# 1911 Encyclopædia Britannica/Wages

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​WAGES (the plural of “wage,” from Late Lat. wadium, a pledge, O. Fr. wagier, gagier). Wages, although one of the most common and familiar terms in economic science, is at the same time one of the most difficult to define accurately. The natural definition is that wages is the “reward for labour,” but then we are at once confronted with the difficulty so well stated by Adam Smith: “The greater part of people understand better what is meant by a quantity of a particular commodity than by a quantity of labour; the one is a plain palpable object, the other an abstract notion, which, though it can be made sufficiently intelligible, is not altogether so natural and obvious.” If we regard wages as the reward for a quantity of labour, it is clear that to make the meaning precise we must give a precise meaning to this abstract notion of Adam Smith. From the point of view of the labourer the quantity of labour refers not so much to the work accomplished (e.g. raising so many foot-pounds) as to “all the feelings of a disagreeable kind, all the bodily inconvenience or mental annoyance, connected with the employment of one's thoughts or muscles or both in a particular occupation” (J. S. Mill). But this analysis seems only to make the task of definition more difficult, for the class of labourers, in this wide sense of the term labour, would include the capitalist who racks his brains in making plans just as much as the navvy who digs with the sweat of his brow. Thus “profits,” in the ordinary sense of the term, instead of being contrasted, would to a large extent be classified with wages, and in fact the wages of superintendence or of management is one of the recognized elements in the classical analysis of profits. It is only when we refer to the list of “occupations” in any civilized country that we can really form an adequate idea of the variety of classes to which the term labour, as defined by Mill, may be extended.
​It may be granted that in certain economic inquiries it is extremely useful to bring out the points of resemblance between “workers” at the various stages of the social scale, and it is especially serviceable in showing that the opposition between “employer” and the “employed,” and the “classes” and the “masses,” is often exaggerated. At the same time the differences, if not in kind at any rate in degree, are so great that if the analogy is carried very far it becomes misleading. Accordingly it seems natural to adopt as the preliminary definition of “wages” something equivalent to that of Francis Walker in his standard work on the Wages Question, viz. “the reward of those who are employed in production with a view to the profit of their employers and are paid at stipulated rates.”
It may be observed that by extending the meaning of production, as is now done by most economists, to include all kinds of labour, and by substituting benefit for profit, this definition will include all grades of wages.
Having thus limited the class of those who earn “wages,” the next point is to consider the way in which the wages ought to be Nominal and real wages. measured. The most obvious method is to take as the rate of time-wages the amount of money earned in a certain time, and as the rate of task-wages the amount of money obtained for a given amount of work of a given quality; and in many inquiries this rough mode of measurement is sufficient. But the introduction of money as the measure at once makes it necessary to assume that for purposes of comparison the value of the money to the wage-earners may be considered constant. This supposition does not hold good even between different places in the same country at the same time, and still less with variations in time as well as place. To the labourers, however, the amount of money they obtain is only a means to an end, and accordingly economists have drawn a sharp distinction between nominal and real wages. “Labour, like commodities,” says Adam Smith, “may be said to have a real and a nominal price. Its real price may be said to consist in the quantity of the necessaries and conveniences of life which are given for it; its nominal price in the quantity of money. The labourer is rich or poor, is well or ill rewarded, in proportion to the real not to the nominal price of his labour.”
