(1) Content of the Wages Fund Theory. How it is usually linked with population theory.1
(2) Dissemination of the Theory. Adam Smith—[Jeremy] Bentham2 ([Jean-Baptiste] Say).3
(3) Its Historical Justification (small-scale producers, the Middle Ages)
(4) Its True Social Roots (the fate of workers being dependent on capital)
(5) (a) The Iron Law of Wages of [David] Ricardo–[Ferdinand] Lassalle4
(b) Bentham
(6) Critique of the Theory of the Wages Fund
(a) [William] Thompson5
(b) [Friedrich Benedict Wilhelm] Hermann6
(c) [Johann Karl] Rodbertus7
(d) [William Thomas] Thornton8
(e) [Jean Charles Léonard de] Sismondi9
(f) Professor [Julius] Wolf10
(7) Critique of These Critiques
(a) Individually
(b) In General: They cannot be refuted by abstracting from currently existing institutions. The opposite is true.
(8) Marx on the wages fund theory.11 Marx on the “Iron Law of Wages.”12
(9) Prof. [Julius] Wolf’s criticism in regard to Marx.
(10) Reply [to his criticism].
One can say that up to now economic science has put forward only two theories of wage labor: the theory of the wages fund and the theory of the industrial reserve army,13 the first a product of bourgeois economics and the latter, of socialist economics. Obviously it should not be said therefore that all economics theoreticians without exception have sworn by one or the other of these theories. There have also been writers who took a very critical attitude toward the wages fund theory without at the same time showing any awareness of the industrial reserve army theory, which of course had not yet been put forward.14 In the most recent period on the other hand a [new] theory has been advanced which subjects both of the above-named theories to thorough criticism and regards both of them as mistaken—we have in mind the theory of Professor Julius Wolf, which quite recently has been adopted and reiterated by some German economists, such as [Adolph von] Wenckstern.15 However, if we leave aside these products of the most recent times—which we will go into in more detail further below—we find, during the entire lengthy period from the beginning of classical political economy to our own times, only the two above-named theories about the wages paid for labor—the wages fund theory and that of Marx.
As early as Adam Smith we find the wages fund doctrine stated clearly and explicitly. In his [Wealth of Nations,] Book 1, Chapter 8, “On Wages,” he comments approximately as follows: The natural wage is the product of the amount of labor expended. However, this wage is paid only in primitive social conditions. With the accumulation of private capital, wages are determined by a struggle between capital and labor. The result of this struggle depends as a rule on the relation between supply and demand for labor. By “demand for labor” Smith understands the [size of the] capital fund at any given moment. In Adam Smith we also find the inseparable addition to the hypothesis of the “wages fund”—population theory: the labor supply, says Smith, depends in turn on the frequency of births [i.e., the birth rate] among working people at any given time—but this in turn is precisely geared at every moment to capital’s demand [for labor]. (Unless we are mistaken, Smith used that very word—“precisely.”)16
The same propositions are put forward by David Ricardo, the last classical author of the bourgeois school of political economy, in another connection—namely, in his theory of ground rent. In the chapter17 where he deals with wages ex officio we read only that wages—like the prices of all other commodities—are determined according to relative supply and demand. But what Ricardo means by this he tells us in a different place—in his ingenious explanations about ground rent. Here the theory of the wages fund serves him naturally as a logical link for constructing a connection between rent and the movement of capital. Rent, he tells us, rises with the growth of capital. How so? Through the intervention of the working class. Capital consists at any given time of a wages fund of a determinate size. With the growth of capital or, which amounts to the same thing, with the growth of the demand for labor, the number of workers increases (through natural increase!), but with that the demand for the means of subsistence also grows, above all for the products of agriculture. The growing demand increases the price of these products, and as a direct consequence ground rent increases.
Both above and below when we refer to statements by the theoreticians we are discussing, going by memory, we are not in the least disregarding the demand for exactness in one’s mode of expression. Turns of phrase such as “he said,” serve merely to distance ourselves from unpleasant association.18
Thus we find in Ricardo as well [as in Smith] the same linking of the wages fund theory with population theory, or to put it more exactly, the same mediation of the wages fund theory by the population theory: the latter is the medium through which the domination of the wages fund over wages themselves is made a reality.
