APPENDIX. POLITICAL ECONOMY AND THE RATE OF WAGES.* THE premisses of the political economist,' says Mr. Senior, whose conception of the science is that of an influential school of economists, consist of a very few general propositions, the result of observation or consciousness, and scarcely requiring proof or even formal statement; and his inferences are, if he has reasoned correctly, as certain as his premisses.' According to this view, political economy not only is purely a deductive science, but its deductions follow from premisses obtained without labour of investigation, lying on the surface of the mind or of things; and they need no verification by comparison with facts; indeed Mr. Senior especially protested against its being considered by continental economists a science avide de faits. Considering how numerous and diverse are the things comprised under the denomination of wealth, how various the passions and motives relating to them, how numerous and complicated the conditions which control their production and distribution, it does appear to us amazing that it should ever have been thought possible to construct a science of such a subject with little or no inspection of the phenomena whose laws it aims to interpret. The shortest compass within which the ultimate problem of all science can be comprised, the fewest premisses with which the investigators ought to rest satisfied as complete, Mr. Mill * Reprinted from Fraser's Magazine, July 1868. defines thus: What are the fewest and simplest assumptions, which being granted, the whole existing order of nature would result? or, What are the fewest general propositions from which all uniformities which exist might be deduced?'* Every great advance in the progress of science is a step, Mr. Mill adds, towards the solution of this problem; and if this be a proper definition of the general problem of scientific investigation, and political economy be a branch of it, it surely follows that its fundamental laws ought to be obtained by careful induction, that assumptions from which an unreal order of things and unreal uniformities are deduced cannot be regarded as final or adequate; and that facts, instead of being irrelevant to the economist's reasoning, are the phenomena from which he must infer his general principles, and by which he ought constantly to verify his deductions.† The main object of this article is to examine the conditions which govern the great department of the production and distribution of wealth, indicated by the word wages; but it is hoped that the investigation may not only elicit some information. on that special subject, but also afford evidence of the necessity of studying every economic problem in conformity with the universal canons of the logic of science-of accepting no assumptions as finally established without proof, none as adequate from which conclusions untrue as matters of fact are found to result, and no chains of deduction from hypothetical premisses as possessing more than hypothetical truth, until verified by observation. The theory of wages propounded by economic writers in general, though rejected by Mr. Thornton, and subjected to important practical modifications and corrections by Mr. Mill, Mr. Fawcett, and Mr. Waley, may be said to consist of two propositions. (1.) That there is a general wages fund, * System of Logic. Book iii., chaps. 4 and 13. Mr. Mill's definition is: Writers on political economy profess to investigate the nature of wealth, and the laws of its production and distribution, including directly or remotely the operation of all the causes by which the condition of mankind or of any society of human beings in respect to this universal object of desire is made prosperous or the reverse.'-Principles of Political Economy; Preliminary Remarks. the proportion of which to the number of labourers fixes the average rate of individual earnings. (2.) That competition distributes this fund among the working classes according to the nature of their work, its difficulty, severity, unpleasantness, &c., so that allowing for differences in the quality of the labour there is an equality in the rates of wages in different employments. Mr. McCulloch's treatise On the Circumstances which determine the Rate of Wages, states the first of these two propositions as follows (chapter i.): 'Wages depend at any particular period on the magnitude of the fund or capital appropriated to the payment of wages, compared with the number of labourers. Let us suppose that the capital of a country annually appropriated to the payment of wages amounts to 30,000,000l. sterling. If there were two millions of labourers in that country, it is evident that the wages of each, reducing them all to the same common standard, would be 15l.; and it is further evident that this rate could not be increased otherwise than by increasing the amount of capital in a greater proportion than the number of labourers, or by diminishing the number of labourers in a greater proportion than the amount of capital. Every scheme for raising wages which is not bottomed on this principle, or which has not an increase of the ratio of capital to population for its ultimate object, must be nugatory and ineffectual.' 