disappointed. So long as he was able to superintend everything himself, from the general concerns of his business down to its minutest details, he did enjoy a certain satisfaction; but from the moment that, owing to the increase of his business, he found that he could be nothing more than the centre from which orders were issued, and to which reports were brought in, his former anxiety and discomfort returned upon him.” He speaks lightly of the other sources of anxiety to which a tradesman is subject, but describes as an incessant cause of vexation the losses arising from the misconduct of workmen. An employer “will find workmen whose indifference to his interests is such that they do not perform two-thirds of the amount of work which they are capable of; hence the continual fretting of masters, who, seeing their interests neglected, believe themselves entitled to suppose that workmen are constantly conspiring to ruin those from whom they derive their livelihood. If the journeyman were sure of constant employment, his position would in some respects be more enviable than that of the master, because he is assured of a certain amount of day’s wages, which he will get whether he works much or little. He runs no risk, and has no other motive to stimulate him to do his best than his own sense of duty. The master, on the other hand, depends greatly on chance for his returns: his position is one of continual irritation and anxiety. This would no longer be the case to the same extent, if the interests of the master and those of the workmen were bound up with each other, connected by some bond of mutual security, such as that which would be obtained by the plan of a yearly division of profits.”

^eEven in the first year during which M. Leclaire’s experiment was in complete operation, the success was^e remarkable. Not one of his journeymen who worked as many as three hundred days, earned in that year less than 1500 francs, and some considerably more. His highest rate of daily wages being four francs, or 1200 francs for 300 days, the remaining 300 francs or 12l. must have been the smallest amount which any journeyman, who worked that number of days, obtained as his proportion of the surplus profit. M. Leclaire describes in strong terms the improvement which was already manifest in the habits and demeanour of his workmen, not merely when at work, and in their relations with their employer, but at other times and in other relations, showing increased respect both for others and for themselves.]^11fThe system is still in operation; and we learn from [M. Chevalier]¹² [that the increased zeal of the workpeople]¹³ continues [to be a full compensation to]¹⁴ M. Leclaire[, even in a pecuniary sense, for the share of profit which he]¹⁵ foregoes [in their favour.]^*f16

Under this system, as well as under that recommended by Mr. Babbage, the labourers are, in reality, taken into partnership with their employer. Bringing nothing into the common concern but their labour, while he brings not only his labour of direction and superintendence but his capital also, they have justly a smaller share of the profits; this, however, is a matter of private arrangement in all partnerships: one partner has a large, another a small share, according to their agreement, grounded on the equivalent which is given by each. The essence, however, of a partnership is obtained, since each benefits by all things that are beneficial to the concern, and loses by all which are injurious. It is, in the fullest sense, the common concern of all.

§ 6. [Probable future developement of this principle] To this principle, in whatever form embodied, it seems to me that futurity has to look for obtaining the benefits of co-operation, without constituting the numerical majority of the co-operators an inferior caste. The objections that apply to a “co-operative society,” in the Communist or Owenite sense, in which, by force of giving to every member of the body a share in the common interest, no one has a greater share in it than another, are not applicable to what is now suggested. It is expedient that those, whose performance of the part assigned to them is the most essential to the common end, should have a greater amount of personal interest in the issue of the enterprise. If those who supply the funds, and incur the whole risk of the undertaking, obtained no greater reward or more influential voice than the rest, few would practise the abstinence through which those funds are acquired and kept in existence. Up to a certain point, however, the principle of giving to every person concerned an interest in the profits is an actual benefit to the capitalist, not only (as M. Leclaire has testified) in point of ease and comfort, but even in pecuniary advantage. And after the point of greatest benefit to the employers has been attained, the participation of the labourers may be carried somewhat further without any material abatement from that maximum of benefit. At what point, in each employment of capital, this ultimatum is to be found, will one day be known and understood from experience; and up to that point it is not unreasonable to expect that the partnership principle will be, at no very distant time, extended.

The value of this “organization of industry,” for healing the widening and embittering feud between the class of labourers and the class of capitalists, must, I think, impress itself by degrees on all who habitually reflect on the condition and tendencies of modern society. I cannot conceive how any such person can persuade himself that the majority of the community will for ever, or even for much longer, consent to hew wood and draw water all their lives in the service and for the benefit of others; or can doubt, that they will be less and less willing to co-operate as subordinate agents in any work, when they have no interest in the result, and that it will be more and more difficult to obtain the best work-people, or the best services of any work-people, except on conditions similar in principle to those of M. Leclaire. Although, therefore, arrangements of this sort are now in their infancy, their multiplication and growth, when once they enter into the general domain of popular discussion, are among the things which may most confidently be expected.

[1 ]The method of footnoting is the same as that used in the text proper: i.e., the 48 variants are indicated by superscript letters and given in footnotes. The places where the 49 text agrees with the 71 text are surrounded by square brackets to simplify comparison; references to the 71 text are given in numbered footnotes to the end of bracketed passages.

[a-a]100748 A solution of this problem is afforded by the extension and development of which the co-operative or joint-stock principle is susceptible. That principle supplies means by which

[2 ][See II.769.21 above.]

[3 ][See II.769.21-2 above.]

[b]48 may have

[4 ][See II.769.22 above.]

[5 ][See II.769.23-5 above.]

[6 ][See II.769.25-31 above.]

[7 ][See II.769.31—770-21 above.]

[* ]This passage is from the Prize Essay on the Causes and Remedies of National Distress, [pp. 40-1,] by Mr. Samuel Laing. The extracts which it includes are from the Appendix to the Report of the Children’s Employment Commission.

[† ]Economy of Machinery and Manufactures, 3rd edition, ch. 26 [p. 259]. [52, 57, 62, 65, 71 [this footnote occurs at the end of the paragraph]]

[8 ][See II.770.21-31 above.]

[[*] ]Babbage, pp. 253-9.

[* ][His establishment is] (or was) [11, Rue Saint Georges.] [See II.770n above.]

[† ][For September 27, 1845.] [See II.771n above.]

[c]48 whole

[d]48 fixed

[‡ ][49] [It appears, however, that the workmen whom M. Leclaire] admits [to this participation of profits,] are as yet [only a portion (rather less than half) of the whole number whom he] employs. [This is explained by another part of his system. M. Leclaire pays the full market rate of wages to all his workmen. The share of profit assigned to them is, therefore, a clear addition to the ordinary gains of their class, which he very laudably uses as an instrument of improvement, by making it the reward of desert, or the recompense for peculiar trust.] [See II.771n above.]

[9 ][See II.770.35—771.6 above.]

[10 ][See II.771.6-9 above.]

[e-e]48 It is to be regretted that we are only in possession of the result of M. Leclaire’s experiment in the first year during which it was in complete operation. Already, however, the success had been

[11 ][See II.771.10—772.15 above.]

[f-f]+49

[12 ][See II.772.15 above.]

[13 ][See II.772.16 above.]

[14 ][See II.772.17 above.]

[15 ][See II.772.17-18 above.]

[* ][49] “Je tiens de M. Leclaire que chez lui l’avantage du zèle extrême dont sont animés les ouvriers, depuis qu’il a adopté le système de la participation, fait plus que compenser le sacrifice représenté par la somme des parts qu’on leur alloue.” Lettres sur l’Organisation du Travail, par Michel Chevalier, (1848,) lettre xiv [p. 298].

[16 ][See II.772.18 above.]