When it is affirmed that wages are drawn from capital, it is evident that the economic meaning of the term wages is lost sight of, and attention is concentrated upon the common and narrow meaning of the word. For in all those cases in which the labourer is his own employer and takes directly the produce of his labour as his reward it is plain enough that wages are not drawn from capital, but result directly as the product of labour.

If, for instance, I devote my labour to gathering birds' eggs or picking wild berries, the eggs or berries I thus get are my wages. Surely no one will contend that in such a case wages are drawn from capital.

Or if I take a piece of leather and work it up into a pair of shoes, value is steadily added as my labour goes on until, when my labour results in the finished shoes, I have my capital (the original piece of leather) plus the difference in value between that material and the finished shoes. In obtaining this additional value - my wages - how is capital at any time drawn upon?

Adam Smith recognized the fact that in such simple cases as I have instanced, wages are the produce of labour. He thus begins his chapter upon the wages of labour (Wealth of Nations, book I, chapter 8): " The produce of labour constitutes the natural recompense or wages of labour. In that original state of things which precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. He has neither landlord nor master to share with him." But instead of following the truth obvious in the simple modes of production as a clue through the perplexities of the more complicated forms, Adam Smith momentarily recognizes it only immediately to abandon it; and, stating that "in every part of Europe twenty workmen serve under a master for one that is independent," he recommences the inquiry from a point of view in which the master is considered as providing from his capital the wages of his workmen.

Wages in Kind

Let us pick up the clue where Adam Smith dropped it, and advancing step by step, see whether the relation of facts, obvious in the simplest forms of production, does not run through the most complex.

Next in simplicity to " that original state of things," of which many examples may yet be found, where the whole produce of labour belongs to the labourer, is the arrangement in which the labourer, though working for another person, or with the capital of another person, receives his wages in kind - that is to say, in the things his labour produces. In this case it is as clear as in the case of the self-employing labourer that the wages are really drawn from the product of labour, and not at all from capital.

If I hire a man to gather eggs, to pick berries, or to make shoes, paying him from the eggs, the berries, or the shoes his labour secures, there can be no question that the source of the wages is the labour for which they are paid.

Wages a Share of Produce

The farming of land on shares, which prevails to a considerable extent in the Southern States of the Union and in California, the metayer system of Europe, as well as the many cases in which superintendents, salesmen, etc., are paid by a percentage of profits, what are they but the employment of labour for wages that consist of part of its produce?

The next step in the advance from simplicity to complexity is where the wages, though estimated in kind, are paid in an equivalent of something else. For instance, on American whaling ships the custom is not to pay fixed wages, but a " lay," or proportion of the catch, which varies from a sixteenth to a twelfth to the captain down to a three-hundredth to the cabin-boy. Thus, when a whaleship comes into New Bedford or San Francisco after a successful cruise, she carries in her hold the wages of her crew, as well as the profits of her owners, and an equivalent which will reimburse them for all the stores used up during the voyage. Can anything be clearer than that these wages - this oil and bone which the crew of the whaler have taken - have not been drawn from capital, but are really a part of the produce of their labour? Nor is this fact changed or obscured in the slightest degree where, as a matter of convenience, instead of dividing up between the crew their proportion of the oil and bone, the value of each man's share is estimated at the market price, and he is paid for it in money. The money is but the equivalent of the real wages, the oil and bone. In no way is there any advance of capital in this payment.

Wages Paid by an Employer

Without production, wages would not and
could not be. It is from the produce of labor,
not from the advances of capital, that wages come.

Production is always the mother of wages. Without production, wages would not and could not be. It is from the produce of labour, not from the advances of capital that wages come. Wherever we analyse the facts this will be found to be true. For labour always precedes wages. This is as universally true of wages received by the labourer from an employer as it is of wages taken directly by the labourer who is his own employer. In the one class of cases as in the other, reward is conditioned upon exertion. Paid sometimes by the day, oftener by the week or month, occasionally by the year, and in many branches of production by the piece, the payment of wages by an employer to an employee always implies the previous rendering of labour by the employee for the benefit of the employer. The few cases in which advance payments are made for personal services are evidently referable either to charity or to guarantee and purchase.

Using the Term Capital in Two Senses

The plausibility of the proposition that wages are drawn from capital comes in the first instance from the statement that labour cannot exert its productive power unless it is supplied by capital with maintenance. This statement ignores and leads the attention away from the truth that labour always precedes wages. The fact that the labourer must have food, clothing, etc., in order to enable him to perform the work is at once recognized and the unwary reader, having been told that the food, clothing, etc., used by productive labourers are capital, assents to the conclusion that the consumption of capital is necessary to the application of labour.

