Item 28 - Paper by F. W. Lawrence entitled ‘Wages’; read before the Cambridge Economic Society on 5 Nov. 1896

1 wrapper, 23 single sheets, 3 folded sheets (leaves numbered 1-35)

Transcript

Wages.

Before commencing to read my paper I should like to express my deep regret that enforced absence from Cambridge prevented me from listening last week to the address of our President, an address which I had particularly wanted to hear.

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The question of wages, which we are met here to discuss to-night is one of the most important in the whole range of political economy; it is one which has perhaps the closest connections with the social wellbeing of any community, especially of our own country at the present time. {1} At the same time—with the possible exception of ‘money’—it is a question one of the most difficult which we are called upon to discuss. It has not been therefore without a feeling of my audacity that I have embarked upon its consideration. I was for a long time in doubt at what point to make my attack upon the question, & even thought of taking a general glance at the whole, attempting to give a resumé of the theories of economists of the past with criticisms passed upon them by those of the present day. But I was convinced that such an attempt must end in superficiality, & I accordingly determined to take a special problem and consider it more in detail.

But even so my scant knowledge of economics & the impossibility of reading up more than a mere fraction of what has been written on the subject, has been to me no imaginary difficulty. For if I should merely attempt to rearrange & classify what others had said, then even where I did not fail to catch the correct meaning, most people would probably prefer the exposition of the original author; while if I attempted to strike out a line of my own, it would probably turn out that I was only covering the ground which some writer whose works I had not seen, had trod; & that I was falling into pitfalls which he had escaped. It was therefore with great fear & trembling that I entered on my task.

One of the principal difficulties which occurs in the question of wages is the element of time; & it is through neglect of this particular element that we are so very likely to make a mistake. Is it too audacious to suggest that it is mainly to neglect of this element that mistakes where they have occurred in the past are due?

I have spoken above of the problem of money; but in this the difficulty {2} is mainly that of grasping the principal problem, & of looking beneath the surface of what apparently exists to see the reality underlying.

In the problem of wages—the past—present &—future, —intervals of time short,—medium—& long all enter with varying importance into the consideration, & until we have learnt to discount the value attached to each nearly correctly we cannot hope to arrive at any useful information. The most common illustrations of this are of course the time necessary for a flow to take place of labour from one occupation to another, or of children to be brought up to a new trade; to these I should like to add one other on the question of personal efficiency. Suppose that it be true that a man working 9 hours a day does more than if he worked 10. This does not mean that having worked 9 hours he will do a negative am[oun]t of work in the 10th, but that after several days or weeks of 9 h[ou]r work his efficiency will be so much increased that he will do more work in the 9 hours than he previously did in 10. Here a man might be working on his own acc[oun]t 10 h[ou]rs a day without ever realising his mistake. Simply because the element of time has entered into the question. It is in some what the same way we may keep a mixture of two gases together existing in the right prop[ortio]n for comb[inatio]n without any action taking place, simply for a want of a lighted match to start the explosion. But I do not wish to press the analogy too far.

So much has been said on the influence of the number of the labouring classes upon the wages they receive; & the results arrived at seem often so unconsciously to be led away by virtue of neglect of the element of time, possibly even by making allowance for it on one side, & omitting it on the other, that I have tried to construct a problem of pop[ulation] in which the element of time in so far as it comes at all shall enter in a new way. This problem is imaginary but not inconceivable. And I think it may serve to illustrate some of the wages problems.

I suppose a country with a population somewhat that of England, an old country in which all the best land at any rate is under cultivation, to suddenly receive an accession from abroad of say some 100,000 labourers with their families; that these new men are average men trained in the various labour occupations of the country skilled & unskilled, in about the same proportions as the old inhabitants & that their general efficiency for labour is about the same; that they bring enough food with them to last at any rate for a few days; finally that the general means of emigration & immigration of the country are not increased. then† the results produced will depend on the answers to the following questions.

1. Has the country foreign trade?

2. Do they bring capital with them?

3. Supposing them all to have come from one country for some non-economic reasons has this country a foreign trade.

Let us first consider the case in which the country to which they have come has no foreign trade, & in which they bring no capital or entrepreneurs.

This question seems to be that raised in substance by the wages fund theory, & therefore it is worthy of some consideration.

I have supposed the country to have no foreign trade so that all food must be grown at home.

The arrival of the new men will affect the society of the country in two ways, firstly through their demand for commodities & secondly through their supply of labour.

