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, however, 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 Prof. Walker in his work on the Wages Question (the best book on the subject as a whole), 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.” Even as thus restricted the “working or wage-earning classes” represent probably two-thirds of the population of the United Kingdom. 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 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, however, 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.”

Prof. Walker (op. cit., p. 12 sq.) has given a full analysis of the principal elements which ought to be taken into account in 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. Prof. Thorold Rogers has ascribed much of the degradation of labour which ensued to this fact; and Lord Macaulay has given a graphic account of the evils suffered by the labouring classes prior to the recoinage of 1696. The issues of inconvertible 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 is 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 last century Arthur Young, in his celebrated tours, often calls attention to this fact. At the present time, 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 Prof. 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 to 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. (For further illustration the reader may consult the excellent works of Mr Bevan on Industrial Classes and Industrial Statistics. ) 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. 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. At the census in 1881 in the United Kingdom, the commissioners found it necessary to make a small dictionary of the words by which different classes of workers described their callings, and without a special dictionary it would be impossible to classify such as the following: “blabber,” “doctor-maker,” “fluker,” “egger,” “hirer,” “toother,” &c., &c. 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, however, 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 the theory of political economy. 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.

Thus the theory of the wages question consists of two parts, or gives the answers to two questions:—(1) What are the 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 Prof. 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. § 1), 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 wagecapital 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 causes which it 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 rate 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,...