Chapter III Wages Not Drawn from Capital, but Produced by the Labor

The importance of this digression will, I think, become more and more apparent as we proceed in our inquiry, but its pertinency to the branch we are now engaged in may at once be seen.

I think this digression will prove more and more important as we go on, but its bearing on our present question is plain at once.

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. For, in all those cases in which the laborer is his own employer and takes directly the produce of his labor as its reward, it is plain enough that wages are not drawn from capital, but result directly as the product of the labor. If, for instance, I devote my labor to gathering birds’ eggs or picking wild berries, the eggs or berries I thus get are my wages. Surely no one will contend that in such a case wages are drawn from capital. There is no capital in the case. An absolutely naked man, thrown on an island where no human being has before trod, may gather birds’ eggs or pick berries.

At first glance it is clear that those who say wages are drawn from capital have lost sight of the economic meaning of wages and looked only at the common, narrow one. Wherever the laborer is his own employer and takes the produce of his labor directly as his reward, wages obviously do not come from capital. They result directly as the product of the labor. If I devote my labor to gathering birds’ eggs or picking wild berries, the eggs or berries I get are my wages. Surely no one will claim that these wages are drawn from capital. There is no capital in the case. An absolutely naked man, thrown on an island where no human being has set foot before, may gather birds’ eggs or pick berries.

Or if I take a piece of leather and work it up into a pair of shoes, the shoes are my wages—the reward of my exertion. Surely they are not drawn from capital—either my capital or any one else’s capital—but are brought into existence by the labor of which they become the wages; and in obtaining this pair of shoes as the wages of my labor, capital is not even momentarily less50ened one iota. For, if we call in the idea of capital, my capital at the beginning consists of the piece of leather, the thread, etc. As my labor goes on, value is steadily added, until, when my labor results in the finished shoes, I have my capital plus the difference in value between the material and the shoes. In obtaining this additional value—my wages—how is capital at any time drawn upon?

Or suppose I take a piece of leather and work it into a pair of shoes. The shoes are my wages, the reward of my exertion. Surely they are not drawn from capital, mine or anyone else’s. They are brought into existence by the labor of which they become the wages. In getting this pair of shoes as the wages of my labor, capital is not even momentarily lessened50 by one iota. If we bring in the idea of capital, mine at the beginning consists of the leather, the thread and so on. As my labor goes on, value is steadily added. When the shoes are finished, I have my capital plus the difference in value between the material and the shoes. In obtaining this additional value, my wages, when is capital ever drawn upon?

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, and thus begins his chapter upon the wages of labor (Chapter VIII):

Adam Smith gave economic thought the direction that has led to today’s elaborate theories of the relation between wages and capital. He recognized that in simple cases like these, wages are the produce of labor. He begins his chapter on the wages of labor (Chapter VIII) this way:

“The produce of labor constitutes the natural recompense or wages of labor. In that original state of things which precedes both the appropriation of land and the accumulation of stock, the whole produce of labor belongs to the laborer. He has neither landlord nor master to share with him.”

“The produce of labor constitutes the natural recompense or wages of labor. In that original state of things which precedes both the appropriation of land and the accumulation of stock, the whole produce of labor belongs to the laborer. He has neither landlord nor master to share with him.”

Had the great Scotchman taken this as the initial point of his reasoning, and continued to regard the produce of labor as the natural wages of labor, and the landlord and master but as sharers, his conclusions would have been very different, and political economy to-day would not embrace such a mass of contradictions and absurdities; but instead of following the truth obvious in the simple modes of production as a clew through the perplexities of the more complicated forms, he momentarily recognizes it, only immediately to abandon it, and stating that “in every part of Europe twenty workmen serve under a master for one that is independent,” he recommences the inquiry from a point of view in which the master is considered as providing from his capital the wages of his workmen.

Suppose the great Scotchman had taken this as his starting point. Suppose he had gone on regarding the produce of labor as the natural wages of labor, and the landlord and master as mere sharers. Then his conclusions would have been very different, and economics today would not hold such a mass of contradictions and absurdities. The truth is obvious in simple modes of production, and he might have followed it as a clue through the perplexities of the complicated forms. Instead he recognizes it for a moment and abandons it. He states that “in every part of Europe twenty workmen serve under a master for one that is independent.” Then he starts the inquiry again from a point of view that treats the master as providing his workmen’s wages from his capital.

It is evident that in thus placing the proportion of51 self-employing workmen as but one in twenty, Adam Smith had in mind but the mechanic arts, and that, including all laborers, the proportion who take their earnings directly, without the intervention of an employer, must, even in Europe a hundred years ago, have been much greater than this. For, besides the independent laborers who in every community exist in considerable numbers, the agriculture of large districts of Europe has, since the time of the Roman Empire, been carried on by the metayer system, under which the capitalist receives his return from the laborer instead of the laborer from the capitalist. At any rate, in the United States, where any general law of wages must apply as fully as in Europe, and where in spite of the advance of manufactures a very large part of the people are yet self-employing farmers, the proportion of laborers who get their wages through an employer must be comparatively small.

Adam Smith clearly had only the mechanic arts in mind when he put the proportion of51 self-employing workmen at one in twenty. Counting all laborers, the proportion who take their earnings directly, without an employer, must have been much greater than this, even in Europe a hundred years ago. Besides the independent laborers found in considerable numbers everywhere, large districts of Europe have farmed under the metayer system since Roman times. Under it the capitalist receives his return from the laborer instead of the laborer from the capitalist. In any case, a general law of wages must apply in the United States as fully as in Europe. Despite the advance of manufactures, a very large part of Americans are still self-employing farmers. So the proportion of laborers who get their wages through an employer must be comparatively small.

But it is not necessary to discuss the ratio in which self-employing laborers anywhere stand to hired laborers, nor is it necessary to multiply illustrations of the truism that where the laborer takes directly his wages they are the product of his labor, for as soon as it is realized that the term wages includes all the earnings of labor, as well when taken directly by the laborer in the results of his labor as when received from an employer, it is evident that the assumption that wages are drawn from capital, on which as a universal truth such a vast superstructure is in standard politico-economic treatises so unhesitatingly built, is at least in large part untrue, and the utmost that can with any plausibility be affirmed, is that some wages, i.e. wages received by the laborer from an employer, are drawn from capital. This restriction of the major premise at once invalidates all the deductions that are made from it; but without resting here, let us see whether even in this restricted sense it accords with the facts. Let us pick up the clew where Adam Smith52 dropped it, and advancing step by step, see whether the relation of facts which is obvious in the simplest forms of production does not run through the most complex.

