Principles of Economics

If however capital increases much faster than labour, the rate of interest is likely to fall; and then the rate of wages will probably rise at the expense of the share of a given quantum of capital. But yet the aggregate share of capital may increase faster than the aggregate share of labour
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But whether the law of production of commodities be one of constant return or not, that of the production of new title-deeds to land is one of rapidly diminishing return. The influx of foreign capital, though perhaps as great as ever, becomes less in proportion to the population; wages are no longer paid largely with commodities borrowed from the old world: and this is the chief reason of the subsequent fall in the necessaries, comforts and luxuries of life which can be earned by work of a given efficiency. But two other causes tend to lower average daily wages measured in money. For, as the comforts and luxuries of civilization increase, the average efficiency of labour is generally lowered by the influx of immigrants of a less sturdy character than the earlier settlers: and many of these new comforts and luxuries do not enter directly into money wages, but are an addition to it
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§ 2. England’s present economic condition is the direct result of tendencies to production on a large scale, and to wholesale dealings in labour as well as in goods which had long been slowly growing; but which in the eighteenth century received a twofold impetus from mechanical inventions, and the growth of consumers beyond the seas, who imported large quantities of goods of the same pattern. Then were the first beginnings of machine made interchangeable parts, and the application of special machinery to make special machinery for use in every branch of industry. Then first was seen the full force which the law of increasing return gives in a manufacturing country with localized industries and large capitals; particularly when many of the large stocks of capital are combined together either into Joint-stock or Regulated companies, or into modern Trusts. And then began that careful “grading” of goods for sale in distant markets, which has already led to national and even international speculative combinations in produce markets and stock-exchanges; and the future of which, no less than that of more lasting combinations among producers, whether undertakers of industry or working men, is the source of some of the gravest practical problems with which the coming generation will have to deal.

The key-notes of the modern movement are the reduction of a great number of tasks to one pattern; the diminution of friction of every kind which might hinder powerful agencies from combining their action and spreading their influence over vast areas; and the development of transport by new methods and new forces. The macadamized roads and the improved shipping of the eighteenth century broke up local combinations and monopolies, and offered facilities for the growth of others extending over a wider area: and in our own age the same double tendency is resulting from every new extension and cheapening of communication by land and sea, by printing-press and telegraph and telephone.

§ 3. But though in the eighteenth century, as now, the real national dividend of England depended much on the action of the law of increasing return with regard to her exports, the mode of dependence has very much changed. Then England had something approaching to a monopoly of the new methods of manufacture; and each bale of her goods would be sold—at all events when their supply was artificially limited—in return for a vast amount of the produce of foreign countries. But, partly because the time was not yet ripe for carrying bulky goods great distances, her imports from the far-east and the far-west consisted chiefly of comforts and luxuries for the well-to-do; they had but little direct effect in lowering the labour-cost of necessaries to the English workman. Indirectly indeed her new trade lowered the cost of hardware, clothing and such other English manufactures as he consumed; because the production on a large scale of these things for consumers beyond the sea cheapened them for him. But it had very little effect on the cost of his food; and that was left to rise under the tendency to diminishing return, which was called into action by the rapid increase of population in new manufacturing districts where the old customary restraints of a narrow village life did not exist. A little later the great French war, and a series of bad harvests, raised that cost to much the highest point it has ever reached in Europe.

But gradually the influence of foreign trade began to tell on the cost of production of our staple food. As the population of America spread westward from the Atlantic, richer and still richer wheat soils have come under cultivation; and the economies of transport have increased so much, especially in recent years, that the total cost of importing a quarter of wheat from the farms on the outskirts of cultivation has diminished rapidly, though the distance of that margin has been increasing. And thus England has been saved from the need of more and more intensive cultivation. The bleak hill-sides, up which the wheat-fields were laboriously climbing in Ricardo’s time, have returned to pasture; and the ploughman works now only where land will yield plentiful returns to his labour: whereas if England had been limited to her own resources, he must have plodded over ever poorer and poorer soils, and must have gone on continually reploughing land that had already been well ploughed, in the hope of adding by this heavy toil an extra bushel or two to the produce of each acre. Perhaps in an average year now, the ploughing which only just pays its expenses, the ploughing “on the margin of cultivation,” gives twice as much produce as it gave in Ricardo’s time, and fully five times as much as it would have given now if with her present population England had been compelled to raise all her own food.

