Cornell University Library 
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 Wages and prices; an inquiry into thie wag 
 
 3 1924 000 693 261 
 
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 RELATIONS 
 
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WAGES AND PRICES 
 
WAGES 
 AND PRICES 
 
 AN INQUIRY INTO THE WAGES SYSTEM 
 
 AND THE RELATION OF 
 
 WAGES AND PRICES 
 
 BY 
 
 PHILIP SNOWDEN 
 
 author of 
 
 'thb living wage,' 'socialism and syndicalism' 
 
 'thb socialist BUDbsr', 
 
 ETC. 
 
 1920 
 
 THE FAITH PRESS 
 
 « BUCKINGHAM STREET, CHARING CROSS, W.C.2 
 
Printed in Great Britain 
 iy Tumliill&f Shears, Ediniur^A 
 
PREFACE 
 
 The increase in the cost of living which has 
 taken place during recent years is a matter of 
 vital importance to everybody. Economists and 
 financiers differ widely in their views about the 
 causes of the rise of prices. Where authorities 
 differ it would be presumptuous for a layman 
 to be dogmatic. This little book makes no claim 
 to do more than to submit some tentative sugges- 
 tions which may explain the nature of some of the 
 factors in this problem. 
 
 The writer considered that it was desirable, 
 before coming to an examination of the causes 
 of the increase of prices, to make a brief inquiry 
 into the wages system and the laws which regulate 
 the remuneration of labour. 
 
 Just as the following pages were completed a 
 special Trade Union Congress was held in London 
 at which this question of the cost of living was 
 considered. The Miners' Federation of Great 
 Britain submitted to that Conference a Memoran- 
 dum, in which a large number of proposals were 
 made for dealing with the high cost of living. 
 Valuable as many of the proposals made in this 
 Memorandum are, it is the opinion of the writer 
 that too mufik mffprtfOpe jpSjatt^h^to schemes 
 for the regulauqn pl^ujmlies aii^^IJrices, and too 
 
 iHoysiRiHL km bim mkiim 
 
 CORNEU- UNiVERSlTY 
 
 41782 
 
vi WAGES AND PRICES 
 
 little to fundamental causes. The most important 
 cause of the ruling high prices is undoubtedly the 
 financial and econoinic condition of this and other 
 countries. The mere control of prices will be 
 ineffective. The problem must be attacked at 
 its roots. Until a drastic reform of currency and 
 credit has been carried through^ it is useless to 
 hope for any material reduction in the cost of 
 living. There is no real solution of this problem 
 to be found in successful efforts to raise wages to 
 meet the increase in the cost of living. Wages 
 must be increased as prices rise, but that leaves 
 the workers in their former condition. It would 
 be far better that the efforts of the Trade Unions 
 should be employed in seeking to remove the 
 causes of higher prices than in futile endeavour 
 to keep the wages running after advancing prices. 
 This book has not beeii written for the economist 
 and financier, but for the plain working man who 
 is puzzled with the difficulties and complications of 
 this problem. To make the subject clear to those 
 for whom the book is intended a looseness of 
 definition has sometimes been employed which 
 will no doubt shock the economist, should the 
 pages happen to come under his eye. The pur- 
 pose of the writer has been to make an abstract 
 and complicated subject intelligible to the common 
 workman, and if he has in a measure succeeded 
 in that effort, his purpose will have been achieved. 
 
 January 1920. 
 
CONTENTS 
 
 OHAP. 
 
 I. The Wages System — Histoeical 
 II. The Wages System — Economic 
 
 III. Where Wages Comb Feom 
 
 IV. The State and the Wage Woekee 
 V. Wages, Value and Prices 
 
 VI. The Theory of Prices . 
 VII. War-time Prices and Profits 
 VIII. Trusts and Prices 
 
 IX. Currency, Credit and Prices 
 X. Inflation and Prices . 
 
 PAGE 
 1 
 
 10 
 32 
 38 
 48 
 57 
 71 
 83 
 94 
 102 
 
 XI. The Vicious Circle of Wages and Prices 116 
 
 «I3 
 
CHAPTER I 
 
 THE WAGES SYSTEM-^HISTOKICAL 
 
 The main characteristic of the present industrial 
 system is the fact that the vast majority of the 
 population depend for a living upon a precarious 
 income called wages or salary, paid to them for 
 their services, by an employer. The total num- 
 ber of persons returned as living in England and 
 Wales on April 2nd, 1911, was 36,070,492. Of 
 this population 15,294,399 over the age of ten 
 years were returned as engaged in gainful occupa- 
 tions. These figures give an indication of the 
 importance of the wages problem. 
 
 The wages system, as it exists to-day, is a 
 comparatively modern institution, and it has in it 
 no greater element of permanence than the systems 
 of tribal communism, slavery, and serfdom from 
 which it has been evolved. The form of industrial 
 and social organisation has, in the main, been 
 determined in all ages by the extent of man's 
 command over material resources. Through the 
 successive stages of savagery, where existence was 
 maintained by eating wild fruits ; of man as a 
 hunter of wild animals, feeding himself upon their 
 fiesh and clothing himself with their skins ; of 
 
2 WAGES AND PRICES 
 
 the taming of wild animals and the rearing of 
 flocks; through tribal communism, slavery, serf- 
 dom, and feudalism, the present system of wage 
 labour, employed by a few who own land and 
 capital, has slowly evolved. 
 
 The industrial history of our own country 
 shows the development of wage labour through 
 the manorial and the feudal systems. Under the 
 manorial system in Saxon times the lord was the 
 absolute owner of large areas of land, and he had 
 rights which were exacted in services, crops, or 
 money over the rest of the land within the 
 manor. The Conqilest of England by William the 
 Norman brought about a change in the ownership 
 of the land. This monarch constituted himself the 
 supreme landlord of the country, and the lords 
 of the manor were tenants-in-chief of the Crown. 
 At the time of the Norman Conquest slavery 
 had almost disappeared. The Domesday Survey 
 showed that only 9 per cent, of the population 
 were slaves. 
 
 Under the manorial system, the two classes 
 below the lord of the manor were the villeins, 
 who, according to Domesday, formed 38 per cent, 
 of the population, and the cottars, who constituted, 
 according to this record, 32 per cent, of the 
 population. It was from the cottar class, some 
 centuries later, that the system of wage labour 
 arose. Both the villeins and the cottars were 
 required to pay a rent to the lord, but it was 
 given in the form of part-time services, and for 
 
THE WAGES SYSTEM— HISTORICAL 8 
 
 the rest of the time both the villeins and the 
 cottars were free to cultivate their own lands. 
 The dependence of these two classes upon the 
 lord of the manor was estabhshed by law rather 
 than by economic necessity. They were bound 
 to the land, and were compelled to render the 
 services mentioned, but when these had been 
 discharged, they enjoyed a large measure of free- 
 dom, and had customary rights with which no 
 one could interfere. 
 
 But even in these times there were the germs 
 of the wages system. The cottars had but scanty 
 patches of land, and had spare time, which they 
 employed in working for wages for either the 
 villeins or the lord of the manor. In the course 
 of time the position of the villeins gradually im- 
 proved, and by the middle of the fourteenth 
 century many of them had become the yeoman 
 class, who later played such an important part 
 in our national history, and to whom we owe so 
 much for their struggles for freedom. 
 
 The economic and social system of the Middle 
 Ages was based upon two great institutions, the 
 Catholic Church and Feudalism. For some cen- 
 turies the feudal system had been gradually 
 disintegrating, and its complete collapse took 
 place in the fifteenth century, simultaneously 
 with the overthrow of the CathoUc Church and 
 the des,poiling of her lands. Though up to this 
 time England had remained mainly an agricultural 
 country, industries and manufacturers had been 
 
4 WAGES AND PRICES 
 
 slowly developing, and the industries and trades 
 which existed apart from agriculture were organised 
 in trade guilds. These too were destroyed by 
 Henry VIII., and their lands ajid other properties 
 confiscated. 
 
 The breakdown of the feudal system, the down- 
 fall of the CathoUc Church, and the destruction of 
 the trade guilds created a large class of labourers 
 who had been divorced from the soil and from the 
 ownership of trade implements, and who were 
 unable to obtain a living unless some landlord or 
 master was willing to employ them. The Golden 
 Age of the English labourer which had followed 
 the Black Plague, had continued up to this time. 
 The breakdown of the feudal system altered the 
 conditions of land tenure and land cultivation. 
 The obligations of the feudal lords to provide 
 the fighting forces of the Crown were abolished, 
 and the practice of receiving payment for the use 
 of land in services disappeared. The old feudal 
 retainers and the tenants of the Church lands were 
 driven from the soil ; and the modern system of 
 landlordism, exacting an annual rent for the use 
 of the land, was instituted. 
 
 The vast increase in the number of unemployed 
 had a disastrous effect on wages, and a rapid 
 deterioration in the condition of both the labourer 
 and the artisan took place. The discovery of 
 America and the opening up of the sea route to 
 India offered opportunities for the development 
 of a foreign trade. Aided by the immigration of 
 
THE WAGES SYSTEM— HISTORICAL 6 
 
 Flemings, who introduced manufactures into this 
 country, the industrial system of Capital and 
 Labour began to grow up, and it continued to 
 develop slowly, until, in the later part of the 
 eighteenth century, the application of steam as 
 a motive power and the wonderful mechanical 
 inventions completed the divorcement between 
 labour and the instruments of production which 
 the downfall of the feudal system and the Catholic 
 Church had begun. 
 
