Principles of Political Economy · John Stuart Mill
Chapter XXI. Of Distribution, As Affected By Exchange.
It is evident, in the first place, that the law of wages is not affected by the existence or non-existence of exchange or money. Wages depend on the ratio between population and capital [taking into account the nature of a country’s industries]; and would do so if all the capital in the world were the property of one association, or if the capitalists among whom it is shared maintained each an establishment for the production of every article consumed in the community, exchange of commodities having no existence. As the ratio between capital and population, everywhere but in new colonies, depends on the strength of the checks by which the too rapid increase of population is restrained, it may be said, popularly speaking, that wages depend on the checks to population; that, when the check is not death by starvation or disease, wages depend on the prudence of the laboring people; and that wages in any country are habitually at the lowest rate to which in that country the laborer will suffer them to be depressed rather than put a restraint upon multiplication.
What is here meant, however, by wages, is the laborer’s real scale of comfort; the quantity he obtains of the things which nature or habit has made necessary or agreeable to him: wages in the sense in which they are of importance to the receiver. In the sense in which they are of importance to the payer, they do not depend exclusively on such simple principles. Wages in the first sense, the wages on which the laborer’s comfort depends, we will call real wages, or wages in kind. Wages in the second sense we may be permitted to call, for the present, money wages; assuming, as it is allowable to do, that money remains for the time an invariable standard, no alteration taking place in the conditions under which the circulating medium itself is produced or obtained. If money itself undergoes no variation in cost, the money price of labor is an exact measure of the cost of labor, and may be made use of as a convenient symbol to express it [if the efficiency of labor also be supposed to remain the same].
The money wages of labor are a compound result of two elements: first, real wages, or wages in kind, or, in other words, the quantity which the laborer obtains of the ordinary articles of consumption; and, secondly, the money prices of those articles. In all old countries—all countries in which the increase of population is in any degree checked by the difficulty of obtaining subsistence—the habitual money price of labor is that which will just enable the laborers, one with another, to purchase the commodities without which they either can not or will not keep up the population at its customary rate of increase. Their standard of comfort being given (and by the standard of comfort in a laboring class is meant that rather than forego which they will abstain from multiplication), money wages depend on the money price, and therefore on the cost of production, of the various articles which the laborers habitually consume: because, if their wages can not procure them a given quantity of these, their increase will slacken and their wages rise. Of these articles, food and other agricultural produce are so much the principal as to leave little influence to anything else.
It is at this point that we are enabled to invoke the aid of the principles which have been laid down in this Third Part. The cost of production of food and agricultural produce has been analyzed in a preceding chapter. It depends on the productiveness of the least fertile land, or of the least productively employed portion of capital, which the necessities of society have as yet put in requisition for agricultural purposes. The cost of production of the food grown in these least advantageous circumstances determines, as we have seen, the exchange value and money price of the whole. In any given state, therefore, of the laborers’ habits, their money wages depend on the productiveness of the least fertile land, or least productive agricultural capital: on the point which cultivation has reached in its downward progress—in its encroachments on the barren lands, and its gradually increased strain upon the powers of the more fertile. Now, the force which urges cultivation in this downward course is the increase of people; while the counter-force, which checks the descent, is the improvement of agricultural science and practice, enabling the same soil to yield to the same labor more ample returns. The costliness of the most costly part of the produce of cultivation is an exact expression of the state, at any given moment, of the race which population and agricultural skill are always running against each other.
It will be noted, in this exposition, that Mr. Mill has in view an old country, with a population so dense that numbers are always pressing close upon subsistence; that their wages are so low as to give the laborers little more than the necessary wants of life. That these are not the economic conditions in the United States goes without saying. First of all, the margin of cultivation is high: only soils of high productiveness are in cultivation, and the returns to labor and capital are, consequently, very large. High wages are found together with low prices of food. The existing population is not so numerous as to require for the cultivation of food any but lands of a very high grade of fertility. The ability to command a high reward for labor (as compared with European industries), owing to the general prevalence of high returns in the United States, has resulted in the establishment of a higher standard for our laborers. The standard being relatively so high, there is no intimate connection between the increase of population here and the price of food; for, as a rule, wages are not so low that any change in the cost of producing food would require checks upon population. There is a considerable margin above necessaries, in the laborer’s real wages in the United States, which may go for comforts, decencies, and amusements.