We need not discuss the ratio of self-employing laborers to hired ones, nor multiply illustrations of the truism that wages taken directly are the product of the laborer’s labor. Once we realize that wages include all the earnings of labor, whether taken directly in the results of the labor or received from an employer, one thing is clear. The assumption that wages are drawn from capital is at least in large part untrue. Standard economic treatises unhesitatingly build a vast superstructure on it as a universal truth. The most that can plausibly be said is that some wages, i.e. wages the laborer receives from an employer, are drawn from capital. This restriction of the major premise at once invalidates every deduction made from it. But let us not rest here. Let us see whether even in this restricted sense it accords with the facts. Let us pick up the clue where Adam Smith52 dropped it, and advance step by step. We can see whether the relation of facts that is obvious in the simplest forms of production does not run through the most complex.

Next in simplicity to “that original state of things,” of which many examples may yet be found, where the whole produce of labor belongs to the laborer, is the arrangement in which the laborer, though working for another person, or with the capital of another person, receives his wages in kind—that is to say, in the things his labor produces. In this case it is as clear as in the case of the self-employing laborer that the wages are really drawn from the product of the labor, and not at all from capital. If I hire a man to gather eggs, to pick berries, or to make shoes, paying him from the eggs, the berries, or the shoes that his labor secures, there can be no question that the source of the wages is the labor for which they are paid. Of this form of hiring is the saer-and-daer stock tenancy, treated of with such perspicuity by Sir Henry Maine in his “Early History of Institutions,” and which so clearly involved the relation of employer and employed as to render the acceptor of cattle the man or vassal of the capitalist who thus employed him. It was on such terms as these that Jacob worked for Laban, and to this day, even in civilized countries, it is not an infrequent mode of employing labor. The farming of land on shares, which prevails to a considerable extent in the Southern States of the Union and in California, the metayer system of Europe, as well as the many cases in which superintendents, salesmen, etc., are paid by a percentage of profits, what are they but the employment of labor for wages which consist of part of its produce?

Next in simplicity to “that original state of things,” of which many examples remain, comes an arrangement where the laborer works for another, or with another’s capital, but is paid in the things his labor produces. Here, as with the self-employing laborer, it is clear the wages are really drawn from the product of the labor, and not at all from capital. Suppose I hire a man to gather eggs, pick berries or make shoes, and pay him from the eggs, berries or shoes his labor secures. There can be no question that the source of his wages is the labor they are paid for. One example of this form of hiring is the saer-and-daer stock tenancy, an old arrangement in which cattle were lent out. The legal historian Sir Henry Maine treats it clearly in his “Early History of Institutions.” It so plainly involved the relation of employer and employed that the man who accepted the cattle became the man or vassal of the capitalist who employed him. Jacob worked for Laban on such terms, and even in civilized countries it is still not an unusual way of employing labor. Farming land on shares is common in the Southern States and in California, as is the metayer system in Europe. Superintendents, salesmen and others are often paid a percentage of profits. What are all these but employment of labor for wages that consist of part of its produce?

The next step in the advance from simplicity to complexity is where the wages, though estimated in kind, are paid in an equivalent of something else. For instance, on American whaling ships the custom is not to53 pay fixed wages, but a “lay,” or proportion of the catch, which varies from a sixteenth to a twelfth to the captain down to a three-hundredth to the cabin-boy. Thus, when a whaleship comes into New Bedford or San Francisco after a successful cruise, she carries in her hold the wages of her crew, as well as the profits of her owners, and an equivalent which will reimburse them for all the stores used up during the voyage. Can anything be clearer than that these wages—this oil and bone which the crew of the whaler have taken—have not been drawn from capital, but are really a part of the produce of their labor? Nor is this fact changed or obscured in the slightest degree where, as a matter of convenience, instead of dividing up between the crew their proportion of the oil and bone, the value of each man’s share is estimated at the market price, and he is paid for it in money. The money is but the equivalent of the real wages, the oil and bone. In no way is there any advance of capital in this payment. The obligation to pay wages does not accrue until the value from which they are to be paid is brought into port. At the moment when the owner takes from his capital money to pay the crew he adds to his capital oil and bone.

The next step from simplicity toward complexity is where wages are reckoned in kind but paid in an equivalent of something else. On American whaling ships, for instance, the custom is not to53 pay fixed wages but a “lay,” or proportion of the catch. It runs from a sixteenth to a twelfth for the captain down to a three-hundredth for the cabin-boy. So when a whaleship comes into New Bedford or San Francisco after a successful cruise, her hold carries her crew’s wages and her owners’ profits. It also carries an equivalent that will repay them for all the stores used up on the voyage. Nothing could be clearer than that these wages, the oil and bone the whaler’s crew have taken, are not drawn from capital. They are really part of the produce of the crew’s labor. Nothing changes if, for convenience, each man’s share is valued at the market price and paid in money instead of oil and bone. The money is only the equivalent of the real wages, the oil and bone. There is no advance of capital in this payment. The obligation to pay wages does not arise until the value they are to be paid from is brought into port. At the moment the owner takes money from his capital to pay the crew, he adds oil and bone to his capital.

So far there can be no dispute. Let us now take another step, which will bring us to the usual method of employing labor and paying wages.

So far there can be no dispute. Let us now take another step, which brings us to the usual method of employing labor and paying wages.

The Farallone Islands, off the Bay of San Francisco, are a hatching ground of sea-fowl, and a company who claim these islands employ men in the proper season to collect the eggs. They might employ these men for a proportion of the eggs they gather, as is done in the whale fishery and probably would do so if there were much uncertainty attending the business; but as the fowl are plentiful and tame, and about so many eggs can be gathered by so much labor, they find it more convenient to pay their men fixed wages. The men go out and re54main on the islands, gathering the eggs and bringing them to a landing, whence, at intervals of a few days, they are taken in a small vessel to San Francisco and sold. When the season is over the men return and are paid their stipulated wages in coin. Does not this transaction amount to the same thing as if, instead of being paid in coin, the stipulated wages were paid in an equivalent of the eggs gathered? Does not the coin represent the eggs, by the sale of which it was obtained, and are not these wages as much the product of the labor for which they are paid as the eggs would be in the possession of a man who gathered them for himself without the intervention of any employer?

