Principles of Political Economy Part 11

SECTION CLXXVIII.

WAGES-POLICY.--MINIMUM OF WAGES.

The demand[178-1] so frequently heard recently, that the state should guaranty an "equitable" minimum of wages, could be granted where the natural rate of wages has fallen below that minimum, only on condition that some of the working cla.s.s in the distribution of the wages capital (no longer sufficient in all the less profitable branches of business) should go away entirely empty handed. Hence, as a rule, in addition to that wages-guaranty, the guaranty of the right to labor is also required. But as useful labor always finds purchasers (the word "useful"

being here employed in the sense of the entire economy of a people, and understood in the light of the proper gradation of wants and the means of satisfying them), such a right to labor means no more and no less than that the state should force labor which no one can use, upon others.[178-2] Something similar is true of Louis Blanc's proposition that the rate of wages of the workmen should be determined and regulated by their own votes and among themselves.[178-3]

All such measures are injurious in proportion as they, by extending aid and the amount of the minimum, go beyond the limits of benevolence, and approach those of a community of goods. (-- 81 ff.) However, if they would be lasting and not pull workmen rapidly down to the very depths of universal and irremediable misery, these measures should be accompanied by the bestowal of power on the guarantor to hold the further increase of the human family within bounds.[178-4]

The condition of workmen can be continued good or materially improved only on condition that their numbers increase less rapidly than the capital destined for wages. The latter increases usually and most surely by savings. But only the middle cla.s.ses are really saving. In England, for instance, the national capital increases every year by at least 50,000,000, while the working cla.s.ses spend at least 60,000,000 in tobacco and spirituous liquors, _i. e._, in numberless instances, only for a momentary injurious enjoyment by the adult males of the cla.s.s, one in which their families have almost no share. According to this, every compulsory rise in wages would be a taking away from the saving cla.s.s and a giving to a cla.s.s that effect no savings. Is not this to act after the manner of the savages who cut down a fruit tree in order more conveniently to relish its fruit?[178-5]

Benjamin Franklin calls out to workmen and says: If any one tells you that you can become rich in any other way than through industry and frugality, do not listen to him; he is a poisoner! And, in fact, only those changes permanently improve the condition of the working cla.s.ses which are useful to the whole people: enhanced productiveness of every branch of business in the country, increased capital, the growth (also relative) of the industrial middle cla.s.ses, the greater education, strength of character, skill and fidelity in labor of workmen themselves. Much especially depends upon their foresight and self-control as regards bringing children into the world. Without this latter virtue even the favorable circ.u.mstances would be soon trifled away.[178-6]

[Footnote 178-1: Compare, besides, the Prussian A. L. R., II, 19, 2. In _Turgot_, _droit du travail_, and _droit au travail_ are still confounded one with the other. uvres ed. _Daire_, II, 302 ff; especially 306. In such questions, people generally think only of factory hands. But have not writers just as good a _droit au travail_ to readers whom the state should provide them with, lawyers to clients and doctors to patients?]

[Footnote 178-2: _L. Faucher_ calls the _droit au travail_ worse than the equal and compulsory distribution of all goods, because it lays hands on not only present products but even on the productive forces. It supposes that unlimited production is possible; that the state may regulate the market at pleasure to serve its purposes; that, in fact, the state can give without having first taken what it gave. (Melanges d'Economie politique, II, 148 ff.) The French national a.s.sembly rejected the "right to labor" on the 15th of September, 1848, by 596 ayes to 187 nays, after the provisional government had proclaimed it, February 25.

Le Droit au Travail a l'a.s.semblee nationale avec des Observations de _Faucher, Wolowski, Bastiat_ etc., by _J.

Garnier_, Paris, 1848.]

[Footnote 178-3: _L. Blanc_, De L'Organization du Travail, 1849.]

[Footnote 178-4: "Every one has a right to live. We will suppose this granted. But no one has a right to bring creatures into life to be supported by other people. Whoever means to stand upon the first of these rights must renounce all pretension to the last.... Posterity will one day ask with astonishment what sort of people it could be among whom such preachers could find proselytes." (_J. S. Mill_, Principles, II, ch. 12.)]