§ 4. Every improvement in the manufacturing arts increased England’s power of meeting the various wants of backward countries; so that it answered their purpose to divert their energies from making things by hand for their own use, to growing raw material with which to buy manufactures from her. In this way the progress of invention opened a wider field for the sale of her special products, and enabled her more and more to confine her own production of food to conditions under which the law of diminishing return did not make itself much felt. But this good fortune has been short-lived. Her improvements have been followed, and latterly often anticipated, by America and Germany and other countries: and her special products have lost nearly all their monopoly value. Thus the amount of food and other raw material which can be bought in America with a ton of steel cannot be more than the produce of as much capital and labour as would make a ton of steel there by the new processes; and therefore it has fallen as the efficiency of English and American labour in making steel has increased. It is for this reason, as well as because of the heavy tariffs levied on her goods by many countries, that in spite of England’s large trade, the progress of invention in the manufacturing arts has added less than might have been otherwise expected to her real national dividend.

And indeed the popular belief that house rent proper has risen, appears to be due to an imperfect acquaintance with the way in which our forefathers were really housed. The modern suburban artisan’s cottage contains sleeping accommodation far superior to that of the gentry in the middle ages; and the working classes had then no other beds than loose straw, reeking with vermin, and resting on damp mud floors. Even these were probably less unwholesome, when bare and shared between human beings and live stock, than when an attempt at respectability covered them with rushes, which were nearly always vile with long accumulated refuse: but it is undeniable that the housing of the very poorest classes in our towns now is destructive both of body and soul; and that with our present knowledge and resources we have neither cause nor excuse for allowing it to continue
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Fuel, like grass, is often a free gift of nature to a sparse population; and during the middle ages the cottagers could generally, though not always, get the little brushwood fire needed to keep them warm as they huddled together round it in huts which had no chimney through which the heat could go to waste. But as population increased the scarcity of fuel pressed heavily on the working classes, and would have arrested England’s progress altogether, had not coal been ready to take the place of wood as fuel for domestic purposes, as well as for smelting iron. It is now so cheap that even the comparatively poor can keep themselves warm indoors without living in an unwholesome and stupefying atmosphere.

This is one of the great services that coal has wrought for modern civilization. Another is to provide cheap underclothing, without which cleanliness is impossible for the masses of the people in a cold climate: and that is perhaps the chief of the benefits that England has gained from the direct application of machinery to making commodities for her own use. Another, and not less important service, is to provide abundant water, even in large towns
*142; and another to supply, with the aid of mineral oil, that cheap and artificial light which is needed not only for some of man’s work, but, what is of higher moment, for the good use of his evening leisure. To this group of requisites for a civilized life, derived from coal on the one hand, and modern means of transport on the other, we must add, as has just been noticed, the cheap and thorough means of communication of news and thought by steam-presses, by steam-carried letters and steam-made facilities for travel. These agencies, aided by electricity, are rendering possible the civilization of the masses in countries the climate of which is not so warm as to be enervating; and are preparing the way for true self-government and united action by the whole people, not merely of a town such as Athens, Florence or Bruges, but a broad country, and even in some respects of the whole civilized world
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§ 6. We have seen that the national dividend is at once the aggregate net product of, and the sole source of payment for, all the agents of production within the country; that the larger it is, the larger, other things being equal, will be the share of each agent of production, and that an increase in the supply of any agent will generally lower its price, to the benefit of other agents.

This general principle is specially applicable to the case of land. An increase in the amount of productiveness of the land that supplies any market redounds in the first instance to the benefit of those capitalists and workers who are in possession of other agents of production for the same market. And the influence on values which has been exerted in the modern age by the new means of transport is nowhere so conspicuous as in the history of land; its value rises with every improvement in its communications with markets in which its produce can be sold, and its value falls with every new access to its own markets of produce from more distant places. It is not very long ago that the home counties were full of fears that the making of good roads would enable the more distant parts of England to compete with them in supplying London with food; and now the differential advantages of English farms are in some respects being lowered by the importation of food that has travelled on Indian and American railroads, and been carried in ships made of steel and driven by steam turbines.