 England, for many reasons which need not be 
 stated in detail, was in an exceptional position 
 for taking advantage of the opportunities for 
 trade and commerce which the Industrial Re- 
 volution provided. The country had abundant 
 resources of coal and iron, a large population of 
 poor and helpless people unable to resist exploita- 
 tion, a merchant fleet and a considerable Colonial 
 Empire. The cottage industries which still sur- 
 vived struggled hopelessly for a time against the 
 competition of the factory system; the medieval 
 legislation which was still nominally in existence 
 for the protection of the wage workers, was re- 
 pealed ; combination laws, aimed to prevent 
 association among the workers to protect their 
 standard of living and against poUtical association, 
 were enacted and rigorously enforced. Competi- 
 tion now became deified as the guiding principle 
 of trade. The rapidly-growing manufacturing in- 
 dustries had a practical monopoly of the home 
 and foreign markets. There was no factory legis- 
 
6 WAGES AND PRICES 
 
 lation, no regulation of the hours of labour, no 
 restriction of the freedom of an employer " to do 
 what he liked with his own," The machinery 
 which the inventive genius of man had devised 
 became an instrument for the enrichment of the 
 few and the degradation of the great mass of the 
 people. The domination of capitalism became 
 complete ; the division of society into two distinct 
 and antagonistic, classes was now established. 
 Centuries of the slow worldng of evolution had 
 established the Wages System. 
 
 The characteristic of the Wages System, as has 
 been stated, is the dependence of nine-tenths of 
 the people upon some individual who owns land 
 or capital and who is willing to employ labour for 
 his own profit. The helplessness of the working 
 classes in the Industrial Revolution was aggravated 
 by the appropriation of common lands, which, 
 during the Napoleonic wars, had been carried out 
 upon a wholesale scale. During the Middje Ages 
 access to the common land had prevented the 
 worker to some extent from being reduced to a 
 condition of abject dependence upon the land- 
 lord and the manufacturer. After the Industrial 
 Revolution the worker, with no rights in the soil 
 of his native country, without the means to 
 command sufficient capital to compete against 
 machinery and the concentration of industry in 
 the hands of great capitalists, had no choice but 
 to submit to the conditions which the owners of 
 the soil and the owners of capital were able to 
 
THE WAGES SYSTEM— HISTORICAL 7 
 
 dictate. In these circumstances the mass of the 
 people sank into a condition of economic depend- 
 ence upon the landlord and the capitalist. The 
 worker had no political rights or power. 
 
 The evils of the new industrial system were 
 aggravated by a system of Protection which 
 enormously increased the cost of food and other 
 commodities. The price of wheat rose from 
 49s. 3d. in 1793 to 126s. in 1817, and weavers' 
 wages during the same period sank from 13s. to 
 4s. 3d. per week. 
 
 The social and moral results of the Industrial 
 Revolution were no less disastrous. Women and 
 children were taken from their homes and driven 
 into factories and mines to help to augment the 
 family income because the wages of the father 
 were insufficient. These women and children 
 were subjected to a shameful and brutal treat- 
 ment unparalleled in history, and beside which 
 the conduct of a Legree almost stands out as an 
 example of kindness. Home life with its affections, 
 its joys and its comforts was destroyed ; parental 
 control was impossible. Not the least effort at 
 educating or developing the intellectual and moral 
 capacities of the children or at providing leisure 
 and rational recreation for the adults was made. 
 Human beings were by these conditions degraded 
 to the level of brutes. The long hours of labour, 
 the exhausting nature of their work, lowered their 
 physical condition ; the miserable dwellings in 
 towns where no attention was paid to sanitation 
 
8 WAGES AND PRICES 
 
 accelerated the physical degeneracy of the popu- 
 lation. Every moral thought and intellectual 
 aspiration seemed to have been banished. Every 
 brutal and selfish passion in every class was let 
 loose ; the country became a gambling hell in 
 which the dice were human beings and the stake 
 the possibility of making a fortune of material 
 wealth. LoveUness in art and nature disappeared, 
 and literature, religion, architecture were degraded 
 to the service of the passion for riches. The 
 marvellous progress in mechanical science which 
 had given to the country the wonderful command 
 over production of wealth, the extended control 
 by man over the resources of nature — so full of 
 the possibilities of a higher and better civilisation 
 — were permitted to operate without any moral 
 or social control, with the result that the material 
 enrichment of the few was secured at the cost of 
 the poverty and degradation of the working classes 
 and the demoralisation of all. 
 
 This was a condition of things which could 
 not permanently enduue. Two generations of such 
 unbridled competition would have destroyed the 
 wage-earning classes. A few noble men hke Robert 
 Owen, Richard Oastler, Lord Shaftesbury, and John 
 Fielding, appalled at the wretchedness of the con- 
 dition of the operatives, agitated for legislative 
 interference, and the outcome of their efforts was 
 the beginning of the factory legislation which has 
 done so much to mitigate the horrors of unbridled 
 capitalism. But a knowledge of what the Wages 
 
THE WAGES SYSTEM— HISTORICAL 9 
 
 System is, when uncontrolled by legislation and 
 influences aimed at mitigating its evils, is neces- 
 sary for an understanding of its real character. 
 If to-day the condition of the wage-earning classes 
 is better than that of their great-grandfathers, 
 who were the first innocent victims of the Industrial 
 Revolution, the improvement is not due to any 
 virtues which the Wages System itself has been 
 able to develop, but to the efforts which have been 
 made in various directions to eliminate its worst 
 features and to radically change its character. 
 An industrial and social system under which nine- 
 tenths of the population have no security of 
 employment, no prospect of ever rising above the 
 state of a wage servant, no opportunity in their 
 employment for the exercise of their organising 
 or inventive abilities, is one which cannot be 
 defended either as capable of satisfying the 
 economic needs of the individual or of meeting 
 the conditions of moral human relationship. 
 
CHAPTER II 
 
 THE WAGES SYSTEM — ^ECONOMIC 
 
 The changes in the methods of production and 
 the organisation of industry brought about by the 
 use of steam power and of mechanical inventions, 
 briefly described in the preceding chapter, gave 
 birth to PoUtical Economy as a science attempting 
 to explain the laws governing rent, interest, profit, 
 prices, and the relations of capital and labour, or, 
 as Political Economy has been frequently defined, 
 " a science which treats of the production, dis- 
 tribution, and consumption of wealth." 
 
 Political Economy is often described as a dismal 
 science, but if the claim of political economists 
 can be established that an understanding of its 
 laws will enable industry to be carried on in the 
 most efficient and economical way, and thereby 
 increase the volume of national wealth and secure 
 its most equitable distribution^ it is the primary 
 and one of the most important subjects to which 
 human thought can be devoted. 
 
 Political Economy is not like mathematics, an 
 exact science. It is rather a set of theories to 
 explain facts. The human factor enters into in- 
 dustrial and economic questions so largely that 
 
 10 
 
THE WAGES SYSTEM— ECONOMIC 11 
 
 theories are often upset by practical experience. 
 Upon few theories of Pohtical Economy is there 
 complete agreement among writers of repute, and 
 it is doubtful if all the learned works written upon 
 the laws of Political Economy have influenced in 
 any measure the practical working of the industrial 
 and social system. 
 
 Landlords, capitalists and workmen know little 
 of the theories and teachings of political econ- 
 omists. They do not regulate their actions by 
 the knowledge of abstract theories about rent, 
 interest, prices and wages ; but they have a 
 practical knowledge gained from their experience 
 of the methods by which their particular interests 
 can be promoted. The landlord, for instance, 
 though he, has never heard of the Ricardian Theory 
 of Rent, knows that the rental value of his land 
 is determined by certain practical considerations ; 
 and that apart from the natural qualities of the 
 soil, there are other factors such as the situation 
 of the land, its proximity to a town, the absence 
 or presence of facilities for transport, which 
 determine the amoimt of rent he can obtain for 
 its use. The capitalist who carries on his busi- 
 ness by rule of thumb and on empirical principles, 
 knows that a scarcity of commodities causes an 
 increase of prices and profits, that an abundance 
 results in a fall of prices, that the scarcity of labour 
 compels him to advance wages, and that a surplus of 
 labour enables him to reduce them. The workman 
 has never heard of the Iron Law of Wages or the 
 
12 WAGES AND PRICES 
 
 theory of the Wages Fund, but he knows that 
 there is an eternal struggle between wage labour 
 and capital about the respective share to be taken 
 by each. 
 
 These observations must not be taken as a dis- 
 paragement of the claim that Political Economy 
 is an important science, nor a denial that the 
 capitalist system is governed by certain laws which, 
 if observed, will aid the economical production and 
 the efficient distribution of wealth. On the con- 
 trary, the practical knowledge by which the land- 
 lord, the capitalist and the workman conduct their 
 affairs is the result of experience of the working 
 of economic laws under this system, though they 
 could not explain in scientific language either their 
 nature or the method of their operation. 
 
 Political Economy is the science of the capitalist 
 system. It is not ethics. It is not political 
 jurisprudence. It accepts the capitalist system 
 and tries to explain it. At its best it seeks to 
 apportion the respective shares of the landlord, 
 capitahst, the receiver of interest, and of the 
 workman. It treats of the limitations imposed 
 upon each of these recipients of the produce of 
 industry. The earlier political economists were 
 often the champions of the landlords and the 
 capitaUsts. Their theories led to the conclusion 
 that the existing status and condition of the 
 labourer were irremediable, and that all his efforts 
 to raise his wages and to shorten his hours of 
 labour were flying in the face of inexorable laws. 
 
THE WAGES SYSTEM— ECONOMIC 18 
 
 It is true that in I'ecent years the teaching of 
 political economists has been infused with an 
 ethical conception, and in consequence the morality 
 of certain economic theories has been questioned. 
 When the so-called inexorable laws of Political 
 Economy have been defied because of the injury 
 their operation inflicted upon the industrial classes 
 — ^as for instance, by the State regulation of the 
 hours of labour, the fixing of a minimum wage — 
 and the consequences prophesied by political 
 economists have not been fulfilled, they have been 
 led to modify their theories and to admit that the 
 so-called law was not quite the inexorable thing 
 they had claimed it to be. There are to-day, 
 indeed, poUtical economists of repute who have 
 courageously indicted the whole oapitahst system, 
 and who have not hesitated to maintain that the 
 exactions of rent, interest, and even profit, where 
 it is not a legitimate payment for essential services, 
 are indefensible on economic, social, and moral 
 grounds. 
 
