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Thornton on Labour and Its Claims
"On Labour, its Wrongful Claims and Rightful Dues, its Actual
Present and Possible Future" by William Thomas Thornton
John Stuart Mill
Part I, Fortnightly Review, (May, 1869), pp. 505-18;
Part II, (June, 1869), pp. 680-700.
Republished in Debates and Dissertation (1875), 25-85.
PART I
Mr. Thornton long ago gave proof of his competency to the treatment of some of the most important
questions of practical political economy, by two works of great merit, "Over Population and its
Remedy,"(1) and "A Plea for Peasant Proprietors."(2) Of the latter of these especially it may be said,
that nothing but the total absence, at the time of its publication, of any general interest in its subject,
can account for its not having achieved a high repute and a wide circulation. The lack of interest in
the subject has now ceased; opinion is rapidly advancing in the direction which the author fayours;
and a new edition, with its facts brought down to the latest date, would be welcomed by advanced
politicians, and would materially contribute to the formation of an enlightened judgment on one of
the economical questions on which truth is most important, and prejudice still most rife.
The present work, though popular and attractive in style, is strictly scientific in its principles and
reasonings; and is therefore, as might be expected, strictly impartial in its judgments. A considerable
part of the volume is employed in refuting the principles on which it is usual to rest those claims and
aspirations of the labouring classes, which nevertheless the author, on better grounds, supports. No
blind partisan on either side of the feud of labour against capital, will relish the book; but few
persons of intelligence and impartiality who read it through, will lay it down without having reason to
feel that they understand better than before some of the bearings of the questions involved in that
conflict.
To this great practical merit are to be added two of a more theoretic kind, to the value of which I am
the more called upon to bear testimony, as on the particular points touched upon in this department
I shall have to express more difference than agreement. First: it contains a discussion of one of the
fundamental questions of abstract political economy (the influence of demand and supply on price),
which is a real contribution to science, though, in my estimation, an addition, and not, as the author
thinks, a correction, to the received doctrine. Secondly: in the attempt to go to the very bottom of the
question, what are the just rights of labour on one side, and capital on the other, it raises the great
issues respecting the foundation of right and wrong, of justice and injustice, in a manner highly
provocative of thought. To lay down a definite doctrine of social justice, as well as a distinct view of
the natural laws of the exchange of commodities, as the basis for the deductions of a work devoted
to such a subject as the principles and practice of Trades-Unionism, was inseparable from the
thoroughness with which the author has sought to do his work. Every opinion as to the relative rights
of labourers and employers, involves expressly or tacitly some theory of justice, and it cannot be
indifferent to know what theory. Neither, again, can it be decided in what manner the combined
proceedings of labourers or of employers affect the interests of either side, without a clear view of
the causes which govern the bargain between them -- without a sound theory of the law of wages.
Indeed, a theory of wages obtrusively meets the inquirer, at the threshold of every question
respecting the relations between labourers and employers, and is commonly regarded as rendering
superfluous any further argument. It is laid down that wages, by an irresistible law, depend on the
demand and supply of labour, and can in no circumstances be either more or less than what will
distribute the existing wages-fund among the existing number of competitors for employment. Those
who are content to set out from generally-received doctrines as from self-evident axioms, are
satisfied with this, and inquire no further. But those who use their own understanding, and look
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closely into what they assent to, are bound to ask themselves whether or in what sense wages do
depend on the demand and supply of labour, and what is meant by the wages-fund.
The author of this work has asked himself these questions; and while he is, as his writings give
evidence, well versed in political economy, and is able to hold his ground with the best in following
out economical laws into their more obscure and intricate workings, he has become convinced that
the barrier which seems to close the entrance into one of the most important provinces of
economical and social inquiry, is a shadow which will vanish if we go boldly up to it. He is of opinion
that economists have mistaken the scientific law not only of the price of labour, but of prices in
general. It is an error, he thinks, that price, or value in exchange, depends on supply and demand.
There is one sense, in which this proposition of Mr. Thornton would be assented to by all
economists; they none of them consider supply and demand to be the ultimate regulators of value.