It would take us too far afield if we were to follow in the same detail the course of thought among the other adherents of the wages fund theory. This would also be superfluous because the theory was neither carried further nor even modified by the other representatives of classical political economy. Among them we encounter the same formulations as were once given by Adam Smith and David Ricardo, with almost the exact form of expression, and this is true of both the epigones of classical political economy and the founders of vulgar economics: James Mill (Defence of Commerce, 1808), J.B. Say (Traité de l’Economie politique, 1803), [Antoine Comte de] Destutt de Tracy (Traité de la volonté et de ses effets, 1821), John Stuart Mill (Principles of Political Economy, 1856), [and] [Henry] Fawcett (The Economic Position of the British Laborer, 1865),19 and finally this applies as well to “old man” [Karl Heinrich] Rau, and [John Ramsey] MacCulloch, and all the others.20
In economics as in all social sciences [MS. Missing word(s)] two kinds of criticism are possible: (1) One may criticize the content of a given theory in and of itself, to reveal its inconsistency, its logical insufficiency; (2) One may, on the other hand, also deal with the object of criticism in its historical connection to the social realities of its time, the basis on which the criticized theory first arose. Here the objective material basis of the theory must be revealed, and the latter must be viewed not in and of itself, not on a logical-theoretical basis, but from a material-historical standpoint. The first critical method passes judgment absolutely, like the members of a jury: either “guilty” or “not guilty” (or more exactly, either “true” or “false”). The second method takes into account the relativity of truth, that is to say, that truth is conditioned by the times. It does not condemn the theory in question, but only shows that the theory eventually became outdated. We believe that there is no effective refutation other than the one that demonstrates the social context in which a doctrine [at one time] represented “reason,” [a refutation] that makes it possible to follow the [emergence of a] changed social context in which the doctrine has becomes “meaningless.” Obviously this method cannot be applied in all cases: that which, in the case of Adam Smith or David Ricardo at the turn of the century [between the 18th and 19th centuries] was a historically determined error is in the case of [Lujo] Brentano at the end of the [19th] century merely apologetics, and although perhaps in both cases “material relations” are to blame for the theory, that is true in two entirely different senses …
Before we criticize the wages fund doctrine from a theoretical standpoint, we want to examine it briefly from a historical one.
So what, in short, do we have to say about the theory?
There is at any point in time a quantitatively specific amount of capital that represents the demand for hired hands. As a result, in relation to this capital there arises a larger or smaller number of hands for hire [to be paid with] a larger or smaller amount in wages. It is obvious that, if this theory is to have some justification, a single basic determining element in [the existing] social relations is necessary: [i.e.,] a certain degree of stability in the conditions of production, so that, first of all, [there would be] a technically given relation between a specific amount of capital and the number of workers employed by it; and secondly, that because of market conditions a definite relation could be observed as a constant factor between the time required for production and exchange and the time required for the reproduction of human beings. Both of these are conditions that our present-day capitalist economy would look down on with a supercilious smile. They would appear to it as something like “a fairy tale from days of yore.” First of all, depending on the level of productive technology and exploitation (length and intensity of the working day in connection with the wage form), at any moment one and the same quantity of capital can harness the labor power of a highly variable number of workers; not only that, but this relationship is altered at every moment by advances in technology, so that both in time and space the concept of a constant [fixed] proportion (a coefficient) between capital and labor can only be a fiction. Secondly, the time spans required for modern production no longer correspond in any way with the amounts of time necessary for human reproduction. During the last twenty-five years, speaking approximately, the modern production cycle takes up not even half of that time.21 If we take into account only the biggest economic crises in our century, we see the following: 1825, 1836, 1847, 1857, and finally 1867.22 Thus, almost exactly in ten-year intervals, there has been an economic cataclysm, and after each one a convulsive contraction of capital, then a gradual expansion, followed by a sudden unrestrained boom until once again the wings of capital are clipped by the next crisis. Given the short and—as we will show—constantly shorter length of the production cycle, given this tendency of capital toward sudden contractions and expansions, [the notion] that the size of the population can be regulated by the amount of available capital in relation to the natural amount of time necessary for the propagation of a new generation of workers once again becomes nothing but a fiction. Obviously one can say that capital reigns over the death of the worker, but not that it is a dominant influence in the number of workers who are born. It is well known that three or four days of not eating (that is, of joblessness) are enough to cause death; but to give birth to and raise a human being requires many long years.