6 The second proposition is stated in the same treatise thus (chapter v.): Were all employments equally agreeable and healthy, the labour to be performed in each of the same intensity, and did they all require the same degree of dexterity and skill on the part of the labourer, it is evident, supposing industry to be quite free, that there could be no permanent or considerable difference in the wages paid to those engaged in them. Hence the discrepancies that actually obtain in the rate of wages are confined within certain limits; increasing or diminishing it only so far as may be necessary to equalise the favourable or unfavourable circumstances attending any employment.' We maintain in opposition to these propositions that no funds are certainly appropriated by employers either collectively or individually to the hire of labourers; that the 'average rate of wages' is a phrase without practical meaning; that competition does not equalise wages; that the actual rates of wages are not determined solely by competition, or by any one general cause; and that the aggregate amount of wages is merely the arithmetical sum of the particular amounts of wages determined in each case by its own special conditions. We maintain too that the theory we controvert discredits political economy with the labouring class, and diverts the attention alike of labourers, employers, and economists from the investigation of means by which the wealth of the working classes might be increased and their relations with employers placed on a more satisfactory footing. A remark which the first of Mr. M'Culloch's propositions might have suggested to his own mind at once is, that supposing it true that the average rate of wages depends on the proportion of an aggregate fund to the number of labourers, small light is nevertheless shed on the subject by the statement of the problem in that way. Has it ever been propounded as the theory of the rate of profit that it depends on the ratio of the aggregate amount of profit to the aggregate quantity of capital? or as the theory of rent that the average rent of an acre depends on the proportion of the total amount of rent to the total number of acres? Were M'Culloch's proposition true to the letter, the question put in a very instructive article in the North British Review would remain, ' How does the amount of the wages-fund happen to be what it is? What will make it rise or fall?* By Mr. Dudley Baxter's estimate of the amount and distribution of the national income, 10,961,000 manual labourers have an aggregate income of 334,645,000l., while 2,759,000 persons in other classes have an income of 489,364,000l.; but Mr. Baxter does not pretend that these statistics afford an explanation of the facts they succinctly express, namely, that there is such a total national income, such a distribution of it, and such an aggregate amount of wages received by so many labourers. How is it *North British Review. March 1868, p. 6. 6 -it remains to be ascertained-that the many have so little while the few have so much? Why is it that both together have no more? Could any causes alter the total amount of the national income, or its distribution, or both, in favour of the labouring class; or, on the contrary, to their disadvantage? The doctrine of Mr. M'Culloch either means that the total revenue of the labouring class, the aggregate wages-fund,' is fixed and invariable in amount, or it does not. If it does not, if the working classes might earn more or less collectively than they actually do, the doctrine in question evidently leaves untouched the very problem it professes to solve, namely, what are the causes determining wages? If, on the other hand, it means that there is a fixed quantity of wealth appropriated exclusively and certainly to the labouring class, it must be seen in a moment to be false by any one who reflects that capital can emigrate, and that the place and manner of its employment depend on individual estimates of profit; that in husbandry there is the alternative of pasture or tillage; that in both manufactures and agriculture, machines, animals, and natural agents may be substituted for labourers; and that the amount of income, as well as of capital, expended on labour or service is as variable as the tastes and dispositions of different individuals and different periods. The successor to a large income may spend more or less than his predecessor in the hire of labourers or servants; moreover, as there will be occasion to notice more particularly hereafter, the expenditure of any given amount of income upon commodities causes a greater or less expenditure of capital upon labour according to the kind of commodities and their mode of production. Again, the same collective amount of capital and income expendible upon labour may yield very different rates of wages, according not to the number of labourers only, but to the number also of employers, and the manner in which the whole amount is divided among them. If engrossed chiefly by a few, they may fix wages by combination at a minimum; if very unequally shared among a large number of employers, the rate determined even by competition may be much lower than it would be upon an |