On Wages and Combination

On wages and combination. by Torrens, R. (Robert), Publication date Topics Wages. Publisher London: Longman, Rees, Orme, Brown.
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Ile is also distinguished as att active and attentive senator, whose s iews are always well. Ile commences by a plain and rather new detisition of " labour" and " wages. Hera he states, that.

On wages and combination

Ile next endeavours to trace the effects which would flow from a universal combination of masters to depress wages ; and shows, by examples—I. That such com- bination is morally impossible. That to render it effectual, all masters insist universally run counter to " the universal desire of bettering our condition: After disposing of the effects of combinations on the part of the masters, Ile proceeds to consider the results which would follow a combination by workmen, under three circum- stances Ina country not dependent upon foreign markets; where he concludes that a combinatien may raise wages to their maximum does not the healthy competition of the employers so raise them?

In a country depeoding upon foreign markets for the disposal of part of its manufactures. When, in the towns, the employers of labour have reduced wages by one-fourth, a considerable reduction will take place in the quantity and quality of the food consumed by the labouring classes in the towns.

Hence, while the reduction of wages, and the consequent diminution in the consumption of food in the country districts, leave the farmers a greater quantity of agricultural produce to bring to market, the town demand for their produce will decline. One-fourth of the food and raw materials of necessaries, formerly consumed by the labouring class, will be unsaleable; one fourth of the land must be thrown out of cultivation; and one-fourth of the agricultural population must be transferred to the towns, there to fabricate the increased quantity of manufactured luxuries, for which the increase of profits creates a demand.

While this process is going on, there will be a great destruction of agricultural capital, and many farmers will be involved in distress and ruin. But we assume, for the sake of argument, that not- withstanding the distress and ruin, through which the class of farmers must pass in attaining their object, they nevertheless adhere to the combination, and ultimately succeeded in effecting a universal reduction of one-fourth in the rate of wages.

Let us endeavour to trace the consequences which would flow from this reduction. The first effect of the universal reduction of wages would be, an enormous rise in the rate of profit. We can estimate, not indeed the exact, but the proximate extent of this rise. It will be determined by the average proportion which, before they were reduced, wages bore to the whole advances of the capitalist. Thus, if wages before they were reduced, constituted one-half of the capitalist's advances, their reduction by a fourth would diminish his advances by an eighth; and, as his return would remain the same as before, the extent of the increase of profits will immediately appear.

For if, before the reduction of wages, the farmers, or other capitalists, advanced quarters as wages, and quarters for other outgoings, and obtained a reproduction of quarters, or a profit of 10 per cent, then it is evident that when wages are reduced from to 75, the capitalist's reproduction of to his reduced expenditure of , will yield him a profit of 25 per cent. It is obvious, that if, on the average, wages constituted more than one-half of the whole advances, the rise of profits would be greater; while, if wages constituted less than one-half the whole advances, the rise of profits would be less.

The principle is, that any given fall in the general rate of wages will cause a greater or less rise in the rate of profits, according as wages, on the average, form a greater or a less proportion of the capitalist's whole advances. For the purposes of our argument, it is a sufficient approximation to the actual state of things, to assume that wages form one-half of the capitalist's advances; and that, therefore, a general fall of wages, to the extent of one-fourth, will raise the rate of profit, if it had been 10 per cent before the fall of wages, to 25 per cent.

Now the important practical questions for our consideration are, would it be possible to keep things in this state? Would it be practicable to perpetuate this forced depression of wages and rise of profits? A little careful inquiry will convince us that it would be quite impracticable, and that the final effect of the combination would be, not to raise profits at the expense of wages, but, on the contrary, to elevate wages at the expense of profits. Let us consider, in the first place, the circumstances which would render it impracticable to keep wages at the reduced level to which the combination of employers had forced them down, and then proceed to trace the reaction and recoil by which they would ascend, not merely to their former, but to a still higher level.

