The argument that wages are determined by the ratio between capital and labour finds its strongest support in the Malthusian doctrine, and on both is based the theory that past a certain point the application of capital and labour yields a diminishing return. The Malthusian doctrine is that the tendency to increase in the number of labourers must always tend to reduce wages to the minimum on which labourers can reproduce. When this theory is subjected to the test of straightforward analysis, it is utterly untenable. In the first place, the facts marshalled in support of it do not prove it, and the analogies drawn from the animal and vegetable world do not countenance it; and, in the second place, there are facts which conclusively disprove it.
There are on every hand the most striking and conclusive evidences that the production and consumption of wealth have increased with even greater rapidity than the increase of population, and that if any class obtains less than its due share, it is solely because of the greater inequality of distribution. The denser the population, the more minute becomes the subdivision of labour, the greater economies of production and distribution, and hence, the very reverse of the Malthusian doctrine is true.
II.—The Law of Wages
To discover the cause which, as population increases, and the productive arts advance, deepens the poverty of the lowest class, we must find the law which determines what part of the produce is distributed to labour as wages, what part to capital as interest, and what part to landowners as rent.
Rent is the price of monopoly arising from the reduction to individual ownership of natural elements which human exertion can neither produce nor increase. Interest is not properly a payment made for the use of capital. It springs from the power of increase which the reproductive forces of nature and the (in effect) analogous capacity for exchange give to capital. The principle that men will seek to gratify their desires with the least exertion operates to establish an equilibrium between wages and interest.
This relation fixed, it is evident that interest cannot be increased without increasing wages nor wages lowered without depressing interest. The law of interest is that the relation between wages and interest is determined by the average power of increase which attaches to capital from its use in its reproductive modes. The law of wages is that they depend upon the margin of production, or upon the produce which labour can obtain at the highest point of natural productiveness open to it without the payment of rent. This law of wages accords with and explains universal facts, and shows that where land is free, and labour is unassisted by capital, the whole produce will go to labour as wages. Where land is free, and labour is assisted by capital, wages will consist of the whole produce, less that part necessary to induce the storing up of labour as capital. Where land is subject to ownership and rent arises, wages will be fixed by what labour can secure from the highest natural opportunities open to it without the payment of rent. Where natural opportunities are all monopolised, wages must be forced by the competition among labourers to the minimum at which labourers will consent to reproduce. Nothing can be clearer than the proposition that the failure of wages to increase with increasing productive power is due to the increase of rent.
The value of land depending wholly upon the power which its ownership gives of appropriating wealth created by labour, the increase of land values is always at the expense of the value of labour. And, hence, that the increase of productive power does not increase wages is because it does increase the value of land. It is the universal fact that where the value of the land is highest civilisation exhibits the greatest luxury side by side with the most piteous destitution.
The changes which constitute or contribute to material progress are three: increase in population, improvement in the arts of production and exchange, and improvement in knowledge, government, and morals. The effect of increase of population upon the distribution of wealth is to increase rent, and consequently to diminish the proportion of the produce which goes to capital and labour in two ways. First, by lowering the margin of cultivation; and second, and more important, by bringing out in land special capabilities otherwise latent, and by attaching special capabilities to particular land. The effect of inventions and improvements in the productive arts, including division of labour between individuals, is to save labour—that is, to enable the same result to be secured with less labour, or a greater result with the same labour, and hence to the production of wealth.
Without any increase in population, the progress of invention constantly tends to give a larger and larger proportion of the produce to the owners of land, and a smaller proportion to labour and capital; and, therefore, to decrease wages and interest. And, as we can assign no limit to the progress of invention, neither can we assign any limits to the increase of rent short of the whole produce. Another cause of the influence of material progress upon the distribution of wealth is the confident expectation of the future enhancement of land values which arises in all progressive countries from the steady increase of rent. This leads to speculation, or the holding of land for a higher price than it would otherwise bring. It is a force which constantly tends to increase rent in a greater ratio than progress increases production, and tends to reduce wages, not merely relatively but absolutely.
III.—The Common Right to Land