But as Malthus contended, and Ricardo admitted, anything that promotes the prosperity of the people promotes also in the long run that of the landlords of the soil. It is true that English rents rose very fast when, at the beginning of last century, a series of bad harvests struck down a people that could not import their food; but a rise so caused could not from the nature of the case have gone very much further. And the adoption of free trade in corn in the middle of the century, followed by the expansion of American wheat-fields, is rapidly raising the real value of the land urban and rural taken together; that is, it is raising the amount of the necessaries, comforts and luxuries of life which can be purchased by the aggregate rental of all the landowners urban and rural taken together
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§ 7. But though the development of the industrial environment tends on the whole to raise the value of land, it more often than not lessens the value of machinery and other kinds of fixed capital, in so far as their value can be separated from that of the sites on which they rest. A sudden burst of prosperity may indeed enable the existing stock of appliances in any trade to earn for a time a very high income. But things which can be multiplied without limit cannot retain for long a scarcity value; and if they are fairly durable, as for instance ships and blast furnaces and textile machinery, they are likely to suffer great depreciation from the rapid progress of improvement.

The value of such things as railways and docks however depends in the long run chiefly on their situation. If that is good, the progress of their industrial environment will raise their net value even after allowance has been made for the charges to which they may be put in keeping their appliances abreast of the age
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§ 8. Political Arithmetic may be said to have begun in England in the seventeenth century; and from that time onwards we find a constant and nearly steady increase in the amount of accumulated wealth per head of the population
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Man, though still somewhat impatient of delay, has gradually become more willing to sacrifice ease or other enjoyment in order to obtain them in the future. He has acquired a greater “telescopic” faculty; that is, he has acquired an increased power of realizing the future and bringing it clearly before his mind’s eye: he is more prudent, and has more self-control, and is therefore more inclined to estimate at a high rate future ills and benefits—these terms being used broadly to include the highest and lowest affections of the human mind. He is more unselfish, and therefore more inclined to work and save in order to secure a future provision for his family; and there are already faint signs of a brighter time to come, in which there will be a general willingness to work and save in order to increase the stores of public wealth and of public opportunities for leading a higher life.

But though he is more willing than in earlier ages to incur present ills for the sake of future benefits, it is doubtful whether we can now trace a continued increase in the amount of exertion which he is willing to undergo for the sake of obtaining positive pleasures, whether present or future. During many generations the industry of the western world has steadily become more sedulous: holidays have diminished, the hours of work have increased, and people have from choice or necessity contented themselves with less and less search for pleasure outside their work. But it would seem that this movement has reached its maximum, and is now declining. In all grades of work except the very highest, people are getting to prize relaxation more highly than before, and are becoming more impatient of the fatigue that results from excessive strain; and they are perhaps on the whole less willing than they used to be to undergo the constantly increasing “discommodity” of very long hours of work, for the sake of obtaining present luxuries. These causes would make them less willing than before to work hard in order to provide against distant needs, were it not that there is an even more rapid increase in their power of realizing the future, and perhaps—though this is more doubtful—in their desire for that social distinction which comes from the possession of some small store of accumulated wealth.

This increase of capital per head tended to diminish its marginal utility; and therefore the rate of interest on new investments fell, though not uniformly. It was reported to be 10 per cent. during a great part of the middle ages; but it fell to 3 per cent. in the earlier half of the eighteenth century. The subsequent vast industrial and political demand for capital raised it again, and it was relatively high during the great war. It fell when the political drain had ceased, the gold supply at the time being very small; but it rose in the third quarter of last century, when new gold abounded, and capital was much needed for railways and the development of new countries. After 1873 an era of peace, combined with a slackening of the gold supply, lowered interest; but now it is rising again, partly in consequence of an increased gold supply
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§ 9. The growth of general enlightenment and of a sense of responsibility towards the young has turned a great deal of the increasing wealth of the nation from investment as material capital to investment as personal capital. There has resulted a largely increased supply of trained abilities, which has much increased the national dividend, and raised the average income of the whole people: but it has taken away from these trained abilities much of that scarcity value which they used to possess, and has lowered their earnings not indeed absolutely, but relatively to the general advance; and it has caused many occupations, which not long ago were accounted skilled, and which are still spoken of as skilled, to rank with unskilled labour as regards wages.

