PROGRESS AND POVERTY. 725 



" The cause," says Mr. George, " which produces poverty in the 

 midst of advancing wealth is evidently the cause which exhibits itself 

 in the tendency, everywhere recognized, of wages to a minimum." 

 The inquiry can therefore be put in the form, " Why, in spite of in- 

 crease in productive power, do wages tend to a minimum, which will 

 give but a bare living ? " The answer given to this question by eco- 

 nomic science has been the wage-fund theory. This theory holds that 

 wages are determined by the ratio of the number of laborers to the 

 capital devoted to their employment. As capital is the result of sav- 

 ing, industry can proceed no faster than this saving is effected. The 

 wage-fund remaining the same, any increase in the number of labor- 

 ers means a decrease in the share of each, and the reverse. The in- 

 crease in the number of laborers constantly tends to overtake and sur- 

 pass the increase in capital, and hence wages steadily tend to the 

 minimum upon which laborers will consent to live and reproduce. 

 The theory in this form is now pretty generally abandoned, but, as it 

 is still held that wages are advanced out of capital, Mr. George con- 

 siders that the abandonment is more nominal than real. On the con- 

 trary, he holds that wages are never advanced out of capital, but are 

 drawn from the product of the labor for which they are paid. Labor 

 creates wealth, and it is not until this wealth is created that labor re- 

 ceives its wages. The stock of capital on hand is never diminished by 

 having to be paid for labor, but labor, as it goes along, creates the 

 stock from which it is paid. Of the facts out of agreement with the 

 wage-fund theory one of the most obvious is, that wages and interest 

 do not vary inversely. By the theory, wages should be high where 

 capital is abundant, and low where capital is scarce. The very reverse, 

 says Mr. George, is true. Wages and interest rise and fall together. 

 Labor moves for higher wages where capital flows for higher interest. 

 Wages are high in new countries where capital is scarce, and low in 

 old ones where it is abundant. This fact is generally noted by econo- 

 mists, but it is explained by them as due to the relatively greater pro- 

 duction "of wealth in new than in old countries. This, Mr. George 

 holds, is demonstrably untrue. 



The wage-fund theory also teaches that labor engaged in produc- 

 tion is maintained out of present capital — that is, that present labor is 

 subsisted on the product of past labor. This, Mr. George holds, is 

 as baseless as the doctrine that wages are paid out of capital. He 

 maintains that it is not at all necessary that there should have been 

 a previous production of wealth sufficient to maintain the laborer. 

 "It is only necessary," he says, "that there should be, somewhere 

 within the circle of exchange, a contemporaneous production of suf- 

 ficient subsistence for the laborer, and a willingness to exchange this 

 subsistence for the thing on which labor is being bestowed." A 

 government, when undertaking a work of years, does not collect a 

 stock sufficient to support the laborers until the completion of the 