(3) That character, they hold, belongs to cost of production; always supposing the commodity to be
a product of labour, and natural or artificial monopoly to be out of the question. Subject to these
conditions, all commodities, in the long run and on the average, tend to exchange for one another
(and, though this point is a little more intricate, tend also to exchange for money) in the ratio of what
it costs, in labour and abstinence, to produce the articles and to bring them to the place of sale. But
though the average price of everything, the price to which the producer looks forward for his
remuneration, must approximately conform to the cost of production, it is not so with the price at any
given moment. That is always held to depend on the demand and supply at the moment. And the
influence even of cost of production depends on supply; for the only thing which compels price, on
the average, to conform to cost of production, is that if the price is either above or below that
standard, it is brought back to it either by an increase or by a diminution of the supply; though, after
this has been effected, the supply adjusts itself to the demand which exists for the commodity at the
remunerating price. These are the limits within which political economists consider supply and
demand as the arbiters of price. But even within these limits Mr. Thornton denies the doctrine.
Like all fair controversialists, Mr. Thornton directs his attack against the strongest form of the
opinion he assails. He does not much concern himself with the infantine form of the theory, in which
demand is defined as a desire for the commodity, or as the desire combined with the power of
purchase; or in which price is supposed to depend on the ratio between demand and supply. It is to
be hoped that few are now dwelling in this limbus infantum. Demand, to be capable of comparison
with supply, must be taken to mean, not a wish, nor a power, but a quantity. Neither is it at any time
a fixed quantity, but varies with the price. Nor does the price depend on any ratio. The demand and
supply theory, when rightly understood--indeed when capable of being understood at all--signifies,
that the ratio which exists between demand and supply, when the price has adjusted itself, is always
one of equality. If at the market price the demand exceeds the supply, the competition of buyers will
drive up the price to the point at which there will only be purchasers for as much as is offered for
sale. If, on the contrary, the supply, being in excess of the demand, cannot be all disposed of at the
existing price, either a part will be withdrawn to wait for a better market, or a sale will be forced by
offering it at such a reduction of price as win bring forward new buyers, or tempt the old ones to
increase their purchases. The law, therefore, of values, as affected by demand and supply, is that
they adjust themselves so as always to bring about an equation between demand and supply, by
the increase of the one or the diminution of the other; the movement of price being only arrested
when the quantity asked for at the current price, and the quantity offered at the current price, are
equal. This point of exact equilibrium may be as momentary, but is nevertheless as real, as the level
of the sea.
It is this doctrine which Mr. Thornton contests: and his mode of cornbating it is by adducing case
after case in which he thinks he can show that the proposition is false; most of the cases being, on
the face of them, altogether exceptional; but among them they cover, in his opinion, nearly the
whole field of possible cases.
The first case, which is presented as the type of a class, rather than for its intrinsic importance, is
that of what is called a Dutch auction.
When a herring or mackerel boat has discharged on the beach, at Hastings or Dover, last night's
take of fish, the boatmen, in order to dispose of their cargo, commonly resort to a process called
Dutch auction. The fish are divided into lots, each of which is set up at a higher price than the
ads:
salesman expects to get for it, and he then gradually lowers his terms, until he comes to a price
which some bystander is willing to pay rather than not have the lot, and to which he accordingly
agrees. Suppose on one occasion the lot to have been a hundredweight, and the price agreed to
twenty shillings. If, on the same occasion, instead of the Dutch form of auction, the ordinary English
mode had been adopted, the result might have been different. The operation would then have
commenced by some bystander making a bid, which others might have successively exceeded,
until a price was arrived at beyond which no one but the actual bidder could afford or was disposed
to go. That sum would not necessarily be twenty shillings; very possibly it might be only eighteen
shillings. The person who was prepared to pay the former price might very possibly be the only
person present prepared to pay even so much as the latter price; and if so, he might get by English
auction for eighteen shillings the fish for which at Dutch auction he would have paid twenty shillings.