To keep wages at the low level to which, by the supposition, the combination has reduced them, it would be necessary that the following circumstances, each morally impossible, should concur. It would be necessary that the whole of the employers of labour throughout the country, should expend the whole of their profits unproductively. No addition must be made to the aggregate amount of capital which they employ. The farmer must not extend his cultivation, nor the manufacturer increase his transactions. Children must not be put out to trade, but must continue to be dependent upon the profits realized by their parents, until their parents die off, and make place for them to carry on business on their own account.

Should any of these events occur and unless the principles and motives of human conduct were reversed, they would occur perpetually , the combination would be neutralized, the demand for labour would be increased, and wages would advance. It would be necessary, not only that all farmers and master manufacturers, actually and directly employing labour, should abstain, as above, from increasing their capital, and extending their transactions; but also that all monied capitalists, bankers, merchants, traders, annuitants, civil and military functionaries, together with all landed proprietors throughout the country, should become parties to a combination for oppressing the labourer, and inflicting positive evil and grievous injury upon themselves.

The whole of these classes must spend the whole of their incomes unproductively; or, if they make savings, must hoard them. Their accumulations, when made, they must neither em ploy productively themselves, nor lend out, to be employed productively by others. The reduction of wages has caused the rate of profit to rise to 25 per cent, and the throwing out of one-fourth of the land which supplied the labouring classes with food and the raw materials of manufactured necessaries, by limiting the necessary extent of tillage to soils of a superior quality, must have occasioned a still further increase of profits, and have raised them to 30, perhaps to 35 per cent.

The natural effect of a high rate of profit is to raise the rate of' interest also. If 30, or even 25 per cent could be made by the employment of borrowed capital, individuals destitute of capital themselves, but having the skill, industry, and integrity which command credit, might be willing to give 15 or 20 per cent for the use of money. But if money be lent to be employed productively, the combination cannot be maintained.

In order to maintain it, it is necessary that persons having money at command should hoard it in strong boxes, or bury it under ground, rather than lend it at 15 or 20 per cent. Again, the combination for the reduction of wages has thrown out of cultivation one-fourth of the land which formerly supplied the labouring population with food and the materials of wrought necessaries, and has therefore occasioned a total loss of rent upon all the lands thrown out, and a considerable fall of rents upon all the better soils still remaining under tillage.

In order to maintain the combination, it is further necessary that the landed proprietors should join in the league for reducing and destroying the value of their own property. They must not lend their money, or their credit, at an interest of 15 or 20 per cent. It would be necessary, in order to maintain the combination, that the influx of foreign capital should be prohibited. Though all the farmers and master manufacturers throughout the country should join in the conspiracy for the reduction of wages; and though monied capitalists, and merchants, and bankers, and annuitants, and public functionaries, and landed proprietors, should enter into a solemn league and covenant, to lend neither money, nor credit, to any one desirous of engaging in the work of production, yet the combination would be inoperative and abortive if the importation of foreign capital were permitted.

The rate of profit has a tendency to preserve a certain level, not only throughout the several districts of the same country, but also throughout the several countries of the commercial world. Should the depression of wages, and the throwing out of inferior land, raise the rate of profit, in England, in any considerable degree above the level it had ordinarily preserved, in relation to the rates of profit in Holland and in France, the disengaged and floating capital of these countries would flow into England, and there seek productive investment.

The combination would therefore be ineffectual, unless the conspirators against wages could secure the co-operation of the Legislature, and obtain an Act of Parliament prohibiting the importation of food and of raw materials, and all the ingredients of directly productive capital, which constitute the fund for the maintenance of labour. After this enumeration of the circumstances which must concur, in order to give effect to a combination for the reduction of wages, it would be superfluous to go into any argument or illustration to show that the maintenance of such a combination would be utterly impracticable.

It is only necessary to trace out the process by which, were it possible, which it clearly is not, to give such a combination a brief and partial existence, it would necessarily counterwork itself, and ultimately tend, not to depress, but to elevate wages. We have seen that the minimum below which wages cannot permanently fall, consists of that quantity of the necessaries of life which is requisite to keep up the labouring population; and we have seen, that this quantity of necessaries is not a fixed immutable quantity, but varies under different climates, and under the influence of different habits of living.