If the laborer obtains more abundant commodities only by reason of their greater cheapness, if he obtains a greater quantity, but not on the whole a greater cost, real wages will be increased, but not money wages, and there will be nothing to affect the rate of profit. But, if he obtains a greater quantity of commodities of which the cost of production is not lowered, he obtains a greater cost; his money wages are higher. The expense of these increased money wages falls wholly on the capitalist. There are no conceivable means by which he can shake it off. It may be said—it used formerly to be said—that he will get rid of it by raising his price. But this opinion we have already, and more than once, fully refuted.(294) The doctrine, indeed, that a rise of wages causes an equivalent rise of prices, is, as we formerly observed, self-contradictory: for, if it did so, it would not be a rise of wages; the laborer would get no more of any commodity than he had before, let his money wages rise ever so much; a rise of real wages would be an impossibility. This being equally contrary to reason and to fact, it is evident that a rise of money wages does not raise prices; that high wages are not a cause of high prices. A rise of general wages falls on profits. There is no possible alternative.
Having disposed of the case in which the increase of money wages, and of the Cost of Labor, arises from the laborer’s obtaining more ample wages in kind, let us now suppose it to arise from the increased cost of production of the things which he consumes, owing to an increase of population unaccompanied by an equivalent increase of agricultural skill. The augmented supply required by the population would not be obtained, unless the price of food rose sufficiently to remunerate the farmer for the increased cost of production. The farmer, however, in this case sustains a twofold disadvantage. He has to carry on his cultivation under less favorable conditions of productiveness than before. For this, as it is a disadvantage belonging to him only as a farmer, and not shared by other employers, he will, on the general principles of value, be compensated by a rise of the price of his commodity; indeed, until this rise has taken place, he will not bring to market the required increase of produce. But this very rise of price involves him in another necessity, for which he is not compensated. He must pay higher money wages to his laborers [if they retain the same quantity of real wages]. This necessity, being common to him with all other capitalists, forms no ground for a rise of price. The price will rise, until it has placed him in as good a situation, in respect of profits, as other employers of labor; it will rise so as to indemnify him for the increased labor which he must now employ in order to produce a given quantity of food; but the increased wages of that labor are a burden common to all, and for which no one can be indemnified. It will be paid wholly from profits.
Thus we see that increased wages, when common to all descriptions of productive laborers, and when really representing a greater Cost of Labor, are always and necessarily at the expense of profits. And by reversing the cases, we should find in like manner that diminished wages, when representing a really diminished Cost of Labor, are equivalent to a rise of profits. But the opposition of pecuniary interest thus indicated between the class of capitalists and that of laborers is to a great extent only apparent. Real wages are a very different thing from the Cost of Labor, and are generally highest at the times and places where, from the easy terms on which the land yields all the produce as yet required from it, the value and price of food being low, the cost of labor to the employer, notwithstanding its ample remuneration, is comparatively cheap, and the rate of profit consequently high, as at present in the United States. We thus obtain a full confirmation of our original theorem that Profits depend on the Cost of Labor: or, to express the meaning with still greater accuracy, the rate of profit and the cost of labor vary inversely as one another, and are joint effects of the same agencies or causes. BOOK IV. INFLUENCE OF THE PROGRESS OF SOCIETY ON PRODUCTION AND DISTRIBUTION.
Chapter I. Influence Of The Progress Of Industry And Population On Values And Prices. § 1. Tendency of the progress of society toward increased Command over the powers of Nature; increased Security, and increased Capacity of Co-Operation. In the leading countries of the world, and in all others as they come within the influence of those leading countries, there is at least one progressive movement which continues with little interruption from year to year and from generation to generation—a progress in wealth; an advancement in what is called material prosperity. All the nations which we are accustomed to call civilized increase gradually in production and in population: and there is no reason to doubt that not only these nations will for some time continue so to increase, but that most of the other nations of the world, including some not yet founded, will successively enter upon the same career. It will, therefore, be our first object to examine the nature and consequences of this progressive change, the elements which constitute it, and the effects it produces on the various economical facts of which we have been tracing the laws, and especially on wages, profits, rents, values, and prices. Of the features which characterize this progressive economical movement of civilized nations, that which first excites attention, through its intimate connection with the phenomena of Production, is the perpetual, and, so far as human foresight can extend (1), the unlimited, growth of man’s power over nature. Our knowledge of the properties and laws of physical objects shows no sign of approaching its ultimate boundaries: it is advancing more rapidly, and in a greater number of directions at once, than in any previous age or generation, and affording such frequent glimpses of unexplored fields beyond as to justify the belief that our acquaintance with nature is still almost in its infancy.