All this was quite different in Ricardo’s time and even more so in that of Adam Smith. Machinery was just beginning to revolutionize the relations of production, and generalized economic crises were still in the offing. To be sure, Ricardo experienced the first significant economic crisis in England, which followed after the establishment of Napoleon’s continental system. However, in that case the capitalist hoof was concealed behind historical “accident,” and it was easy to conceive of this crisis as a quite specific consequence of the machinations of “that fiend Napoleon.” In general the predominant mode of production—manufacture—was still based on manual labor, trade relations were still dominated almost exclusively by England, and hence were fairly stable and easy to observe, the time periods necessary for production were relatively lengthy and slow, and the technical proportionality between capital and labor power was up to [a point] a given.23 Here lies the relative justification for the classical theory of the wages fund, but here at the same time lies [the basis for] its condemnation by history. Gone are the lovely days of peaceful, phlegmatic, seemingly patriarchal capital. Today [it is] nervous, constantly stirred up, at one moment “storming the heavens,” at the next “in the depths of depression”; today one can calculate neither how much labor power capitalism will need at the next moment nor even the number of workers to be supplied. With capital on its wild chase the workers, waiting upon its command, have time enough only to die, but not to be born. And it is well to note that the time when the wages fund theory had its relative justification was extremely short. Before Ricardo’s very eyes the mighty process of industrial transformation in England took place. The second edition of Ricardo’s main work already contains a section about machinery (and this is already characteristic), a section in which he himself refutes his “theory of compensation,” and thus indirectly and unconsciously throws out the very proposition he himself put forward about the wages fund.24 And if today, in the age of [the monopoly capitalists] Krupp and [Carl Ferdinand] Stumm,25 German economists put the old theory of the wages fund back on the table and seek to cover up the modern phenomena of capitalism with shreds and tatters from the old classical theory, it is the kind of work that Heine knew only too well.
They plug up the holes in the universe
With bits of old dressing-gown and nightcap.26
Incidentally the old theory of the wages fund served not only for plugging the holes in the capitalist universe. In it there also lay a real kernel [of truth], independent of its specifically historical justification: it was the first general theoretical formulation of the social dependency of the working class on capital. But now it became possible for two different kinds of conclusions to be drawn from this. In the hands of Lassalle the wages fund theory became a revolutionary lever for the emancipation struggle of the working class. Jeremy Bentham, father of utilitarianism, knew how to “utilize” this theory in a different way: from it he concocted a dogma, which entirely removed any social responsibility from the capitalist and against which all the demands of the working class were intended to bounce off as though from a suit of armor.
Ricardo’s work, containing the clearest and most decisive formulation of the wages fund theory, appeared in 1817. As early as seven years later it ran into criticism. William Thompson, in his Inquiry into the Principles of the Distribution of Wealth (1824), pointed out that this theory was thoroughly one-sided, that it only took into account the quantity of accumulated capital, but that the productive forces of the nation (potentially) at any moment and even the yearly consumption by the nation at any moment were illimitably greater than this.27 It is obvious that a comment like this, even if it is quite correct in and of itself, could not touch a hair on the head of the theory being criticized, because in any discussion of wages it is not the existing wealth of the world, past or future, which comes under consideration, but unfortunately the portion of that wealth which at any given time the worker encounters in the form of capital. Between the overall wealth of the productive forces of the society and the working class stands precisely the individual capitalist with his demand [for labor]; and here we run into a wall. Thompson’s critique might seem quite incomprehensible if we did not know that he belonged to that utopian school of older English socialists who wanted to reshape capitalist reality so thoroughly, wanted to eliminate capitalist reality so badly, that they abstracted [from that reality] in their economic theory. Thompson had such a great desire to cancel the dependency of the workers on capital, as formulated in the wages fund doctrine, that in his criticism he abolished the very existence of the private capitalist.
The later critics of the wages fund theory are the Germans Hermann and Rodbertus.
Hermann, in his Staatswirtschaftlichen Untersuchungen (1832), puts forward the proposition that the worker is paid not from the employer’s capital but by the consumers of the commodities produced. The employer is presented here in the innocent and at the same time noble role of a personally disinterested intermediary between the worker and the consumer, as though he were a mere clerk. The only problem is that in one way or another it is notoriously well known that the worker receives his wages before the sale of the products of his labor, and indeed he receives them directly from the employer out of that person’s private capital, and thus the actual question that was raised has not been touched on at all.