 Had there been a science of Political Economy 
 during the systems of slavery, serfdom, and feudal- 
 ism its theories and laws would have been quite 
 different from those which are put forward to 
 explain and defend the capitalist system. Under 
 these systems there could have been no theory of 
 rent, no theory of wages, no theory of value and 
 prices, such as are expounded in modern PoUtical 
 Economy. " In that original state of things 
 which precedes both the appropriation of land and 
 
14 WAGES AND PRICES 
 
 the accupiulation of stock, the whole produce of 
 labour belongs to the labourer. He has neither 
 landlord nor master to share with him. Had this 
 state of things continued the wages of labour 
 would have augmented with all those improvements 
 in its productive powers to which the division of 
 labour gives occasion." This is the striking 
 sentence with which Adam Smith opens his chapter 
 on " The Wages of Labour." The appropriation 
 of land gave birth to the system of rent exaction. 
 Similarly in that state of industry where the 
 workman owned the tools of his trade and dis- 
 posed of his products in a local market there was 
 no capitalist employier with whom he had to share 
 some part of the value of the products. The 
 appropriation of land and the payment of rent had 
 become an established thing before the Industrial 
 Revolution transformed trade and industry. 
 
 It is important to have an understanding of 
 the change brought about by the Industrial 
 Revolution in order to comprehend the true 
 character of the Wages System. The fundamental 
 change wrought by this Revolution in the methods 
 of production was from individual production for 
 individual use to social production for social use. 
 Under the hand system of production the work- 
 man, generally speaking, employed himself, and 
 he exchanged the products he did not himself use 
 with his neighbours in a local market which was 
 little, if at all, influenced from the outside. He 
 regulated his own conditions of employment ; 
 
THE WAGES SYSTEM— ECONOMIC 15 
 
 he fixed his own hours of labour ; he regulated 
 the price of his products ; he received himself 
 the whole value of his labour. The factory system 
 made the possession of a large unit of capital 
 necessary for economical production. Both the 
 methods of production and labour itself were 
 divided and sub-divided. The market was trans- 
 formed from a local to a world-wide market, 
 subject to competition which fixed and regulated 
 prices. An elaborate system of exchange had 
 to be devised, and an intricate and mysterious 
 system of banking established. The product was 
 no longer the property of the worker who made 
 it. The raw material was furnished by the owner 
 of the factory who appropriated the whole product 
 and paid to the workman a wage sufficient to keep 
 him alive that he might continue to produce more 
 wealth for the owner of the machinery to appro- 
 priate. There arose therefore a fundamental con- 
 flict of interest between the capitalist and the 
 workman. Though they were co-partners in the 
 social work of producing the commodities for 
 social exchange and use there was competition 
 between as to the respective shares they could 
 get of the goods produced by their co-operative 
 efforts in production. This antagonism of interest 
 is the fundamental feature 6f the Wages System, 
 and in so far as Political Economy deals with this 
 matter, it concerns itself with the so-called laws 
 fixing the wages of the workman and the profits 
 of the employer. 
 
16 WAGES AND PRICES 
 
 We will now proceed to the statement and 
 examination of the laws regulating wages under 
 the system which has just been described. 
 "Wages," says Professor Walker, "are the 
 reward at stipulated rates of those who are em- 
 ployed in production, with a view to the profit 
 of their employer." There are two aspects "from 
 which wages may be considered. There are 
 nominal wages and real wages. The nominal 
 wage is the amount of money paid to the work- 
 man, but the real wage consists in the quantity 
 of the necessaries and conveniences of life which 
 the nominal wage will command. Wages may 
 be measured by either the amount of time during 
 which the workman is employed, which is called 
 time rates, or by the volume of the product, which 
 is popularly called piece rate wages. The amount 
 of the nominal wage is, roughly speaking, fixed 
 according to the purchasing power of the money 
 wage, that is to say, the wages of the workman, 
 though paid in money, are regulated by the sum 
 that is necessary to purchase sufficient of the 
 necessaries of life to maintain the worker in a 
 condition of physical comfort which will enable 
 him to keep in health and to rear a family. 
 
 It is accepted by political economists that 
 what is called the standard of life or standard of 
 comfort determines the wages of labour. This 
 recognises in the first place that the workman 
 must be paid a nominal wage which will command 
 a sufficiency of food, clothing, and other necessaries 
 
THE WAGES SYSTEM— ECONOMtC 17 
 
 to keep him in health and to enable him to com- 
 mand the comforts and conveniences which custom 
 has recognised as belonging to the station in life 
 in which he is placed. Labour is a commodity 
 purchased in the market hke every other com- 
 modity, and its price is regulated by supply and 
 demiand, modified by the conditions Just specified. 
 If supply and demand alone regulated the price 
 of labour, without any restraining influence, 
 there would be a tendency, when the supply 
 exceeded the demand, for wages to fall to a point 
 below that at which it was possible to maintain 
 physical efficiency and the recognised standard 
 of life. As a matter of fact that is what happened 
 in the early days of the Industrial Revolution. 
 This is what always happens where there is a large 
 excess of supply over demand. But eventually 
 this corrects itself because low-paid labour is 
 quickly exhausted, not only because the labour 
 employed is rapidly used up, but because the 
 supply is diminished through the reduction of the 
 birthrate and the high mortality amongst children 
 through the inabiUty of the workmen to maintain 
 a family on the wages he is paid. 
 
 This tendency of wages to remain at subsistence 
 point is called the Iron Law of Wages. Briefly 
 stated, the meaning of this law is that the land- 
 lords and capitalists, having a monopoly of the 
 instruments of production, can compel the work- 
 man to divide with them the products of their 
 laboiu", yielding to the landlord and the capitalist 
 
18 WAGES AND PRICES 
 
 the whole product beyond just sufficient to enable 
 the workman to support himself at bare sub- 
 sistence point. The Iron Law of Wages does not 
 mean that every individual worlonan is forced 
 by competition to existfence on a bare subsistence 
 wage, but that the average wage always remains 
 reduced to the bare sufficiency requisite for sub- 
 sistence and the propagation of the race. 
 
 The most elaborate exposition of the Iron Law 
 of Wages is given in Lassalle's " Open Letter." 
 Fundamentally his interpretation of this law is 
 accurate, but he gives to it a rigidity and uni- 
 versality which is not in accord with our experi- 
 ence during the last fifty years. He maintained 
 that the real wage is continually oscillating about 
 the point of subsistence, never being able long to 
 rise above it or to fall below it. He maintained 
 that under capitalism the real wage cannot per- 
 manently rise above this subsistence level, because 
 if it did there would be an increase ^of marriages 
 and births, an increase of the working-class popu- 
 lation, and an increase in the supply of labour, 
 which would bring down wages to the former 
 level. Facts have disproved this theoretical 
 assumption. Brodigality in marriage and families 
 is indulged in to a greater degree amongst the 
 lowest paid sections of the wage-earning classes. 
 The late age at which the better-paid artisans 
 and the middle class marry is indeed one of the 
 most striking social phenomena of the present 
 day. 
 
THE WAGES SYSTEM— ECONOMIC 19 
 
 Experience has shown also that the subsistence 
 point, or in other words the standard of hving and 
 comfort of the working classes is not a fixed and 
 stationary thing. The average standard of com- 
 fort of the wage-earning classes has risen consider- 
 ably during the last sixty years. The rigidity of 
 the Iron Law of Wages has been relaxed by the 
 influence of education, trade unionism, labour 
 legislation, the communal supply of social needs 
 such as public health, medical treatment of 
 children, free hbraries, public parks, and the 
 like. 
 
 Though wages are regulated mainly by com- 
 petition, even the older political economists recog- 
 nised that other influences restrained its full force. 
 It is doubtful, however, if they fully appreciated 
 the effect of these other influences in modif jong 
 the full force of competition. John Stuart Mill 
 says, " In this country there are few kinds of 
 labour in which the remuneration would not be 
 lower than it is if the employer took full advantage 
 of competition," though he went on to add that 
 custom or individual character, as a modifying 
 circumstance, exercises a comparatively shght 
 influence. But custom and moral considerations 
 undoubtedly modify the full force of competition 
 to-day to a much greater extent than they did 
 sixty years ago when Mill gave expression to this 
 opinion. If the Iron Law of Wages operated 
 without modifying influences there could be no 
 improvement in the condition of the wage-earning 
 
20 WAGES AND PRICES 
 
 classes under the capitalist system. But a com- 
 parison of the condition of that class in the years 
 immediately preceding the outbreak of war in 
 1914 with the conditions in any decade during the 
 last fifty years shows that there has been a slow 
 progressive improvement in their lot. 
 
 To accept the theory of the Iron Law of Wages 
 as operating rigidly, and as keeping wages down 
 to a stationary standard of living, would have led 
 to the conclusion that all agencies for raising the 
 standard of life were futile. Trade Unionism, the 
 Co-operative Movement, Municipal Services, Wages 
 Boards, and Factory Legislation would have been 
 ineffective or useless if the Iron Law of Wages had 
 been the rigid dogma it was claimed to be by some 
 of the earlier economists. 
 
 An interesting instance of the change of opinion 
 which has come about during the last twenty-five 
 years upon this question is the attitude of the 
 Socialists to the drink question, free education, 
 and the feeding of school children. Accepting 
 the theory that wages were regulated by the cost 
 of Uving and a stationary standard of life, it was 
 argued that if workmen became teetotallers their 
 wages would fall by the amount they had previously 
 spent upon drink. Such a position as that can 
 only be maintained by ignoring altogether the 
 influences which modify the operation of the Iron 
 Law of Wages. Such a contention as that misses 
 a very important influence which is always operat- 
 ing to raise the minimum standard of hving to a 
 
THE WAGES SYSTEM— ECONOMIC 21 
 
 higher level. Education has created new desires 
 which are always struggling for satisfaction. If, 
 therefore, there be a vacuum created in the 
 expenditure of the working classes there is an 
 inunediate rush of a new desire to fill it. In- 
 stead of a relief of direct expenditure by the 
 workman resulting in a reduction of wages and of 
 his standard of living, it has the very opposite 
 effect. The workman, for instance, who stops 
 expenditure upon ^drink, does not suffer a reduc- 
 tion of wages or lessen his total expenditure. On 
 the contrary, he substitutes his former expenditure 
 on drink for expenditure which raises his standard 
 of comfort, and this in its turn stimulates new 
 desires which the workman will struggle to 
 satisfy. 
 