It is self-evident, that should wages be at their physical minimum, as determined by climate, a combination depressing them below this point would cut off a portion of the population; that it would diminish the supply of labour in relation to the demand; and that its ultimate effect would be, not to depress but to elevate wages.

A moment's consideration will render it apparent, that should wages be at the moral mini- mum, as determined by habits of living, a combination for depressing them, if for a time successful, would be followed by similar results. Custom is a second nature, and things not originally necessary to healthful existence become so from habit.

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Though the Irish peasantry, living upon potatoes and butter-milk, are not subjected to greater mortality than their neighbours, yet were the labouring classes in England, brought up upon the more substantial diet of bread and cheese, and butchers' meat, reduced to the less nutritious food which use has rendered not unhealthful in Ireland, debility and disease would rapidly thin their ranks. A higher rate of mortality among the labouring classes would speedily follow the establishment of a combination for reducing wages.


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Where there were numerous families they would be thinned by death; the delicate and infirm would sink prematurely to the grave; and while more died, fewer would be born. The cautious and the prudent, and those who were attached to the former superior scale of comfort, would abstain from marriage, and from encumbering themselves with families; and thus, by rendering deaths more numerous and births less frequent, an effectual combination for the reduction of wages, however brief its existence, would, for a whole generation, reduce the supply of labour in relation to the demand.

Nothing could now prevent the recoil of wages. An effective combination for the reduction of wages would bear within it the principle of almost immediate self-destruction; and, after a brief existence, would leave wages at a higher level than that from which they had fallen. For, the instant the combination should be broken up, increased capital accumulated at home, or imported from abroad, would be employed in cultivating the land which had been abandoned, and in supplying the renewed consumption of the necessaries of life.

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Thus there would be an increased demand for labour, acting upon a diminished supply. The supply of labour, in relation both to land and capital, would be less than before, and, therefore, upon the principles already explained, both maximum and actual wages would be higher than before. From all that has been said, it must be apparent, that an effectual combination for the reduction of wages can never by possibility exist. In the first place, such a combination could not be established; and, in the second place, if it could be established, it could not be maintained.

If not immediately broken up, by productive advances, made from income, or by the importation of capital from abroad, it would speedily perish by self-destruction; and its evil influence, after having for a time afflicted the labouring classes, would recoil upon the insane conspirators, lowering, instead of raising, the rate of profit, and elevating, instead of depressing, wages. In a country not depending upon foreign markets,. The labouring classes form the great majority of every community, and, as has been already observed, a country must be considered as happy or miserable, in proportion as those classes are abundantly or scantily supplied with the necessaries and comforts of life.

From this principle it neces- sarily follows, that combinations for lowering wages, could they be effectual, must be regarded as conspiracies for increasing human misery; and that combinations for raising wages, could they be effectual, must be approved as associations for the promotion of human happiness. In the whole compass of economical science, the most important practical question is this, namely, can combinations, amongst the labouring classes, effect a permanent increase of wages? It is evident, that if wages were already at their maximum, a combination which should have the immediate effect of raising wages, must speedily terminate in reducing them.

When wages are at their maximum, profits are at their minimum. But when profits are at their minimum, an increase of wages must check production, diminish the fund for the maintenance of labour, and leave for each labourer a less quantity of the comforts and necessaries of life.

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Supposing, as in our former cases, that the lowest rate of profit, for the sake of which the capitalist will continue the work of production, is seven per cent. Under those circumstances, if the 25 labourers were to combine together, and refuse to work, unless their wages were raised from to quarters, it is evident that all profit would be absorbed, that the tract of land must be abandoned, and that the 25 labourers, instead of continuing to receive the increased wages which they demanded from the farmer, would, at no distant period, be thrown out of work.