From this it is but an obvious deduction that industry is limited by capital - that the demand for labour depends upon the supply of capital, and hence that wages depend upon the ratio between the number of labourers looking for employment and the amount of capital devoted to hiring them.

The fallacy of this reasoning is in the use of the term capital in two senses. In the primary proposition that capital is necessary to the exertion of productive labour, the term "capital" is understood as including all food, clothing, shelter, etc.; whereas, in the deductions finally drawn from it, the term is used in its legitimate meaning of wealth (in the hands of employers as distinguished from labourers) devoted, not to the immediate gratification of desire, but to the procurement of more wealth.

The conclusion is no more valid than it would be to infer from the acceptance of the proposition that a labourer cannot go to work without his breakfast and some clothes, that no more labourers can go to work than employers first furnish with breakfasts and clothes. Now the fact is that labourers generally furnish their own breakfasts and the clothes in which they go to work; and the further fact is that employers are never compelled to make advances to labour before the work begins, although in exceptional cases they may do so.

Labour Always Precedes Wages

Of all the unemployed labourers in the civilized world today, there is probably not a single one willing to work who could not be employed without any advance of wages. A great proportion would doubtless gladly go to work on terms which did not require the payment of wages before the end of a month. It is doubtful if there are enough to be called a class who would not go to work and wait for their wages until the end of the week, as most labourers habitually do; while there are certainly none who would not wait for their wages until the end of the day or, if you please, until the next meal hour. The precise time of the payment of wages is immaterial; the essential point - the point I lay stress on - is that it is after the performance of work.

The payment of wages, therefore, always implies the previous rendering of labour. Now, what does the "rendering" of labour in production imply? Evidently the production of wealth, which, if it is to be exchanged or used in production, is capital. Therefore, the payment of wages presupposes production by labour for which wages are paid. And as the employer generally makes a profit, the payment of wages is, so far as he is concerned, but the return to the labourer of a portion of the wealth he has received from labour. So far as the employee is concerned, it is but the receipt of a portion of the wealth his labour has previously produced. As the value paid in wages is thus exchanged for a value brought into being by labour, how can it be said that wages are advanced by capital? As in the exchange of labour for wages the employer always gets the capital created by labour before he pays out capital in wages, at what point is his capital lessened even temporarily? (1)

(1) I speak of labour producing capital for the sake of greater clearness. What labour always procures is either wealth, which may or may not be capital, or services, the cases in which nothing is obtained being merely exceptional cases of misadventure. Where the object of labour is simply the gratification of the employer, as where I hire a man to black my boots, I do not pay the wages from capital, but from wealth which I have devoted, not to reproductive uses, but to consumption for my own satisfaction. Even if wages thus paid be considered as drawn from capital, then by that act they pass from the category of capital to that of wealth devoted to the gratification of the possessor, as when a cigar dealer takes a dozen cigars from the stock he has for sale and puts them in his pocket for his own use.

The Manufacturer and his Capital

Take, for instance, an employing manufacturer who is engaged in turning raw material into finished products - cotton into cloth, iron into hardware, leather into boots, or so on, as may be, and who pays his hands, as is generally the case, once a week. Make an exact inventory of his capital on Monday morning before the beginning of work, and it will consist of his buildings, machinery, raw materials, money on hand, and finished products in stock.

Suppose, for the sake of simplicity, that the manufacturer neither buys nor sells during the week and, after work has stopped and he has paid his hands on Saturday, he takes a new inventory of his capital. The item of money will be less, for it has been paid out in wages; there will be less raw material, less coal, etc., and a proper deduction must be made from the value of the buildings and machinery for the week's wear and tear. But if he is doing a remunerative business, which must on the average be the case, the item of finished products will be so much greater as to compensate for all these deficiencies and show in the summing-up an increase of capital. Manifestly the value he paid his hands in wages was not drawn from his capital nor from anyone else's capital. It came, not from capital, but from the value created by labour itself.

Stages in the Process of Production

Where wages are paid before the object of the labour is obtained, or is finished - as in agriculture, where ploughing and sowing must precede by several months the harvesting of the crop, or in the erection of buildings, the construction of ships, railroads, canals, etc. - it is clear that for the capital so paid in wages the owners cannot expect an immediate return, but, as the phrase is, must "outlay it," or " 'Lie out of it" for a time, which sometimes amounts to many years. Surely, it will be said that in such cases, even if in no others, wages do actually come from capital; are actually advanced by capital; and must necessarily lessen capital in their payment? Surely here, at least, industry is limited by capital, for without capital such works could not be carried on?