The Farallone Islands, off the Bay of San Francisco, are a hatching ground of sea-fowl. A company that claims these islands employs men in the proper season to collect the eggs. It could pay these men a proportion of the eggs they gather, as is done in the whale fishery, and probably would if the business were very uncertain. But the fowl are plentiful and tame, and so much labor gathers about so many eggs. So the company finds it more convenient to pay fixed wages. The men go out and remain54 on the islands, gathering the eggs and bringing them to a landing. Every few days a small vessel takes the eggs to San Francisco to be sold. When the season is over, the men return and are paid their stipulated wages in coin. Does this not amount to the same thing as if the stipulated wages were paid in an equivalent of the eggs gathered, instead of in coin? The coin represents the eggs whose sale obtained it. These wages are as much the product of the labor as the eggs would be in the hands of a man who gathered them for himself.

To take another example, which shows by reversion the identity of wages in money with wages in kind. In San Buenaventura lives a man who makes an excellent living by shooting for their oil and skins the common hair seals which frequent the islands forming the Santa Barbara Channel. When on these sealing expeditions he takes two or three Chinamen along to help him, whom at first he paid wholly in coin. But it seems that the Chinese highly value some of the organs of the seal, which they dry and pulverize for medicine, as well as the long hairs in the whiskers of the male seal, which, when over a certain length, they greatly esteem for some purpose that to outside barbarians is not very clear. And this man soon found that the Chinamen were very willing to take instead of money these parts of the seals killed, so that now, in large part, he thus pays them their wages.

Here is another example, which shows by reversal that wages in money and wages in kind are the same. A man in San Buenaventura makes an excellent living shooting the common hair seals of the islands in the Santa Barbara Channel for their oil and skins. On these sealing expeditions he takes along two or three Chinese workers to help him, and at first he paid them wholly in coin. But the Chinese highly value some of the seal’s organs, which they dry and pulverize for medicine. They also value the long hairs in the male seal’s whiskers, if over a certain length, for some purpose that is not very clear to outside barbarians. This man soon found that the Chinese workers were very willing to take these parts of the seals killed instead of money. Now he pays their wages largely in this way.

Now, is not what may be seen in all these cases—the identity of wages in money with wages in kind—true of all cases in which wages are paid for productive labor? Is not the fund created by the labor really the fund from which the wages are paid?

Is what we see in all these cases, the identity of wages in money with wages in kind, not true of every case where wages are paid for productive labor? Is the fund created by the labor not really the fund the wages are paid from?

It may, perhaps, be said:55 “There is this difference— where a man works for himself, or where, when working for an employer, he takes his wages in kind, his wages depend upon the result of his labor. Should that, from any misadventure, prove futile, he gets nothing. When he works for an employer, however, he gets his wages anyhow—they depend upon the performance of the labor, not upon the result of the labor.” But this is evidently not a real distinction. For on the average, the labor that is rendered for fixed wages not only yields the amount of the wages, but more; else employers could make no profit. When wages are fixed, the employer takes the whole risk and is compensated for this assurance, for wages when fixed are always somewhat less than wages contingent. But though when fixed wages are stipulated the laborer who has performed his part of the contract has usually a legal claim upon the employer, it is frequently, if not generally, the case that the disaster which prevents the employer from reaping benefit from the labor prevents him from paying the wages. And in one important department of industry the employer is legally exempt in case of disaster, although the contract be for wages certain and not contingent. For the maxim of admiralty law is, that “freight is the mother of wages,” and though the seaman may have performed his part, the disaster which prevents the ship from earning freight deprives him of claim for his wages.

Perhaps someone will say:55 “There is this difference. Where a man works for himself, or works for an employer and takes his wages in kind, his wages depend on the result of his labor. If it somehow proves futile, he gets nothing. When he works for an employer, however, he gets his wages anyhow. They depend on performing the labor, not on its result.” But this is clearly not a real distinction. On average, labor rendered for fixed wages yields not only the amount of the wages but more, or employers could make no profit. When wages are fixed, the employer takes the whole risk and is paid for this assurance, since fixed wages are always somewhat less than contingent wages. When fixed wages are stipulated, the laborer who has done his part usually has a legal claim on the employer. Yet often, if not generally, the disaster that stops the employer from reaping any benefit from the labor also stops him from paying the wages. In one important branch of industry the employer is even legally exempt in case of disaster, though the contract is for wages certain and not contingent. The maxim of admiralty law is that “freight is the mother of wages.” The seaman may have done his part, but a disaster that keeps the ship from earning freight leaves him no claim to his wages.

In this legal maxim is embodied the truth for which I am contending. Production is always the mother of wages. Without production, wages would not and could not be. It is from the produce of labor, not from the advances of capital that wages come.

This legal maxim embodies the truth I am arguing for. Production is always the mother of wages. Without production, wages would not and could not be. Wages come from the produce of labor, not from advances of capital.

Wherever we analyze the facts this will be found to be true. For labor always precedes wages. This is as universally true of wages received by the laborer from an employer as it is of wages taken directly by the laborer who is his own employer. In the one class of cases as56 in the other, reward is conditioned upon exertion. Paid sometimes by the day, oftener by the week or month, occasionally by the year, and in many branches of production by the piece, the payment of wages by an employer to an employee always implies the previous rendering of labor by the employee for the benefit of the employer, for the few cases in which advance payments are made for personal services are evidently referable either to charity or to guarantee and purchase. The name “retainer,” given to advance payments to lawyers, shows the true character of the transaction, as does the name “blood money” given in ’longshore vernacular to a payment which is nominally wages advanced to sailors, but which in reality is purchase money—both English and American law considering a sailor as much a chattel as a pig.

Wherever we analyze the facts, this proves true. Labor always precedes wages. This is as universally true of wages a laborer receives from an employer as of wages a laborer takes directly as his own employer. In both kinds of cases56 reward depends on exertion. An employer pays wages sometimes by the day, more often by the week or month, occasionally by the year, and in many branches of production by the piece. In every case the payment implies that the employee has already done labor for the employer’s benefit. The few cases where personal services are paid for in advance clearly come from either charity or guarantee and purchase. The name “retainer” for advance payments to lawyers shows the true character of the transaction. So does the ’longshore name “blood money” for a payment that is nominally wages advanced to sailors but is really purchase money. English and American law consider a sailor as much a chattel as a pig.

I dwell on this obvious fact that labor always precedes wages, because it is all-important to an understanding of the more complicated phenomena of wages that it should be kept in mind. And obvious as it is, as I have put it, the plausibility of the proposition that wages are drawn from capital—a proposition that is made the basis for such important and far-reaching deductions—comes in the first instance from a statement that ignores and leads the attention away from this truth. That statement is, that labor cannot exert its productive power unless supplied by capital with maintenance.9 The unwary reader57 at once recognizes the fact that the laborer must have food, clothing, etc., in order to enable him to perform the work, and having been told that the food, clothing, etc., used by productive laborers are capital, he assents to the conclusion that the consumption of capital is necessary to the application of labor, and from this it is but an obvious deduction that industry is limited by capital—that the demand for labor depends upon the supply of capital, and hence that wages depend upon the ratio between the number of laborers looking for employment and the amount of capital devoted to hiring them.