In the same market, with the same quantity of fish for sale, and with customers in number and every
other respect the same, the same lot of fish might fetch two very different prices. (Thornton, pp. 47-
8.)
This instance, though seemingly a trivial, is really a representative one and a hundred cases could
not show, better than this does, what Mr. Thornton has and what he has not made out. He has
proved that the law of the equalisation of supply and demand is not the whole theory of the
particular case. He has not proved that the law is not strictly conformed to in that case. In order to
show that the equilisation of supply and demand is not the law of price, what he has really shown is
that the law is, in this particular case, consistent with two different prices, and is equally and
completely fulfilled by either of them. The demand and supply are equal at twenty shillings, and
equal also at eighteen shillings. The conclusion ought to be, not that the law is false, for Mr.
Thornton does not deny that in the case in question it is fulfilled; but only, that it is not the entire law
of the phenomenon. The phenomenon cannot help obeying it, but there is some amount of
indeterminateness in its operation--a certain limited extent of variation is possible within the bounds
of the law; and as there must be a sufficient reason for every variation in an effect, there must be a
supplementary law, which determines the effect, between the limits within which the principal law
leaves it free. Whoever can teach us this supplementary law, makes a valuable addition to the
scientific theory of the subject; and we shall see presently that in substance, if not strictly in form,
Mr. Thornton does teach it. Even if he did not, he would have shown the received theory to be
incomplete; but he would not have, nor has he now, shown it to be in the smallest degree incorrect.
What is more; when we look into the conditions required to make the common theory inadequate,
we find that, in the case at least which we have now examined, the incompleteness it stands
convicted of amounts to an exceedingly small matter. To establish it, Mr. Thornton had to assume
that the customer who was prepared to pay twenty shillings for a hundredweight of fish, was the only
person present who was willing to pay even so much as eighteen shillings. In other words, he
supposed the case to be an exception to the rule, that demand increases with cheapness: and since
this rule, though general, is not absolutely universal, he is scientifically right. If there is a part of the
scale through which the price may vary without increasing or diminishing the demand, the whole of
that portion of the scale may fulfil the condition of equality between supply and demand. But how
many such cases really exist? Among a few chafferers on the beach of a small fishing port, such a
case, though even there improbable, is not totally out of the question. But where buyers are counted
by thousands, or hundreds, or even scores; in any considerable market--and, far more, in the
general market of the world--it is the next thing to impossible that more of the commodity should not
be asked for at every reduction of price. The case of price, therefore, which the law of the
equalisation does not reach, is one which may be conceived, but which, in practice, is hardly ever
realised.
The next example which Mr. Thornton produces of the failure of supply and demand as the law of
price, is the following: --
Suppose two persons at different times, or in different places, to have each a horse to sell, valued
by the owner at £50; and that in the one case there are two, and in the other three persons, of whom
every one is ready to pay o650 for the horse, though no one of them can afford to pay more. In both
cases supply is the same, viz., one horse at £50; but demand is different, being in one case two,
and in the other three, horses at £50. Yet the price at which the horses will be sold will be the same
in both cases, viz., £50. (p. 49.)
The law does fail in this case, as it failed in the former, but for a different reason; not, as in the
former case, because several prices fulfil the condition equally well, but because no price fulfils it. At
£50 there is a demand for twice or three times the supply; at £50. 0s. 0¼d. there is no demand at
all. When the scale of the demand for a commodity is broken by so extraordinary a jump, the law
fails of its application; not, I venture to say, from any fault in the law, but because the conditions on
which its applicability depends do not exist. If the peculiarities of the case do not permit the demand
to be equal to the supply, leaving it only the alternative of being greater or less, greater or less it will
be; and all that can be affirmed is, that it will keep as near to the point of equality as it can. Instead
of conflicting with the law, this is the extreme case which proves the law. The law is, that the price
will be that which equalises the demand with the supply; and the example proves that this only fails
to be the case when there is no price that would fulfil the condition, and that even then, the same
causes, still operating, keep the price at the point which will most nearly fulfil it. Is it possible to have
any more complete confirmation of the law, than that in order to find a case in which the price does
not conform to the law, it is necessary to find one in which there is no price that can conform to it?