Let us see:

As the rendering of labour precedes the payment of wages, and as the rendering of labour in production implies the creation of value, the employer receives value before he pays out value. For the creation of value takes place at every stage of the process of production as the immediate result of the application of labour, and hence, no matter how long the process in which it is engaged, labour always adds to wealth by its exertion before it takes its wages.

The Example of Shipbuilding

Take a ship or a building. They are finished products. But they were not produced at one operation or by one set of producers. And this being the case, we readily distinguish different points or stages in the creation of the value which as completed articles they represent. When we do not distinguish different parts in the final process of production we do distinguish the value of the materials. The value of these materials may often be again decomposed many times, exhibiting as many clearly defined steps in the creation of the final value. At each of these steps we habitually estimate a creation of value, an addition to capital.

It may take a year or even years to build a ship, but the creation of value, of which the finished ship will be the sum, goes on day by day and hour by hour from the time the keel is laid or even the ground is cleared. Nor by the payment of wages before the ship is completed does the master builder lessen either his capital or the capital of the community, for the value of the partially completed ship stands in place of the value paid out in wages. There is no advance of capital in this payment of wages, as is shown by the fact that if the builder were at any stage of the construction asked to sell a partially completed ship he would expect a profit.

The Example of Agriculture

It is obvious that in agriculture the creation of value does not take place all at once when the crop is gathered, but step by step during the whole process in which the gathering of the crop is included. The farmer's capital is not lessened in the interim by the payment of wages. This is tangible enough when land is sold or rented during the process of production; a ploughed field will bring more than an unploughed field and a field that has been sown more one that is merely ploughed.

The creation of value is tangible enough when growing crops are sold, as is sometimes done, or where the farmer does not himself harvest, but lets a contract to the owner of harvesting machinery. It is tangible in the case of orchards and vineyards which, though not yet in bearing, bring prices proportionate to their age. It is tangible in the case of horses, cattle and sheep which increase in value as they grow towards maturity. And if not always tangible between what may be called the usual exchange points in production, this increase of value as surely takes place with every exertion of labour. Hence, where labour is rendered before wages are paid, the advance of capital is really made by labour, and is from the employed to the employer, not from the employer to the employed.

Present Consumption and Past Production

But a stumbling-block may yet remain, or may recur, in the mind of the reader.

As the ploughman cannot eat the furrow, nor a partially completed steam-engine aid in any way in producing the clothes the machinist wears, have I not, in the words of John Stuart Mill, "forgotten that the people of a country are maintained and have their wants supplied, not by the produce of present labour, but of past?" Or, as Mrs. Fawcett (Political Economy for Beginners, chapter 3) asks, have I not "forgotten that many months must elapse between the sowing of the seed and the time when the produce of that seed is converted into a loaf of bread," and that " it is therefore evident that labourers cannot live upon that which their labour is assisting to produce, but are maintained by that wealth which their labour, or the labour of others, has previously produced, which wealth is capital?"

Being resolved, these propositions are seen to be, not self-evident, but absurd. They involve the idea that labour cannot be exerted until the products of labour are saved thus; putting the product before the producer. And being examined, they will be seen to derive their apparent plausibility from a confusion of thought.

It seems to me that the proposition that present labour might be maintained by the produce of past labour will upon analysis prove to be true only in the sense that the afternoon's labour must be performed by the aid of the noonday meal, or that before you eat the hare he must be caught and cooked. And this, manifestly, is not the sense in which the proposition is used to support the important reasoning that is made to hinge upon it. That sense is, that before a work that will not immediately result in wealth available for subsistence can be carried on, there must exist such a stock of subsistence as will support the labourers during the process. Let us see if this be true:

Supposing a hundred men to be landed, without any stock of provisions, in a new country. Will it be necessary for them to accumulate a season's stock of provisions before they can begin to cultivate the soil? Not at all. It will only be necessary that fish, game, berries, etc., shall be so abundant that the labour of a part of the hundred may suffice to furnish daily enough of these for the maintenance of all, and that there shall be such a sense of mutual interest, or such a correlation of desires, as shall lead those who in the present get the food to divide (exchange) with those whose efforts are directed to future recompense.