I dwell on this obvious fact, that labor always precedes wages, because we must keep it in mind to understand the more complicated phenomena of wages. The proposition that wages are drawn from capital, the basis of important and far-reaching deductions, seems plausible only because of a statement that ignores this truth. The statement is that labor cannot exert its productive power unless capital supplies it with maintenance.9 The unwary reader57 at once sees that the laborer must have food, clothing and so on to do the work. He has been told that this food and clothing is capital, so he accepts that consuming capital is necessary to applying labor. It seems an obvious deduction that capital limits industry. Then the demand for labor depends on the supply of capital. And wages depend on the ratio between the number of laborers seeking employment and the amount of capital devoted to hiring them.

But I think the discussion in the previous chapter will enable any one to see wherein lies the fallacy of this reasoning—a fallacy which has entangled some of the most acute minds in a web of their own spinning. It is in the use of the term capital in two senses. In the primary proposition that capital is necessary to the exertion of productive labor, the term “capital” is understood as including all food, clothing, shelter, etc.; whereas, in the deductions finally drawn from it, the term is used in its common and legitimate meaning of wealth devoted, not to the immediate gratification of desire, but to the procurement of more wealth—of wealth in the hands of employers as distinguished from laborers. The conclusion is no more valid than it would be from the acceptance of the proposition that a laborer cannot go to work without his breakfast and some clothes, to infer that no more laborers can go to work than employers first furnish with breakfasts and clothes. Now, the fact is that laborers generally furnish their own breakfasts and the clothes in which they go to work; and the further fact is that58 capital (in the sense in which the word is used in distinction to labor) in exceptional cases sometimes may, but is never compelled to make advances to labor before the work begins. Of all the vast number of unemployed laborers in the civilized world to-day, there is probably not a single one willing to work who could not be employed without any advance of wages. A great proportion would doubtless gladly go to work on terms which did not require the payment of wages before the end of a month; it is doubtful if there are enough to be called a class who would not go to work and wait for their wages until the end of the week, as most laborers habitually do; while there are certainly none who would not wait for their wages until the end of the day, or if you please, until the next meal hour. The precise time of the payment of wages is immaterial; the essential point—the point I lay stress on—is that it is after the performance of work.

But I think the discussion in the previous chapter lets anyone see the fallacy in this reasoning. It has entangled some of the most acute minds in a web of their own spinning. The fallacy is in using the term capital in two senses. In the first proposition, that capital is necessary to the exertion of productive labor, “capital” includes all food, clothing, shelter and so on. In the deductions finally drawn from it, the term has its common and legitimate meaning. That is wealth devoted not to immediate gratification but to procuring more wealth, wealth in the hands of employers as distinct from laborers. The conclusion is as invalid as this inference. A laborer cannot go to work without breakfast and clothes, so no more laborers can go to work than employers first supply with breakfasts and clothes. In fact laborers generally furnish their own breakfasts and the clothes they go to work in. Capital (in the sense in which the word is used as opposed to labor) may in exceptional cases make advances to labor before the work begins58 but is never compelled to. Among the vast number of unemployed laborers in the civilized world today, probably not one willing to work could fail to be employed without any advance of wages. Doubtless most would gladly work on terms that paid no wages before the end of a month. Hardly enough to call a class would refuse to wait for their wages until the end of the week, as most laborers habitually do. There are certainly none who would not wait for their wages until the end of the day, or if you please, until the next meal hour. The precise time of payment is immaterial. The essential point, the one I stress, is that it comes after the work is done.

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. Therefore, the payment of capital in wages pre-supposes a production of capital by the labor for which the wages are paid. And as the employer generally makes a profit, the payment of wages is, so far as he is concerned, but the return to the laborer of a portion of the capital he has received from the labor. So far as the employee is concerned, it is but the receipt of a portion of the capital his labor has previously produced. As the value paid in the wages is thus exchanged for a value brought into being by the labor, how can it be said that wages are drawn from capital or advanced by capital? As in the exchange of labor for wages the employer always gets the capital created by the labor before59 he pays out capital in the wages, at what point is his capital lessened even temporarily?10

Paying wages, then, always implies that labor was rendered beforehand. What does rendering labor in production imply? Clearly the production of wealth, which is capital if it is to be exchanged or used in production. So paying capital in wages presupposes that the labor the wages are paid for produced capital. The employer generally makes a profit, so for him paying wages is only returning to the laborer a portion of the capital he received from the labor. For the employee it is only receiving a portion of the capital his labor has already produced. The value paid in wages is exchanged for a value the labor brought into being. How can anyone say wages are drawn from capital or advanced by capital? In exchanging labor for wages, the employer always gets the capital the labor created before59 he pays out capital in wages. At what point is his capital lessened even temporarily?10

Bring the question to the test of facts. Take, for instance, an employing manufacturer who is engaged in turning raw material into finished products—cotton into cloth, iron into hardware, leather into boots, or so on, as may be, and who pays his hands, as is generally the case, once a week. Make an exact inventory of his capital on Monday morning before the beginning of work, and it will consist of his buildings, machinery, raw materials, money on hand, and finished products in stock. Suppose, for the sake of simplicity, that he neither buys nor sells during the week, and after work has stopped and he has paid his hands on Saturday night, take a new inventory of his capital. The item of money will be less, for it has been paid out in wages; there will be less raw material, less coal, etc., and a proper deduction must be made from the value of the buildings and machinery for the week’s wear and tear. But if he is doing a remunerative business, which must on the average be the case, the item of finished products will be so much greater as to compensate for all these deficiencies and show in the summing up an increase of capital. Manifestly, then, the value he paid his hands in wages was not drawn from60 his capital, or from any one else’s capital. It came, not from capital, but from the value created by the labor itself. There was no more advance of capital than if he had hired his hands to dig clams, and paid them with a part of the clams they dug. Their wages were as truly the produce of their labor as were the wages of the primitive man, when, long “before the appropriation of land and the accumulation of stock,” he obtained an oyster by knocking it with a stone from the rocks.

