This is an invention for which Mr. Hawley ought certainly to apply for a patent. If he can instruct a man whose income is $10,000 a year, and who barely succeeds in saving $1,000, how to add to his capital $2,000 a year for what he has spent for domestic service, for pleasure horses, and the like, I think he would be able to get a very large income from the use of his patent. For myself, I am unable to conceive where the money is to come from for "services which are based on no material product whatever." It is wholly consistent with the position taken by myself that a capitalist shall receive ten thousand dollars worth of the annual product as his income; that he and his family shall expend seven thousand dollars worth for subsistence; that he shall spend two thousand dollars for professional and personal service; and that he shall save, or add to his capital, only one thousand dollars. The last sum represents the gain, or addition to the capital, of the nation through the intervention of this man. The whole ten thousand dollars worth comes out of the gross annual product, whatever it may have been in its total value. The capitalist has directed the distribution of nine thousand dollars worth in a way in which it has been consumed by himself and those who serve him; while ten per cent., or one thousand dollars worth, has been directed by him in such a way as to add so much to capital which will become a force in future production. I had intended to send a more complete rejoinder to Mr. Hawley's review of what he has incorrectly assumed to be the substance of my essay; but, in undertaking it, I have been led into an extension of the work of such a kind that it would have been hardly suitable for the Journal. A series of articles suggested by this review of Mr. Hawley's will therefore soon appear in the Forum. Yours very truly, BOSTON, June 14, 1888. EDWARD ATKINSON. BUSINESS PROFITS AND WAGES: A REJOINDER.* Having no taste for mere controversy, I propose to leave my share in the issue between the old and new theories of wages and profits to stand, in the main, as it now stands. My object in troubling the readers of this journal again is not to rebut in detail the replies of Professor Marshall and President Walker, but to say a few words that seem to be called for by way of clearing up the true issues in the case. For the rest, I gladly leave those who have honored me by reading my former paper to decide for themselves how far the replies constitute a satisfactory defence of the new doctrines. Mr. Marshall selects for reply two points,- one under the head of wages, the other under profits. In relation to wages, he cites the noted passage in which Cairnes contends that, under certain conditions, "the wages fund may contract as the supply of labor expands." It is no concern of mine to defend Cairnes. While his proposition, as he puts it, is incontrovertible, it seems to me to relate, not to practical affairs, but to a purely hypothetical case.† On the practical question involved, I am in agreement with Mr. Marshall, though for a reason different from his. How he should have taken this for "the crucial point of difference between us," I am at a loss to see. The chief objection I urged against his theory of wages is its want of accordance with the plain facts of the case. One of the most elementary facts of wage-paying is that wages are drawn, by the act of saving, from every sort of income, *See "The Source of Business Profits," by F. A. Walker, in this journal, April, 1887; "The Theory of Business Profits," by Alfred Marshall, ibid., July, 1887; "Theory of Business Profits," by S. M. Macvane, ibid., October, 1887; "The Rate of Interest and the Laws of Distribution," by "Wages and Profits," by Sidney Webb, ibid., January, 1888; "A Reply to Mr. Macvane: On the Source of Business Profits," by F. A. Walker, ibid., April, 1888. ↑ Cairnes is speaking of a case in which the number of laborers increases without increase of capital. Such a case is very unlikely to arise, since the attendant fall of wages tends of itself to stimulate employers to increased saving. from rents, interest, earnings of management, and even from ordinary wages, as well as from the replaced principal of old accumulations. Yet Mr. Marshall attempts to find the measure of wages at any particular time by a process which leaves no room for new savings, thus going far beyond the extremest form of the wages-fund doctrine in the direction of stereotyping the volume of wages once for all. If the only source of wages be what he calls the wages-and-profits-fund, and if wages be determined by "sharing" this fund according to economic law, then the aggregate of wages can never change. Here it is that, as I tried to show, the really crucial point of difference lies between Mr. Marshall and myself; and I supposed that, if he took any notice of my criticism, he would see the importance of addressing himself to that point; yet he passes it by in silence. The point of which he does speak is of slight consequence between us, since we agree in holding that individual wages may be expected to fall, when the number of laborers in a country is increased. We should differ, if at all, only as to the extent of the fall and the quickness of the recovery,- subordinate questions, surely. Yet, as Mr. Marshall thinks our variance at this point important, I will state briefly my reason for thinking his defence of his position insufficient. His thesis is that, when new