They will have an immediate demand for houseroom, & for food so soon as the limited supply which they brought with them has been exhausted; but these demands will only be partially effective because a great many will have nothing in their pockets which to offer for house room & food, until they have set themselves to labour. The first step will be therefore that the new labourers will spread themselves over the country & try & get occupations in their respective trades.

But employers have got all their workshops full, all their machinery looked after, & at present they have seen no increase of effective demand for their commodities; & even if they act with foresight thinking that there probably will soon be an effective demand for them, they will not be able to take on many extra hands all at once.

Accordingly the new labourers will attempt to undersell the old, & the price of wages will begin to fall.

At this cheapened rate the employer will probably find it convenient to employ rather more labourers, but whether he will actually spend more money in wages than before we shall not be able to determine. What we may feel pretty sure however is that he will not necessarily spend just the same, through having put on a shelf a certain number of £s ss & ds to pay his labourers for the week; if he thinks he is going to make more profit by spending more he will be tempted to use up more of his own capital which he might have spent in luxuries, or he will be prepared to offer higher interest for other people to do the same. But it does not follow that he will require more.

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The case will however be different with the producers of the immediate necessaries of life; in these trades even the slightly effective demands of the newcomers will give a stimulus, & as in all trades more workers at lower wages are being employed the effective demand for necessaries will be increased. (Each labourer at a lower wage still offering nearly as much for his necessaries while contracting his demand for luxuries). Accordingly in these trades there will be a great stimulus to greater production.

We may distinguish somewhat between the demand for house room & the demand for food.

In the case of the former, trade is capable of considerable expansion while in the latter this is not possible for some time.

Prices in both will rise.

In the building & allied trades employers will increase their business rapidly; houses partially built will be finished off quickly & new ones begun, old tumbledown houses will be put into repair, while inferior dwellings will be run up at a great pace. Meanwhile in order to do this the employers will have had to take on a number of extra men, probably far more than the proportion of immigrants who knew the business; wages in these trades will therefore rise & this will have the effect of using up some of the surplus men from other trades, more especially from those trades whose employeés† can soon learn building business etc.

Moreover the additional men employed; & the increased wages given in the building trades will cause an extra demand for commodities in other trades, this will act first to check the fall in demand caused by low wages generally, & finally may actually raise the demand.

Somewhat the same process will have been going on with regard to food; but here the possibility of increasing the supply will be much more limited. The holders of food for the time being will raise their prices.

& should food consist almost entirely of such things as grain which cannot be increased during the year, there might almost amount to a famine; still the proportion of newcomers to the old not being very great, the price would probably not get to this level, but would stop below that, when generally everyone had a proportionally small quantity than he had before.

In view of the high prices a great many people will determine to grow additional serials†, & a great many labourers will be set to work for preparing the ground to yield a harvest in the following year.

If we look at the position of affairs after a few months we shall find the people who are doing best are the owners of the food reserve, they will have reaped a distinct rent. The builders also, will be making handsome profits, (& those house-owners who have not been prevented from raising their rents) & will be doing very well; meanwhile agricultural labourers, & those in the brickmaking & building trades will be obtaining increased wages, but owing to the additional cost of food these must be to a certain extent discounted.

Meanwhile in other trades the co-existence of cheap labour (I here suppose the efficiency of the workmen has not deteriorated through insufficient food) & probably increased demand will tend to enlarge the employer’s profits; while the unfortunate labourer with low wages & increased cost of food with {3} suffer all round.

We thus do arrive at a position something like that propounded by the believers in the wage fund theory. The increase of labour has not increased much the power of employment without reducing the wages, so that the total amount spent in wages all the country over may be about the same as before; meanwhile until the next harvest the food supply will be roughly the same, & therefore if this supply was originally just such as was sufficient to carry on till next harvest the average share will be this constant quantity divided by the number of people. This result however will no doubt be largely modified owing to the substitution of things other than serials† for food. Finally the extra zest given to capital will call it forth from all the crannies where it was before lying hidden.

We may sum up by saying that capital & labour being previously balanced the addition of labour on the one side has produced a diversion in favour of capital.