Bring the question to the test of facts. Take a manufacturer who employs hands to turn raw material into finished products, such as cotton into cloth, iron into hardware or leather into boots. Suppose he pays his hands once a week, as is generally the case. Make an exact inventory of his capital on Monday morning before work begins. It consists of his buildings, machinery, raw materials, money on hand and finished products in stock. Suppose, for simplicity, that he neither buys nor sells during the week. Take a new inventory of his capital after work has stopped and he has paid his hands on Saturday night. The item of money will be less, for it has been paid out in wages. There will be less raw material and coal, and we must deduct a proper amount from the buildings and machinery for the week’s wear and tear. But if his business is remunerative, as it must be on average, the finished products will be so much greater that they make up for all this. The sum shows an increase of capital. Plainly, then, the value he paid his hands in wages was not drawn from60 his capital or anyone else’s. It came not from capital but from the value the labor itself created. There was no more advance of capital than if he had hired his hands to dig clams and paid them with part of the clams they dug. Their wages were as truly the produce of their labor as the oyster was for primitive man, who, long “before the appropriation of land and the accumulation of stock,” knocked it off the rocks with a stone.

As the laborer who works for an employer does not get his wages until he has performed the work, his case is similar to that of the depositor in a bank who cannot draw money out until he has put money in. And as by drawing out what he has previously put in, the bank depositor does not lessen the capital of the bank, neither can laborers by receiving wages lessen even temporarily either the capital of the employer or the aggregate capital of the community. Their wages no more come from capital than the checks of depositors are drawn against bank capital. It is true that laborers in receiving wages do not generally receive back wealth in the same form in which they have rendered it, any more than bank depositors receive back the identical coins or bank notes they have deposited, but they receive it in equivalent form, and as we are justified in saying that the depositor receives from the bank the money he paid in, so are we justified in saying that the laborer receives in wages the wealth he has rendered in labor.

A laborer who works for an employer does not get his wages until he has done the work. His case is like that of a bank depositor, who cannot draw money out until he has put money in. The depositor, by drawing out what he put in, does not lessen the bank’s capital. In the same way, laborers by receiving wages cannot lessen, even temporarily, either the employer’s capital or the community’s total capital. Their wages come from capital no more than depositors’ checks are drawn against the bank’s capital. It is true that laborers receiving wages do not generally get back wealth in the same form in which they rendered it. Neither do bank depositors get back the identical coins or bank notes they deposited. But they receive it in equivalent form. We rightly say the depositor receives from the bank the money he paid in, and we may as rightly say the laborer receives in wages the wealth he rendered in labor.

That this universal truth is so often obscured, is largely due to that fruitful source of economic obscurities, the confounding of wealth with money; and it is remarkable to see so many of those who, since Dr. Adam Smith made the egg stand on its head, have copiously demonstrated the fallacies of the mercantile system, fall into delusions of the very same kind in treating of the relations of capital and labor. Money being the general61 medium of exchanges, the common flux through which all transmutations of wealth from one form to another take place, whatever difficulties may exist to an exchange will generally show themselves on the side of reduction to money, and thus it is sometimes easier to exchange money for any other form of wealth than it is to exchange wealth in a particular form into money, for the reason that there are more holders of wealth who desire to make some exchange than there are who desire to make any particular exchange. And so a producing employer who has paid out his money in wages may sometimes find it difficult to turn quickly back into money the increased value for which his money has really been exchanged, and is spoken of as having exhausted or advanced his capital in the payment of wages. Yet, unless the new value created by the labor is less than the wages paid, which can be only an exceptional case, the capital which he had before in money he now has in goods—it has been changed in form, but not lessened.

This universal truth is so often obscured largely because of a fruitful source of economic obscurity: confusing wealth with money. Since Dr. Adam Smith made the egg stand on its head, as Columbus did, many writers have copiously demonstrated the fallacies of the mercantile system, the old belief that wealth is money. It is remarkable how many of them fall into delusions of the very same kind when they treat the relations of capital and labor. Money is the general61 medium of exchange, the common flux through which every transmutation of wealth from one form to another takes place. So any difficulty in an exchange will generally show itself on the side of reduction to money. It is sometimes easier to exchange money for any other form of wealth than to exchange wealth in a particular form into money. The reason is that more holders of wealth want to make some exchange than want to make any particular exchange. So a producing employer who has paid out his money in wages may find it hard to turn the increased value, for which his money was really exchanged, quickly back into money. He is then said to have exhausted or advanced his capital in paying wages. Only in an exceptional case is the new value the labor created less than the wages paid. Otherwise he now has in goods the capital he had before in money. It has changed in form, but it has not lessened.

There is one branch of production in regard to which the confusions of thought which arise from the habit of estimating capital in money are least likely to occur, inasmuch as its product is the general material and standard of money. And it so happens that this business furnishes us, almost side by side, with illustrations of production passing from the simplest to most complex forms.

In one branch of production the confusions that come from estimating capital in money are least likely to occur, since its product is the general material and standard of money. This business happens to give us, almost side by side, illustrations of production passing from the simplest to the most complex forms.

In the early days of California, as afterward in Australia, the placer miner, who found in river bed or surface deposit the glittering particles which the slow processes of nature had for ages been accumulating, picked up or washed out his “wages” (so, too, he called them) in actual money, for coin being scarce, gold dust passed as currency by weight, and at the end of the day had his wages in money in a buckskin bag in his pocket. There can be no dispute as to whether these wages came from62 capital or not. They were manifestly the produce of his labor. Nor could there be any dispute when the holder of a specially rich claim hired men to work for him and paid them off in the identical money which their labor had taken from gulch or bar. As coin became more abundant, its greater convenience in saving the trouble and loss of weighing assigned gold dust to the place of a commodity, and with coin obtained by the sale of the dust their labor had procured, the employing miner paid off his hands. Where he had coin enough to do so, instead of selling his gold dust at the nearest store and paying a dealer’s profit, he retained it until he got enough to take a trip, or send by express to San Francisco, where at the mint he could have it turned into coin without charge. While thus accumulating gold dust he was lessening his stock of coin; just as the manufacturer, while accumulating a stock of goods, lessens his stock of money. Yet no one would be obtuse enough to imagine that in thus taking in gold dust and paying out coin the miner was lessening his capital.

In the early days of California, as later in Australia, the placer miner found glittering particles that nature’s slow processes had accumulated for ages in a river bed or surface deposit. He picked up or washed out his “wages” (he called them that too) in actual money. Coin was scarce and gold dust passed as currency by weight. At the end of the day he had his wages in a buckskin bag in his pocket. There can be no dispute whether these wages came from62 capital. They were plainly the produce of his labor. Nor could there be any dispute when the holder of a rich claim hired men and paid them in the identical money their labor had taken from gulch or bar. As coin became more abundant, its convenience in saving the trouble and loss of weighing moved gold dust into the place of a commodity. The employing miner then paid off his hands with coin obtained by selling the dust their labor had procured. Where he had enough coin to do so, he did not sell his gold dust at the nearest store and pay a dealer’s profit. He kept it until he had enough to take a trip, or send by express, to San Francisco, where the mint would turn it into coin without charge. While accumulating gold dust he was lessening his stock of coin, as the manufacturer lessens his stock of money while accumulating a stock of goods. Yet no one would be obtuse enough to imagine that the miner lessened his capital by taking in gold dust and paying out coin.