Now, suppose that profits, instead of being at the minimum of seven per cent. In this case, wages might rise so as to reduce profits by three per cent. Our 25 labourers might therefore combine, until each received as his wages four quarters, and the fraction of a quarter, instead of four quarters. But should this immediate improvement in their condition, by diminishing deaths, or increasing births, cause their numbers to increase from 25 to 27, the ultimate result would be, not an advance, but a decline of wages. When the farmer, cultivating a tract of land yielding quarters, advanced quarters as seed, and quarters as wages to 25 labourers, he realised a profit of ten quarters, which is three per cent.

But if he advances quarters as seed, and four quarters each to 27 labourers, his advances will be quarters, and will yield a profit less than the minimum of seven per cent. He will, therefore, either reduce the wages of his 27 labourers below the original rate of four quarters a man, or else abandon his farm, and throw them out of employment.

In a country growing its own supplies of raw produce, not exporting manufactured goods, and therefore not exposed to foreign competition, a combination for raising wages can be maintained only when accompanied by an auxiliary combination amongst the labouring classes, for preventing the increase of their numbers.

Let us proceed to consider the effect of a combination for raising wages in a country which, importing raw materials, and exporting manufactured goods, is exposed to foreign competition.

This is the practical, and, to the operatives of England, the vitally important branch of the subject. Combinations for raising Wages beyond the limit determined by foreign competition, ultimately occasion, not an advance, but a reduction of Wages. As before we will assume, for the sake of illustration, that the actual rates of profit in England and in France are ten per cent, and that, in both countries, the minimum rate of profit, without which the capitalist will not continue production, is seven per cent.

Under these circumstances, let us suppose that the operatives in England combine, and obtain such an increase of wages as will reduce the profits of their masters to the minimum of seven per cent. In this case the English manufacturer cannot permanently reduce the price of his goods in the foreign market, because, if he did, he could not realise minimum profits. But the French manufacturer can afford to undersell the British manufacturer in the foreign market, by one, two, or three per cent.

Writers upon commercial policy, whose opinions are entitled to great respect, have contended that a rise of wages has no influence upon foreign trade. They maintain, that a rise of wages is accompanied by a corresponding fall of profits, and does not therefore raise prices; and they further affirm, that a fall in the rate of profit does not subject the country in which it takes place, to be undersold in the foreign market, by other countries in which profits are higher.

But it is contended that, under these circum- stances, the French producers would not consent to manufacture for the foreign market, at a profit of seven per cent, for the obvious reason, that they could make 10 per cent upon their capital in any occupation. This argument, when stated in general terms, appears, at first sight, satisfactory; but, when considered strictly and analytically, it will be seen to be wholly fallacious.

The subject is so very important, that it requires a detailed examination. Let us suppose that an English and a French manufacturer have each invested 50, l. Let us also suppose that, in consequence of lower wages in France, the French manufacturer is able to employ more labourers, and to use more material than the English, and therefore fabricates, by six per cent. The goods being similar in kind, and in quality, the prices obtained for them in the foreign market will be in proportion to their quantities, and the French manufacturer will sell his goods for a greater sum, by six per cent.

If the English goods sold for 57, l. Under these circumstances, would it be the interest of the French manufacturer to sell his greater quantity of goods for the same sum that the English manufacturer sold the less quantity, and thus secure a superiority in the foreign market? When the Englishman sells his goods for 57, l. Now, if the Frenchman would sell his greater quantity of goods for the same sum for which the Englishman sells the less quantity, and would be satisfied for a short time with seven per cent.

The French manufacturer might now sell double his former quantity of goods. He might advance an additional 50, l. It is self-evident, therefore, that if a greater quantity of materials can be worked up without an additional outlay for fixed capital, it will be the interest of the French manufacturer to take less than the average rate of profit in France upon the first portion of his advances, in order to gain more than this average rate upon the additional portions of floating capital, which he can employ by underselling the English manufacturer, and beating him out of the foreign market.

It must be apparent, that the force of this argument depends upon the fact, whether, in manufacturing industry, additional floating capital can be employed without a proportionate addition of fixed capital.. Now with respect to the matter of fact there can be no doubt. The market is occasion- ally under-stocked, and occasionally overstocked, with manufactured goods.