Walker (op. cit. pp. 12 sqq.) has given a full analysis of the principal elements which ought to be taken into account in Variations in real wages. estimating the real wages of labour. They may be classified as follows. (1) Variations in the purchasing power of money may be due in the first place to causes affecting the general level of prices in a country. Such, for instance, is a debasement of the coinage, of which a good example is furnished in English history in the reigns of Henry VIII. and Edward VI. Thorold Rogers has ascribed much of the degradation of labour which ensued to this fact; and Macaulay has given a graphic account of the evils suffered by the labouring classes prior to the recoinage of 1696. The issues of in convertible paper notes in excess have frequently caused a disturbance of real wages, and it is generally asserted that in this case wages as a rule do not rise so quickly as commodities. A general rise in prices due to great discoveries of the precious metals would, if nominal wages remained the same, of course cause a fall in real wages. There are, however, good grounds for supposing that the stimulus given to trade in this case would raise wages at least in proportion; and certainly the great gold discoveries in Australia and California raised wages in England, as is shown in Tooke's History of Prices, vol. v. p. 284. Similarly it is possible that a general fall in prices, owing to a relative scarcity of the precious metals, may lower the prices of commodities before it lowers the price of labour, in which case there is a rise in real wages. In the controversy as to the possible advantages of bimetallism this was one of the points most frequently discussed. It is impossible to say a priori whether a rise or fall in general prices, or a change in the value of money, will raise or lower real wages, since the result is effected principally by indirect influences. But, apart from these general movements in prices, we must, in order to find the real value of nominal wages, consider variations in local prices, and in making this estimate we must notice the principal items in the expenditure of the labourers. Much attention has been given recently by statisticians to this subject, with the view of finding a good “index number” for real wages. (2) Varieties in the form of payment require careful attention. Sometimes the payment is only partly in money, especially in agriculture in some places. In many parts of Scotland the labourers receive meal, peats, potatoes, &c. (3) Opportunities for extra earnings are sometimes of much importance, especially if we take as the wage-earning unit the family and not the individual. At the end of the 18th century Arthur Young, in his celebrated tours, often calls attention to this fact. In Northumberland and other counties a “hind” (i.e. agricultural labourer) is more valued if he has a large working family, and the family earnings are relatively large. (4) Regularity of employment is always, especially in modern times, one of the most important points to be considered. Apart from such obvious causes of fluctuation as the nature of the employment, e.g. in the case of fishermen, guides, &c., there are various social and industrial causes (for a particular and able investigation of which the reader may consult Professor Foxwell's essay on the subject). Under the system of production on a large scale for foreign markets, with widely extended division of labour, it seems impossible to adjust accurately the supply to the demand, and there are in consequence constant fluctuations in the employment of labour. A striking example, happily rare, is furnished by the cotton famine during the American Civil War. (5) In forming a scientific conception of real wages we ought to take into account the longer or the shorter duration of the power to labour: the man whose employment is healthy and who lives more comfortably and longer at the same nominal rate of wages may be held lo obtain a higher real wage than his less fortunate competitor. It is worth noting, in this respect, that in nearly every special industry there is a liability to some special form of disease: e.g. lace-workers often suffer from diseases of the eyes, miners from diseases of the lungs, &c. Thus, in attempting to estimate real wages, we have to consider all the various discomforts involved in the “quantity of labour” as well as all the conveniences which the nominal wages will purchase and all the supplements in kind.
In a systematic treatment of the wages question it would be natural to examine next the causes which determine the General rate of wages in any country at any time. general rate of wages in any country at any time. This is a problem to which economists have given much attention, and is one of great complexity. It is difficult, when we consider the immense variety of “occupations” in any civilized country and the constant changes which are taking place, even to form an adequate conception of the general rate of wages. There are thousands of occupations of various kinds, and at first sight it may seem impossible to determine, in a manner sufficiently accurate for any useful purpose, an average or general rate of wages, especially if we attempt to take real and not merely nominal wages. At the same time, in estimating the progress of the working-classes, or in comparing their relative positions in different countries, it is necessary to use this conception of a general rate of wages in a practical manner. The difficulties presented are of the same kind as those met with in the determination of the value of money or the general level of prices, and may be overcome to some extent by the same methods. An “index number” may be formed by taking various kinds of labour as fair samples, and the nominal wages thus obtained may be corrected by a consideration of the elements in the real wages to which they correspond. Care must be taken, however, that the quantity and quality of labour taken at different times and places are the same, just as in the case of commodities similar precautions are necessary. Practically, for example, errors are constantly made by taking the rate of wages for a short time (say an hour), and then, without regard to regularity of employment, constructing the annual rate on this basis; and again, insufficient attention is paid to Adam Smith's pithy caution that “there may be more labour in an hour's hard work than in two hours' easy business.” But, however difficult it may be to obtain ​an accurate measure of the general rate of wages for practical purposes, there can be no doubt as to the value and necessity of the conception in economic theory. For, as soon as it is assumed that industrial competition is the principal economic force in the distribution of the wealth of a community—and this is in reality the fundamental assumption of modern economic science,—a distinction must be drawn between the most general causes which affect all wages and the particular causes which lead to differences of wages in different employments. In other words, the actual rate of wages obtained in any particular occupation depends partly on causes affecting that group compared with others, and partly on the general conditions which determine the relations between labour, capital and production over the whole area in which the industrial competition is effective. (See A. L. Bowley’s Wages in the United Kingdom in the Nineteenth Century (1900), § 3, for an account of the meaning and use of the average wage.)
Thus the theory of the wages question consists of two parts, or gives the answers to two questions, (1) What are the Wages-fund theory. causes which determine the general rate of wages? (2) Why are wages in some occupations and at some times and places above or below this general rate?