But the deposits that could be worked without preliminary labor were soon exhausted, and gold mining rapidly took a more elaborate character. Before claims could be opened so as to yield any return deep shafts had to be sunk, great dams constructed, long tunnels cut through the hardest rock, water brought for miles over mountain ridges and across deep valleys, and expensive machinery put up. These works could not be constructed without capital. Sometimes their construction required years, during which no return could be hoped for, while the men employed had to be paid their wages every week, or every month. Surely, it will be said, in such cases, even if in no others, that wages do actually come from capital; are actually advanced by capital; and must necessarily lessen capital in their payment! Surely here,63 at least, industry is limited by capital, for without capital such works could not be carried on! Let us see:

But the deposits that could be worked without preliminary labor were soon exhausted, and gold mining rapidly became more elaborate. Before claims could yield any return, miners had to sink deep shafts and build great dams. They had to cut long tunnels through the hardest rock, bring water for miles over mountain ridges and across deep valleys, and put up expensive machinery. These works could not be built without capital. Sometimes building them took years, during which no return could be hoped for, while the men employed had to be paid their wages every week or every month. Surely, it will be said, in such cases wages do come from capital. Capital does advance them, and paying them must lessen capital. Surely here,63 at least, industry is limited by capital, for without capital such works could not be carried on. Let us see.

It is cases of this class that are always instanced as showing that wages are advanced from capital. For where wages are paid before the object of the labor is obtained, or is finished—as in agriculture, where plowing and sowing must precede by several months the harvesting of the crop; as in the erection of buildings, the construction of ships, railroads, canals, etc.—it is clear that the owners of the capital paid in wages cannot expect an immediate return, but, as the phrase is, must “outlay it,” or “lie out of it” for a time, which sometimes amounts to many years. And hence, if first principles are not kept in mind, it is easy to jump to the conclusion that wages are advanced by capital.

Cases of this class are always cited to show that wages are advanced from capital. Wages are sometimes paid before the object of the labor is obtained or finished. In agriculture, plowing and sowing come several months before the harvest. So it is with erecting buildings and constructing ships, railroads, canals and the like. In these cases the owners of the capital paid in wages clearly cannot expect an immediate return. As the phrase goes, they must “outlay it” or “lie out of it” for a time, which sometimes amounts to many years. So if we forget first principles, it is easy to jump to the conclusion that capital advances wages.

But such cases will not embarrass the reader to whom in what has preceded I have made myself clearly understood. An easy analysis will show that these instances where wages are paid before the product is finished, or even produced, do not afford any exception to the rule apparent where the product is finished before wages are paid.

But such cases will not embarrass a reader who has understood what I have said so far. A simple analysis will show that wages paid before the product is finished are no exception to the rule plain where the product is finished first.

If I go to a broker to exchange silver for gold, I lay down my silver, which he counts and puts away, and then hands me the equivalent in gold, minus his commission. Does the broker advance me any capital? Manifestly not. What he had before in gold he now has in silver, plus his profit. And as he got the silver before he paid out the gold, there is on his part not even momentarily an advance of capital.

Suppose I go to a broker to exchange silver for gold. I lay down my silver, which he counts and puts away, and then he hands me the equivalent in gold, minus his commission. Does the broker advance me any capital? Clearly not. What he had before in gold he now has in silver, plus his profit. He got the silver before he paid out the gold, so he does not advance capital to me even for a moment.

Now, this operation of the broker is precisely analogous to what the capitalist does, when, in such cases as we are now considering, he pays out capital in wages. As the rendering of labor precedes the payment of wages, and as the rendering of labor in production implies the64 creation of value, the employer receives value before he pays out value—he but exchanges capital of one form for capital of another form. For the creation of value does not depend upon the finishing of the product; it takes place at every stage of the process of production, as the immediate result of the application of labor, and hence, no matter how long the process in which it is engaged, labor always adds to capital by its exertion before it takes from capital in its wages.

The broker’s operation is exactly like what the capitalist does when, in cases like these, he pays out capital in wages. Labor is rendered before wages are paid, and rendering labor in production implies the64 creation of value. So the employer receives value before he pays out value. He only exchanges capital of one form for capital of another form. The creation of value does not wait for the product to be finished. It takes place at every stage of production, as the immediate result of applying labor. So however long the process, labor always adds to capital by its exertion before it takes from capital in its wages.

Here is a blacksmith at his forge making picks. Clearly he is making capital—adding picks to his employer’s capital before he draws money from it in wages. Here is a machinist or boilermaker working on the keel-plates of a Great Eastern. Is not he also just as clearly creating value—making capital? The giant steamship, as the pick, is an article of wealth, an instrument of production, and though the one may not be completed for years, while the other is completed in a few minutes, each day’s work, in the one case as in the other, is as clearly a production of wealth—an addition to capital. In the case of the steamship, as in the case of the pick, it is not the last blow, any more than the first blow, that creates the value of the finished product—the creation of value is continuous, it immediately results from the exertion of labor.

Here is a blacksmith at his forge making picks. Clearly he is making capital, adding picks to his employer’s capital before he draws money from it in wages. Here is a machinist or boilermaker working on the keel-plates of a Great Eastern. Is he not just as clearly creating value and making capital? The giant steamship, like the pick, is an article of wealth and an instrument of production. One may not be finished for years and the other in a few minutes. But in each case a day’s work is as clearly a production of wealth, an addition to capital. With the steamship as with the pick, the last blow does not create the value of the finished product any more than the first blow does. The creation of value is continuous and results immediately from the exertion of labor.