When the supply of such goods is deficient their production is increased; and when their supply is in excess, their production is diminished. But when the production of manufactured goods diminishes, the fixed capital of the manufacturer ceases to be fully employed.

It is self-evident, therefore, that, amid the ebbings and flowings of the market, and the alternate contractions and expansions of demand, occasions will constantly recur, in which the manufacturer may employ additional floating capital, without employing additional fixed capital. It admits of the strictest demonstration, that if additional quantities of raw material can be worked up without incurring an additional expense for buildings and machinery, the manufacturers of the country in which the rate of profit is comparatively high, will have an interest in lowering their prices in the foreign market, so as to beat out the fabrics of the country in which the rate of profit is comparatively low.

The French and English manufacturers invest, each, 50, l. The Frenchman, paying less for labour, is able to work up more material, and produces a quantity of goods greater to the extent of six per cent. The goods of each being similar in kind and quality, if those of the Englishman sell for 57, l. Now it is self-evident, that, under these circumstances, it would not be the interest of the French manufacturer to undersell the English, and drive him from the foreign market.

For his machinery being fully employed, he cannot advance additional floating capital for wages and materials, without making a proportional addition to his fixed capital; and he cannot realize 10 per cent, the customary rate of profit in France, upon his advances, unless the goods produced by a fixed capital of 50, l. He cannot, therefore, undersell the English manufacturer without employing additional capital in the foreign trade, at a less rate of profit than that which he might obtain in other occupations.

Very different would be the result, should a revulsion of trade check production, and prevent the fixed capital invested in manufactures from being fully employed. Let us suppose that the quantity of goods on hand is so much in excess, that our manufacturers are obliged to diminish the supply, and, instead of employing a floating capital of 50, l. In this case, the factories will work only half time; only half the quantity of goods will be produced, and, prices remaining the same, 8 the Frenchman's goods, instead of selling for 60, l.

This will replace his floating capital of 25, l. Under these circumstances, it will be the decided interest of the French manufacturer to lower his prices, and drive the English manufacturer out of the foreign market. By doing so, he will be able to employ an additional floating capital of 25, l. Should he sell his greater quantity, for the same sum of 28, l. This will be a profit of 14 per cent upon the additional floating capital employed.

Now, by the supposition, the general rate of profit in France is only 10 per cent. Instead of obtaining less, the French manufacturer will gain much more than the customary rate of profit, by employing all the floating capital he can com- mand, in fabricating more goods at lower prices, and thereby expelling competitors from the foreign market.

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Thus we see that the argument, so confidently advanced in support of the doctrine, that a rise of wages has no injurious effect upon foreign trade, is altogether erroneous, and involves the fallacy, unfortunately too prevalent amongst economical writers, of confounding distinctions by hasty generalizations, and of attributing to different things the same common properties, because we class them under the same common name. The buildings and machines of the manufacturer, as well as the money with which he pays his wages, and purchases his raw materials, are classed under the general denomination of capital; and those who, in their proneness for general reasoning, forget that science is analysis, fall into the error of conceiving, that because capital, consisting of money, may pass from employment to employment, in order to obtain the customary rate of profit, capital, consisting of buildings and machinery, may be equally locomotive.

The reasoning in support of the position, that high comparative wages, and low comparative profits, are not injurious to foreign trade, and do not involve the danger of foreign competition, would be perfectly correct, provided fixed capital were not fixed. If money sunk in buildings and machinery could be made to realize the same customary rate of profit when the machinery is not employed, as when it is employed, then, indeed, the manufacturers in a country in which profits were comparatively high, would have no inducement to undersell the manufacturer of a country in which the customary rate of profits were low; because, in this case, the high comparative rate of profit might, at all times, be obtained upon the whole capital, fixed as well as floating, which the manufacturers of the high-profit-country employed.