Again:--
When a tradesman has placed upon his goods the highest price which any one will pay for them,
the price cannot, of course, rise higher, yet the supply may be below the demand. A glover in a
country town, on the eve of an assize bail, having only a dozen pairs of white gloves in store, might
possibly be able to get ten shillings a pair for them. He would be able to get this if twelve persons
were willing to pay that price rather than not go to the bail, or than go ungloved. But he could not get
more than this, even though, while he was still higgling with his first batch of customers, a second
batch, equally numerous and neither more nor less eager, should enter his shop, and offer to pay
the same but not a higher price. The demand for gloves, which at first had been just equal to the
supply, would now be exactly doubled, yet the price would not rise above ten shillings a pair. Such
abundance of proof is surely decisive against the supposition that price must rise when demand
exceeds supply. (pp. 51-2.)
Here, again, the author is obliged to suppose that the whole body of customers (twenty-four in
number) place the extreme limit of what they are willing to pay rather than go without the article,
exactly at the same point--an exact repetition of the hypothesis about the horse who is estimated at
£50, and not a farthing more, by every one who is willing to buy him. The case is just possible in a
very small market -- practically impossible in the great market of the community. But, were it ever so
frequent, it would not impugn the truth of the law, but only its all-comprehensiveness. It would show
that the law is only fulfilled when its fulfilment is, in the nature of things, possible, and that there are
cases in which it is impossible; but that even there the law takes effect, up to the limit of possibility.
Mr. Thornton's next position is, that if the equalisation theory were literally true, it would be a truth of
small significance, because --
Even if it were true that the price ultimately resulting from competition is always one at which supply
and demand are equalised, still only a small proportion of the goods offered for sale would actually
be sold at any such price, since a dealer will dispose of as much of his stock as he can at a higher
price, before he will lower the price in order to get rid of the remainder. (p. 53.)
This is only saying that the law in question resembles other economical laws in producing its effects
not suddenly, but gradually. Though a dealer may keep up his price until buyers actually fall off, or
until he is met by the competition of rival dealers, still if there is a larger supply in the market than
can be sold on these terms, his price will go down until it reaches the point which will call forth
buyers for his entire stock; and when that point is reached it will not descend further. A law which
determines that the price of the commodity shall fall, and fixes the exact point which the fall will
reach, is not justly described as "a truth of small significance" merely because the dealers, not being
dead matter, but voluntary agents, may resist for a time the force to which they at last succumb.
Limitations such as these affect all economical laws, but are never considered to destroy their value.
As well might it be called an insignificant truth that there is a market price of a commodity, because
a customer who is ignorant, or in a hurry, may pay twice as much for the thing as he could get it for
at another shop a few doors farther off.
The last objection of Mr. Thornton to the received theory, and the one that he lays most stress upon,
is, that it assumes "that goods are offered for sale unreservedly, and that dealers are always content
to let them go for what they will fetch." This, however, he observes, --
Is scarcely ever -- nay, might almost be said to be absolutely never -- the fact. With one notable
exception, that of labour, commodities are almost never offered unreservedly for sale; scarcely ever
does a dealer allow his goods to go for what they will immediately fetch -- scarcely ever does he
agree to the price which would result from the actual state of supply and demand, or, in other words,
to the price at which he could immediately sell the whole of his stock. Imagine the situation of a
merchant who could not afford to wait for customers, but was obliged to accept for a cargo of corn,
or sugar, or sundries, the best offer he could get from the customers who first presented
themselves; or imagine a jeweller, or weaver, or draper, or grocer, obliged to clear out his shop
within twenty-four hours. The nearest approach ever made to such a predicament is that of a
bankrupt's creditors selling off their debtor's effects at a proverbially 'tremendous sacrifice;' and
even they are, comparatively speaking, able to take their time. But the behaviour of a dealer under
ordinary pressure is quite different from that of a bankrupt's assignees. He first asks himself what is
the best price which is likely to be presently given, not for the whole, but for some considerable
portion of his stock, and he then begins selling, either at that price or at such other price as proves
upon trial to be the best obtainable at the time. His supply of goods is probably immensely greater
than the quantity demanded at that price, but does he therefore lower his terms? Not at all, and he
sells as much as he can at that price, and then, having satisfied the existing demand, he waits
awhile for further demand to spring up. In this way he eventually disposes of his stock for many
times the amount he must have been fain to accept if he had attempted to sell off all at once. A corn
dealer who in the course of a season sells thousands of quarters of wheat at fifty shillings per
quarter, or thereabouts, would not get twenty shillings a quarter if, as soon as his corn ships arrived,
he was obliged to turn the cargoes into money. A glover who, by waiting for customers, will no doubt
get three or four shillings a pair for all the gloves in his shop, might not get sixpence a pair if he
forced them on his customers. But how is it that he manages to secure the higher price? Simply by
not selling unreservedly, simply by declining the price which would have resulted from the relations
between actual supply and actual demand, and by setting up his goods at some higher price, below
which he refuses to sell. (pp. 55-6.)