We see this very clearly wherever the division of labor has made it customary for different parts of the full process of production to be carried on by different sets of producers—that is to say, wherever we are in the habit of estimating the amount of value which the labor expended in any preparatory stage of production has created. And a moment’s reflection will show that this is the case as to the vast majority of products. Take a ship, a building, a jackknife, a book, a lady’s thimble or a loaf of bread. They are finished products. But they were not produced at one operation or by one set of pro65ducers. And this being the case, we readily distinguish different points or stages in the creation of the value which as completed articles they represent. When we do not distinguish different parts in the final process of production we do distinguish the value of the materials. The value of these materials may often be again decomposed many times, exhibiting as many clearly defined steps in the creation of the final value. At each of these steps we habitually estimate a creation of value, an addition to capital. The batch of bread which the baker is taking from the oven has a certain value. But this is composed in part of the value of the flour from which the dough was made. And this again is composed of the value of the wheat, the value given by milling, etc. Iron in the form of pigs is very far from being a completed product. It must yet pass through several, or, perhaps, through many, stages of production before it results in the finished articles that were the ultimate objects for which the iron ore was extracted from the mine. Yet, is not pig iron capital? And so the process of production is not really completed when a crop of cotton is gathered, nor yet when it is ginned and pressed; nor yet when it arrives at Lowell or Manchester; nor yet when it is converted into yarn; nor yet when it becomes cloth; but only when it is finally placed in the hands of the consumer. Yet at each step in this progress there is clearly enough a creation of value—an addition to capital. Why, therefore, although we do not so habitually distinguish and estimate it, is there not a creation of value—an addition to capital—when the ground is plowed for the crop? Is it because it may possibly be a bad season and the crop may fail? Evidently not; for a like possibility of misadventure attends every one of the many steps in the production of the finished article. On the average a crop is sure to come up, and so much plowing and sowing will on the average result in so much cotton66 in the boll, as surely as so much spinning of cotton yarn will result in so much cloth.

We see this very clearly wherever the division of labor has made it customary for different sets of producers to carry on different parts of the full process. In such cases we are in the habit of estimating the value the labor created in any preparatory stage. A moment’s reflection will show that this is the case for the vast majority of products. Take a ship, a building, a jackknife, a book, a lady’s thimble or a loaf of bread. They are finished products. But one operation or one set of producers65 did not produce them. So we readily distinguish different points or stages in the creation of the value they represent as completed articles. Even when we do not distinguish different parts in the final process of production, we distinguish the value of the materials. The value of these materials can often be broken down again many times, showing as many clearly defined steps in the creation of the final value. At each step we habitually estimate a creation of value, an addition to capital. The batch of bread the baker is taking from the oven has a certain value. But this is composed in part of the value of the flour the dough was made from. That in turn is composed of the value of the wheat, the value given by milling and so on. Iron in pigs is very far from a completed product. It must pass through several, or perhaps many, stages of production before it becomes the finished articles that were the ultimate object of extracting the iron ore. Yet is pig iron not capital? Likewise the process of production is not really complete when a crop of cotton is gathered. Nor is it complete when the cotton is ginned and pressed, when it arrives at Lowell or Manchester, when it is converted into yarn, or when it becomes cloth. It is complete only when it is finally placed in the hands of the consumer. Yet at each step there is clearly a creation of value, an addition to capital. We do not habitually distinguish and estimate it. Why, then, is there not a creation of value, an addition to capital, when the ground is plowed for the crop? Is it because the season may be bad and the crop may fail? Clearly not, since the same possibility of misadventure attends every one of the many steps in producing the finished article. On average a crop is sure to come up. So much plowing and sowing will result in so much cotton66 in the boll, as surely as so much spinning will result in so much cloth.

In short, as the payment of wages is always conditioned upon the rendering of labor, the payment of wages in production, no matter how long the process, never involves any advance of capital, or even temporarily lessens capital. It may take a year, or even years, to build a ship, but the creation of value of which the finished ship will be the sum goes on day by day, and hour by hour, from the time the keel is laid or even the ground is cleared. Nor by the payment of wages before the ship is completed, does the master builder lessen either his capital or the capital of the community, for the value of the partially completed ship stands in place of the value paid out in wages. There is no advance of capital in this payment of wages, for the labor of the workmen during the week or month creates and renders to the builder more capital than is paid back to them at the end of the week or month, as is shown by the fact that if the builder were at any stage of the construction asked to sell a partially completed ship he would expect a profit.

In short, paying wages always depends on labor having been rendered. So paying wages in production, however long the process, never involves any advance of capital or even temporarily lessens capital. It may take a year, or even years, to build a ship. But the creation of value that the finished ship will sum up goes on hour by hour, from the time the keel is laid or even the ground is cleared. Paying wages before the ship is completed does not lessen the master builder’s capital or the community’s. The value of the partly completed ship stands in place of the value paid out. There is no advance of capital in this payment of wages. The workmen’s labor during the week or month creates and renders to the builder more capital than is paid back to them at the end of it. We know this because if the builder were asked at any stage of construction to sell a partly completed ship, he would expect a profit.

And so, when a Sutro or St. Gothard tunnel or a Suez canal is cut, there is no advance of capital. The tunnel or canal, as it is cut, becomes capital as much as the money spent in cutting it—or, if you please, the powder, drills, etc., used in the work, and the food, clothes, etc., used by the workmen—as is shown by the fact that the value of the capital stock of the company is not lessened as capital in these forms is gradually changed into capital in the form of tunnel or canal. On the contrary, it probably, and on the average, increases as the work progresses, just as the capital invested in a speedier mode of production would on the average increase.

And so when a Sutro or St. Gothard tunnel or a Suez canal is cut, there is no advance of capital. As it is cut, the tunnel or canal becomes capital as much as the money spent cutting it does. Or, if you please, so do the powder, drills and so on used in the work, and the food, clothes and so on used by the workmen. The value of the company’s capital stock is not lessened as capital in these forms is gradually changed into capital in the form of tunnel or canal. On the contrary, on average it increases as the work progresses, as would the capital invested in a speedier mode of production.

And this is obvious in agriculture also. That the67 creation of value does not take place all at once when the crop is gathered, but step by step during the whole process which the gathering of the crop concludes, and that no payment of wages in the interim lessens the farmer’s capital, is tangible enough when land is sold or rented during the process of production, as a plowed field will bring more than an unplowed field, or a field that has been sown more than one merely plowed. It is tangible enough when growing crops are sold, as is sometimes done, or where the farmer does not harvest himself, but lets a contract to the owner of harvesting machinery. It is tangible in the case of orchards and vineyards which, though not yet in bearing, bring prices proportionate to their age. It is tangible in the case of horses, cattle and sheep, which increase in value as they grow toward maturity. And if not always tangible between what may be called the usual exchange points in production, this increase of value as surely takes place with every exertion of labor. Hence, where labor is rendered before wages are paid, the advance of capital is really made by labor, and is from the employed to the employer, not from the employer to the employed.

