Progress and Poverty · Chapter
III: Wages Not Drawn from Capital, but Produced by the Labor explained
This chapter argues against the classical economic assumption that wages are drawn from capital, demonstrating instead that wages are produced by labor itself.
What happens
This chapter argues against the classical economic assumption that wages are drawn from capital, demonstrating instead that wages are produced by labor itself. Using examples from self-employment, payment in kind, and share systems, the author shows that wages are the product of labor, not an advance from capital. The chapter critiques Adam Smith for abandoning this insight and concludes that even in complex economies, wages are paid after labor has created value, so capital is never diminished.
Themes in this chapter
Wages and Labor
The chapter directly addresses the nature of wages, arguing they are produced by labor rather than drawn from capital.
Distribution of Wealth
By challenging the wage fund doctrine, the chapter reconsiders how wealth is distributed between laborers and capitalists.
Characters to notice
- Unknown
The narrator presents the argument that wages are produced by labor, using examples and critiquing Adam Smith.
- Adam Smith
Smith is cited for recognizing that in simple production, wages are the produce of labor, but criticized for abandoning this insight in favor of the view that wages are drawn from capital.
- Sir Henry Maine
Maine is referenced for his treatment of the saer-and-daer stock tenancy, illustrating payment in kind.
Key passages
“It is at first glance evident that the economic meaning of the term wages is lost sight of, and attention is concentrated upon the common and narrow meaning of the word, when it is affirmed that wages are drawn from capital.”
The common claim that wages come from capital overlooks the broader economic definition of wages, focusing only on the narrow, everyday sense.
The narrator critiques the wage fund doctrine for misdefining wages.
“Adam Smith, who gave the direction to economic thought that has resulted in the current elaborate theories of the relation between wages and capital, recognized the fact that in such simple cases as I have instanced, wages are the produce of labor...”
Adam Smith, whose ideas shaped modern wage-capital theories, acknowledged that in simple examples wages are the result of labor.
The narrator points out Smith's initial correct insight, which he later abandoned.
“The payment of wages, therefore, always implies the previous rendering of labor. Now, what does the rendering of labor in production imply? Evidently the production of wealth, which, if it is to be exchanged or used in production, is capital.”
Since wages are paid after work is done, labor must first produce wealth, which becomes capital. Thus wages are not an advance but a return.
The narrator argues that wages are paid from value already created by labor.