Another change, which has always hitherto characterized, and will assuredly continue to characterize, the progress of civilized society, is (2) a continual increase of the security of person and property. Of this increased security, one of the most unfailing effects is a great increase both of production and of accumulation. Industry and frugality can not exist where there is not a preponderant probability that those who labor and spare will be permitted to enjoy. One of the changes which most infallibly attend the progress of modern society is, (3) an improvement in the business capacities of the general mass of mankind. I do not mean that the practical sagacity of an individual human being is greater than formerly. What is lost in the separate efficiency of each is far more than made up by the greater capacity of united action. Works of all sorts, impracticable to the savage or the half-civilized, are daily accomplished by civilized nations, not by any greatness of faculties in the actual agents, but through the fact that each is able to rely with certainty on the others for the portion of the work which they respectively undertake. The peculiar characteristic, in short, of civilized beings, is the capacity of co-operation; and this, like other faculties, tends to improve by practice, and becomes capable of assuming a constantly wider sphere of action.
The permanent values of all things which are neither under a natural nor under an artificial monopoly depend, as we have seen, on their cost of production. (1.) But the increasing power which mankind are constantly acquiring over nature increases more and more the efficiency of human exertion, or, in other words, diminishes cost of production. All inventions by which a greater quantity of any commodity can be produced with the same labor, or the same quantity with less labor, or which abridge the process, so that the capital employed needs not be advanced for so long a time, lessen the cost of production of the commodity. As, however, value is relative, if inventions and improvements in production were made in all commodities, and all in the same degree, there would be no alteration in values. As for prices, in these circumstances they would be affected or not, according as the improvements in production did or did not extend to the precious metals. If the materials of money were an exception to the general diminution of cost of production, the values of all other things would fall in relation to money—that is, there would be a fall of general prices throughout the world. But if money, like other things, and in the same degree as other things, were obtained in greater abundance and cheapness, prices would be no more affected than values would.
But the progress of society, particularly in the direction of improved and cheapened processes of manufacturing, has vastly lowered the cost of a great number of articles of common consumption. The process has been already seen in the diminished charge for railway transportation (see Chart No. V). Moreover, the years of a depression are exactly those in which there is always a forced economy, and generally form a period in which cheapening goes on at its best. Hence, if prices have had a tendency to fall, owing to the lowered cost of production consequent on improvements—and if they are not, as a rule, lower than in 1850—it shows that they are still supported by the high tide of the great gold production of this century. And even the access to more fertile land in the world has acted to prevent an increase in the prices of agricultural products such as would offset the fall of manufactured goods. That is, the fact that prices have not fallen as much as might be expected, indicates that the gold has prevented the lower costs due to the progress of industry from being fully seen.
Improvements in production are not the only circumstance accompanying the progress of industry, which tends to diminish the cost of producing, or at least of obtaining, commodities. (2.) Another circumstance is the increase of intercourse between different parts of the world. As commerce extends, and the ignorant attempts to restrain it by tariffs become obsolete, commodities tend more and more to be produced in the places in which their production can be carried on at the least expense of labor and capital to mankind. (3.) Much will also depend on the increasing migration of labor and capital to unoccupied parts of the earth, of which the soil, climate, and situation are found, by the ample means of exploration now possessed, to promise not only a large return to industry, but great facilities of producing commodities suited to the markets of old countries. Much as the collective industry of the earth is likely to be increased in efficiency by the extension of science and of the industrial arts, a still more active source of increased cheapness of production will be found, probably, for some time to come, in the gradually unfolding consequences of Free Trade, and in the increasing scale on which Emigration and Colonization will be carried on. From the causes now enumerated, unless counteracted by others, the progress of things enables a country to obtain, at less and less of real cost, not only its own productions but those of foreign countries. Indeed, whatever diminishes the cost of its own productions, when of an exportable character, enables it, as we have already seen, to obtain its imports at less real cost.