But so long as buildings and machinery, when not in work, exist as dead stock, realizing no profit at all, so long will it be the interest of producers to employ, at the customary rate of profit, as much of their floating capital as possible, without reference to the consideration whether, by so employing it, they realize the customary profit upon their fixed capital also.

This is a consideration which will always determine whether new and additional buildings and machines shall be erected; but when once they are erected, it will be the decided interest of the manufacturer to keep them in full work, provided he can thereby secure the customary profit upon the floating capital employed in paying wages, and in purchasing raw materials. Hence, when the foreign market is overstocked, it will he the interest of the manufacturer of the high-profit-country to continue to supply it at prices greatly below those ordinary prices which gave the customary return upon his whole capital, fixed and floating.

This customary profit on his whole capital was necessary to induce him to commence business, but is not necessary to induce him to continue it. To secure this, it is sufficient that he obtains the customary profit upon that portion of his capital which he can transfer without loss to other occupations. An objection may here be urged. It may be contended, that the argument cuts both ways, and is as applicable to the manufacturers of the low-profit, as to the manufacturers of the high-profit-country. If it be the interest of the latter to continue to supply the foreign market, at prices so reduced as to leave the customary rate of profit only on the moveable portion of their capital, it must be the interest of the former to do so likewise.

But if the manufacturers of the low-profit-country found it their interest to continue to supply the foreign market at a reduction of prices which left them customary profits on their floating capital only, the manufacturers of the high-profit-country could not undersell them without a diminution of their customary rate of profit upon that portion of their capital which they could transfer to more advantageous occupations.

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It follows, therefore, that a comparatively low rate of profit cannot have the effect of contracting the extent of foreign trade. This objection proceeds upon the assumption, that prices in the foreign market never fall below that point at which the manufacturer obtains his customary rate of profit upon that portion of his capital which can be transferred without loss to other occupations; and, were this assumption conformable to fact, the objection would be valid and conclusive. But the assumption is contrary to fact. Frequent is the fall of prices below the point supposed.

Revulsions occasionally occur, during which the manufacturer scarcely obtains a return sufficient to replace the floating capital he advances. Nay, in the vibrations of the market, the depression of trade will sometimes be so great that the manufacturer cannot, at existing prices, replace his floating capital, and that he continues to advance wages and materials at a positive loss, because he cannot, without incurring a greater loss, abandon his buildings and machinery; or because he is able to keep his goods on hand until the glut is removed, and prices have recovered.

Now, on all such occasions, the manufacturers of the high-profit-country will have a decided advantage over those of the low- profit-country, and will drive them out of the foreign market. Let us exemplify this process by a reference to our former case. A French manufacturer advances a floating capital of 50, l. Under these circumstances, let us suppose that the prices of the foreign market fall so low, that the English 10, bales sell there for no more than 50, l. In this case the English manufacturer just saves himself, while the French manufacturer realizes a profit of three per cent.

Let us now suppose that the prices in the foreign market continue to decline, until the Frenchman's 10, bales, produced by a floating capital of 50, l. In this case the Frenchman will just save himself, while the Englishman will in- cur a positive loss. Thus it is self-evident, that in all revulsions of foreign trade there will be, in the country in which profits are comparatively low, a much heavier loss, and a much greater destruction of capital, than in countries in which profits are comparatively high.

Should the difference in the rates of profit be considerable, the high-profit-country may continue to realize moderate gains under a revulsion of foreign trade, and depression of the markets, which spread bankruptcy and ruin throughout the manufacturing districts of the low-profit-country. One other consideration remains, and it is a most important one. This usually results in a system of minimum wages by sector of activity and sometimes occupations, with many specific rates, taking into account sector-specific economic factors.

In some countries, these systems are complemented by a general rate applicable to non-specified activities, such as in Costa Rica. One challenge with complex systems is that the principle of equal pay for work of equal value should be respected see section 2. Other differences Some systems also differentiate minimum wages for different groups of the population, or depending on the size of enterprises.

Learn more about minimum wage rates by enterprise size. The rationale underlying each type of minimum wage system.