(5) "It is not necessary to the existence of rent that lands of different grades should be under cultivation at the same time; but it is necessary that different units of labor and capital employed in agriculture should be getting different returns, if not on different lands, at least on the same land." Show that this is not true.

(6) Show that an improvement in agricultural methods able to increase greatly the output of practically all lands without a proportionate increase in cost would tend to lower agricultural rent.

(7) "Farm rents should be abolished; for they mean just so much higher wheat and, therefore, just so much added to the cost of the workingman's food." Show that the above is not sound.

(8) Suppose the margin of cultivation (the boundary between the poorest land under cultivation and the next lower) should rise because the government had prohibited the cultivation of the lowest five of the grades previously under cultivation. What would tend to be the effect on the rent of the higher grades? What would tend to be the effect, if the margin were to rise because of improvements in agricultural metho is?

READING XXI.

THE SUBSISTENCE OR COST THEORY OF WAGES

A doctrine with respect to the determination of wages which has had considerable vogue from the beginnings of economic writing, teaches that the wages of manual labor tend in the long run to equal the amount necessary for the support of laborers, including under support that which is necessary to maintain laborers' families. This doctrine is frequently attributed to Ricardo; but in fact it had, by his time, already become a commonplace of economic literature. In our day it has received much misinterpretation and much condemnation; though almost everyone professes to recognize in it a grain of truth. The misinterpretation is largely not entirely-responsible for the condemnation. Subsistence for laborers, or the cost of labor, is understood to mean the absolute minimum necessary to keep a family alive, -hence the name given to the doctrine by the socialists. "the Iron or Brazen Law of Wages." As a matter of fact, probably all the classic economists held that the subsistence minimum varied with time and place. "What is necessary to support a laborer and his family" meant to Ricardo, Malthus, and McCulloch what is necessary, according to the standard of living for laborers prevailing at the particular period in the particular place. A doctrine which teaches that cost of subsistence, understood in the above sense, determines wages, may be untrue or of little importance; but it surely is not justly open to the burning denunciation which it has received from many persons. That the above account of the matter gives the correct interpretation of the classic teaching is made evident by the following passages from Ricardo and McCulloch.

A. *Labor, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price. The natural price of labor is that price which is necessary to enable the laborers, one with another, to subsist and perpetuate their race, without either increase or diminution.

The power of the laborer to support himself, and the family which may be necessary to keep up the number of laborers, does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries, and conveniences become essential to him from habit, which that money will purchase. The natural price of labor, therefore, depends on the price of the food, necessaries, and conveniences required for the support of the laborer and his family. With a rise in the price of food and necessaries, the natural price of labor will rise; with the fall in their price, the natural price of labor will fall.

The market price of labor is the price that is really paid for it, from the natural operation of the proportion of the supply to the demand; labor is dear when it is scarce, and cheap when it is plentiful. However much the market price of labor may deviate from its natural price, it has, like commodities, a tendency to conform to it.

It is when the market price of labor exceeds its natural price, that the condition of the laborer is flourishing and happy, that he has it in his power to command a greater proportion of the necessaries and enjoyments of life, and therefore to rear a healthy and numerous family. When, however, by the encouragement which high wages give to the increase of population, the number of laborers is increased, wages again fall to their natural price, and indeed from a reaction sometimes fall below it.

When the market price of labor is below its natural price, the condition of the laborers is most wretched: then poverty deprives them of those comforts which custom renders absolute necessaries. It is only after their privations

*Ricardo-Principles of Political Economy and Taxation (1817). From Chapter V.

have reduced their number, or the demand for labor has increased, that the market price of labor will rise to its natural price, and that the laborers will have the moderate comforts which the natural rate of wages will afford.

Notwithstanding the tendency of wages to conform to their natural rate, their market rate may, in an improving society, for an indefinite period, be constantly above it; for no sooner may the impulse, which an increased capital gives to a new demand for labor, be obeyed, than another increase of capital may produce the same effect; and thus, if the increase of capital be gradual and constant, the demand for labor may give a continued stimulus to an increase of people.

It is not to be understood that the natural price of labor, estimated even in food or necessaries, is absolutely fixed and constant. It varies at different times in the same country, and very naturally differs in different countries. It essentially depends on the habits and customs of the people. An English laborer would consider his wages under their natural rate, and too scanty to support a family, if they enabled him to purchase no other food than potatoes, and to live in no better habitation than a mud cabin; yet these moderate demands of nature are often deemed sufficient in countries where "man's life is cheap," and his wants easily satisfied. Many of the conveniences now enjoyed in an English cottage, would have been thought luxuries at an earlier period of our history.

B. *CIRCUMSTANCES WHICH DETERMINE THE NATURAI, OR NECESSARY RATE OF WAGES.

There are certain limits, however difficult it may be to specify them, to the extent to which wages may be reduced. The cost of producing labor, like that of everything else, must be paid by the purchasers. The race of laborers would become extinct were they not supplied with food and other articles sufficient, at least, for their support and that of their families. This is the lowest limit to which the rate of wages can be permanently reduced; and for this reason

* McCulloch-Principles of Political Economy, 4th ed., 1849. Part III, Chapter II, pp. 406-416.

it has been called the natural or necessary rate of wages. The market, or actual rate of wages, may sink to the level of this rate; but it is impossible it should continue below it. It is not, as has already been shown, on the quantity of money received by the laborer, but on the quantity of food and other articles which that money will buy, that his ability to maintain himself, and rear his children, must depend. Hence the natural or necessary rate of wages is determined by the cost of the food, clothes, fuel, etc., required for the use and accommodation of laborers. And though a rise in the market or current rate of wages be seldom exactly coincident with a rise in the price of necessaries, they can never, except when the market rate of wages greatly exceeds the natural or necessary rate, be far separated. However high its price, the laborers must always receive a supply of produce adequate for their support; if they did not obtain this much, they would be destitute; and disease and death would continue to thin the population, until the reduced numbers bore such a proportion to the national capital* as enabled them to obtain the means of subsistence.

The opinion of those who contend that the rate of wages is in no degree influenced by the cost of the articles consumed by the laborers, has obviously originated in their confounding the principles which determine the market rate of wages at any given period, with those which determine their natural or necessary rate. No proposition can be better established than that the market rate of wages, at any given moment, is exclusively determined by the proportion between capital and population. But in every inquiry of this nature, we should not only refer to particular points of time, but also to periods of some considerable duration; and if we do this, it will be immediately seen that the average rate of wages does not depend wholly on this proportion. The price of shoes, hats, etc., in this or that market, is plainly dependent on the extent of their supply compared with the demand of those who have the means

* [This implies McCulloch's acceptance of the so-called wage fund theory as being the principle which governs the market rate of wages. In our day, that doctrine is generally looked on as containing little if any truth.]

[See preceding note.]