[Footnote 178-5: Compare _Morrison_, loc. cit. Quarterly Rev., Jan. 1872, 260. The English savings in the savings banks, between 1839 and 1846, increased yearly in amount only 1,408,630, and scarcely half of this came from wages-workmen in the narrower sense of the term. What the latter contribute to the fund for the old and sick is not really productive capital but only individually deferred consumption. Let us suppose that a man had an income of $3,000 a year, of which he laid out yearly $2,000 ($1,000 for wages, $1,000 for rent and interest on capital), and that he capitalizes $1,000. If now this man were, either through philanthropy or in furtherance of socialism, to double the wages he paid, the result would not be detrimental to the economic interests of the whole country only on the supposition that working cla.s.ses who received the increased wages should either save what he is no longer able to save, or that by inventions or greater personal skill, etc., they should increase the national income.]

[Footnote 178-6: According to _Hildebrand's_ Jahrbb., 1870, I, 435, 193, North American workmen, the quality of work being supposed the same, now accomplish from 20 to 30 per cent. less than before 1860. Thus, in 1858, in New York, a steam engine was manufactured for $23,000, in 2,323 work days. In 1869, a similar one was built for $40,000 in 3,538 days. In the former case, the manufacturer made a profit. In the latter, he lost $5,000.

_John Stuart Mill_, II, ch. 13. Against the "philanthropists" who find it hard to preach to the poor, the only efficacious means of improving their condition, _Dunoyer_, L. du T., IV, ch. 10, says: The rich _do_ employ it, although they have much less need of it! Even _Marlo_ admits that a guaranty of the right to labor, without any measures to limit population, would, in a short time, and irredeemably lead the country to destruction. (Weltokonomie, I, 2, 357.) _von Thunen_, der isolirte Staat., II, 1, 81 ff., would take a leap out of the vicious circle that those who live by the labor of their hands can produce no rise in their wages, because they are too little educated to hold their increase properly in check; and that, on the other hand, they cannot give their children a decent education, because their wages are too low; by suggesting that educational inst.i.tutions should be established by the state, and that these should elevate the subsequent generation of workmen intellectually.]

CHAPTER IV.

INTEREST ON CAPITAL.

SECTION CLXXIX.

THE RATE OF INTEREST IN GENERAL.

Interest on capital,[179-1] or the price paid for the use of capital, should not be confounded with the price of money (-- 42); although in common life people so frequently complain of want of money where there is only a want of capital, and sometimes even when there is a superabundance of money.[179-2] This error is connected with the fact, that for the sake of convenience, loans of capital are so often effected in the form of money and that they are always at least estimated in money; but neither of these things is essential.

In reality, however, we as seldom meet with interest[179-3] pure and simple, as we do with rent pure and simple. A person who works with his own capital can, at best, by a comparison with others, determine where, in the returns of his business, wages stop and interest begins.[179-4]

And even in the loaning of capital, it depends largely on supply and demand, whether the creditor shall suffer a deduction in consequence of the absence of care and labor attending his gain, and whether the debtor, in order to get some capital at all, shall sacrifice a part of the wages of his labor.[179-5] When Adam Smith a.s.sumes it to be the rule that the "profit of stock" is about twice as great as the "interest of money,"[179-6] it is evident that a considerable amount of what is properly wages or profit of the employer (_Uhternekmer_ = undertaker) is included in the former.

Many businesses have the reputation of paying a very large interest on the capital employed in them, when in reality they only pay the undertaker of them wages unusually high as compared with the amount of capital employed in them. Apothecaries, for instance, are called in some places "ninety-niners," because it is said that they earn 99 per cent.

To discover the error, it would be sufficient to inquire the rate of interest on the capital borrowed by the apothecary on hypothecation, for instance, to enlarge his industry. But on the other hand, such a man who has more than any other manufacturer to do with the most delicate materials and with them in greater variety, requires proportionately greater caution and knowledge. Besides, as the guardian of the health and life of so many, and even as the comptroller of physicians, he should be a man who inspired universal and unqualified confidence.[179-7]

By the rate of interest customary in a country, we mean the average rate of the interest on money-capital employed safely and without trouble.