 We therefore arrive at the conclusion that the 
 cause which in the main determines the wages of 
 labour is competition between the workmen for 
 employment. In this competition the workmen 
 are at a serious disadvantage in bargaining with 
 the employer. Seldom is there but one un- 
 employed workman for a vacant job. In such 
 circumstances the influence of competition is strong 
 and the tendency is for the employer to take 
 advantage of the necessities of the workmen. 
 But this general law is modified by many influ- 
 ences which restrain the full operation of com- 
 petition, the most important of which are custom, 
 public opinion, collective bargaining, the growth 
 of human sentiment and the effect of education. 
 
22 WAGES AND PRICES 
 
 Under these moderating influences the average 
 minimum standard of living, fixed by public 
 opinion, is on the whole continuously rising, 
 though there are frequent oscillations. A period 
 of bad trade may temporarily depress wages. 
 Changes of fashion, the introduction of new 
 methods of production, such as the use of new 
 machinery by which a lower degree of skill may 
 be utiUsed, throwing the whole class of hitherto 
 skilled workmen out of employment, may cause 
 a temporary, or even a perman€nt, so far as 
 particular individuals are concerned, reduction of 
 wages, and a consequent lowering of the standard 
 of living. But on the whole the tendency is for 
 real wages on the average to rise. 
 
 Up to this point we have been dealing with the 
 wages problem generally, and with the laws and 
 influences which operate over the whole class of 
 wage earners. There remains for consideration 
 the question of the differences which exist between 
 the wages in different kinds of employment. 
 These differences are considerable, and are in the 
 main historic. Adam Smith set forth five reasons 
 for the differences of wages, but these reasons are 
 not adequate to explain the differences as they 
 exist to-day. His illustrations are drawn from 
 a state of things which has largely passed away. 
 The five causes enumerated by Adam Smith are : — 
 
 (1) The agreeableness or disagreeableness of the 
 employment ; (2) the cost of entering into different 
 kinds of employment; (3) the constancy or in- 
 
THE WAGES SYSTEM— ECONOMIC 23 
 
 constancy of employment ; (4) the trust reposed 
 in the workmen ; (5) the probability of success. 
 
 The disagreeableness of an occupation does not 
 generally, although it may in very special circum- 
 stances, influence favourably the rate of wages. 
 It is a commonplace that the most disagreeable 
 work is performed by the lowest paid labourers ; 
 but it is not the disagreeable nature of the work 
 which determines the rate of pay so much as the 
 character of the workmen who perform it. They 
 usually belong to the least educated section of the 
 working classes, and owing to this cause, which 
 is often accompanied by habits which unfit them 
 for more responsible work, and to their failure 
 to compete with more intelligent and trustworthy 
 workmen, they are driven to accept disagree- 
 able kinds of work. Whether disagreeable or 
 dangerous employment is more highly remuner- 
 ated than more agreeable and less dangerous work 
 is determined in the main by competition. If 
 employment of a more agreeable nature were open 
 to all workmen, then undoubtedly the disagreeable 
 or dangerous nature of the work would command 
 a rate of remuneration above the average. 
 
 The case of the miners is interesting as bearing 
 upon this point. This occupation is healthy but 
 dangerous. It is disagreeable and arduous. It 
 requires no long training. It is not a close occupa- 
 tion. Competition in the mines works in so far 
 as there is no prohibition of immigration into the 
 mining areas, but the outside impression is that 
 
24 WAGES AND PRICES 
 
 the work is disagreeable and dangerous, and this 
 deters men outside the mining areas from entering 
 into competition to any extent. The mining 
 industry is localised, and there are few other 
 occupations open to youths in these districts. 
 These facts, therefore, that is, the disagreeable 
 and dangerous nature of the occupation, the 
 absence of the constant pressure of competition 
 to enter the occupation would be expected to 
 affect favourably the remuneration of miners. 
 That they have done so to som« extent is un- 
 doubtedly true, though the combination of the 
 miners in trade unions has been the most important 
 force in raising the wages of the miners above the 
 average for occupations requiring no greater 
 amount of skill. 
 
 It is Very often the case that the agreeableness 
 of an occupation tempts exceptional competition, 
 with the result that the remuneration for it falls 
 below the general average. Clerical work is a 
 case in point. The general spread of education 
 has given to a very large number of persons the 
 rudimentary qualifications of a clerk. The sup- 
 posed gentility of the occupation, the comparatively 
 easy nature of the work, have made the clerks in 
 general the cheapest of the proletariat, and the 
 supposed respectability of the occupation has 
 developed a snobbishness which has kept them 
 aloof from the general body of workers who have 
 been able to raise their wages by combination. 
 
 The cost of entering an occupation or profession 
 
THE WAGES SYSTEM— ECONOMIC 25 
 
 has undoubtedly an influence in determining the 
 rate of remuneration. But this is not so much 
 because, it has been expensive to qualify for the 
 work as to the fact that the expense of training 
 and education limits the number of persons able 
 to qualify. But here it will be found that present- 
 day conditions arc tending to take away the 
 advantage in the form of higher remuneration 
 which this class of occupation formerly employed. 
 Closely connected with this influence in determining 
 wages is Adam Smith's fifth point, namely, the 
 probability of success. The growth of the middle 
 classes has increased largely the number of parents 
 who can afford to make the financial sacrifice 
 involved in educating their children for some 
 highly-skilled or professional occupation, such as 
 an engineer, a chemist, a teacher, a doctor, or a 
 lawyer. The agreeableness of the occupation, its 
 respectability, the social position which attaches 
 to it, have outweighed the influence of the proba- 
 bility of success. Taking the normal conditions 
 of the period immediately preceding the war, 
 we find that the average salary or wages of the 
 teaching profession, of law clerks, and qualified 
 chemists' assistants were lower than the wages 
 earned in many classes of employment for which 
 no long and expensive training had been required. 
 Little need be said about Adam Smith's fourth 
 reason for differences of wages, namely, the amount 
 of trust reposed in the workman. Though cases 
 frequently come to fight of men employed in 
 
26 WAGES AND PRICES 
 
 positions involving considerable trust and responsi- 
 bility who have been paid a wage little above those 
 of the labourer, generally speaking, it is true that 
 responsibility and trust, owing to the compara- 
 tive lack of qualified persons, are more highly 
 remunerated. 
 
 One more of Adam Smith's five factors which 
 influence wages remains to be considered, namely, 
 the regularity of employment. It is a peculiar 
 feature of modern industrial conditions that those 
 occupations where the wages are lowest are most 
 subject to unemployment. The liability to un- 
 employment does not appear to be taken into 
 consideration in fixing the rate of wages. The 
 explanation of this fact is that the unskilled work- 
 man has considerable mobility. Most industries 
 employ a large proportion of unskilled labour 
 which can readily adapt itself to a change of 
 occupation. The uncertainty of employment has 
 a demoralising effect upon the workman, which 
 makes him more content to accept and endure a 
 low standard of hving. This factor of the in- 
 constancy of employment does not in practice 
 appear to have the effect of increasing the rate 
 of remuneration. 
 
 Two other factors which enter into the regula- 
 tion of wages ought to be considered, namely, the 
 effect upon adult male wages of the employment 
 of wives and children, and the general remunera- 
 tion of women's work. The minimum rate of 
 wages paid to an adult man must be upon the 
 
THE WAGES SYSTEM— ECONOMIC 27 
 
 average sufficient to maintain himself and those 
 who are dependent upon him. This minimum 
 rate, under the influence of competition, must be 
 sufficient to provide for the support of the average 
 number of dependants. If, therefore, wives and 
 children are employed to such an extent as to 
 influence the general labour market, it will be 
 found, as a rule, that the family income will fall to 
 the minimum cost of supporting the whole family. 
 The best known illustration of this is the textile 
 trades where, for generations, it has been common 
 practice for the wife and children to work in the 
 same occupation as the father. It is not strictly 
 true, however, to say that the effect of this com- 
 petition of the wives and children with thp father 
 has been to reduce the family income to the 
 average level of other occupations where wives 
 and children are not employed. The reason for 
 this is that the first introduction of additional 
 contributors to the family income raised its total 
 amount, and some part of that has been retained 
 and incorporated into an improved standard of 
 living. But the fact remains that the wages of the 
 adult men in occupations subject to competition 
 of wives and children are lower than the average 
 wage in other occupations where such competition 
 is absent. 
 
 There are many reasons which explain the lower 
 wages paid to women. The chief among these is 
 the fact that the average woman does not look 
 upon industrial employment as a life-long dccupa- 
 
28 WAGES AND PRICES 
 
 tion. Even in the case of the indaistrial married 
 women it is not so regarded. In the cotton trade, 
 for instance, where 60 per cent, of the operatives 
 are women, young female workers look forward 
 to the time when the cares of a family will release 
 them from this employment. The vast majority 
 of married women are not employed in wage service. 
 The figures of the last census returns show 
 10,026,379 females over the age of ten as unoc- 
 cupied, but the majority of these are, of course, 
 employed as housewives. This feeling that the 
 work upon which the wage-earning woman is 
 engaged is of a temporary character is detrimental 
 to trade union organisation. 
 
 Another reason why the wages of women are 
 lower than those of men is an historic one. Only 
 since the advent of the Industrial Revolution 
 have women entered into the competitive labour 
 market. The idea still prevails, and it is indeed 
 based upon fact, that the wages of the man must 
 take into account the maintenance of dependants. 
 This does not influence the wages of women. A 
 still further reason for the lower wages of women 
 is that only a restricted number of occupations 
 have been open to them, and the competition 
 among women has therefore been considerable. 
 