How Society Subsists

What is true in such a case is true in all cases. It is not necessary to the production of things that cannot be used as subsistence, or cannot be immediately utilized, that there should have been a previous production of the wealth required for the maintenance of the labourers while the production is going on. It is only necessary that somewhere within the circle of exchange there should be a contemporaneous production of sufficient subsistence for the labourers, and a willingness to exchange this subsistence for the thing on which labour is being bestowed.

And as a matter of fact, is it not true, in any normal condition of things, that consumption is supported by contemporaneous production?

Here is a luxurious idler, who does no productive work either with head or hand, but lives, we say, upon wealth which his father left him securely invested in Government bonds. Does his subsistence, as a matter of fact, come from wealth accumulated in the past or from the productive labour that is going on around him? On his table are new-laid eggs, butter churned but a few days before, milk which the cow gave this morning, fish which twenty-four hours ago were swimming in the sea, meat which the butcher boy has just brought in time to be cooked, vegetables fresh from the garden, and fruit from the orchard - in short, hardly anything that has not recently left the hand of the productive labourer (for in this category must be included transporters and distributors as well as those who are engaged in the first stages of production), and nothing that has been produced for any considerable length of time, unless it may be some bottles of old wine. What this man inherited from his father, and on which we say he lives, is not actually wealth at all, but only the power of commanding wealth as others produce it. And it is from this contemporaneous production that his subsistence is drawn.

London undoubtedly contains more wealth than exists within the same space anywhere else. Yet were productive labour in London absolutely to cease, within a few hours people would begin to die, and within a few weeks, or at most a few months, hardly one would be left alive. For an entire suspension of productive labour would be a disaster more dreadful than ever yet befell a beleaguered city. It would not be a mere external wall of circumvallation, such as Titus drew around Jerusalem, which would prevent the constant incoming of the supplies on which a great city lives, but it would be the drawing of a similar wall around each household. Imagine such a suspension of labour in any community, and you will see how true it is that mankind really lives from hand to mouth; that it is the daily labour of the community that supplies the community with its daily bread.

If we trace the circle of exchange by which work done in the production of a great steam-engine secures to the worker bread, meat, clothes and shelter, we shall find that though between the labourer on the engine and the producers of the bread, meat, etc., there may be a thousand intermediate exchanges, the transaction, when reduced to its lowest terms, really amounts to an exchange of labour between him and them. It is evident that the cause which induces the expenditure of the labour on the engine is that there exists a demand for an engine on the part of those producing bread, meat, etc., or on the part of those who are producing whatever is desired by the producers of the bread, meat, etc. It is this demand which directs the labour of the machinist to the production of the engine, and hence, reversely, the demand of the machinist for bread, meat, etc., really directs an equivalent amount of labour to the production of these things, and thus his labour, actually exerted in the production of the engine, virtually produces the things on which he expends his wages.

Or, to formularize this principle:

The demand for consumption determines the direction in which labour will be expended in production.

This principle is so simple and obvious that it needs no further illustration, yet in its light all the complexities of our subject disappear, and we thus reach the same view of the real objects and rewards of labour in the intricacies of modem production that we gained by observing in the first beginnings of society the simpler forms of production and exchange. We see that now, as then, each labourer is endeavouring to obtain by his exertions the satisfaction of his own desires; we see that although the minute division of labour assigns to each producer the production of but a small part, or perhaps nothing at all, of the particular things he labours to get, yet, in aiding in the production of what other producers want, he is directing other labour to the production of the things he wants - in effect, producing them himself.

And so the man who is following the plough - though the crop for which he is opening the ground is not yet sown, and after being sown will take months to arrive at maturity - he is yet, by the exertion of his labour in ploughing, virtually producing the food he eats and the wages he receives. For, though ploughing is but a part of the operation of producing a crop, it is a part, and as necessary a part as harvesting. The doing of it is a step toward procuring a crop, which, by the assurance it gives of the future crop, sets free from the stock constantly held the subsistence and wages of the ploughman.

This is not merely theoretically true, it is practically and literally true. At the proper time for ploughing, let ploughing cease. Would not the symptoms of scarcity at once manifest themselves without waiting for the time of the harvest? Let ploughing cease, and would not the effect at once be felt in counting-room, and machine shop, and factory? Would not loom and spindle soon stand as idle as the plough? That this would be so, we see in the effect which immediately follows a bad season. And if this would be so, is not the man who ploughs really producing his subsistence and wages as much as though during the day or week his labour actually resulted in the things for which his labour exchanged?