A striking instance is that of writing. It is true that many kinds of office work require a rare combination of high mental and moral qualities; but almost any one can be easily taught to do the work of a copying clerk, and probably there will soon be few men or women in England who cannot write fairly well. When all can write, the work of copying, which used to earn higher wages than almost any kind of manual labour, will rank among unskilled trades. In fact the better kinds of artisan work educate a man more, and will be better paid than those kinds of clerk’s work which call for neither judgment nor responsibility. And, as a rule, the best thing that an artisan can do for his son is to bring him up to do thoroughly the work that lies at his hand, so that he may understand the mechanical, chemical or other scientific principles that bear upon it; and may enter into the spirit of any new improvement that may be made in it. If his son should prove to have good natural abilities, he is far more likely to rise to a high position in the world from the bench of an artisan than from the desk of a clerk.

Again a new branch of industry is often difficult simply because it is unfamiliar; and men of great force and skill are required to do work, which can be done by men of ordinary capacity or even by women and children, when the track has once been well beaten: its wages are high at first, but they fall as it becomes familiar. And this has caused the rise of average wages to be underrated, because it so happens that many of the statistics, which seem typical of general movements of wages, are taken from trades which were comparatively new a generation or two ago, and are now within the grasp of men of much less real ability than those who pioneered the way for them
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The consequence of such changes as these is to increase the number of those employed in occupations which are called skilled, whether the term is now properly applied or not: and this constant increase in the numbers of workers in the higher classes of trades has caused the average of all labour to rise much faster than the average of representative wages in each trade
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In the middle ages, though some men of great ability remained artisans all their lives, and became artists; yet as a class the artisans ranked more nearly with the unskilled labourers than they do now. At the beginning of the new industrial era in the middle of the eighteenth century the artisans had lost much of their old artistic traditions and had not yet acquired that technical command over their instruments, that certainty and facility in the exact performance of difficult tasks which belong to the modern skilled artisan. A change set in early in last century, and observers were struck by the social gulf that was opening out between skilled and unskilled labour; and the rise of the wages of the artisan, to about double those of ordinary labour. For indeed the great increase in the demand for highly skilled labour, especially in the metal trades, stimulated a rapid absorption of the strongest characters among the labourers and their children into the ranks of the artisans. The breaking down just at that time of the old exclusiveness of the artisans, was making them less than before an aristocracy by birth and more than before an aristocracy by worth; and this rise in the quality of artisans enabled them to maintain a rate of wages much above that of ordinary labour for a long while. But gradually some of the simpler forms of skilled trades began to lose their scarcity value, as their novelty wore off; and at the same time continually increasing demands began to be made on the ability of those in some trades, that were traditionally ranked as unskilled. The navvy for instance, and the agricultural labourer, have been increasingly trusted with expensive and complicated machinery, which had been thought to belong only to the skilled trades, and the real wages of these two representative occupations have risen fast. The rise of wages of agricultural labourers would be more striking than it is, did not the spread of modern notions to agricultural districts cause many of the ablest children born there to leave the fields for the railway or the workshop, to become policemen, or to act as carters or porters in towns. Those who are left behind in the fields have received a better education than was to be had in earlier times; and, though having perhaps less than an average share of natural ability, they earn much higher real wages than their fathers.

There are some skilled and responsible occupations, such as those of the head heaters and rollers in iron works, which require great physical strength, and involve much discomfort: and in them wages are very high. For the temper of the age makes those who can do high-class work, and can earn good wages easily, refuse to undergo hardship, except for a very high reward
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§ 10. We may next consider the changes in the relative wages of old and young men, of women and children.

The conditions of industry change so fast that long experience is in some trades almost a disadvantage, and in many it is of far less value than a quickness in taking hold of new ideas and adapting one’s habits to new conditions. A man is likely to earn less after he is fifty years old than before he is thirty; and the knowledge of this is tempting artisans to follow the example of unskilled labourers, whose natural inclination to marry early has always been encouraged by the desire that their family expenses may begin to fall off before their own wages begin to shrink.

A second and even more injurious tendency of the same kind is that of the wages of children to rise relatively to those of their parents. Machinery has displaced many men, but not many boys; the customary restrictions which excluded them from some trades are giving way; and these changes, together with the spread of education, while doing good in almost every other direction, are doing harm in this that they are enabling boys, and even girls, to set their parents at defiance and start in life on their own account.

The wages of women are for similar reasons rising fast relatively to those of men. And this is a great gain in so far as it tends to develop their faculties; but an injury in so far as it tempts them to neglect their duty of building up a true home, and of investing their efforts in the personal capital of their children’s character and abilities.