I confess I cannot perceive that these considerations are subversive of the law of demand and
supply, nor that there is any ground for supposing political economists to be unaware that when
supply exceeds the demand, the two may be equalised by subtracting from the supply as well as by
adding to the demand. Reserving a price is, to all intents and purposes, withdrawing supply. When
no more than forty shillings a head can be obtained for sheep, all sheep whose owners are
determined not to sell them for less than fifty shillings are out of the market, and form no part at all
of the supply which is now determining price. They may have been offered for sale, but they have
been withdrawn. They are held back, waiting for some future time, which their owner hopes may be
more advantageous to him; and they will be an element in determining the price when that time
comes, or when, ceasing to expect it, or obliged by his necessities, he consents to sell his sheep for
what he can get. In the meanwhile, the price has been determined without any reference to his
withheld stock, and determined in such a manner that the demand at that price shall (if possible) be
equal to the supply which the dealers are willing to part with at that price. The economists who say
that market price is determined by demand and supply do not mean that it is determined by the
whole supply which would be forthcoming at an unattainable price, any more than by the whole
demand that would be called forth if the article could be had for an old song. They mean that,
whatever the price turns out to be, it will be such that the demand at that price, and the supply at
that price, will be equal to one another. To this proposition Mr. Thornton shows an undeniable
exception in the case of a dealer who holds out for a price which he can obtain for a part of his
supply, but cannot obtain for the whole. In that case, undoubtedly, the price obtained is not that at
which the demand is equal to the supply; but the reason is the same as in one of the cases formerly
considered; because there is no such price. At the actual price the supply exceeds the demand; at a
farthing less the whole supply would be withheld. Such a case might easily happen if the dealer had
no competition to fear; not easily if he had: but on no supposition does it contradict the law. It falls
within the one case in which Mr. Thornton has shown that the law is not fulfilled -- namely, when
there is no price that would fulfil it; either the demand or the supply advancing or receding by such
violent skips, that there is no halting point at which it just equals the other element.
Do I then mean to say that Mr. Thornton is entirely wrong in his interpretation of the cases which he
suggests, and has pointed out no imperfection in the current theory? Even if it were so, it would not
follow that he has rendered no service to science. "There is always a benefit done to any
department of knowledge by digging about the roots of its truths.(4) Scientific laws always come to
be better understood when able thinkers and acute controversialists stir up difficulties respecting
them, and confront them with facts which they had not yet been invoked to explain. But Mr. Thornton
has done much more than this. The doctrine he controverts, though true, is not the whole truth. It is
not the entire law of the phenomenon; for he has shown, and has been the first to show, that there
are cases which it does not reach. And he has, if not fully defined, at least indicated, the causes
which govern the effect in those exceptional cases. If there is a fault to be found with him, it is one
that he has in common with all those improvers of political economy by whom new and just views
"have been promulgated as contradictions of the doctrines previously received as fundamental,
instead of being, what they almost always are, developments of them;"(5) the almost invariable error
of those political economists, for example, who have set themselves in opposition to Ricardo.