Capital increases the power of labour to produce wealth: (1) By enabling labour to apply itself in more effective ways, as by digging up clams with a spade instead of the hand, or moving a vessel by shovelling coal into a furnace, instead of tugging at an oar. (2) By enabling labour to avail itself of the reproductive forces of nature, as to obtain corn by sowing it, or animals by breeding them. (3) By permitting the division of labour and thus, on the other hand, increasing the efficiency of the human factor by the utilization of special capabilities, the acquisition of skill and the reduction of waste; and on the other hand, calling in the powers of the natural factor at their highest, by taking advantage of the diversities of soil, climate and situation, so as to obtain each particular species of wealth where nature is most favourable to its production.

Capital does not limit industry, the only limit to industry being the access to natural material. But capital may limit the form of industry and the productiveness of industry, by limiting the use of tools and the division of labour.

That capital may limit the form of industry is clear. Without the factory, there could be no factory operatives; without the sewing machine, no machine sewing; without the plough, no ploughman; and without a great capital engaged in exchange, industry could not take the many special forms that are concerned with exchanges.

It is also as clear that the want of tools must greatly limit the productiveness of industry. If the farmer must use the spade because he has not capital enough for a plough, the sickle instead of the reaping machine, the flail instead of the thresher; if the machinist must rely upon the chisel for cutting iron, the weaver upon the handloom, and so on, the productiveness of industry cannot be a tithe of what it is when aided by capital in the shape of the best tools now in use. The division of labour could not go further than the very rudest and almost imperceptible beginnings; nor could the exchanges, which make possible the division of labour, extend beyond the nearest neighbours, unless a portion of the things produced were constantly kept in stock or in transit.

To enable the resident of a civilized community to exchange his labour at option with the labour of those around him and with the labour of men in the most remote parts of the globe, there must be stocks of goods in warehouses, in stores, in the holds of ships, and in railway cars. To enable the denizens of a great city to draw at will a cupful of water, there must be thousands of millions of gallons stored in reservoirs and moving through miles of pipe.

We can, of course, imagine a community in which the want of capital would be the only obstacle to an increased productiveness of labour; only, however, by imagining a conjunction of conditions that seldom, if ever, occurs, except by accident or as a passing phase. A community in which capital has been swept away by war, conflagration, or convulsion of nature, and, possibly, a community composed of civilized people just settled in a new land, seem to furnish the only examples. Yet how quickly the capital it habitually uses is reproduced in a community that has been swept by war has long been noticed, while the rapid production of the capital it can use, or is disposed to use:, is equally noticeable in the case of a new community.

It would be a mistake to attribute the simple modes of production and exchange which are resorted to in new communities solely to a want of capital. These modes, which require little capital, are in themselves rude and inefficient, but when the conditions of such communities are considered, they will be found in reality the most effective. A great factory with all the latest improvements is the most efficient instrument that has yet been devised for turning wool or cotton into cloth, but only so where large quantities are to be made. The cloth required only for a little village could be made with far less labour by the spinning wheel and handloom. To carry occasionally two or three passengers, a canoe is a better instrument than a steamboat; a few sacks of flour can be transported with less expenditure of labour by a pack horse than by a railway train; to put a great stock of goods into a crossroads store in the backwoods would be but to waste capital.

Generally speaking, no greater amount of wealth will be used as capital than is required by the machinery of production and exchange that, under all the existing conditions such as intelligence, habit, security and density of population, best suits the people.

Wages and Capital - General Conclusions

Our purpose in this inquiry is to solve the problem to which so many self-contradictory answers are given. In ascertaining clearly what capital really is and what capital really does, we have made the first, and an all-important step.

We have seen that capital does not advance wages or subsist labourers, but that its functions are to assist labour in production with tools, seed, etc., and with the wealth required to carry on exchanges.

We are irresistibly led to practical conclusions so important as amply to justify the pains taken to make sure of them. For if wages are drawn, not from capital, but from the produce of labour, all remedies, whether proposed by professors of Political Economy or working men, that look to the alleviation of poverty either by the increase of capital or the restriction of the number of labourers or the efficiency of their work, must be condemned.

If each labourer in performing the labour really creates the fund from which his wages are drawn, then wages cannot be diminished by the increase of labourers. On the contrary, as the efficiency of labour manifestly increases with the number of labourers, the more labourers, other things being equal, the higher should wages be. But this necessary proviso, other things being equal, brings us to a question which must be considered and disposed of before we can proceed further. That question is: Do the productive powers of nature tend to diminish with the increasing drafts made upon them by increasing population?

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