§ 11. The relative fall in the incomes to be earned by moderate ability, however carefully trained, is accentuated by the rise in those that are obtained by many men of extraordinary ability. There never was a time at which moderately good oil paintings sold more cheaply than now, and there never was a time at which first-rate paintings sold so dearly. A business man of average ability and average good fortune gets now a lower rate of profits on his capital than at any previous time; while yet the operations, in which a man exceptionally favoured by genius and good luck can take part, are so extensive as to enable him to amass a huge fortune with a rapidity hitherto unknown.

The causes of this change are chiefly two; firstly, the general growth of wealth; and secondly, the development of new facilities for communication, by which men, who have once attained a commanding position, are enabled to apply their constructive or speculative genius to undertakings vaster, and extending over a wider area, than ever before.

It is the first cause, almost alone, that enables some barristers to command very high fees; for a rich client whose reputation, or fortune, or both, are at stake will scarcely count any price too high to secure the services of the best man he can get: and it is this again that enables jockeys and painters and musicians of exceptional ability to get very high prices. In all these occupations the highest incomes earned in our own generation are the highest that the world has yet seen. But so long as the number of persons who can be reached by a human voice is strictly limited, it is not very likely that any singer will make an advance on the £10,000, said to have been earned in a season by Mrs Billington at the beginning of last century, nearly as great as that which the business leaders of the present generation have made on those of the last.

For the two causes have co-operated to put enormous power and wealth in the hands of those business men of our own generation in America and elsewhere, who have had first-rate genius and have been favoured by fortune. It is true that a great part of these gains have come, in some cases, from the wrecks of the rival speculators who had been worsted in the race. But in others they were earned mainly by the supreme economizing force of a great constructive genius working at a new and large problem with a free hand: for instance the founder of the Vanderbilt family, who evolved the New York Central Railroad system out of chaos, probably saved to the people of the United States more than he accumulated himself
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§ 12. But these fortunes are exceptional. The diffusion of education, and prudent habits among the masses of the people, and the opportunities which the new methods of business offer for the safe investment of small capitals, are telling on the side of moderate incomes. The returns of the income tax and the house tax, the statistics of consumption of commodities, the records of salaries paid to the higher and the lower ranks of employees of Government and public companies, all indicate that middle class incomes are increasing faster than those of the rich; that the earnings of artisans are increasing faster than those of the professional classes, and that the wages of healthy and vigorous unskilled labourers are increasing faster even than those of the average artisan. The aggregate income of the very rich is perhaps not a larger part of the whole in England now than in earlier times. But in America the aggregate value of land is rising fast; the higher strains of the working population are yielding ground to lower strains of immigrants; and great financiers are acquiring vast power: and it may possibly be true that the aggregate income from property is rising relatively to that from labour, and that the aggregate income of the very rich is rising fastest of all.

It must be admitted that a rise in wages would lose part of its benefit, if it were accompanied by an increase in the time spent in enforced idleness. Inconstancy of employment is a great evil, and rightly attracts public attention. But several causes combine to make it appear to be greater than it really is.

When a large factory goes on half time, rumour bruits the news over the whole neighbourhood, and perhaps the newspapers spread it all over the country. But few people know when an independent workman, or even a small employer, gets only a few days’ work in a month; and in consequence, whatever suspensions of industry there are in modern times, are apt to seem more important than they are relatively to those of earlier times. In earlier times some labourers were hired by the year: but they were not free, and were kept to their work by personal chastisement. There is no good cause for thinking that the mediæval artisan had constant employment. And the most persistently inconstant employment now to be found in Europe is in those non-agricultural industries of the West which are most nearly mediæval in their methods, and in those industries of Eastern and Southern Europe in which mediæval traditions are strongest
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In many directions there is a steady increase in the proportion of employees who are practically hired by the year. This is for instance the general rule in many of those trades connected with transport which are growing fastest; and which are, in some respects, the representative industries of the second half of the nineteenth century, as the manufacturing trades were of the first half. And though the rapidity of invention, the fickleness of fashion, and above all the instability of credit, do certainly introduce disturbing elements into modern industry; yet, as we shall see presently, other influences are working strongly in the opposite direction, and there seems to be no good reason for thinking that inconstancy of employment is increasing on the whole.