THE THEORY or WAGES. The earliest school of scientific economists. the Physioerats (q.v.). taught that wages naturally afford the laborer no more than a bare subsistence. The eompeti Hon of laborers and the strategic advantage of the employer, it was believed, made this result inevitable. Adam Smith advanced a similar view. admitting, however, that in societies in which wealth is increasing wages may exceed the mini mum of subsistence. The effect of Alalthu:'s Essay on Population was to confirm the view that wages are naturally limited to mere sill). sistence. The alleged tendency of population to outrun subsistence appeared to demonstrate con clusively that any temporary rise in wages above the necessary minimum would soon be overcome by increase in population. Ricardo held in the main a similar view. but he admitted that the comforts to which a laboring class had become accustomed eould not be withdrawn without a slackening in increase of population. The natu ral price of labor Ricardo (Mines as "that price which is necessary to enable the laborers, one with another, to subsist, mid to perpetuate their race, without either increase or diminution." This theory was adopted by the Socialists as a correct explanation of wages under a capitalistic isVime, and has served as one of the chief arguments against the continuance of the present order.
James Mill, McCulloch, Senior, and John Stuart Mill, the followers of Ricardo and Mal thus, developed a theory of wages which is known as the wages fund theory. It emphasizes the de pendence of labor upon capital. Assuming that present wages are paid out of past accumula tions, these writers argued that total wages must be hinited by vapital, or (in the completed theory) by that part of capital which is fie voted to the subsistence of labor. Given the magnitude of the wages fund, the average rate of wages may be found by an arithmetical division, the number of laborers being the divisor. In order to increase wages, it was held to Iso neces sary either to increase the wages fund or to de crease the number of laborers. According to this theory, attempts of the laborers to raise wages through combination would necessarily be un availing, since such combination could affect neither dividend nor divisor. if some laborers succeeded in raising their wages, it would neces sarily be at the expense of other laborers.
From about 1820 to 1870 the wages fund theory was generally accepted by English econo mists. In ISO the theory was abandoned by dohn Stuart Mill as a result of Thornton's attacks upon it. The idea that a definite portion of capital is set apart for the support of hilfor was seen to be fallacious. To a considerable extent modern economists hare adopted the so-called productivity theory. the ablest of the earlier ex
ponents of which was Francis A. Walker. Wages are not paid out of capital at all: the product of labor is the natural reward of labor, and the money wage represents not an advance, but a price paid for a product already created. The same idea was ably defended by Henry George. Recent discussions of the wages question have largely turned upon the significance of the term 'productivity of labor.' Von Thiinen demon strated that it is the product of the laborer who is in the least advantageous situation that really determines wages. This theory has been still further developed by Professor J. B. Clark, whose work makes it clear that under free com petition it is possible to discover units of labor which are virtually unaided by capital or land, and that the pure product of such units sets the standard for all units of labor.
Adherents of the productivity theory are un der no necessity of believing that the wages of labor are incapable of substantial and indefinite rise. An increase in wages naturally increases the efficiency of labor, and hence its natural re ward. High wages may thus be mare economical from every point of view than low.
A revival of the old idea that wages depend on the cost of subsistence of the laborer appears in the modern theory of the dependence of wages upon the standard of living. As expounded by Gunton, this theory teaches that wages tend to ward a standard which just covers the needs of labor; to raise wages. it is essential that needs should be increased. Labor of women and chil dren is regarded as having a depressing influence on the wages of men, since the needs of the husband and father are reduced through the pos sibility of an income earned by other members of the family. Savings of laborers, resulting in an income through interest, result in a pro portional decline of wages. if laborers eslffiew comforts and luxuries, with the hope of having a surplus of income above needs, the only re sult in the long run will be a fall in wages un til they cover necessaries only. Critics of this theory point out that it would be true only if the Ma lthusian doctrine that population tends to outrun subsistence were correct ; and at pres ent no one would hold to that doctrine in its un qualified form. Employment of women end children may, indeed, depress wages of inen, but that fact is due partly to the decline in efficiency of the population, and partly to the fact that an increase in labor supply renders necessary the resort to poorer opportunities of employment, and a consequent lowered standard of wages.