This is obvious in agriculture too. Value is not created all at once when the crop is gathered but step by step through the whole process the harvest concludes. No payment of wages in the meantime lessens the farmer’s capital. This67 is tangible enough when land is sold or rented during production, since a plowed field brings more than an unplowed one, and a sown field more than one merely plowed. It is tangible when growing crops are sold, as is sometimes done, or when the farmer lets a contract to the owner of harvesting machinery instead of harvesting himself. It is tangible in orchards and vineyards, which bring prices in proportion to their age even before they bear. It is tangible in horses, cattle and sheep, which increase in value as they grow toward maturity. Even where it is not always tangible between what may be called the usual exchange points in production, this increase of value surely takes place with every exertion of labor. So where labor is rendered before wages are paid, labor really makes the advance of capital. It goes from the employed to the employer, not from the employer to the employed.

“Yet,” it may be said, “in such cases as we have been considering capital is required!” Certainly; I do not dispute that. But it is not required in order to make advances to labor. It is required for quite another purpose. What that purpose is we may readily see.

“Yet,” it may be said, “in such cases as we have been considering capital is required.” Certainly; I do not dispute that. But it is not required to make advances to labor. It is required for quite another purpose, and we can readily see what it is.

When wages are paid in kind—that is to say, in wealth of the same species as the labor produces; as, for instance, if I hire men to cut wood, agreeing to give them as wages a portion of the wood they cut, a method sometimes adopted by the owners or lessees of woodland, it is evident that no capital is required for the payment of wages. Nor yet when, for the sake of mutual convenience, arising from the fact that a large quantity of wood can be more readily and more advantageously exchanged68 than a number of small quantities, I agree to pay wages in money, instead of wood, shall I need any capital, provided I can make the exchange of the wood for money before the wages are due. It is only when I cannot make such an exchange, or such an advantageous exchange as I desire, until I accumulate a large quantity of wood that I shall need capital. Nor even then shall I need capital if I can make a partial or tentative exchange by borrowing on my wood. If I cannot, or do not choose, either to sell the wood or to borrow upon it, and yet wish to go ahead accumulating a large stock of wood, I shall need capital. But manifestly, I need this capital, not for the payment of wages, but for the accumulation of a stock of wood. Likewise in cutting a tunnel. If the workmen were paid in tunnel (which, if convenient, might easily be done by paying them in stock of the company), no capital for the payment of wages would be required. It is only when the undertakers wish to accumulate capital in the shape of a tunnel that they will need capital. To recur to our first illustration: The broker to whom I sell my silver cannot carry on his business without capital. But he does not need this capital because he makes any advance of capital to me when he receives my silver and hands me gold. He needs it because the nature of the business requires the keeping of a certain amount of capital on hand, in order that when a customer comes he may be prepared to make the exchange the customer desires.

Suppose wages are paid in kind, that is, in wealth of the same species the labor produces. For instance, I hire men to cut wood and agree to pay them part of the wood they cut, a method owners or lessees of woodland sometimes use. Then clearly no capital is needed to pay the wages. Suppose that for mutual convenience I agree to pay wages in money instead of wood. A large quantity of wood can be exchanged more readily and more advantageously68 than a number of small quantities. Even then I shall need no capital, provided I can exchange the wood for money before the wages are due. I shall need capital only when I cannot make such an exchange, or as advantageous an exchange as I want, until I have accumulated a large quantity of wood. Even then I shall not need capital if I can make a partial or tentative exchange by borrowing on my wood. Suppose I cannot, or choose not to, sell the wood or borrow on it, and yet wish to keep accumulating a large stock of wood. Then I shall need capital. But plainly I need it not to pay wages but to accumulate a stock of wood. It is the same in cutting a tunnel. If the workmen were paid in tunnel, which could easily be done if convenient by paying them in stock of the company, no capital would be needed to pay wages. The undertakers will need capital only when they wish to accumulate capital in the shape of a tunnel. To go back to our first illustration, the broker to whom I sell my silver cannot carry on his business without capital. But he does not need it because he advances me any capital when he receives my silver and hands me gold. He needs it because his business requires keeping a certain amount of capital on hand, so he is ready when a customer comes to make the exchange the customer wants.

And so we shall find it in every branch of production. Capital has never to be set aside for the payment of wages when the produce of the labor for which the wages are paid is exchanged as soon as produced; it is only required when this produce is stored up, or what is to the individual the same thing, placed in the general current of exchanges without being at once drawn against—that is, sold on credit. But the capital thus required is69 not required for the payment of wages, nor for advances to labor, as it is always represented in the produce of the labor. It is never as an employer of labor that any producer needs capital; when he does need capital, it is because he is not only an employer of labor, but a merchant or speculator in, or an accumulator of, the products of labor. This is generally the case with employers.

We shall find the same in every branch of production. Capital never has to be set aside to pay wages when the produce of the labor is exchanged as soon as it is produced. It is needed only when this produce is stored up. It is needed also when the produce is placed in the general current of exchanges without being at once drawn against, that is, sold on credit. To the individual this is the same thing. But the capital thus required is69 not required to pay wages or to make advances to labor, since the produce of the labor always represents it. No producer ever needs capital as an employer of labor. When he does need capital, it is because he is also a merchant, a speculator in the products of labor, or an accumulator of them. This is generally the case with employers.

To recapitulate: The man who works for himself gets his wages in the things he produces, as he produces them, and exchanges this value into another form whenever he sells the produce. The man who works for another for stipulated wages in money works under a contract of exchange. He also creates his wages as he renders his labor, but he does not get them except at stated times, in stated amounts, and in a different form. In performing the labor he is advancing in exchange; when he gets his wages the exchange is completed. During the time he is earning the wages he is advancing capital to his employer, but at no time, unless wages are paid before work is done, is the employer advancing capital to him. Whether the employer who receives this produce in exchange for the wages immediately re-exchanges it, or keeps it for awhile, no more alters the character of the transaction than does the final disposition of the product made by the ultimate receiver, who may, perhaps, be in another quarter of the globe and at the end of a series of exchanges numbering hundreds.

To recapitulate: The man who works for himself gets his wages in the things he produces, as he produces them. He exchanges this value into another form whenever he sells the produce. The man who works for another for stipulated wages in money works under a contract of exchange. He too creates his wages as he renders his labor, but he does not get them except at stated times, in stated amounts and in a different form. In performing the labor he is advancing in exchange, and when he gets his wages the exchange is completed. While he is earning the wages he is advancing capital to his employer. Unless wages are paid before work is done, the employer is never advancing capital to him. The employer receives this produce in exchange for the wages. Whether he immediately re-exchanges it or keeps it awhile no more alters the transaction than what the ultimate receiver finally does with the product. That receiver may be in another quarter of the globe, at the end of a series of exchanges numbering hundreds.