 It is not the case, however, that women are 
 always paid at a lower rate than men. In the 
 cotton trade, where piece-work rates are universal, 
 the women are paid the same as men, and it is 
 no uncommon thing for their earnings to be 
 
THE WAGES SYSTEM— ECONOMIC 29 
 
 higher than those of men. But generally speaking, 
 the reason why the wages of women are not equal 
 to those of men is because the industrial woman 
 is regarded as a unit with no dependants to support, 
 whereas the average man has the responsibility of 
 a family, and his wages must be sufficient to main- 
 tain his dependants. 
 
 We have now completed our brief examination 
 of the theory of wages and explained the causes 
 which determine the general rate of wages. We 
 have attempted to explain why wages in different 
 occupations and at different times and in different 
 places vary so much. The demand for labour 
 and the cost of living are the two main causes 
 which determine the rate of wages at a particular 
 time and place. The cost of Hving, which is such 
 an important factor in determining the rate of 
 wages, varies in different parts of the country, 
 and it often happens that there is a temporary 
 surplus or scarcity of labour generally, or of a 
 particular class, which affects wages within a 
 geographical area. 
 
 Though facihties for the migration of labour 
 are now very considerable, there are many things 
 which restrain a workman from changing his 
 locality when trade is bad, and these influences 
 indxice him to accept a lower rate of wages than 
 he might be able to obtain by removal to another 
 part of the country. If the workman be a married 
 man with a family, he has to consider the cost of 
 removal. He has social ties with the locality 
 
30 WAGES AND PRICES 
 
 which he is unwilling to break. Very often he 
 has other members of his family settled at school 
 or in occupations. Many of our great industries 
 are localised, and when trade is bad and employ- 
 ment scarce, a workman has no alternative but 
 to remain in the locality and endure temporary 
 hardship as best he can, living in the hope of a 
 revival of trade. 
 
 It has been pointed out that what matters to 
 the workman is not so much the nominal as the 
 real value of the wage, that is, the amount of 
 commodities and services which the nominal wage 
 will command. This fact is accepted by the trade 
 unions, and varying rates of wages are recog- 
 nised as standard rates. For instance, the standard 
 rate of wages in the normal conditions which 
 prevailed before the war varied considerably from 
 locality to locality. The trade union rate of 
 wages of carpenters, for example, in 1912 in 
 Liverpool and district was lOd. per hour. At 
 Nantwioh, in the neighbouring county of Cheshire, 
 the trade union rate was 6^d. ; whereas at North- 
 wich in the same, county it was 8^. Similar 
 variations are to be found in every trade all over 
 the United Kingdom. The difference in the cost 
 of living cannot altogether explain these variations. 
 The degree of trade union organisation amongst 
 the workmen is in a large measure responsible for 
 variations of wages where the cost of living is 
 approximately the same. The variations between 
 the large towns are much less than the variations 
 
THE WAGES SYSTEM— ECONOMIC 31 
 
 between the towns and country districts, and 
 apart from the degree of trade union organisation, 
 rent largely explains these differences. According 
 to an Inquiry into the Cost of Living of the Work- 
 ing Classes, conducted by the Board of Trade in 
 1905, broadly speaking, the average rents in the 
 towns included in the Inquiry were from 50 to 
 60 per cent, of those prevailing in London. 
 
CHAPTER III 
 
 WHERE WAGES COME FROM 
 
 Wages is the remuneration of labour after the rent 
 of the landlord and the profits of the capitalists 
 have been appropriated. It has long been a 
 delusion of labour that capital is the most im- 
 portant of the three factors in production — ^land, 
 capital, and labour — ^and this has given to the 
 workman an exaggerated idea of his dependence 
 upon capital. It is natural that the uninformed 
 workman should entertain this notion when he 
 realises that he must beg permission of a capitalist 
 to work on machinery and raw material which 
 is owned by capitalists. The further notion has 
 been encouraged that capital is an extremely 
 sensitive thing, and that any unreasonable demand 
 by the workmen would cause capital to take to 
 itself wings and flee away. The early economists 
 elaborated a theory, known as the Wages Fund 
 Theory, which taught that there was a fixed and 
 limited amount of fluid capital available for the 
 employment and payment of labour. It was main- 
 tained that the average wage depends on the pro- 
 portion of this Fund to the number of people, and 
 the amount of the Fund is determiijed by the 
 
WHERE WAGES COME FROM 38 
 
 amount of general wealth applied to the direct 
 purchase of labour. 
 
 The Wages Fund Theory is elaborately ex- 
 pounded by John Stuart Mill in Book II. 
 Chapter XI. of his " Principles of Political Econ- 
 omy." This writer, however, in his later years 
 abandoned the theory, and it is not now accepted 
 by political economists. It has been superseded 
 by what is known as the Product Theory of Wages. 
 The difference between these two theories is 
 important, because if the Wages Fund Theory 
 were sound, any attempt of one section of wage 
 earners to increase their earnings would have the 
 effect of lowering the earnings of other sections. 
 The Wages Fund Theory was used as an argument 
 against trade unionism. It was pointed out, 
 seeing that the amount available for wages 
 depended upon capital and not product, that if 
 one section of the wage earners succeeded in 
 increasing their wages, this would be at the expense 
 of that portion of capital designed for the pur- 
 chase of machinery and raw material, and there 
 would therefore be a reduction in the volume of 
 employment. 
 
 The Product Theory of Wages assumes that 
 wages are paid, not from capital but from the net 
 aggregate revenue of the community. This point is 
 put by Professor Marshall in this form. He says : — 
 
 " The labour and capital of a country, acting 
 on its natural resources, produce only a certain 
 net aggregate of commodities, material and im- 
 c 
 
84 WAGES AND PRICES 
 
 material, including services of all kinds. This is 
 the net annual income or revenue of the country, 
 or the national dividend. ... It is divided up 
 into earnings, of labour, interest on capital, and, 
 lastly, the producers' surplus or rent of land or all 
 other deferential advantages for production. It 
 constitutes the whole of them, and the whole is 
 distributed among them. The larger it is the 
 larger (other things being equal) will be the share 
 of each agent of production." 
 
 According to this theory, then, wages depend 
 upon not a proportion of capital employed in 
 industry which has been designed for the pay- 
 ment of wages, but upon the net aggregate of 
 commodities available for distribution in the form 
 of rent, interest and profit, and wages. The 
 Wages Fund Theory derived its plausibility from 
 the fact that the employer hands over to the 
 workman the use of capital embodied in machinery 
 or raw material to be worked up into commodities, 
 and because the workman's wages are paid before 
 the capitalist receiyes payment for the commodities 
 which the workman has produced. This seems to 
 justify the assumption that wages are advances 
 made from capital to labour. But this is not the 
 case generally. It is true in exceptional cases, 
 as, for instance, in the early stages of a business, 
 before a constant revenue is being received by the 
 sale pi commodities ; but later it is from the 
 general revenue of the business derived from sales 
 that wages are paid. 
 
WHERE WAGES COME FROM 85 
 
 If, therefore, the fund from which wages are 
 paid is not capital but the revenue represented 
 by commodities and services, it follows that the 
 amount which may be assigned to the payment 
 of wages is determined by the net aggregate of the 
 national income, subject to the power of the 
 respective parties — landlord, capitalist, and work- 
 man — ^to secure their respective shares. Neither 
 the capitaUsts nor the workmen can, however, 
 exert their full power without serious consequences. 
 As Professor Marshall says, " The theory of wages 
 has much bearing on the general policy of the 
 relation of capital to labour ; for it indicates what 
 policies do and what do not carry in themselves 
 the seeds of their own ultimate defeat ; what 
 policies can be maintained, aided by suitable 
 organisation, and what policies will ultimately 
 render either side weal, however well organised." 
 
 Accepting the Pi-oduct Theory as explaining 
 the source from which wages are paid, it does not 
 necessarily follow that an increase in the net 
 aggregate income, or, to put it in a more vulgar 
 form, an increase of production, will result in an 
 increase of the real wages of labour, though this 
 appears to have been assumed by many modern 
 economists. The facts and experiences of the 
 industrial era do not support this conclusion. A 
 few illustrations will confirm the contention that 
 the increase of the national income is shared in 
 a larger degree by rent, interest, and profit than 
 by labour. The total annual value of incomes 
 
86 WAGES AND PRICES 
 
 assessed under Schedule D, that is, from "gains 
 arising from any profession or trade, railways, 
 canals, mines, gasworks, waterworks, etc.," in 
 1854 was £88,401,860. In 1908 this figure had 
 risen to £565,601,821. 
 
 There are no official figures dealing with wages 
 except in agriculture and in the textile trades, 
 dating earlier than 1874, but in 1854 the average 
 cash wage per week t)f an agricultural labourer 
 was 10s. 8d., and in 1908 was 14s. 7|d. In the 
 cotton trade, the piece rate wages in 1908 were 
 precisely the same as in 1854, though the earnings 
 were no doubt higher owing to improvements in 
 machinery and methods of production. Taking 
 all the principal industries of the country — coal- 
 mining, textiles, building trade, and engineering — 
 the mean rate of wages in 1908 was 10 per cent, 
 only above that of 1874. The profits of trade, as 
 shown by the figures given above, had risen in the 
 fifty-four years from 1854 to 1908 by over 500 per 
 cent., whereas the wages of agricultural labourers 
 had increased by a little over 80 per cent. The 
 wage rates of cotton weavers had remained 
 stationary, and the average increase over all 
 stable industries had risen by 10 per cent. 
 
