Essays on some unsettled Questions of Political Economy

by John Stuart Mill

Some of Mr. Ricardo's followers, or more properly, of those who have adopted in most particulars the views of political economy which his genius was the first to open up, have given explanations of Mr. Ricardo's doctrine to nearly the same effect as the above, but in rather different terms. They have said that profits depend not on absolute, but on proportional wages: which they expounded to mean the proportion which the labourers en masse receive of the total produce of the country.

It seems, however, to be rather an unusual and inconvenient use of language to speak of anything as depending upon the wages of labour, and then to explain that by wages of labour you do not mean the wages of an individual labourer, but of all the labourers in the country collectively. Mankind will never agree to call anything a rise of wages, except a rise of the wages of individual labourers, and it is therefore preferable to employ language tending to fix attention upon the wages of the individual. The wages, however, on which profits are said to depend, are undoubtedly proportional wages, namely, the proportional wages of one labourer: that is, the ratio between the wages of one labourer, and (not the whole produce of the country, but) the amount of what one labourer can produce; the amount of that portion of the collective produce of the industry of the country, which may be considered as corresponding to the labour of one single labourer. Proportional wages, thus understood, may be concisely termed the cost of production of wages; or, more concisely still, the cost of wages, meaning their cost in the "original purchase money," labour.

We have now arrived at a distinct conception of Mr. Ricardo's theory of profits in its most perfect state. And this theory we conceive to be the basis of the true theory of profits. All that remains to do is to clear it from certain difficulties which still surround it, and which, though in a greater degree apparent than real, are not to be put aside as wholly imaginary.

Though it is true that tools, materials, and buildings (it is to be wished that there were some compact designation for all these essentials of production taken together,) are themselves the produce of labour, and are only on that account to be ranked among the expenses of production; yet the whole of their value is not resolvable into the wages of the labourers by whom they were produced. The wages of those labourers were paid by a capitalist, and that capitalist must have the same profit upon his advances as any other capitalist; when, therefore, he sells the tools or materials, he must receive from the purchaser not only the reimbursement of the wages he has paid, but also as much more as will afford him the ordinary rate of profit. And when the producer, after buying the tools and employing them in his own occupation, comes to estimate his gains, he must set aside a portion of the produce to replace not only the wages paid both by himself and by the tool-maker, but also the profits of the tool-maker, advanced by himself out of his own capital.

It is not correct, therefore, to state that all which the capitalist retains after replacing wages forms his profit. It is true the whole return to capital is either wages or profits; but profits do not compose merely the surplus after replacing the outlay; they also enter into the outlay itself. Capital is expended partly in paying or reimbursing wages, and partly in paying the profits of other capitalists, whose concurrence was necessary in order to bring together the means of production.

If any contrivance, therefore, were devised by which that part of the outlay which consists of previous profits could be either wholly or partially dispensed with, it is evident that more would remain as the profit of the immediate producer; while, as the quantity of labour necessary to produce a given quantity of the commodity would be unaltered, as well as the quantity of produce paid for that labour, it seems that the ratio between the price of labour and its produce would be the same as before; that the cost of production of wages would be the same, proportional wages the same, and yet profits different.

To illustrate this by a simple instance, let it be supposed that one-third of the produce is sufficient to replace the wages of the labourers who have been immediately instrumental in the production; that another third is necessary to replace the materials used and the fixed capital worn out in the process; while the remaining third is clear gain, being a profit of 50 per cent. Suppose, for example, that 60 agricultural labourers, receiving 60 quarters of corn for their wages, consume fixed capital and seed amounting to the value of 60 quarters more, and that the result of their operations is a produce of 180 quarters. When we analyse the price of the seed and tools into its elements, we find that they must have been the produce of the labour of 40 men: for the wages of those 40, together with profit at the rate previously supposed (50 per cent) make up 60 quarters. The produce, therefore, consisting of 180 quarters is the result of the labour altogether of 100 men: namely, the 60 first mentioned, and the 40 by whose labour the fixed capital and the seed were produced.

Let us now suppose, by way of an extreme case, that some contrivance is discovered, whereby the purposes to which the second third of the produce had been devoted, may be dispensed with altogether: that some means are invented by which the same amount of produce may be procured without the assistance of any fixed capital, or the consumption of any seed or material sufficiently valuable to be worth calculating. Let us, however, suppose that this cannot be done without taking on a number of additional labourers, equal to those required for producing the seed and fixed capital; so that the saving shall be only in the profits of the previous capitalists. Let us, in conformity with this supposition, assume that in dispensing with the fixed capital and seed, value 60 quarters, it is necessary to take on 40 additional labourers, receiving a quarter of corn each, as before.

The rate of profit has evidently risen. It has increased from 50 per cent to 60 per cent. A return of 180 quarters could not before be obtained but by an outlay of 120 quarters; it can now be obtained by an outlay of no more than 100.

Here, therefore, is an undeniable rise of profits. Have wages, in the sense above attached to them, fallen or not? It would seem not.