laborers arrive in a country, their labor at once increases the consumable products constituting the wages-andprofits-fund, thereby providing the means for paying their wages. My contention, on the other hand, is that the first effect of the new labor must be to increase the capital of the country, to provide more plant, more materials, and larger stocks of commodities in exchange. The increase of consumable product available for wages I hold to be a comparatively slow process, a result to be built up from the foundation. Mr. Marshall asserts that it can happen at once. He says: The moment the laborer is set to work, more partly finished processes of production are finished than would otherwise have been the case, more processes just begun are carried a little further, more new processes are begun. Though the spinner cannot get as his wages to-day the carpet that will be made of the yarn which he spins to-day, there are pretty sure to be enough carpets in store to meet the increased demand due to the increased aggregate of wages which, in my belief, there would be; and manufacturers and dealers, knowing that larger supplies than before are being made, will not hesitate to sell freely from their stocks. This seems to me a begging of the question. It obviously assumes that the productive arrangements of the country were on a scale adapted to a larger number of laborers than previously were found in it. The new laborers find all the requisite plant and materials awaiting their arrival. They have only to take their places in the system, and everything will move forward just as if they had always been there. I supposed we were discussing a case in which the industrial arrangements existing before the arrival of the new laborers were assumed to be properly adjusted to the old force of laborers. On that assumption,- the only assumption worth considering, as it seems to me,-I ask where the new laborers are to find the additional farms, the additional machinery of all kinds, and the additional materials in various stages of growth and production requisite for enabling them to add appreciably at once to the stream of finished products. Where, in Mr. Marshall's illustration, is the spinner to find the wool and the machine to spin it with? Does he, after all, only displace another spinner? Does he only convert into yarn a little sooner wool that, in the regular course of things, would have been turned into yarn by the old spinners as rapidly as new supplies came forward? Will the wool supply suffice for the larger force of spinners until the production of wool can be increased? These questions I must leave for Mr. Marshall to answer. If he should answer them in the way his theory seems to require, it is to be hoped he will state clearly what he regards as the limit of this elastic quality of productive systems, whereby they may be stretched at once so as to accommodate additional laborers. I suspect that Mr. Marshall has in mind cases of slight change. He seems to confess that any large introduction of new laborers would break down his theory, at least at the point of the food supply. If his contention be merely that slight disturbances do not count, that a few scores or hundreds of new laborers added to a mass numbered by millions would make no appreciable difference, we may readily assent to the proposition; for it is applicable to any and every theory of wages. But our question is of tendency and of general principle. It is a poor rule that is good only for infinitesimals,- good only until a substantial case arises. Is it a part of Mr. Marshall's theory that every substantial case is to be ruled out as catastrophic? Even in the mild case which Mr. Marshall contemplates, it ought to be obvious that, for the wages of the new-comers, his principle is simply that of drawing on the customary and necessary stock of commodities awaiting exchange. The carpet-dealers may sell down their stocks to meet the case, but the depleted reserves of exchange must be replenished later. Not only so, but they must even be made greater than before, to correspond with the increased production under the new conditions. Mr. Marshall's principle, then, does not, in the long run, save the laborers from loss of wages: it merely distributes the loss over a longer period. In other words, taking the residue theory on its own ground, it is clear that, if the reserves of trade be drawn upon to prevent wages from falling so low as they would otherwise fall, the necessity of filling up the reserves later must prevent wages from recovering their normal rate until some time after production has attained its normal flow under the new conditions. Putting the matter as a concrete case, I should think it almost axiomatic that an unforeseen * increase of ten per cent. in the labor of a country cannot add materially to the products available for paying wages until it has first added (roughly) ten per cent. to the productive apparatus of the country, to the materials of all grades and stages, and to the stocks of finished products awaiting exchange. Is it to be supposed that the classes who save will be ready to cover this whole amount by additional savings, without the inducement of higher profits than were previously attainable? Mr. Marshall, I am aware, makes no such assertion. He admits the *I say "unforeseen," because a regular or customary addition is likely to be discounted in advance at the expense (on the residue theory) of the former laborers. |