Let us, by Mr. Thornton's aid, endeavour to fix our ideas respecting that portion of the law of price
which is not provided for by the common theory. When the equation of demand and supply leaves
the price in part indeterminate, because there is more than one price which would ful~l the law;
neither sellers nor buyers are under the action of any motives, derived from supply and demand, to
give way to one another. Much will, in that case, depend on which side has the initiative of price.
This is well exemplified in Mr. Thornton's supposed Dutch auction. The commodity might go no
higher than eighteen shillings if the offers came from the buyers' side, but because they come from
the seller the price reaches twenty shillings. Now, Mr. Thornton has well pointed out that this case,
though exceptional among auctions, is normal as regards the general acoursea of trade. As a
general rule, the initiative of price does rest with the dealers, and the competition which modifies it is
the competition of dealers.(6) When, therefore, several prices are consistent with carrying off the
whole supply, the dealers are tolerably certain to hold out for the highest of those prices; for they
have no motive to compete with one another in cheapness, there being room for them all at the
higher price. On the other hand, the buyers are not compelled by each other's competition to pay
that higher price; for (since, by supposition the case is one in which a fall of price does not call forth
an additional demand) if the buyers hold out for a lower price and get it, their gain may be
permanent. The price, in this case, becomes simply a question whether sellers or buyers hold out
longest; and depends on their comparative patience, or on the degree of inconvenience they are
respectively put to by delay.
By this time, I think, an acute reader, who sees towards what results a course of inquiry is tending
before the conclusion is drawn, will begin to perceive that Mr. Thornton's improvements in the theory
of price, minute as they appear when reduced to their real dimensions, and unimportant as they
must necessarily be in the common case in which supply and demand are but disturbing causes,
and cost of production the real law of the phenomenon, may be of very great practical importance in
the case which suggested the whole train of thought, the remuneration of labour. If it should turn out
that the price of labour falls within one of the excepted cases -- the case which the law of equality
between demand and supply does not provide for, because several prices all agree in satisfying that
law; we are already able to see that the question between one of those prices and another will be
determined by causes which operate strongly against the labourer, and in favour of the employer.
For, as the author observes, there is this difference between the labour market and the market for
tangible commodities, that in commodities it is the seller, but in labour it is the buyer, who has the
initiative in fixing the price. It is the employer, the purchaser of labour, who makes the offer of
wages; the dealer, who is in this case the labourer, accepts or refuses. Whatever advantage can be
derived from the initiative is, therefore, on the side of the employer. And in that contest of endurance
between buyer and seller, by which alone, in the excepted case, the price so fixed can be modified,
it is almost needless to say that nothing but a close combination among the employed can give
them even a chance of successfully contending against the employers.
It will of course be said, that these speculations are idle, for labour is not in that barely possible
excepted case. Supply and demand do entirely govern the price obtained for labour. The demand
for labour consists of the whole circulating capital of the country, including what is paid in wages for
unproductive labour. The supply is the whole labouring population. If the supply is in excess of what
the capital can at present employ, wages must fall. If the labourers are all employed, and there is a
surplus of capital still unused, wages will rise. This series of deductions is generally received as
incontrovertible. They are found, I presume, in every systematic treatise on political economy, my
own certainly included. I must plead guilty to having, along with the world in general, accepted the
theory without the qualifications and limitations necessary to make it admissible.(7)
The theory rests on what may be called the doctrine of the wages fund. There is supposed to be, at
any given instant, a sum of wealth, which is unconditionally devoted to the payment of wages of
labour. This sum is not regarded as unalterable, for it is augmented by saving, and increases with
the progress of wealth; but it is reasoned upon as at any given moment a predetermined amount.
More than that amount it is assumed that the wages-receiving class cannot possibly divide among
them; that amount, and no less, they cannot but obtain. So that, the sum to be divided being fixed,
the wages of each depend solely on the divisor, the number of participants. In this doctrine it is by
implication affirmed, that the demand for labour not only increases with the cheapness, but
increases in exact proportion to it, the same aggregate sum being paid for labour whatever its price
may be.
