THE QUARTERLY JOURNAL OF ECONOMICS OCTOBER, 1894 THE WAGES-FUND DOCTRINE AT THE THE development of the theory of wages among English economists, and more particularly the growth of the wages-fund doctrine, have received abundant attention from students of economics. It may be that the last word has not been said on the history of this phase of economic theory; but the course of thought, from Adam Smith down, has been considered more or less by every writer who has attempted a discussion of the crucial subject of wages. Among English economists, however, there has been a singular neglect of the treatment of the subject by their German associates. An important departure from the lines of reasoning traditional among the classic writers was made by Hermann before the days of John Stuart Mill; yet the insular condition of social and political speculation in Great Britain in the middle of the century, and the stagnation of economic thought in particular, prevented any breath of influence from reaching English thinkers. In the marvellous activity in economic study among the Germans during the past genera tion, the treatment of the subject of wages, in current text-books and hand-books, has largely followed a line of its own; but English economists, active as has been their criticism and revolt against the earlier teaching of those who wrote in their own tongue, have not sought light from the Germans. Within very recent times it is true that international relations have established themselves. First American students, and then English, have begun to feel the pulse of German activity; while the Germans, though perhaps disposed to overrate the sufficiency of their own work, are too cosmopolitan in scientific spirit to neglect the march of thought in any country. But on the particular subject now under consideration - the details of reasoning on capital and wages the thinkers of the two races still pursue their several ways, and even now have hardly come in touch with each other. It is the object of the present paper to follow the peculiar development of German thought, and to consider the significance and the value of the treatment of wages which has become a traditional part of it. I have already referred to Hermann as the writer who began the breach with the English theorists. Before the time of Hermann it is difficult to find much that is promising in German economic thought, beyond the work of popularizing and spreading the views of Adam Smith. Hermann was an incisive and original thinker; and his reasoning on wages and capital is as unquestionably the source of the treatment of this subject in German textbooks, as Ricardo's on international trade is of the handling of that subject among the English. To understand its significance, however, it may be helpful to consider briefly the stage which the theory of wages had reached among the classic writers of Great Britain, then in the zenith of their influence and authority, from whom Hermann got his impulse, and with whom he, first among Germans, undertook to differ on solid grounds. Adam Smith had begun by pointing out the dependence of labor on capital. Before his time speculation on this subject, except for scattered remarks as to the connection between wages and the price of laborers' necessaries, was virtually a blank. On no topic does the Wealth of Nations mark more distinctly a new era in economic thinking. The initial point in Adam Smith's reasoning, here as elsewhere, is the division of labor. This brings complicated industry, and the need of stocks of food and materials; and, since laborers rarely are the owners of such stocks, advance to laborers of the wherewithal to maintain themselves becomes inevitable. Hence their remuneration depends on the funds "which are destined for the payment of wages." How far Adam Smith can be regarded as the author of the wages-fund doctrine it is not the purpose of the present paper to consider. I will only venture, in passing, to express my opinion that the change and development among the later writers of the classic school is much less marked on this subject than is implied in most statements on the historical development of the wages-fund doctrine. Adam Smith analyzed the funds out of which labor was paid, as: first, stock, or capital, for paying laborers engaged in production; and, second, revenue wherewith to pay servants and dependants. His followers gradually allowed the second element to disappear. The numerous writers who intervened between Adam Smith and Ricardo, -Malthus, Lauderdale, Sismondi, Ganilh, whether they followed the great Scotchman subserviently or endeavored to criticise or supplement him, agreed in expounding the dependence of laborers on capital in developed societies. As they fixed their attention more and more on modern conditions, in which, as compared with the feudal régime, menials and dependents are less significant in numbers and importance, the second of Adam Smith's constituent of the funds for paying laborers dropped out of sight; and capital alone became the source of their remuneration. With Ricardo this simplification of the problem is most unequivocal. Half-consciously and half in pursuance of his bent for quasi-mathematical reasoning, Ricardo assumed capital to be the single source from which laborers were paid, and reasoned in a manner that implied the existence at any moment of a certain quantum of capital, which, divided among the number of laborers, determined market wages. Ricardo did not undertake to prove the premise from which he reasoned. . Here, as on other subjects, he accepted it as sufficiently established by Adam Smith. He was interested, in any case, chiefly in permanent or natural wages, which gave the key to his theory of profits and distribution; and his conception of the relation of wages and capital is to be inferred from the drift of his reasoning rather than from explicit statement. Later writers added nothing: they simply restated with firmer conviction what Adam Smith and Ricardo had worked out for them. As with the two leaders, wages are said to depend on capital; and, as with Ricardo, this broad proposition serves chiefly as an introduction to the theory of population, and so to that of the standard of living and of natural or normal wages. In what sense food and clothes are capital, why laborers must be paid from capital, whether this dependence is the lot of all laborers in all times, are questions which receive the briefest consideration or none at all. Even a writer like Richard Jones, who protested against this doctrine, as against others put forth by the Ricardian school, did so chiefly on the ground that it held good only of laborers in modern industrial societies: he never thought of denying its validity as to the hired laborers of modern times. In this rough and ill-defined form the proposition that wages depend in the first instance on the number of the laborers as compared with the quantity of capital, was copied from book to book. Even the fixity of the fund, which was the occasion of the greatest derision when the subject came to be overhauled in later times, hardly appears in the compendiums of the period from 1820 to 1850, whether in the slender Conversations of Mrs. Marcet, the emphatic Principles of M'Culloch, or the imposing volumes of the younger Mill. In truth, wages at any moment—market wages, as the phrase went — interested these writers but little. They laid stress on normal or natural wages as depending on the pressure of population and the standard of living. The relation of capital or wages-fund to wages, the causes determining the growth of the wages-fund, the ultimate source of wages or the fundamental basis of the whole train of reasoning, of these no refined or detailed examination is attempted. Such was the stage at which the discussion of the subject stood in England, then the centre of interest in economic speculation, when Hermann took it up. Hermann was one of the few Continental writers who, before the present movement in economics began, had read Ricardo with care, and had been affected by his example of rigid analysis and unrelenting reasoning; and he approached the subject, unlike Jones and Sismondi, in a mood to develop rather than to question the classic doctrines. The first edition of his Staatswirthschaftliche Untersuchungen was published in 1832. The second and enlarged edition of 1874 served rather to amplify his reasoning than to add anything substantially new. The high intellectual quality of the book and the independence of its thought are beyond question; and the German economists are certainly not without justification in their admiration of Hermann's work and in their willingness to accept his doctrines. As to wages, Hermann objects to the doctrine then current in England on several grounds. First, the number of laborers paid directly out of the income of consumers is too large to be overlooked; and Hermann notes with ap |