Rodbertus is no more fortunate in his criticism. In his work Zur Erkenntnis unserer staatswirtschaftlichen Zustände28 he held that the wages for labor are not paid out of the capital already accumulated before the production period began but out of the product of that same period. This consoling notion, derived from a bizarre disregard for the elementary phenomena of the capitalist mode of production, needs no further refutation. Any child knows that the production period in most realms of economic activity—from the beginning of production through the sale of the goods on the market—takes half a year or a full year, but workers receive their wages every two weeks or even every week, and so the employer must have a reserve supply of capital in advance; wages cannot be taken, bit by bit, out of current production.
Here, as in so many other fields of economics, Marx provided the first true criticism. Above all he knew—in accordance with his dialectical method—that there cannot be any general law of wages that is absolutely applicable in all cases. Every mode of production has its own law of population and its own special law of wages.
He went on to outline the law of wages for the production period in large-scale industry. This consists of two aspects: on the one hand, the existing reserve supply of capital; and on the other, the existing reserve army of workers. The accumulation of capital, on the one hand, and the proletarianization of the middle layers of the population, the small producers, on the other, have already advanced so far, he held, that the needs of production today cannot be squeezed into any natural, or so to say, physical, limits, neither on the side of capital nor on the side of the workers: the expansion of production in and of itself could be unlimited, but it would always find enough capital and “Arme” (in the dual sense).29 In reality then what does the mass of employed workers depend on and what does the amount [size] of their wages depend on? Solely and exclusively on the interests of the capitalist at any given moment, on his need for the utilization of capital.30 However, this depends, on the one hand, on the market, but today the market has become a world market, where hurricanes rage on a world scale, and so the market is at any given moment a totally variable quantity, because of changes in production technology, which at every moment change the need for the utilization of capital. Thus today the so-called demand for labor depends neither on the quantity of someone’s capital nor on the number of [available] workers, but on the market and production conditions taken as a whole, which constantly fluctuate and the sum total of which actually constitutes the entire modern mode of production. The law of wages today—Marx cries out!—is worse than an “iron law”; it is “elastic”! Today it can be given neither the name of “wages fund” nor that of any special law, [it can be given] no name other than that of the modern economy as a whole, [no name] other than that of capitalism itself!
We mentioned at the beginning that a new theory, that of Prof. J[ulius] Wolf, rejects both theories—the wages fund theory as well as Marx’s theory of the industrial reserve army. Prof. Wolf says that the theory of Ricardo-Lassalle is false because, first of all, an increased wage does not necessarily cause a greater number of children to be born; and secondly, the demand for workers may also increase with their [increased] number. Both of these arguments concur essentially with the criticism that Marx directed at the wages fund theory, and thus to a certain extent it may allow a common theory [to be stated].31 Matters stand otherwise with regard to the positive assertions of Marx’s theory of wages. The extensive expansion of production—says Prof. Wolf—rushes forward more quickly than the intensive development of production as a result of the advance of technology, and therefore the reserve army does not grow but gradually diminishes. On these questions it is difficult, we must concede, to offer direct proofs. If the school of Marx were to cite a series of statistical data in support of its assertion, Prof. Wolf would present a series of statistical results in opposition to those. Given the present-day condition of statistics, it can provide proof, as is well known, in the same degree either for or against any assertion. Nevertheless we think that proofs may be sought precisely in an indirect way, in such social phenomena as can be explained for us only by accepting the notion of an advancing proletarianization. Thus, for example, the [constant] overseas emigration, as well as the dubious attempts of all governments to “save the middle class” (see the recent proposal for a government organization to promote German handicrafts!); and also the ease with which even the largest industrial actions of the working class can be broken by “reservists” from the industrial reserve army (see the recent strike in Hamburg); and likewise the unceasing “de-specialization” (to make up a word ad hoc) of the workers and with that the fact that skilled workers are increasingly being rendered superfluous; and also, finally, the growing dissatisfaction among the masses of the people and consequently the growth of the workers’ movement. These are all facts with which a theory of wages must deal in one way or another, and all of them seem to lead to the conclusion that there is an increasing proletarianization of the middle classes, and with that comes the growth of the reserve army. Without going into these questions any further we want to restate in its essentials the unique wages theory put forward by Prof. Wolf. In reality—says Prof. Wolf—the level of wages at any given time depends on (1) the supply of workers available for hire; (2) their wages policy—an aspect which, as far as we know, no other German bourgeois economist has brought up with such emphasis, and among English economists was raised only by Thornton in his work On Labor (1869); and (3) on the prosperous condition of business in general; and lastly (4) it depends on the effect of prices on consumption as well as the share that wages have in the costs of production.32