With regard to the first question, Adam Smith, as in almost every important economic theory, gives an answer which combines two views which were subsequently differentiated into antagonism. “The produce of labour constitutes the natural recompense or wages of labour,” is the opening sentence of his chapter on wages. But then he goes on to say that “this original state of things, in which the labourer enjoyed the whole produce of his own labour, could not last beyond the first introduction of the appropriation of land and the accumulation of stock.” And he thus arrives at the conclusion that “the demand for those who live by wages, it is evident, cannot increase but in proportion to the increase of the funds which are destined to the payment of wages.” This is the germ of the celebrated wages-fund theory which was carried to an extreme by J. S. Mill and others; and, although Mill abandoned the theory some time before his death, he was unable to eradicate it from his systematic treatise and to reduce it to its proper dimensions. It is important to observe that in the hands of Mill this theory was by no means, as was afterwards maintained by Elliot Cairnes, a mere statement of the problem to be solved. According to Cairnes (Leading Principles of Political Economy, bk. ii.), the wages-fund theory, as given in Mill's Principles (bk. ii. ch. xi. § i), embraces the following statements: (1) the wages-fund is a general term used to express the aggregate of all wages at any given time in possession of the labouring population; (2) the average wage depends on the proportion of this fund to the number of people; (3) the amount of the fund is determined by the amount of general wealth applied to the direct purchase of labour. These propositions Cairnes easily reduces to mere verbal statements, and he then states that the real difficulty is to determine the causes which govern the demand and supply of labour. But the most superficial glance, as well as the most careful survey, will convince the reader of Mill's chapters on wages that he regarded the theory not as the statement but as the solution of the problem. For he applies it directly to the explanation of movements in wages, to the criticism of popular remedies for low wages, and to the discovery of what he considers to be legitimate and possible remedies. In fact, it was principally on account of the application of the theory to concrete facts that it aroused so much opposition, which would have been impossible if it had been a mere statement of the problem.
The wages-fund theory as a real attempt to solve the wages question may be resolved into three propositions, which are very different from the verbal truisms of Cairnes. (1) In any country at any time there is a determinate amount of capital unconditionally destined for the payment of labour. This is the wages-fund. (2) There is also a determinate number of labourers who must work independently of the rate of wages—that is, whether the rate is high or low. (3) The wages-fund is distributed amongst the labourers solely by means of competition, masters competing with one another for labour, and labourers with one another for work, and thus the average rate of wages depends on the proportion between wage-capital and population. It follows then, according to this view, that wages can only rise either owing to an increase of capital or a diminution of population, and this accounts for the exaggerated importance attached by Mill to the Malthusian theory of population. It also follows from the theory that any restraint of competition in one direction can only cause a rise of wages by a corresponding fall in another quarter, and in this form it was the argument most frequently urged against the action of trade unions. It is worth noting, as showing the vital connexion of the theory with Mill's principles, that it is practically the foundation of his propositions on capital in his first book, and is also the basis of the exposition in his fourth book of the effects of the progress of society on the condition of the working-classes.
It has often been remarked that, in economics as in other sciences, what eventually assumes the form of the development of or supplement to an old theory at first appears as if in direct antagonism to it, and there is reason to think that the criticism of the wages-fund theory was carried to an extreme, and that the essential elements of truth which it contains were overlooked. In many respects the theory may be regarded as a good first approximation to the complete solution of the problem. The plan favoured by some modern economists of regarding wages simply as the price of labour determined as in the case of other prices simply by demand and supply, though of advantage from some points of view, is apt to lead to a maladjustment of emption in other directions. The supply of labour, for example, is in many ways on a different footing from the supply of commodities. The causes which the wages-fund theory emphasizes too exclusively are after all verae causae, and must always be taken into account. There can be no doubt, for example, that under certain conditions a rapid increase in the labouring population may cause wages to fall, just as a rapid decline may make them rise. The most striking example of a great improvement in the condition of the labouring classes in English economic history is found immediately after the occurrence of the Black Death in the middle of the 14th century. The sudden and extensive thinning of the ranks of labour was manifestly the principal cause of the great improvement in the condition of the survivors.
