This idea may be more clear, perhaps, if we imagine a large corporation, not only making woolen cloth, but owning sheep-ranches, where the raw materials are produced; the shops where all machinery is made; and who even produce on their own property all the food, clothing, shelter, and consumption of the laborers employed by them. A line of division may be passed through the returns in all these branches of the industry, separating what is wages from what is profit. Then it can be easily imagined that all the returns on one side, representing profits, go to capitalists, no matter whether they are thousands in number, or only one capitalist typifying the rest, or a single corporation acting for many small capitalists.
§ 5. The Rate of Profit depends on the Cost of Labor.
It thus appears that the two elements on which, and which alone, the gains of the capitalists depend, are, first, the magnitude of the produce, in other words, the productive power of labor; and secondly, the proportion of that produce obtained by the laborers themselves; the ratio which the remuneration of the laborers bears to the amount they produce.
We thus arrive at the conclusion of Ricardo and others, that the rate of profits depends upon wages; rising as wages fall, and falling as wages rise. In adopting, however, this doctrine, I must insist upon making a most necessary alteration in its wording. Instead of saying that profits depend on wages, let us say (what Ricardo really meant) that they depend on the cost of labor.
This is an entirely different question from that concerning the rate of wages before discussed ([Book II, Chap. II]). That had to do with the amount of the capital which each laborer, on an average, received as real wages, and this average rate was affected by the number of competitors for labor, as compared with the existing capital, taking into account the nature of the industries in a country. An increase of population, bringing more laborers to compete for employment, will lower [pg 227] the average amount of real wages received by each one; and a decrease of population will bring about the reverse. The rate of wages, however, now that we are considering the matter from the point of view of the capitalist, is but one of the things to be considered affecting cost of labor. The former question was one as to the distribution of capital; the latter is one as to the amount by which the total production is greater than the total capital advanced. Since all capital consists of advances to labor, the present inquiry is one in regard to the quantity of advances compared with the quantity returned; that is, the relation of the total capital to the total production arising from the use of that capital. In the diagram before used ([p. 179]) the question is not how the contents of circle B are to be distributed, but the relative size of circle B to circle A. In order to produce circle A, it is necessary to advance what is represented by circle B.
Wages and the cost of labor; what labor brings in to the laborer and what it costs to the capitalist are ideas quite distinct, and which it is of the utmost importance to keep so. For this purpose it is essential not to designate them, as is almost always done, by the same name. Wages, in public discussions, both oral and printed, being looked upon from the same point of view of the payers, much oftener than from that of the receivers, nothing is more common than to say that wages are high or low, meaning only that the cost of labor [to the capitalist] is high or low. The reverse of this would be oftener the truth: the cost of labor is frequently at its highest where wages are lowest. This may arise from two causes. (1.) In the first place, the labor, though cheap, may be inefficient.
The facts presented by Mr. Brassey[178] very fully illustrate this principle. Although French workmen in their ship-yards receive less wages for the same kind of work than the English workmen in English yards, yet it costs less per ton to build ships in England than in France. The same correspondence between high wages and efficient work was found to be true of railway construction in different parts of the world. With different character, varying amounts of industrial energy, varying intelligence, and endurance, different people do not have the same efficiency of labor. It is ascertained that inefficiency is, as a rule, accompanied by low wages. Even though wages paid for ordinary labor in constructing railways were in India [pg 228] only from nine to twelve cents a day, and in England from seventy-five to eighty-seven cents a day, yet it cost as much to build a mile of railway in India as in England. The English laborer gave a full equivalent for his higher wages. Moreover, while an English weaver tends from two to three times as many looms as his Russian competitor, the workman in the United States, it is said, will tend even more than the Englishman. In American sailing-vessels, also, a less number of sailors, relatively to the tonnage, is required than in English sailing-ships. Mr. Brassey, besides, came to the conclusion that the working power, or efficiency, of ordinary English laborers was to the French as five to three.
(2.) The other cause which renders wages and the cost of labor no real criteria of one another is the varying costliness of the articles which the laborer consumes. If these are cheap, wages, in the sense which is of importance to the laborer, may be high, and yet the cost of labor may be low; if dear, the laborer may be wretchedly off, though his labor may cost much to the capitalist. This last is the condition of a country over-peopled in relation to its land; in which, food being dear, the poorness of the laborer's real reward does not prevent labor from costing much to the purchaser, and low wages and low profits coexist. The opposite case is exemplified in the United States of America. The laborer there enjoys a greater abundance of comforts than in any other country of the world, except some of the newest colonies; but owing to the cheap price at which these comforts can be obtained (combined with the great efficiency of the labor), the cost of labor to the capitalist is considerably lower than in Europe. It must be so, since the rate of profit is higher; as indicated by the rate of interest, which is six per cent at New York when it is three or three and a quarter per cent in London.
The cost of labor, then, is, in the language of mathematics, a function of three variables: (1) the efficiency of labor; (2) the wages of labor (meaning thereby the real reward [or real wages] of the laborer); and (3) the greater or less cost[179] [pg 229] at which the articles composing that real reward can be produced or purchased. It is plain that the cost of labor to the capitalist must be influenced by each of these three circumstances, and by no others. These, therefore, are also the circumstances which determine the rate of profit; and it can not be in any way affected except through one or other of them.