But is this a true representation of the matter of fact? Does the employer require more labour, or do
fresh employers of labour make their appearance, merely because it can be bought cheaper?
Assuredly, no. Consumers desire more of an article, or fresh consumers are called forth, when the
price has fallen: but the employer does not buy labour for the pleasure of consuming it; he buys it
that he may profit by its productive powers, and he buys as much labour and no more as suffices to
produce the quantity of his goods which he thinks he can sell to advantage. A fall of wages does not
necessarily make him expect a larger sale for his commodity, nor, therefore, does it necessarily
increase his demand for labour.
To this it may be replied, that though possibly he may employ no more labour in his own business
when wages are lower, yet if he does not, the same amount of capital will be no longer required to
carry on his operations; and as he will not be willing to leave the balance unemployed, he will invest
it in some other manner, perhaps in a joint stock company, or in public securities, where it will either
be itself expended in employing labour, or will liberate some other person's capital to be so
expended, and the whole of the wages-fund will be paying wages as before.
But is there such a thing as a wages-fund, in the sense here implied? Exists there any fixed amount
which, and neither more nor less than which, is destined to be expended in wages?
Of course there is an impassable limit to the amount which can be so expended; it cannot exceed
the aggregate means of the employing classes. It cannot come up to those means; for the
employers have also to maintain themselves and their families. But, short of this limit, it is not, in any
sense of the word, a fixed amount.
In the common theory, the order of ideas is this. The capitalist's pecuniary means consist of two
parts -- his capital, and his profits or income. His capital is what he starts with at the beginning of the
year, or when he commences some round of business operations: his income he does not receive
until the end of the year, or until the round of operations is completed. His capital, except such part
as is fixed in buildings and machinery, or laid out in materials, is what he has got to pay wages with.
He cannot pay them out of his income, for he has not yet received it. When he does receive it, he
may lay by a portion to add to his capital, and as such it will become part of next year's wages-fund,
but has nothing to do with this year's.
This distinction, however, between the relation of the capitalist to his capital, and his relation to his
income, is wholly imaginary. He starts at the commencement with the whole of his accumulated
means, all of which is potentially capital: and out of this he advances his personal and family
expenses, exactly as he advances the wages of his labourers. He of course intends to pay back the
advance out of his profits when he receives them; and he does pay it back day by day, as he does
all the rest of his advances; for it needs scarcely be observed that his profit is made as his
transactions go on, and not at Christmas or Midsummer, when he balances his books. His own
income, then, so far as it is used and expended, is advanced from his capital and replaced from the
returns, pari passu with the wages he pays. If we choose to call the whole of what he possesses
applicable to the payment of wages, the wages-fund, that fund is co-extensive with the whole
proceeds of his business, after keeping up his machinery, buildings and materials, and feeding his
family; and it is expended jointly upon himself and his labourers. The less he expends on the one,
the more may be expended on the other, and vice versa. The price of labour, instead of being
determined by the division of the proceeds between the employer and the labourers, determines it. If
he gets his labour cheaper, he can afford to spend, more upon himself. If he has to pay more for
labour, the additional payment comes out of his own income; perhaps from the part which he would
have saved and added to capital, thus anticipating his voluntary economy by a compulsory one;
perhaps from what he would have expended on his private wants or pleasures. There is no law of
nature making it inherently impossible for wages to rise to the point of absorbing not only the funds
which he had intended to devote to carrying on his business, but the whole of what he allows for his
private expenses, beyond the necessaries of life. The real limit to the rise is the practical
consideration, how much would ruin him, or drive him to abandon the business: not the inexorable
limits of the wages-fund.