Again, as regards the amount of capital competing for labour, the reality of the cause admits of no dispute, at any rale in any modern society. The force of this element is perhaps best seen by taking a particular case and assuming that the general wages-fund of the country is divided into a number of smaller wages-funds. Take, for example, the wages of domestic servants when the payment of wages is made simply for the service rendered. We may fairly assume that the richer classes of the community practically put aside so much of their revenue for the payment of the wages of their servants. The aggregate of these sums is the domestic wages-fund. Now, if owing to any cause the amount available for this purpose falls off, whilst the number of those seeking that class of employment remains the same, the natural result would be a fall in wages. It may of course happen in this as in other cases that the result is not so much a direct fall in the rate of wages as a diminution of employment—but even in this case, if people employ fewer servants, they must do more work. Again, if we were to seek for the reason why the wages of governesses are so low, the essence of the answer would be found in the excessive supply of that kind of labour compared with the funds destined for its support. And similarly through the whole range of employments in which the labour is employed in perishable services and not in material products, the wages-fund theory brings into prominence the principal causes governing the rate of wages, namely, the number of people competing, the amount of the fund competed for, and the effectiveness of the competition. This view also is in harmony with the general principles of demand and supply. If we regard labour as a commodity and wages as the price paid for it, then we may say that the price will be so adjusted that the quantity demanded ​will be made equal to the quantity offered at that price,—the agency by which the equation is reached being competition.
But when we turn to other facts for the verification of the theory we easily discover apparent if not real contradictions. The case of Ireland after the potato famine affords an instance of a rapidly declining population without any corresponding rise in wages, whilst in new countries we often find a very rapid increase of population accompanied by an increase in wages. In a similar manner we find that the capital of a country may increase rapidly without wages rising in proportion—as, for example, seems to have been the case in England after the great mechanical improvements at the end of the 18th century up to the repeal of the Corn Laws—whilst in new countries where wages are the highest there are generally complaints of the scarcity of capital. But perhaps the most striking conflict of the theory with facts is found in the periodical inflations and depressions of trade. After a commercial crisis, when the shock is over and the necessary liquidation has taken place, we generally find that there is a period during which there is a glut of capital and yet wages are low. The abundance of capital is shown by the low rate of interest and the difficulty of obtaining remunerative investments. Accordingly this apparent failure of the theory, at least partially, makes it necessary to examine the propositions into which it was resolved more carefully, in order to discover, in the classical economic phraseology, the “disturbing causes.” As regards the first of these propositions—that there is always a certain amount of capital destined for the employment of labour—it is plain that this destination is not really unconditional. In a modern society whether or not a capitalist will supply capital to labour depends on the rate of profit expected, and this again depends proximately on the course of prices. But the theory as stated can only consider profits and prices as acting in an indirect roundabout manner upon wages. If profits are high then more capital can be accumulated and there is a larger wages-fund, and if prices are high there may be some stimulus to trade, but the effect on real wages is considered to be very small. In fact Mill writes it down as a popular delusion that high prices make high wages. And if the high prices are due purely to currency causes the criticism is in the main correct, and in some cases, as was shown above, high prices may mean real low wages. If, however, we turn to the great classes of employments in which the labour is embodied in a material product, we find on examination that wages vary with prices in a real and not merely in an illusory sense. Suppose, for example, that, owing to a great increase in the foreign demand for British produce, a rise in prices takes place, there will be a corresponding rise in nominal wages, and in all probability a rise in real wages. Such was undoubtedly the case in Great Britain on the conclusion of the Franco-German War.
On the other hand, if prices fall and profits are low, there will so far be a tendency to contract the employment of labour. At the same time, however, to some extent the capital is applied unconditionally—in other words, without obtaining what is considered adequate remuneration, or even at a positive loss. The existence of a certain amount of fixed capital practically implies the constant employment of a certain amount of labour.
Nor is the second proposition perfectly true, namely, that there are always a certain number of labourers who must work independently of the rate of wages. For the returns of pauperism and other statistics show that there is always a proportion of “floating” labour sometimes employed and sometimes not. Again, although, as Adam Smith says, man is of all luggage the most difficult to be transported, still labour as well as capital may be attracted to foreign fields. The constant succession of strikes resorted to in order to prevent a fall in wages shows that in practice the labourers do not at once accept the “natural” market rate. Still, on the whole, this second proposition is a much more adequate expression of the truth than the first; for labour cannot afford to lie idle or to emigrate so easily as capital.
The third proposition, that the wages-fund is distributed solely by competition, is also found to conflict with facts. Competition may be held to imply in its positive meaning that every individual strives to attain his own economic interests regardless of the interests of others. But in some cases this end may be attained most effectively by means of combination, as, for, example, when a number of people combine to create a practical monopoly. Again, the end may be attained by leaving the control to government, or by obeying the unwritten rules of long-established custom. But these methods of satisfying economic interests are opposed to competition in the usual sense of the term, and certainly as used in reference to labour. Thus on the negative side competition implies that the economic interests of the persons concerned are attained neither by combination, nor by law, nor by custom. Again, it is also assumed, in making competition the principal distributing force of the national income, that every person knows what his real interests are, and that there is perfect mobility of labour both from employment to employment and from place to place. Without these assumptions the wages-fund would not be evenly distributed according to the quantity of labour. It is, however, obvious that, even in the present industrial system, competition is modified considerably by these disturbing agencies; and in fact the tendency seems to be more and more for combinations of masters on one side and of men on the other to take the place of the competition of individuals.
