Political Economy before George

Henry George: Progress & Poverty: The Current Doctrine of Wages — Its Insufficiency

The proposition I shall endeavor to prove, is:

That wages, instead of being drawn from capital, are in reality drawn from the product of the labor for which they are paid.*

Now, inasmuch as the current theory that wages are drawn from capital also holds that capital is reimbursed from production, this at first glance may seem a distinction without a difference -- a mere change in terminology, to discuss which would be but to add to those unprofitable disputes that render so much that has been written upon politico-economic subjects as barren and worthless as the controversies of the various learned societies about the true reading of the inscription on the stone that Mr. Pickwick found. But that it is much more than a formal distinction will be apparent when it is considered that upon the difference between the two propositions are built up all the current theories as to the relations of capital and labor; that from it are deduced doctrines that, themselves regarded as axiomatic, bound, direct, and govern the ablest minds in the discussion of the most momentous questions. For, upon the assumption that wages are drawn directly from capital, and not from the product of the labor, is based, not only

• the doctrine that wages depend upon the ratio between capital and labor, but
• the doctrine that industry is limited by capital - that capital must be accumulated before labor is employed, and labor cannot be employed except as capital is accumulated;
• the doctrine that every increase of capital gives or is capable of giving additional employment to industry;
• the doctrine that the conversion of circulating capital into fixed capital lessens the fund applicable to the maintenance of labor;
• the doctrine that more laborers can be employed at low than at high wages;
• the doctrine that capital applied to agriculture will maintain more laborers than if applied to manufactures;
• the doctrine that profits are high or low as wages are low or high, or that they depend upon the cost of the subsistence of laborers; together with such paradoxes as
• that a demand for commodities is not a demand for labor, or
• that certain commodities may be increased in cost by a reduction in wages or diminished in cost by an increase in wages.

In short, all the teachings of the current political economy, in the widest and most important part of its domain are based more or less directly upon the assumption that labor is maintained and paid out of existing capital before the product which constitutes the ultimate object is secured. If it be shown that this is an error, and that on the contrary the maintenance and payment of labor do not even temporarily trench on capital, but are directly drawn from the product of the labor, then all this vast superstructure is left without support and must fall. And so likewise must fall the vulgar theories which also have their base in the belief that the sum to be distributed in wages is a fixed one, the individual shares in which must necessarily be decreased by an increase in the number of laborers. ...

Were it not for this I should be tempted to dismiss with a sentence the assumption that wages are drawn from capital. For all the vast superstructure which the current political economy builds upon this doctrine is in truth based upon a foundation which has been merely taken for granted, without the slightest attempt to distinguish the apparent from the real.

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