In short, there is abstractedly available for the payment of wages, before an absolute limit is
reached, not only the employer's capital, but the whole of what can possibly be retrenched from his
personal expenditure; and the law of wages, on the side of demand, amounts only to the obvious
proposition, that the employers cannot pay away in wages what they have not got. On the side of
supply, the law as laid down by economists remains intact. The more numerous the competitors for
employment, the lower, caeteris paribus, will wages be. It would be a complete misunderstanding of
Mr. Thornton to suppose that he raises any question about this, or that he has receded from the
opinions enforced in his former writings respecting the inseparable connection of the remuneration
of labour with the proportion between population and the means of subsistence.
But though the population principle and its consequences are in no way touched by anything that
Mr. Thornton has advanced, in another of its beatings the labour question, considered as one of
mere economics, assumes a materially changed aspect. The doctrine hitherto taught by all or most
economists (including myself), which denied it to be possible that trade combinations can raise
wages, or which limited their operation in that respect to the somewhat earlier attainment of a rise
which the competition of the market would have produced without them,--this doctrine is deprived of
its scientific foundation, and must be thrown aside. The right and wrong of the proceedings of
Trades' Unions becomes a common question of prudence and social duty, not one which is
peremptorily decided by unbending necessities of political economy.
I have stated this argument in my own way, which is not exactly Mr. Thornton's; but the reasoning is
essentially his, though, in a part of it, I have only been anticipated by him. I have already shown in
what I consider his exposition of the abstract question to be faulty. I think that the improvement he
has made in the theory of price is a case of growth, not of revolution. But in its application to labour,
it does not merely add to our speculative knowledge; it destroys a prevailing and somewhat
mischievous error. It has made it necessary for us to contemplate, not as an impossibility but as a
possibility, that employers, by taking advantage of the inability of labourers to hold out, may keep
wages lower than there is any natural necessity for; and è converso, that if work-people can by
combination be enabled to hold out so long as to cause an inconvenience to the employers greater
than that of a rise of wages, a rise may be obtained which, but for the combination, not only would
not have happened so soon, but possibly might not have happened at all. The power of Trades'.
Unions may therefore be so exercised as to obtain for the labouring classes collectively, both a
larger share and a larger positive amount of the produce of labour; increasing, therefore, one of the
two factors on which the remuneration of the individual labourer depends. The other and still more
important factor, the number of sharers, remains unaffected by any of the considerations now
adduced.
The most serious obstacle to a right judgment concerning the efficacy and tendencies of Trades'
Unions, and the prospects of labour as affected by them, having thus been removed, the author has
a free field for the untrammelled discussion of those topics. But the due consideration of them as
presented in his work, requires an article to itself.
PART II
In a former article it has been seen how Mr. Thornton, in the first chapter of his First Book,
disproved, on grounds of pure political economy, the supposed natural law by which, in the opinion
of many, the price of labour is as strictly determined as the motion of the earth, and determined in a
manner unalterable by the will or effort of either party to the transaction. But whatever in the affairs
of mankind is not peremptorily decided for them by natural laws, falls under the jurisdiction of the
moral law. Since there is a certain range, wider than has been generally believed, within which the
price of labour is decided by a conflict of wills between employers and labourers, it is necessary, as
in every other case of human voluntary action, to ascertain the moral principles by which this conflict
ought to be regulated. The terms of the bargain not being a matter of necessity, but, within certain
limits, of choice, it has to be considered how far either side can rightfully press its claims, and take
advantage of its opportunities. Or, to express the same ideas in other phraseology, it has to be
decided whether there are any rights, of labour on the one hand, or of capital on the other, which
would be violated if the opposite party pushed its pretensions to the extreme limits of economic
possibility.
To this Mr. Thornton answers, -- None. As a matter of mere right, both the employer and the
labourer, while they abstain from force or fraud, are entitled to all that they can get, and to nothing
more than what they can get. The terms of their contract, provided it is voluntary on both sides, are
the sole rule of justice between them. No one being under any obligation of justice to employ labour
at all, still less is any one bound in justice to pay for it any given price.
Except under the terms of some mutual agreement, the employer is not bound to give anything.
Before joining in the agreement he was under no obligation to furnish the labourer with occupation.
Either he might not have required his or any one else's services, or he might