III. Wages depend upon various considerations. Some of the chief of these are physical ability, greater or less degree of skill, agreeableness or disagreeableness of the work, greater or less difficulty and cost of preparation, constancy or inconstancy of employment, amount of trust involved, intellectual and moral qualities required, social conditions, the character of the government, etc.
There is a distinction to be made between nominal and real wages. The former is the amount of money received for a certain amount of labor. The latter is the amount of useful commodities which that money will purchase. Sometimes a dollar a day is better compensation than a dollar and a half at other times, since in the latter case the dollar and a half may purchase fewer of the necessaries of life than the dollar in the former case.
Men fail sometimes to get a clear understanding of the terms dear labor and cheap labor. A Russian serf at fifty cents a day is dearer than an ordinary American laborer at a dollar and a half, simply because the labor of the latter would be about four or five times as efficient as that of the former. In other words, that labor is the cheapest which will produce the most at the least expense.
The interested and wise laborer will seek information wherever he can find it on the effect of even moderate education on individual wages, (and this he will find to be very considerable); on the sanitary conditions which are best for laborers, the real and ultimate effects of strikes and trades unions, and the advantages and disadvantages of coöperative industry and trade, and the great benefit to be derived from making the laborer a sharer in the profits of any business in which he may be engaged. The employer also would receive great benefit from a careful study of these same questions, as well as from a consideration of the results of paying in all cases not the lowest wages for which labor can be procured, but the highest which he can really afford, since in many cases the quality and quantity of work secured from this cause, more than compensates the extra outlay.
IV. Profits are the share of the product which go to the proprietor or employer. Very often the latter are confounded with the capitalist, and hence arises a like confusion concerning the nature of profits. Among more recent writers a distinct place is assigned to the employer, whereas formerly he was practically lost sight of. But in our modern system of industry he is one of the most important, if not actually the most important factor in the system. The capitalist is not necessarily an employer—more frequently than otherwise he is incompetent for this office. Nor is the employer always a capitalist. He is a man who must have the somewhat rare ability to organize and superintend labor so as to get the most possible out of it, and at the same time have such financial talent as will enable him to make the best possible disposition of his means in buying material, etc., and the best possible disposition of his goods in selling. Frequently the capital which he uses is borrowed. Profits, then, are what remains after paying all stipulated wages and salaries, including a fair compensation to the employer himself, together with the material, rent, interest on capital owned or borrowed, taxes, insurance, etc. Obviously no one would assume all the care and responsibility, and incur the risk implied in any considerable business unless something more was likely to come from it to him than what his talent and ability would bring in the way of salary. Sometimes the profit is very small; sometimes, also, it is very great. Free competition will furnish the requisite conditions usually, so that the profits will not be so large as to be disadvantageous to the community generally.
V. Interest depends upon various considerations. That the compensation implied is proper is obvious from the fact that though ostensibly money is that which is loaned, in most cases it is really capital in some other form; and no one denies that when a man lends his horse, or his mill, or his farm, he should receive something for the use of it.
The rate of interest depends upon several conditions: 1. The amount of money in circulation. 2. The amount of other capital. 3. The rate of profit, which again depends upon the industrial system and the state of society; as society develops the rate diminishes. 4. The security or insecurity of property. 5. The facilities with which the securities can be reconverted into money. 6. The promptness and regularity of the payment of the interest. On these last two conditions rests in part the low rate of interest on government bonds.
VI. Rent is intimately connected with the value of land, and land is the most important instrument and condition of wealth. In most countries, other than ours, the land is principally in the possession of a few owners who let it to other parties for agricultural and other purposes, and receive compensation therefor. The amount of compensation depends upon the value of the land. For this latter reason we may treat the whole question of the value of land under the head of rent, though on some accounts it should be considered in another place.
The theory respecting rent which has prevailed in England, and largely in this country for the most of the present century, is that of Ricardo; and closely connected with it is his theory of value. He held that rent arises in this way: On the first settling of a new country, where there is an abundance of more or less fertile land, none of the land has any value. Every man takes as much as he wants, selecting, of course, the most productive. As population increases the best land will be all taken up. Then those who want land must have a poorer quality, or a second grade. Now, one who gets this second quality would rather pay something for the first quality than to have the former for nothing. So when all the land of the second grade is all taken up, and the third quality begins to be occupied, it is deemed more profitable to pay something for the second quality, and still more for the first quality than to have the third for nothing. Closely connected with this theory of rent is that of Malthus concerning population, which is, that there is a law of the uniform increase of population, so that unless artificial checks are applied over-population must, at no distant day, become the condition and bane of humanity. Another theory closely related to both these is that of “diminishing returns,” as stated by J. S. Mill. Substantially this is, that after a certain, not very advanced period in the development of agriculture, a given amount of land will produce less and less in proportion to the labor expended upon it. That is, after a certain degree of culture, a given quantity of land which yields a given quantity of product, while it will produce more if the labor upon it is doubled, will not produce double the former quantity. It follows from these theories, taken in combination, that as men multiply and their wants increase, the provision for those wants proportionately diminishes—a most unnatural and dismal theory, and up to the present time quite contrary to human experience.
A more reasonable, more natural, and far more hopeful doctrine is that developed by Mr. Carey. He declares it altogether untrue that the most productive lands are those first occupied. On the contrary, in the infancy of society men are wholly unable to subdue the richer soils. These must wait till society becomes more numerous and capable of combination. At first only the thinner soils can be cultivated, on account of the feebleness of the inhabitants. Then, as the latter increase in numbers and in the power and art of combination, the deeper and heavier soils can be subdued, and finally, those which are covered with gigantic forests or rich swamps and vast deposits of vegetable mold. These are many times more productive than the soils first cultivated, and thus for a long period proportionately increasing instead of diminishing returns are found to go with the increase of population. There is scarcely any nation, the inhabitants of which have even now cultivated its most productive soil, and it is likely to be some time yet before the theoretical limit of diminishing returns is reached.