But this result, in its intensity at any rate, will only be of short duration. I proceed to show that the share of labour (per labourer) will soon be very nearly restored to its former level even without the accumulation of more capital. We have seen that with the coming harvest the food supply will be very much increased, & that the price will sink to nearly its former level (because free competitors will have started into the field to grow additional corn) the law of diminishing returns holding good the price will be still rather than higher than before. This fall of price will now allow the effective demand for commodities other than food to increase, & there is little doubt that by this time the whole demand from all the inhabitants (in virtue of their greater numbers) will far exceed what it was before the immigration. The employers therefore will desire to produce more largely, & to do this they will want more labourers; more even in proportion, if their stock of capital has not increased unless the law of increasing returns comes in to intervene. This will now be the labourers’ chance, & owing to competition among employers, he will get back step by step the points which he lost.

How far in the end everyone will be as well off as they were at the beginning, will depend on how far the action of the law of increasing returns in some industries has succeeded in counteracting the effects of that of diminishing returns in others. While if during the period I have been contemplating, perhaps a couple of years, capital has not increased up to the proportion of the additional labour, we must remember that the same amount of c[apital] is spread over more l[abour] & that even with constant returns this will not give results proportional to the amount of labour.

I have thus endeavoured to show that in the case we are considering the wage fund theory might hold roughly though not accurately in the early stages, but would soon cease to hold whether additional capital came to be stored or not.

The fact that it held even roughly at first was due to the arbitrary manner in which the additional labour was introduced, so that effects took place before the country had accomodated† itself to its circumstances. Under the ordinary increase of population we may suppose these temporary effects would hardly exist at all.

I do not want it to be thought that I have constructed this problem to flog the dead horse of the wages fund, my object has been to examine how far there are elements of truth in it with a view to throwing light upon the problem of distribution.

Let us now examine the changes that have to be made in the theory by changes in our premises.

Suppose we remove the restriction that the country has no foreign trade, supposing however that the country from which the labourers have come is limited the effect of this freedom will be that some of the results will be distributed more or less over the whole commercial world.

The price of food will be raised very little throughout, but the building trade in the country will be affected almost as much as before.

Again food being imported there a larger quantity of exports to match them will have to leave the country & the result will be an effective demand for more of the country’s goods which were exported previously & a new demand for some of those not already exported.

The result will be a stimulus to these trades in the country with a smaller stimulus than in the first case to the agricultural interests.

As in the 1st case a higher interest is offered to capital & this will get more capital into the country than there would have been but for the immigration of labour. Either cap[ital] will actually come in from abroad or that which would have gone out under ordinary circumstance will stay at home.

The final results will be much the same as in the preceding case except that the final proportion of labour to capital will be that induced by competition throughout the whole commercial world.

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Let us now make a third case by removing the limitation that the country from which the labourers came had no foreign trade; but assume to avoid complications that the reason for their coming was on non-economic grounds.

This is rather an important consideration & prevents the direct application to problems in existence at the present day; but this clause is necessary, because without it, it would obligatory to consider of the natures of the economic clauses themselves.

The problem now before us differs considerable† from that of the first two cases for now the food supplies which would have fed the labourers in their old country will follow them to the new. And the moveable capital of employers will do the same. Meanwhile those in the old country who created the effective demand for the commodities which the labourers produced, will still create an effective demand, but the manufactures instead of being carried on in their original place will be in the country to which the labourers have come. (The building trade will receive a great stimulus in the coun[try.]) {4}

In this way the effect on general wages in the country of adoption will be slight & transitory, trade will be in a prosperous condition, but in the other country employers will be badly off. And the gain in the new one will not (unless the country of adoption be eminently more suitable than the other) be as great as the loss in the other.

For there will be a net loss to the world of all those buildings & immoveables in the old country which stand idle after their evacuation by the labourers.

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I feel greatly the inadequacy of my investigation.

My object has been to cast a side light on the problem of distribution. So that I hope the discussion which will follow will not be confined to the partic[ular] prob[lem] I have suggested. At the same time if there is any point arising out of this particular problem, it would be perhaps [be best] {5} to get it out of the way before venturing on a wider field.

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1 wrapper, 26 sheets, 3 of them folded. The leaves are numbered 1–35. The wrapper is marked ‘Wages. Nov 5. 1896 | Cambridge Economic Society.’

{1} Inserted here is the note ‘(cf Walker 365)’, probably a reference to Francis A. Walker, The Wages Question: A Treatise on Wages and the Wages Class (New York, 1876).

{2} A circle has been drawn around this word, presumably to emphasise it.

{3} A slip for ‘will’.

{4} Followed by ‘(below)’, perhaps an indication that the point should be made later.

{5} Some such words appear to have been omitted here by mistake.

† Sic.

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