The attempted verification of the wages-fund theory leads to so many important modifications that it is not surprising Wages paid from the produce of labour. to find that in recent times the tendency has been to reject it altogether. And thus we arrive at the development of Adam Smith's introductory statement, namely, that the produce of labour constitutes the natural recompense or wages of labour. The most important omission of the wages-fund theory is that it fails to take account of the quantity produced and of the price obtained for the product. If we bring in these elements, we find that there are several other causes to be considered besides capital, population and competition. There are, for example, the various factors in the efficiency of labour and capital, in the organization of industry, and in the general condition of trade. To some extent these elements may be introduced into the old theory, but in reality the point of view is quite different. This is made abundantly clear by considering Mill's treatment of the remedies for low wages. His main contention is that population must be rigidly restrained in order that the average rate of wages may be kept up. But, as several American economists have pointed out, in new countries especially every increase in the number of labourers may be accompanied by a more than proportionate increase in the produce and thus in the wages of labour. Again, the older view was that capital must be first accumulated in order afterwards to be divided up into wages, as if apparently agriculture was the normal type of industry, and the workers must have a store to live on until the new crop was grown and secured. But the “produce” theory of wages considers that wages are paid continuously out of a continuous product, although in some cases they may be advanced out of capital or accumulated stores. According to this view wages are paid out of the annual produce of the land, capital and labour, and not out of the savings of previous years. There is a danger, however, of pushing this theory to an untenable extreme, and overlooking altogether the function of capital in determining wages; and the true solution seems to be found in a combination of the “produce” theory with the “fund” theory.
An industrial society may be regarded, in the first place, as a great productive machine turning out a vast variety of products for the consumption of the members of the society. The distribution of these products, so far as it is not modified by other social and moral conditions, depends upon the principle of “reciprocal demand.” In a preliminary rough classification we may make three groups—the owners of land and natural agents, the owners of capital or reserved products and instruments, and the owners of labour. To obtain the produce requisite even for the necessary wants of the community a combination of these three groups must take place, and the relative reward obtained ​by each will vary in general according to the demands of the others for its services. Thus, if capital, both fixed and circulating, is scanty, whilst labour and land are both abundant, the reward of capital will be high relatively to rent and wages. This is well illustrated in the high rate of profits obtained in early societies. According to this view of the question the aggregate amount paid in wages depends partly on the general productiveness of all the productive agents and partly on the relative power of the labourers as compared with the owners of land and capital (the amount taken by government and individuals for taxes, charity, &c., being omitted). Under a system of perfect industrial competition the general rate of wages would be so adjusted that the demand for labour would be just equal to the supply at that rate. (Compare Marshall's Principles of Economics, bk. vi. ch. ii.)
If all labour and capital were perfectly uniform it would not be necessary to carry the analysis further, but as a matter of fact, Relative wages. instead of two great groups of labourers and capitalists, we have a multitude of subdivisions all under the influence of reciprocal demand. Every subgroup tries to obtain as much as possible of the general product, which is practically always measured in money. The determination of relative wages depends on the constitution of these groups and their relations to one another. Under any given social conditions there must be differences of wages in different employments, which may be regarded as permanent until some change occurs in the conditions; in other words, certain differences of wages are stable or normal, whilst others depend simply on temporary fluctuations in demand and supply. A celebrated chapter in the Wealth of Nations (bk. i. ch. x.) is still the best basis for the investigation of these normal differences—which, as stated above, is the second principal problem of the wages question. First of all, a broad distinction may be drawn between the natural and artificial causes of difference, or, in Adam Smith's phraseology, between those due to the nature of the employments and those Natural causes of difference. due to the policy of Europe. In the former division we have (1) the agreeableness or disagreeableness of the employment, illustrated by two classical examples—“honour makes a great part of the reward of all honourable professions,” and “the most detestable of all employments—that of public executioner—is, in proportion to the work done, better paid than any common trade whatever.” There is, however, much truth in Mill's criticism, that in many cases the worst paid of all employments are at the same time the most disagreeable, simply because those engaged in them have practically no other choice. (2) The easiness and cheapness or the reverse of learning the business. This factor operates in two ways. A difficult business implies to some extent peculiar natural qualifications, and it also involves the command of a certain amount of capital to subsist on during the process of learning, and thus in both respects the natural supply of labour is limited. (3) The constancy or inconstancy in the employment—a point already noticed under real wages. (4) The great or small trust reposed in the workmen, an important consideration in all the higher grades of labour, e.g. bankers, lawyers, doctors, &c. (5) The chance of success or the reverse. Here it is to be observed that, owing to the hopefulness of human nature and its influence on the gambling spirit, the chance of success is generally overestimated, and therefore that the wages in employments where the chance of success is really small are lower than they ought to be. The most striking instance is furnished by the labour in gold mines, diamond fields, and the like, and the same cause also operates in many of the professions.