When, however, population increases, as it has never yet failed to do, then comes into effect that fundamental law of production from the soil on which we have so frequently had occasion to expatiate, the law that increased labor, in any given state of agricultural skill, is attended with a less than proportional increase of produce. The cost of production of the fruits of the earth increases, _cæteris paribus_, with every increase of the demand. Mr. Cairnes has made some essential contributions to the discussion of changes of value arising from the progress of society:(296) “When a colony establishes itself in a new country, the course of its industrial development naturally follows the character of the opportunities offered to industrial enterprise by the environment. These will, of course, vary a good deal, according to the part of the world in which the new society happens to be placed; but, speaking broadly, they will be such as to draw the bulk of the industrial activity of the new people into some one or more of those branches of industry which have been conveniently designated ‘extractive.’ Agriculture, pastoral and mining pursuits, and the cutting of lumber, are among the principal of such industries.” To these pursuits apply “that law of Political Economy, or, more properly, of physical nature, which Mr. Mill has rightly characterized as the most important proposition in economic science—the law, as he phrased it, of ‘diminishing productiveness.’ It may be thus briefly stated: In any given state of the arts of production, the returns to human industry employed upon natural agents will, up to a certain point, be the maximum which those natural agents, cultivated with the degree of skill brought to bear upon them, are capable of yielding; but, after this point has been passed, though an increased application of labor and capital will obtain an increased return, it will not obtain a proportionally increased return; on the contrary, every further increase of outlay—always assuming that the skill employed in applying it continues the same as before—will be attended with a return constantly diminishing.... What I am now concerned to show is the manner in which, with the progress of society, the law in question affects the course of normal(297) values in all commodities coming under its influence.
“The class of commodities in the production of which the facilities possessed by new communities, as compared with old, attain their greatest height, are those of which timber and meat may be taken as the type, and comprises such articles as wool, game, furs, hides, horns, pitch, resin, etc. The circumstance which most powerfully affects the course of values in the products of extractive industry, and in the commodities just referred to among the rest, is the degree in which they admit of being transported from place to place—that is to say, their _portableness_—depending, as it does, partly on their durability and partly on their bulk.” It is found that, taking timber and meat as a type—one possessing portableness in a vastly greater degree than the other—in the early settlement of a new country, the portable article, like timber, at once rises in price “to a level lower than that prevailing in old countries only by the cost of transport”; on the other hand, perishable articles like meat are “confined for a market, if not to the immediate locality where it is produced, at least to the bordering countries; and, being raised in new countries at very low cost, their value during the early stages of their growth is necessarily low.
But, as population advances, and agriculture encroaches on the natural pasture-lands originally available for the rearing of cattle, still more as it becomes necessary to cultivate land for the purpose of pasture, the cost of meat constantly rises.” As population increases there will be an increased demand for dairy-products, eggs, small fruits, fresh vegetables, milk, etc., and thereby it becomes more profitable to employ land near populous centers for such perishable products than for the products of large farming. Almost every one, who knows the high prices of butter, eggs, and vegetables in large cities as compared with their prices in country districts, is familiar with the phenomena which illustrate this principle. Moreover, as a denser population settles on our Western prairies, now given over to ranches and vast pasturing-grounds for cattle—since cattle in general require a large extent of land—the cost of meat will rise. The prices of perishable articles, therefore, will rise without any limit except that set by increasing numbers, and can not be kept down by the force of competition from other distant places, as is the case with such easily transportable things as timber and wool. What has been said of the transportableness of meat, however, is to be modified somewhat by the introduction of improved processes of transporting meat in refrigerator-cars; but there still exist commodities of which meat was only taken as a type.
No tendency of a like kind exists with respect to manufactured articles. The tendency is in the contrary direction. The larger the scale on which manufacturing operations are carried on, the more cheaply they can in general be performed. As manufactures, however, depend for their materials either upon agriculture, or mining, or the spontaneous produce of the earth, manufacturing industry is subject, in respect of one of its essentials, to the same law as agriculture. But the crude material generally forms so small a portion of the total cost that any tendency which may exist to a progressive increase in that single item is much overbalanced by the diminution continually taking place in all the other elements; to which diminution it is impossible at present to assign any limit. It follows that the exchange values of manufactured articles, compared with the products of agriculture and of mines, have, as population and industry advance, a certain and decided tendency to fall. Money being a product of mines, it may also be laid down as a rule that manufactured articles tend, as society advances, to fall in money price. The industrial history of modern nations, especially during the last hundred years, fully bears out this assertion.
Text from Project Gutenberg, public domain in the United States.