 The general course of wages between 1900 and 
 1916 showed a general dechne. There was an 
 increase of 4 per cent, in 1907, followed by a 
 slight decline in the succeeding years until 1918 
 and 1914, when in the latter year the mean of the 
 principal industries was 6-5 per cent, above the 
 
WHERE WAGES COME FROM 37 
 
 rate of 1900. Between 1900 and 1913 the profits 
 assessed to income tax under Schedule D rose from 
 £436,000,000 to _£670,000,000. Not only has the 
 increased national income gone largely to the 
 capitalists, but the landlords have shared, too, in 
 the increase of national wealth. In 1854 the 
 total assessment under Schedule A amounted to 
 £111,000,000. In 1914 the corresponding figure 
 reached £285,000,000. These facts and figures 
 conclusively prove that of the increased national 
 income by far the larger part has gone to increase 
 the profits of the capitalists and the rents of the 
 landlords. 
 
 The comparatively small increase in the nominal 
 wages of labour does not, it is true, represent the 
 increase in the real value of their wages. There 
 has been a reduction during the last sixty years 
 in the cost of living, increasing the real value of 
 nominal wages which may have remained station- 
 ary. In addition to this improvement of the 
 money value of wages, there have been many 
 indirect additions to wages in the form of municipal 
 and State provision of services, paid for out of 
 rates and taxes, which have added to the real 
 value of wages, and have raised the general 
 standard of comfort. 
 
CHAPTER IV 
 
 THE STATE AND THE WAGE WORKER 
 
 r 
 Economic laws have never been permitted to 
 operate freely, except perhaps for a brief period 
 in the early days of the Industrial Revolution. 
 Under the manorial and feudal systems law and 
 custom restrained the freedom of the worker to 
 offer his labour to the best advantage. At the 
 time of the Black Death in the fourteenth century 
 the status of all kinds of labour was fixed. The 
 loss of population caused by the ravages of this 
 plague is estimated at not less than one-third 
 of the total inhabitants. This reduction of the 
 population made labour scarce, and competition 
 arose among the landlords for the inadequate 
 supply. It was impossible to maintain the 
 manorial and feudal customs. Labourers left the 
 soil to which they had been attached, and they were 
 eagerly welcomed by landowners only too anxious 
 to obtain labour. Wages rose to an unprecedented 
 figure. The rise in agricultural wages generally was 
 50 per cent., and in the case of artisans an even 
 greater increase took place. The employers of labour 
 naturally objected to paying these high wages, 
 though necessity compelled them to do so. 
 
 38 
 
THE STATE AND THE WAGE WORKER 39 
 
 This state of things brought about ' the iirst 
 regulation of wages by law. In 1349, without 
 waiting for the assembling of Parliament, which 
 was unable l;o meet owing to the Plague, King 
 Edward III. issued a Proclamation that all able- 
 bodied workmen should serve their lords, or if not 
 required by their own lords, any one so requiring 
 them at the same rate of wages as before the 
 Plague. It is interesting to note that the clergy 
 of that day shared with the labourers the desire 
 to take advantage of the economic situation to 
 improve their lot. Bishops issued admonitions 
 to the chaplains and vicars to be content with 
 their salaries. 
 
 The Proclamation of Edward HI. was later 
 confirmed by Parhament in the celebrated Statute 
 of Labourers in 1351, which imposed penalties 
 upon employers who paid higher wages, and im- 
 prisonment upon labourers who accepted them. 
 Profiteering appears to have existed in those days, 
 for one clause of the Statute of Labourers orders 
 that provisions should be sold at reasonable rates. 
 
 The demand for labour, however, was so great 
 that these Proclamations and Statutes were gener- 
 ally ignored. A later Statute of 1360 was enacted, 
 which increased the penalties for paying and 
 receiving wages above the pre-Plague rate, and 
 ordering that fugitives who had left their lords, 
 tempted by the prospect of freedom and high 
 wages, should be branded with hot irons. The 
 difficulty of securing the enforcement of legislation 
 
40 WAGES AND PRICES 
 
 aimed at preventing the natural effect of economic 
 laws is well illustrated by the failure of the Statute 
 of Labourers so long as the scarcity of labour 
 existed. Professor Thorold Rogers, writing upon 
 this subject, says, " But the labourers . . . could 
 extort what terms they liked from the necessities 
 of their employers. This attitude was met by the 
 Statute of Labourers, and the attempt to restrain 
 wages to the rates which prevailed in 1347. The 
 attempt failed. Year after year, almost centuty 
 after century, the Parliament complained that the 
 Statute of Labourers was not kept, re-enacted 
 it, strove to make it effective, were baffled, 
 adopted new and harsher expedients, and were 
 disappointed." 
 
 To meet thsse attempts on the part of the 
 State to prevent the natural rise in wages, the 
 peasants formed combinations, and supported 
 each other by the provision of money for the 
 defence of persons charged with violation 6i the 
 law, and for the payment of fines. After a pro- 
 tracted struggle wages became stabilised at the 
 advanced rates, until economic changes took place, 
 due to the policy of Henry VIII. in dissolving the 
 monasteries, confiscating the guild lands, and 
 debasing the currency. This was followed by a 
 serious deterioration in the condition of the 
 labourers. Pauperism became prevalent, and 
 again legislation made an attempt to interfere 
 with the free operation of economic laws. In the 
 reign of Queen Elizabeth the great Statute of 
 
THE STATE AND THE WAGE WORKER 41 
 
 Apprentices was passed, under which the Justices 
 of the Peace could fix all rates of wages, and were 
 in fact constituted the industrial autocrats of their 
 areas. Historians differ as to the motive which 
 prompted the framers of this celebrated Statute 
 of Apprentices. This statute, in the opinion of 
 some historians, was intended to give legislative 
 effect to the principles of the Craft Guilds, but it 
 differed in practice and effect from the regulations 
 of the Trade Guilds by being applied to every 
 class of workman and imposing severe penalties 
 for the non-observance of the ordinances of the 
 Justices. Under this statute every labourer or 
 artificer was compelled to work in the trade to 
 which he had been brought up. Any workman 
 leaving employment without the testimonial of 
 his previous master was liable to imprisonment 
 and to be whipped and treated as a vagabond. 
 
 We have in this statute the first legal enactment 
 relating to hours of labour ; but its provisions 
 differ from modern legislation inasmuch as it 
 fixed a minimum number of hours which must be 
 worked. The Act applied to women between the 
 age of 12 and 40, if unmarried. The Justices had 
 the power to appoint any such woman to such 
 service as they thought fit, and if any such woman 
 refused to serve the Justices might commit her 
 until she was willing to obey their order. The 
 Statute of Apprentices was so called because it 
 contained stringent regulations about apprentice- 
 ship, the length of its term, and the number of 
 
42 WAGES AND PRICES 
 
 apprentices to be taken by each employer. 
 During the two centuries following the passing 
 of this important measure, combinations of work- 
 men were being slowly formed, and this movement 
 had made such progress towards the end of the 
 eighteenth century that in 1779 the General 
 Combination Act was passed. The earlier statutes 
 for regulating wages and conditions of labour were 
 now utilised only in so far as their provisions were 
 repressive, ^nd whatever protection the workmen 
 might enjoy from them became a dead letter. 
 In 1825 an Act for the repeal of the Combination 
 Laws was passed, and by this the right of collective 
 bargaining, involving the power to withhold labour 
 from the market by concerted action, was for the 
 first time in English history expressly conceded. 
 The Uberty of combination, however, was still 
 restricted by many shackles, and it was not until 
 1875 that the relics of the Statute of Apprentices 
 were finally and completely removed by the 
 Conspiracy and Protection Act. 
 
 The purpose of all State interference with wages 
 and conditions up to the early part of the nine- 
 teenth century was undoubtedly based upon the 
 idea that the lower orders must be prevented from 
 taking advantage of favourable economic con- 
 ditions which might raise them above the pre- 
 vailing standard of life. Adam Smith's view of 
 this legislation is that it was part of a general 
 system of oppression of the poor by the rich. 
 Ai-nold Toynbee, however, takes a different view. 
 
THE STATE AND THE WAGE WORKER 43 
 
 " Combinations of labourers," he says, " were 
 forbidden by law because it was felt to be the 
 wrong way of obtaining the object in view, and 
 not from any desire to keep down wages. The 
 Justices often ordained a rise in wages, and the 
 workmen themselves were in favour of this method 
 of fixing them." Brentano and Stanley Jevons 
 take the opposite view. A very striking sentence 
 in Jevons' " The State in Relation to Labour " is 
 worth quoting. He says : " But the great lesson 
 which we have learned, and it is an impressive one, 
 is that legislation with regard to labour has almost 
 always been class legislation. It is the effort of 
 some dominant body to keep down a lower class 
 which had begun to show inconvenient aspirations. 
 Such is clearly the nature of the celebrated Statute 
 of Labourers, which was simply a futile attempt to 
 prevent labour from getting its proper price." 
 
 Factory and mines legislation, which began in 
 1802, and which has been followed by innumerable 
 statutes fixing the hours of labour for children 
 and adults, laying down minimum conditions of 
 sanitation, fixing the form in which wages should 
 be paid, establishing minimum rates of wages, 
 compensation for accidents, unemployment in- 
 surance, and the like, differs from ti^e older State 
 interference in this respect, that it is the outcome 
 of the moral appeal, of the recognition of the 
 economy of reasonable industrial conditions, and 
 of the political and trade union pressure of labour. 
 
 In modecn times the State has shown consider- 
 
44 WAGES AND PRICES 
 
 able reluctance to interfere by law with the regula- 
 tions of wages. The first modern legislative 
 enactment giving a legal force to the payment of 
 standard rates of wages is contained in the Trade 
 Boards Act of 1909. This Act was considered 
 necessary to deal with the sweated conditions in 
 certain trades, where through weak organisation 
 and the helpless character of the workpeople, 
 wages had been reduced to the bare minimum of 
 existence. It was followed three years later by 
 the Coal Mines Minimum Wage Act, which fixed 
 a minimum wage for the best organised industry 
 in the country. This legislation is flying in the 
 face of the theories expounded by early political 
 economists. There is this difference between a 
 standard rate fixed by law and by trade union 
 effort. In the first case the standard rate remains 
 unaffected by temporary variations in the state 
 of the labour market and the condition of trade. 
 In the second case the arrangement entered into 
 between the employer and the trade union is always 
 limited by time and is subject to alterations 
 according to the condition of trade. 
 