All these causes of differences of wages in different employments may be explained by showing the way in which they operate on the demand and supply of labour in the particular group. If the “net advantages,” to adopt Marshall's phraseology, of any group are relatively high, then labour will be directly attracted to that group, and the children born in it will be brought up to the same occupation, and thus in both ways the supply of labour will be increased. But the “net advantages” embrace the conditions just enumerated. Again, if the other members of the community require certain forms of labour to a greater extent, there is an increase in the demand and a rise in their price.
In addition to these so-called natural causes of difference, there are those arising from law, custom, or other so-called Artificial causes of difference. artificial causes. They may be classified under four headings. (1) Certain causes artificially restrain industrial competition by limiting the number of any particular group. Up to the close of the 18th century, and in many instances to a much later date, the regulations of gilds and corporations limited the numbers in each trade (cf. Brentano, Gilds and Trade Unions). This they did by making a long apprenticeship compulsory on those wishing to learn the craft, by restricting the number of apprentices to be taken by any master, by exacting certain qualifications as to birth or wealth, by imposing heavy entrance fees, either in money or in the shape of a useless but expensive masterpiece. Some of these regulations were originally passed in the interests of the general public and of those employed in the craft, but in the course of time their effect was, as is stated by Adam Smith, simply to unduly restrain competition. The history of the craft-gilds is full of instructive examples of the principles governing wages. No doubt the regulations tended to raise wages above the natural rate, but as a natural consequence industry migrated to places where the oppressive regulations did not exist. In the time of the Tudors the decay of many towns during a period of rapid national progress was largely due to those “fraternities in evil,” as Bacon called the gilds. At present one of the best examples of the survival of this species of artificial restriction is the limitation of the number of teachers qualifying for degrees in certain universities. (2) In some employments, however, law and custom tend unduly to increase the amount of competition. This was to a great extent the case in the church and the scholastic professions owing to the large amount of charitable education. Adam Smith points out that even in his day a curate was “passing rich on forty pounds a year,” whilst many only obtained £20—below the wages earned by a journeyman shoemaker. In the same way state-aided education of a commercial and technical kind may result in lowering the rates (relatively) of the educated business classes. It is said that one reason why the Germans replace Englishmen in many branches is that, having obtained their education at a low rate, there are more of them qualified, and consequently they accept lower wages. The customary idea that the position of a clerk is more genteel than that of an artisan accounts largely for the excessive competition in the former class, especially now that education is practically universal. (3) In some cases law and custom may impede or promote the circulation of labour. At the time Adam Smith wrote the laws of settlement were still in full operation. “There is not a man of forty who has not felt most cruelly oppressed by this ill-contrived law of settlement.” Differences in wages in different parts of the same country and in different occupations are still largely due to impediments in the way of the movement of labour, which might be removed or lessened by the government making provisions for migration or emigration. (4) On many occasions in the past the law often directly interfered to regulate wages. The Statute of Labourers, passed immediately after the Black Death, was an attempt in this direction, but it appears to have failed, according to the investigations of Thorold Rogers. The same writer, however, ascribes to the celebrated Statute of Apprentices (5th of Elizabeth) the degradation of the English labourer for nearly three centuries (Agriculture and Prices, vol. v.). This, he asserts, was due to the wages being fixed by the justices of the peace. It is, however, worth noting that Brentano, who is equally sympathetic with the claims of labour, asserts that so long as this statute was actually enforced, or the customs founded upon ii were observed, the condition of the labourers was prosperous, and that the degradation only began when the statute fell into disuse (Origin of Gilds and Trade Unions. For a full account of the effect of the Statute of Apprentices see W. Cunningham's Growth of English Industry and Commerce, vol. ii.).
​Something must be said as to the power of the state to regulate wages. As far as any direct regulation is concerned, it seems to State regulation of wages. be only possible within narrow limits. The state might of course institute certain complex sliding-scales for different classes of labour and make them compulsory, but this would rather be an official declaration of the natural market rate than a direct regulation. Any rate which the state of trade and prices would not bear could not be enforced: masters could not be compelled to work at a loss or to keep their capital employed when it might be more advantageously transferred to another place or occupation. Thus the legal rate could not exceed to any considerable extent the market rate. Nor, on the other hand, could a lower rate in general be enforced, especially when the labourers have the right of combination and possess powerful organizations. And even apart from this the competition of capitalists for labour would tend to raise wages above the legal rate, and evasion would be extremely easy.