[Footnote 179-1: In the case of fixed capital, we generally speak of rent; in the case of circulating capital, of interest. If interest be conceived as a fractional part of the capital itself, the relation between the two is called "the rate of interest," most generally expressed as a percentage, and for one year.]

[Footnote 179-2: In Russia, great depreciation of the a.s.signats, and yet the people complained of a "want of money." (_Storch_, Handbuch, II, 15.) According to the San Francisco correspondent of the Times, Jan. 31, 1850, one per cent. a day discount was paid there! Compare _North_, Discourse on Trade, 11 seq.]

[Footnote 179-3: Gross interest and net interest corresponding to the difference between gross product and net product.]

[Footnote 179-4: This is the natural rent of capital in contradistinction to the stipulated rent. (_Rau_, Lehrbuch, I, -- 223.)]

[Footnote 179-5: Thus, for instance, a so-called beginner who is conscious of possessing great working capacity, but who possesses for the time being little credit. _Tooke_, Considerations on the State of the Currency, 1826, distinguishes three kinds of capitalists: a, those who are averse to running any risk whatever or incurring any trouble, or are not able to incur any risk or trouble, for whom every great increase of the sinking fund lowers the rate of interest, and every war loan raises it; b, those who will run no risk, but who are not averse to the trouble of looking after their investments and of endeavoring to obtain a higher rate of interest; c, such as, to obtain a higher rate of interest, unhesitatingly risk something. Borrowers he divides thus: a, those who employ the borrowed capital and their own in such a way as to enable them to meet their obligations and besides to earn a reasonable profit; b, those who need others' capital to make up for the momentary failure of the productiveness of their own; lastly c, unproductive consumers.]

[Footnote 179-6: Wealth of Nat., I, ch. 9. The gross product of English cotton industry was, in 1832, estimated at 32,000,000, viz: 8,000,000 worth of material, 20,000,000 wages, 2,000,000 interest, 2,000,000 undertaker's profits.

(_Schon_, Nat. Oek, 104.)]

[Footnote 179-7: _Adam Smith_, I, ch. 10, 1: where the reasons why a shop-keeper in a small town apparently gets a larger interest than one in a large city, and yet gets rich less frequently, are developed. The high profit made from industrial secrets, Adam Smith very correctly considers wages (I, ch. 7). Why not also that made by inn-keepers? (I, ch. 10, 1.) When the returns of a business differ according to circ.u.mstances which depend on the person of the conductor of the business himself, and may by him be transferred into another business, etc.; when the compet.i.tion in it is determined by personal agreeableness or disagreeableness, it is evident that the larger returns are to be ascribed rather to the highness of wages than of the rate of interest. The profit also which a second-hand hirer makes is wages.

(_Riedel_, Nat. Oek., 376.)]

SECTION CLx.x.x.

RATE OF INTEREST IN GENERAL.--ITS LEVEL.

Within the limits of the same national-economic territory, the different employments of capital tend uniformly to pay the same rate of interest.[180-1] If one branch of business were much more profitable than another, it would be to the interest of the owners of capital to allow it to flow into the former and out of the latter, until a level was reached.[180-2]

The most noticeable exception to this rule is only an apparent one. The revenue (_Nutzung_) derived from the use of capital must not be confounded with its partial restoration.[180-3] Thus, for instance, the rent of a house, if the entire capital is not to be sooner or later consumed entirely, must embrace, besides a payment for the use of the house, a sum sufficient to defray the expenses of repairing it, and even to effect a gradual acc.u.mulation of capital for the purpose of rebuilding. The risk attending the investment of capital plays a very large part and must be taken into special consideration. If the risk in a business be so great that ten who engage in it succeed and ten fail, the returns of the former, which are more than double those usual in the country, in reality pay, when the ten who failed are taken into the account, only the rate of interest customary in the country. The risk may depend on the uncertainty of the person to whom the capital is confided;[180-4] on the uncertainty of the branch of business in which it is intended to employ it,[180-5] or on the uncertainty of the commercial situation in general; but especially may it depend on the uncertainty of the laws.[180-6] The temporary lying idle of capital, for instance, in dwelling houses at bathing places during the winter season, increases the rate of interest much more than it does the rate of wages in the corresponding case of the lying idle of labor; for the reason that there is something pleasurable in the repose of the latter.