 Trade unionism amongst workmen arose from 
 the recognition of the obvious fact that the indi- 
 vidual workman is helpless before the skill and 
 power of the employer. To overcome the weak- 
 ness of individual bargaining, the trade unions have 
 been established on the principle of collective 
 bargaining. Collective bargaining means that there 
 is an agreement among the members of a trade 
 
THE STATE AND THE WAGE WORKER 45 
 
 that no member will accept employment at wages 
 lower than those which have been fixed. Instead 
 of the individual workman bargaining with the 
 employer at a disadvantage, the bargaining is 
 conducted by the workmen's representatives, who 
 in effect offer the sale of labour in bulk. 
 
 Collective bargaining has undoubtedly raised 
 the standard of wages, and has secured for the 
 workman a larger share of the product which 
 constitutes the national income from which wages 
 are paid. This statement does not conflict with 
 the other fact that the incomes of the capitalists 
 and the landlords have also increased. The 
 increase in national wealth would have continued 
 had there been no trade unionism, and in those 
 circumstances the proportions taken in rent, 
 interest, and profit would have been larger than 
 is the case. 
 
 Half a century's experience of trade unionism 
 has disproved the theory that an improvement 
 of wages, forced by artificial conditions such as 
 combination, would dislocate the economic system 
 and bring disastrous consequences upon the work- 
 men. The general idea in the early days of the 
 Industrial Revolution was that low wages were 
 not only necessary but economically sound. They 
 were considered to be necessary because it was 
 held that high wages, instead of encouraging 
 industry, would encourage idleness and dissipa- 
 tion. This idea is not yet wholly eradicated. It 
 has been revived recently in connection with the 
 
46 WAGES AND PRICES 
 
 miners' demand for an advance of wages, it being 
 asserted that at the present rate of wages, the 
 miners were able, by working three or four days 
 a week, to earn quite sufficient to satisfy their 
 needs and desires. But the theory of the economy 
 of low wages is not now held, by any intelligent 
 person. The facts of practical experience have 
 made it impossible for such a theory to be seriously 
 maintained. Low paid labour is inefiicient labour. 
 It creates a class of labourers who have no 
 ambitions, who are satisfied with a low purchasing 
 power, and who are unintelligent at their work. 
 On the other hand, high wages make labour more 
 productive, they stimulate new desires, they 
 enable workmen to maintain a higher degree of 
 physical efficiency. 
 
 The cost of production is almost invariably 
 lower where wages are high and the hours of 
 labour reasonable. In the normal conditions of 
 pre-war times it was the relatively higher wages 
 and shorter hours in the staple trades of Great 
 Britain, with the aid of our fiscal policy, which 
 maintained our vast export of manufactured goods. 
 Our most serious competitors were not the countries 
 where wages were low and hours long, but the 
 United States of America, where wages were higher, 
 and Germany, where they approximated to the 
 conditions in this country. The efforts of trade 
 unionism, therefore, in raising wages have ren- 
 dered a distinct service, not only to the workmen 
 as a class, but to the general industry of the country. 
 
THE STATE AND THE WAGE WORKER i7 
 
 From the efforts of trade unionism the employers 
 themselves have benefited. If the employer has 
 to face an increase of wages he is driven to devise 
 improvements in his equipment and in his organisa- 
 tion. The payment of high wages necessitates 
 highly efficient machinery, perfect organisation and 
 the elimination of all avoidable waste. 
 
 The insistence of the trade unions on an improve- 
 ment in the conditions of labour has contributed 
 in no small degree to the commercial progress of 
 this country. Higher wages have proved that 
 what is morally right is economically sound. 
 Higher wages have increased not decreased the 
 volume of employment. Higher wages, as has 
 been pointed out, increase the demand for goods, 
 and every staple trade of the country is stimulated 
 by the increased purchasing power of the working 
 classes. With an increase of wages new industries 
 are developed, and the working classes become in 
 a larger naeasure the patrons of reasonable enjoy- 
 ments by which further employment is provided. 
 Increased wages do not mean lessened profits, and 
 that established fact justifies the trade unions in 
 pursuing the policy of demanding a progressive 
 advance of wages. 
 
CHAPTER V 
 
 WAGES, VALUE AND PRICES 
 
 Wages are usually paid in money. . In the absence 
 of any written or verbal agreement wages must 
 be paid in the current coin of the realm. There 
 are a few exceptions permitted by law to this 
 general stipulation. The coal miners receive coal 
 for their own domestic use at a price much below 
 the market price. The agricultural labourers are 
 often provided with houses, either rent free or at 
 a nominal rent. Domestic servants receive a part 
 of their wages in board and lodging. These things 
 are taken into consideration in fixing the nominal 
 wages of the workmen. The abuses arising from 
 the payment of wages in kind became so grave 
 that legislation has been invoked to regulate this 
 system of remuneration. Cases in which wages 
 are paid partly in current coin and partly in kind 
 are now the rare exception. 
 
 The market value of a workman's services are 
 generally fixed at a nominal sum paid, in normal 
 times in gold or silver, and in these days in paper 
 notes or silver. A workman receives as his wages, 
 say a sovereign in gold or two one pound paper 
 notes. This payment represents the selling price 
 
 4S 
 
WAGES, VALUE AND PRICES 49 
 
 of the man's weekly labour. Neither the sovereign 
 nor the paper notes have a utility value, unless it 
 would gratify the workman's desire to make the 
 sovereign into a pendant for his watch chain, or to 
 use the Bradburys for lighting his pipe at the fire. 
 But for that purpose the notes would have no 
 higher value than an ordinary piece of paper. 
 The value of the sovereign or the paper notes to 
 the workman lies in the 'fact that they have an 
 exchange value. They can be used to purchase 
 commodities which the workman needs for his 
 sustenance. The nominal value of the wages, 
 therefore, represented by the sovereign or the 
 Bradbury, represents the relative value of com- 
 modities for which they can be exchanged. When 
 the tokens in which his wages have been paid are 
 transformed into commodities he is possessed of 
 something which has both a utility value and an 
 exchange value. 
 
 Value means the quantity or measure of utihty. 
 It means the amount of utility attached to articles 
 or services. Utility in this connection means the 
 capacity to satisfy the human needs or desires. 
 There are therefore two kinds of value. Value 
 represented by utility in use, and value in ex- 
 change. An article may have very considerable 
 utility value but little or no value in exchange. 
 Fresh air and water, for example, are things of 
 very great utihty value, but they are so common, 
 so freely accessible, that they have not in ordin- 
 ary circumstances any exchange value. There are 
 
 D 
 
50 WAGES AND PRICES 
 
 conditions in which both fresh air and water might 
 be given a very high exchange value. A man 
 who was being suffocated for lack of fresh air 
 would give all that he possessed to get a supply, 
 if it could only be secured by the payment of an 
 exchange value. Though water as a commodity 
 has no exchange value, the supply of water is 
 given an exchange value when it is conveniently 
 supplied to the consumer. The payment for a 
 household or factory supply of water represents 
 the exchange value of the time and inconvenience 
 saved to the consumer by the provision of the 
 supply in a form always ready and convenient. 
 
 Utility value means the price which a person is 
 prepared to pay for a service or commodity which 
 will satisfy either a need or a desire. Utility 
 value is not confined to articles or services which 
 have a social value, or which serve a useful pur- 
 pose in the popular sense of that word. A rope 
 of pearls has a very high exchange value. A few 
 days ago a pearl necklace was withdrawn at an 
 auction sale at a figure of £67,000. The sum of 
 £67,000 which some person was willing to pay for 
 an article which could serve no other purpose than 
 to gratify a passion represents the exchange value 
 of a personal whim on the part of a person with 
 sufficient means to gratify it. An article or a 
 service may have a utility value in this sense 
 though it may have no exchange value. An 
 article may be treasured by the possessor because 
 of associations connected with it, though its 
 
WAGES, VALUE AND PRICES 51 
 
 utility value is confined to the person to whom 
 these associations are dear. An old servant may 
 be retained and paid wages far beyond his exchange 
 value. In the latter case there is both a utility 
 and an exchange value, though the two values are 
 not equal. Exchange value is attached to any 
 service or commodity which some other person 
 will pay for or buy. 
 
 Value is a relative term. It expresses the price 
 of a commodity in money terms in relation to 
 other commodities. It follows therefore that there 
 can be no general rise or fall of values. For 
 instance, a ton of coal may exchange for a pair 
 of boots, but if the supply of coal is above the 
 demand and the supply of boots is below the 
 demand, the price of a pair of boots may exchange 
 for two tons of coal. There has been no rise or 
 fall of values. What the boots have gained in 
 value the coal has lost in value. 
 
 Though there can be no general rise or fall of 
 values, there can be a general rise or a general fall 
 of prices. Price is value expressed in terms of 
 money. A general fall in prices means an increase 
 in the value of money, and a general rise in prices 
 means a fall in the value of money. The value 
 of a ton of coal may at a particular time and place 
 be expressed in price as two pounds. But if the 
 price falls to one pound it means that the value 
 of money in relation to coal has doubled. If the 
 price of a pair of boots rises from two pounds to 
 four pounds it means that money has fallen in 
 
52 WAGES AND PRICES 
 
 value in relation to boots by one half. There may 
 be variations in prices over the whole range of 
 commodities. Particular commodities may double 
 or treble in price, others may fall, and the general 
 level of prices may be approximately maintained. 
 In such circumstances the general value of money 
 is not altered, though its value in relation to par- 
 ticular conmiodities may be increased or reduced. 
 