The best illustration of the failure to raise the rate of wages directly by authority is found in the English poor law system Poor relief in aid of wages. between 1796 and 1834. “In the former year (1796) decisively fatal step of legalizing out-relief to the able-bodied; and in aid of wages, was taken,” and “in February 1834 was published perhaps the most remarkable and startling document to be found in the whole range of English, perhaps indeed of all social history” (Fowle's Poor Law). The essence of the system was in the justices determining a natural rate of wages, regard being paid to the price of necessaries and the size of the labourer's family, and an amount was given from the rates sufficient to make up the wages received to this natural level. The method of administration was certainly bad, but the best administration possible could only have kept the system in existence a few years longer. In one parish the poor-rate had swallowed up the whole value of the land, which was going out of cultivation, a fact which has an obvious bearing on land nationalization as a remedy for low wages. The labourers became careless, inefficient and improvident. Those who were in regular receipt of relief were often better off (in money) than independent labourers. But the most important consequence was that the real wages obtained were, in spite of the relief, lower than otherwise they would have been, and a striking proof was given that wages are paid out of the produce of labour. The Report of the Poor Law Commissioners (1834) states emphatically (p. 48) that “the severest sufferers are those for whose benefit the system is supposed to have been introduced and to be perpetuated, the labourers and their families.” The independent labourers suffered directly through the unfair competition of the pauper labour, but, as one of the sub-reporters stated, in every district the general condition of the independent labourer was strikingly distinguishable from that of the pauper and superior to it, though the independent labourers were commonly maintained upon less money. In New Zealand and Australia in recent years a great extension has been made of the principle of state intervention in the regulation of wages.
But, although the direct intervention of the state, with the view of raising the nominal rates of wages, is, according to theory Factory legislation. and experience, of doubtful advantage, still, when we consider real wages in the evident sense of the term, there seems to be an almost indefinite scope for state interference. The effect of the Factory Acts and similar legislation has been undoubtedly to raise the real wages of the working-classes as a whole, although at first the same arguments were used in opposition to these proposals as in the case of direct relief from the poor-rates. But there is a vital difference in the two cases, because in the former the tendency is to increase whilst in the latter it is to diminish the energy and self-reliance of the workers. An excellent summary of the results of this species of industrial legislation is given by John Morley (Life of Cobden, vol. i. p. 303):—
“We have to-day a complete, minute, and voluminous code for the protection of labour: buildings must be kept pure of effluvia; dangerous machinery must be fenced; children and young persons must not clean it while in motion; their hours are not only limited but fixed; continuous employment must not exceed a given number of hours, varying with the trade but prescribed by the law in given cases; a statutable number of holidays is imposed; the children must go to school, and the employer must have every week a certificate to that effect; if an accident happens notice must be sent to the proper authorities; special provisions are made for bake-houses, for lace-making, for collieries, and for a whole schedule of other special callings; for the due enforcement and vigilant supervision of this immense host of minute prescriptions there is an immense host of inspectors, certifying surgeons, and other authorities whose business it is to ‘speed and post o'er land and ocean’ on sullen guardianship of every kind of labour, from that of the woman who plaits straw at her cottage door to the miner who descends into the bowels of the earth and the seaman who conveys the fruits and materials of universal industry to and fro between the remotest parts of the globe.”
The analysis previously given of real wages shows that logically all these improvements in the conditions of labour, by diminishing the “quantity of labour” involved in work, are equivalent to a real rise in wages. Experience has also shown that the state may advantageously interfere in regulating the methods of paying wages. A curious poem, written about the time of Edward IV., on England's commercial policy (Political Songs and Poems, Rolls Series, ii. 282), shows that even in the 15th century the “truck” system was in full operation, to the disadvantage of the labourers. The cloth-makers, in particular, compelled the workers to take half of their wages in merchandise which they estimated at higher than its real value. The writer proposes that the “wyrk folk be paid in good moné,” and that a sufficient ordinance be passed for the purpose, and a law to this effect was enacted in the 4th year of Edward IV. The Truck Acts have since been much further extended. Again, the legislation directed against the adulteration of all kinds of goods, which also finds its prototypes in the middle ages, is in its effects equivalent to a rise in real wages.
