Wages-Fund Doctrine

One Division

The whole doctrine reduces to a fraction. The denominator is the number of workers, the numerator the capital laid out on wages. McCulloch put it in a sentence: 'Laborers are everywhere the divisor, capital the dividend.'

The premise is that the numerator is fixed in the short run. The part of circulating capital that will go to wages is already determined, so the total the working class will receive this year is settled before any bargaining begins.

The Work the Doctrine Was Doing

One conclusion follows. Trade unions cannot change the total. If one trade extracts more, another receives less or loses its jobs. A strike redistributes; at best among workers, at worst into unemployment.

This was an argument before it was a theory. When the legalisation of unions and the struggle over wages became political questions in mid-century Britain, the fraction served as a certificate that the struggle was arithmetically pointless. J. S. Mill's Principles of Political Economy (1848) gave it its definitive form.

Where Marx Answered Weston

In June 1865 a member of the General Council of the International, John Weston, put exactly this argument: raising wages is futile. Marx's reply, given in two sittings, was published later as Value, Price and Profit.

He begins by taking the premises apart: 'Citizen Weston's argument rested, in fact, upon two premises: firstly, the amount of national production is a fixed thing, a constant quantity or magnitude, as the mathematicians would say; secondly, that the amount of real wages, that is to say, of wages as measured by the quantity of the commodities they can buy, is a fixed amount, a constant magnitude.'

The first is simply untrue. ‘The amount or magnitude of national production changes continuously. It is not a constant but a variable magnitude.’ Because accumulation and the productive powers of labour keep changing, the second assumes what it has to prove: that the wage total is fixed is the proposition at issue, not a starting point.

Marx does not stop there. Having shown that wage struggle is possible, he states its limits at once. Workers 'are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady.' Yet to give up the fight would leave them 'degraded to one level mass of broken wretches past salvation'. The conclusion is the exchange of two slogans: instead of the conservative 'A fair day's wage for a fair day's work!', the banner should read 'Abolition of the wages system!'

Chapter 25 of Capital settles the same ground from another angle. What regulates the general movement of wages is not a fixed fund but the expansion and contraction of the industrial reserve army: not a sum set in advance, but the movement of accumulation.

Withdrawn by Its Own Author

The doctrine was killed not by its opponents but by the man who had written its definitive statement. In 1869, prompted by W. T. Thornton's On Labour, which he reviewed twice in The Fortnightly Review, J. S. Mill withdrew the wages fund as a 'prevailing and mischievous error', conceding that the fund is not fixed at all and can be supplemented out of income the employer would otherwise have saved or spent.

Why It Never Went Away

It left the textbooks and kept the reasoning: assume a fixed pie, then conclude from its fixity that the demand is pointless or harmful. Raise the minimum wage and jobs disappear one for one; a rise in one sector's wages comes out of another's share. Same fraction, new clothes.

What Marx demanded of Weston was not the opposite assertion but the premises. Is the pie in fact fixed, and if it is, what fixes it? A fraction that cannot get past those two questions is not a calculation but a conclusion.