(_Senior._) On the whole, the vanity of mankind has an effect upon the rate of interest similar to that which it has on the rate of wages. (See -- 168.) It causes the small chances of loss to be estimated below their real value, and the extraordinary chances of gain above it.[180-7]

[Footnote 180-1: Compare _Harris_, Essay on Money and Coins, 13. _Per contra, Ganilh_, Dictionnaire a.n.a.lyt., 107.

According to _Hermann_, Staatsw. Untersuchungen, 147, a product which withdraws an amount of capital = _a_ from the immediate use of its owner for _n_ months must bring in in its price a surplus, over and above the outlay of capital, which would bear the same ratio to the profit from another product which employed an amount of capital = _b_, _m_ months, that _an_ bears to _bm_.]

[Footnote 180-2: The cla.s.s of bankers, etc. which precisely in the higher stages of civilization is one so highly developed, is called upon to adjust these differences.]

[Footnote 180-3: Life annuities and annual revenues, _a fonds perdu_.]

[Footnote 180-4: Hence, for instance, good men engaged in industrial pursuits who employ borrowed capital productively pay lower interest than idlers who are suspected of desiring only to spend it in dissipation. High house-rent usually paid by proletarians.]

[Footnote 180-5: Thus even in _Anderson's_ time, it was necessary that the profit of one good year in the whale fishery should compensate for the damage caused by six bad ones. (Origin of Commerce, III, 184.) Slave-traders made their calculations to lose from three to four out of five expeditions. (Athenaeum, May 6, 1848) Similarly in smuggling and contraband. High rate of interest in gross adventure trade and bottomry contracts, frequently 30 and even 50 per cent.; in ancient Athens, for a simple voyage to the Black Sea, 36 per cent., while the rate of interest customary in the country was only from 12 to 18 per cent.; the interest paid by rented houses only 8-1/7, and by land leases only 8 per cent. (_Bockh_, Staatshaushalt der Athener, I, 175 ff.; _Isaeus de Hagn._, Hered., 293) In Rome, before Justinian's time, maritime interest was unlimited. (_Hudtwalker_, De Foenore nautico Romano, 1810.) And so in the manufacture of powder, the frequent explosion of the mills has to be taken into account: in France and Austria, 16 per cent. per annum.

(_Hermann_, Principien, 119.) Here belong those new enterprises which, when they succeed, pay a high profit.

_Thaer_, in reference to this insurance premium, says: if the capital employed to purchase a landed estate yields 4 per cent., the inventory (_Inventar_) should bring in at least 6, and the working capital 12 per cent. (Ration.

Landwirthschaft.)]

[Footnote 180-6: Compare _supra_, -- 91; _infra_, ---- 184, 188.]

[Footnote 180-7: Thus _Friedr. Perthes_, in _Politz_, Jarhbuchern, Jan., 1829, 42, thinks that the publication of scientific books in Germany, since 1800, caused, on the whole, a loss of capital. In the Canadian lumber trade, also, speculators, in the aggregate, lost more than was gained. Yet the business goes on because of its lottery character. (_John Stuart Mill_, II, ch. 15, 4.) In lotteries, it is certain that the aggregate of players lose.

So too in speculation in English stocks, on account of the costs to be paid the state. In the case of frightful losses, which may afford food for the imagination, the reverse is found. Thus, for instance, in England, fire insurance, stamp duties included, was paid for at a rate five times as high as mathematical calculation showed it to be worth.

(_Senior_, Outlines, 212 ff.) Much here depends naturally on national character, which, in England for instance, or in the United States, is much more adventurous than in many quiet regions of continental Europe.]

SECTION CLx.x.xI.

RULE OF INTEREST IN GENERAL.--CAUSES OF DIFFERENT RATES.