The power of trade unions in regulating wages is in most respects analogous in principle to that of legislation just noticed. Trade unions and wages. Nominal wages can only be affected within comparatively narrow limits, depending on the condition of trade and the state of prices, whilst in many cases a rise in the rate in some trades or places can only be accomplished by a corresponding depression elsewhere. At the same time, however, it can hardly be questioned that through the unions nominal wages have on the whole risen at the expense of profits—that is to say, that combinations of labourers can make better bargains than individuals. But the debatable margin which may make either extra profits or extra wages is itself small, and the principal direct effect of trade unions is to make wages fluctuate with prices, a rise at one time being compensated by a fall at another. The unions can, however, look after the interests of their members in many ways which improve their general condition or raise the real rate of wages, and when nominal wages have attained a natural maximum, and some method of arbitration or sliding-scale is in force, this indirect action seems the principal function of trade unions. The effects of industrial partnership (cf. Sedley Taylor's Profit Sharing) and of productive co-operation (cf. Holyoake's History of Co-operation) are small in amount (compared with the total industry of any country) though excellent in kind, and there seem to be no signs of the decay of the entrepreneur system.
The industrial revolution which took place about the end of the 18th century, involving radical changes in production, destroyed Effects of machinery on wages. the old relations between capital and labour, and perhaps the most interesting part of the history of wages is that covered by the 19th century. For fifty years after the introduction of production on a large scale, the condition of the working-classes was on the whole deplorable, but great progress has since been made. The principal results may be summed up under the effects of machinery on wages—taking both words in their widest sense. Machinery affects the condition of the working-classes in many ways. The most obvious mode is the direct substitution of machinery for labour. It is clear that any sudden and extensive adoption of labour-saving machinery ​may, by throwing the labourers out of employment, lower the rate of wages, and it is easy to understand how riots arose repeatedly owing to this cause. But as a rule the effect of labour-saving machinery in diminishing employment has been greatly exaggerated, because two important practical considerations have been overlooked. In the first place, any radical change made in the methods of production will be only gradually and continuously adopted throughout the industrial world; and in the second place these radical changes, these discontinuous leaps, tend to give place to advances by small increments of invention. We have an instance of a great radical change in the steam-engine. Watt's patent for “a method of lessening” the consumption of steam and fuel in fire-engines was published on January 5, 1769, and the movement for utilizing steam-power still found room for extension for a century or more afterwards. The history of the power-loom again shows that the adoption of an invention is comparatively slow. In 1813 there were not more than 2400 power-looms at work in England. In 1820 they increased to 14,150. In 1853 there were 100,000, but the curious thing is that during this time the number of hand-looms had actually increased to some extent (Porter's Progress of the Nation, p. 186). The power-loom also illustrates the gradual continuous growth of improvements. This is clearly shown by Porter. A very good hand-weaver, twenty-five or thirty years of age, could weave two pieces of shining per week. In 1823 a steam-loom weaver, about fifteen years of age, attending two looms, could weave nine similar pieces in a week. In 1826 a steam-loom weaver, about fifteen, attending to four looms, could weave twelve similar pieces a week. In 1833 a steam-loom weaver, from fifteen to twenty, assisted by a girl of twelve, attending to four looms, could weave eighteen pieces. This is only one example, for, as Porter remarks, it would fill many large volumes to describe the numerous inventions which during the 19th century imparted facility to manufacturing processes, and in every case we find a continuity in the improvements. This two-fold progressive character of invention operates in favour of the laborer—in the first place, because in most cases the increased cheapness of the commodity consequent on the use of machinery causes a corresponding extension of the market and the amount produced, and thus there may be no actual diminution of employment even temporarily; and secondly, if the improvement takes place slowly, there is time for the absorption of the redundant labour in other employments. It is quite clear that on balance the great increase in population in the 19th century was largely caused, or rather rendered possible, by the increased use of labour-saving machinery. The way in which the working-classes were at first injured by the adoption of machinery was not so much by a diminution in the number of hands required as by a change in the nature of the employment. Skilled labour of a certain kind lost its peculiar value, and children and women were able to do work formerly only done by men. But the principal evils resulted from the wretched conditions under which, before the factory legislation, the work was performed; and there is good reason to believe that a deterioration of the type of labourer, both moral and physical, was effected. It is, however, a mistake to suppose that on the whole the use of machinery tends to dispense with skill. On the contrary, everything goes to prove that under the present system of Progress of the working-classes. production on a large scale there is on the whole far more skill required than formerly—a fact well brought working-out by Sir Robert Giffen in his essay on the progress of the working-classes (Essays on Finance, vol. ii, p. 365), and expressed by the official reports on wages in different countries. (J. S. N.)