 Prices, therefore, are a very important matter 
 to the workman, whose wages are paid in current 
 coin (including in this phrase the present issue of 
 paper money to take the place of gold coin). The 
 workman's wages are fixed at so much money per 
 week. In reality this wage, when fixed, is supposed 
 to express in money the exchange value of the 
 money in relation to the value of the commodities 
 for which the money will have to be exchanged. 
 The workman has no control over the manipula- 
 tion of the market which affects prices. The 
 trade unions may succeed in securing an increase 
 in the nominal amount of wages, that is in the 
 amount of current money. But it is within the 
 power of the capitalists when market conditions are 
 favourable to raise the price of commodities for 
 which he must exchange his wages, and thereby 
 depreciate the purchasing power or the exchange 
 value of his wages. The wages contract is in 
 reality an obligation on the part of the employer 
 to pay the workmen every week as much money 
 as will exchange for commodities at the prices 
 ruling at the time the contract is made. A rise 
 
WAGES, VALUE AND PRICES 58 
 
 of prices, therefore, is a real reduction of the 
 workman's wages. It is in fact a breach of the 
 contract. When prices have risen and the work- 
 man's wages have not been- raised, he is being 
 deprived of a part of the real wages for which he 
 had contracted. On the other hand, of course, if 
 prices fall the value of his money is increased and 
 he thereby gains an advantage. 
 
 Prices, hke wages, are influenced by the law of 
 supply and demand. Demand is the desire for 
 possession accompanied by the power to purchase. 
 The lack of organisation to try to keep supply 
 approximately equal to the demand (owing to the 
 fact that there are thousands or tens of thousands 
 of persons, scattered all over the world, engaged 
 in production without any knowledge of what 
 their competitors are doing), renders it difficult 
 for supply to approximate to the demand. The 
 supply of many important commodities, like food 
 and raw cotton, is so much dependent upon causes 
 beyond the complete control of man that fluctua- 
 tion of supply is bound to occur. An abundant 
 harvest may throw upon the world market an 
 exceptional quantity of wheat ; natural causes 
 may affect a year's cotton crop in the direction 
 of a reduced or increased supply. The world 
 demand for food is fairly stable. An abundant 
 harvest, that is an increase of supply, does not 
 materially affect the demand. The consequence 
 is that as every person holding wheat must sell 
 within a hmited time, the excess of supply over 
 
54 WAGES AND PRICES 
 
 demand causes a fall of prices. The extent to 
 which the excess of supply over demand affects 
 prices is largely determined by the nature of the 
 commodity. To take an extreme case, that of 
 fish— an extremely perishable commodity. If there 
 be an abundance of fish, if the supply greatly 
 exceeds the normal demand, there will be a sudden 
 and considerable fall of prices. This fact is so 
 well appreciated that it is not an uncommon 
 practice for fish to be thrown back into the sea, 
 because a larger total profit could be made at a 
 higher price than by the sale of a larger quantity 
 at a lower price. But when an abundant supply 
 of fish is placed-upon the market, resulting in very 
 low prices, there is an increase in demand for fish. 
 A further result is the withdrawal of purchasing 
 power from other articles of food, like meat. The 
 meat retailers, not being aware of the advent of 
 the competition of a cheap supply of fish, have 
 prepared their usual supplies. The diversion of 
 purchasing power from meat to fish lessens the 
 demand for meat, and the supply of meat, being 
 in excess of the demand, causes a fall in the prices 
 of meat also. 
 
 Supply and demand does not affect prices to 
 the same extent in commodities of a non-perishable 
 character. The supply of manufactured articles 
 can be better regulated than the supply of com- 
 modities dependent upon the vagaries of the 
 seasons or the luck of the fishermen. If from any 
 cause the supply of a manufactured commodity 
 
WAGES, VALUE AND PRICES 55 
 
 has become a glut upon the market the manu- 
 facturer or merchant can withdraw suppUes from 
 sale and hold them until more favourable market 
 conditions have been restored. This power, how- 
 ever, is exercised only to moderate the effect of an 
 excess of supply over demand in non-perishable 
 commodities. The relation of demand and supply 
 affects the price more or less of every marketable 
 article. The variation of prices tends to restore 
 an equihbrium between supply and demand, which 
 cannot be established or maintained by the manu- 
 facturers and merchants, owing to their inability 
 to survey and forecast the exact requirements of 
 the market over a defmite future period. 
 
 The free operation of the law of supply and 
 demand is interfered with by a great many influ- 
 ences and deliberate acts. Neither labour, nor 
 capital, nor prices are regulated by the unre- 
 stricted operation of demand and supply. Customs, 
 fashions, laws, trade unions and monopoUes, all 
 affect supply and demand. A change of fashion 
 may render unsaleable at previous prices large 
 stocks of clothing. These stocks must be cleared 
 at slaughter prices. The existence of a rich class 
 with a large spending power has a considerable 
 influence upon demand and supply. The ex- 
 penditure of this class upon necessary commodities 
 is stable. Only a small proportion of their 
 expenditure is devoted to the purchase of com- 
 modities of this kind. The greater part of their 
 expenditure is variable. One year a rich person 
 
56 WAGES AND PRICES 
 
 may spend £5000 on a luxurious motor car, the 
 next year a similar sum upon diamonds or pearls, 
 the following year upon paintings or furnishings, 
 and the year after on the purchase and equipment 
 of a shooting box. It is only the expenditure 
 upon commodities which are necessary, or supply 
 reasonable conditions and conveniences, which 
 contributes to the general well-being and helps to 
 maintain a fair equiUbrium between supply and 
 demand. 
 
 Monopolies exercise a very important influence 
 upon the supply of commodities and consequently 
 upon prices. But this is a matter of such grave 
 and increasing importance that its consideration 
 must be left to a later stage of our inquiry. It 
 may be sufficient to say at this point that dehber- 
 ate attempts to prevent the free operation of 
 supply and demand have been made through all 
 the ages. It was part of the aim of the Statute 
 of Apprentices in the Middle Ages to regulate 
 prices in harmony with the statutory rate of 
 wages. There were severe penalties in those days 
 against profiteering, that is, against attempts to 
 force up prices by the withholding of supplies or 
 by combination amongst sellers. The Church took 
 a laudable part in trying to regulate prices by 
 ideas of fairness. Excommunication was often pro- 
 nounced as a penalty upon those who were found 
 guilty of violating the fair prices regulations. 
 
CHAPTER VI 
 
 THE THEORY OF PRICES 
 
 Beyond the simple and obvious fact that supply 
 and demand, when left free to operate, influence 
 the movement of prices (an excess of supply over 
 demand causing a fall of prices and the excess of 
 demand over supply causing a rise of prices), the 
 theory of the variation of prices is still in the 
 controversial stage. The subject, however, has 
 been raised into one of first-class importance by 
 the enormous increase in prices which has taken 
 place during the last five years. This is a subject 
 which affects everybody, for workers and non- 
 workers alike are consumers, and from whatever 
 source an income is derived, its purchasing power 
 is a matter of great importance to its possessor. 
 It would be a very shortsighted view of this prob- 
 lem to assume that the rise of prices in recent years 
 is wholly due to causes arising out of the war. 
 The problem of rising prices had been receiving 
 the consideration of economic students for years 
 before the outbreak of war. 
 
 The general course of prices from 1820 to 1905 
 was downward. The calculation of prices, based 
 on the average wholesale cost of a large number 
 
 87 
 
58 WAGES AND PRICES 
 
 of principal articles in common use, shows that 
 they were lower by 11 '7 per cent, at the end of the 
 century than in 1850. There was a phenomenal 
 rise in 1871 due to the Franco-Prussian War, and 
 it was not until thirteen years later that a marked 
 decline set in, which continued with slight varia- 
 tions up to 1906. Rising prices ruled almost 
 without interruption up to the outbreak of war. 
 Taking the year 1900 as the standard year, the 
 average prices of forty-seven separate articles, 
 weighted in accordance with their estimated con- 
 sumption, were 26*2 per cent, below the average 
 of 1871, and in 1918, 16*5 per cent, above the 
 average of 1900. It is important to note as 
 bearing upon the causes of increased prices that 
 the advance between 1906 and 1913 was mainly 
 in food, drink, tobacco, oils, rubber hides, wood, 
 bricks, the raw materials of the textile manu- 
 factures, coal and metals. There had been violent 
 fluctuations during these years in the prices of the 
 raw materials of the textile trades. But the price 
 of coal and metals were 7^ per cent, lower in 1913 
 than in 1900. The textile raw materials were 
 35 per cent, higher; food, drink, and tobacco, 
 17"7 per cent, higher, and miscellaneous articles, 
 6'2 per cent, higher. These figures represent the 
 variation of wholesale prices. 
 
 The rise of prices from 1906 to 1913 has some- 
 times been connected with the South African War, 
 but this explanation will not suffice. The South 
 African War came to an end in 1902, and for three 
 
THE THEORY OF PRICES 59 
 
 years after that time prices were below the general 
 level of 1900. Some other explanations will have 
 to be sought, and if they can be discovered they 
 will help to elucidate the complexity of the grave 
 problem as it confronts the world to-day. The 
 increase of prices which had taken place in the 
 United Kingdom between 1906 and 1913 had been 
 a world phenomenon, and the cause should be 
 sought in some other influences which were world- 
 wide in their operation. 
 
 The movement of wages must be considered in 
 connection with the variations of prices. The 
 official figures show that between 1850 and the end 
 of the nineteenth century wages advanced on the 
 average by 77 per cent. From 1900 to 1914 there 
 were alternating periods of rising wages and falling 
 wages. The net effect of all the changes of wages 
 between 1900 and 1914 was an increase of the 
 weekly wages of the workpeople in the occupations 
 dealt with by the Board of Trade returns. In the 
 fourteen years before the outbreak of war the cost 
 of living had increased by 16*5 per cent. There 
 was no corresponding increase in wages. The^ross 
 amount of income assessed under Schedule D, 
 rose from £487,000,000 in 1901 to £670,000,000 in 
 1913. It is interesting to note that in this period 
 between 1900 and the beginning of 1914, during 
 which the real value of wages had considerably 
 declined, the membership of the trade unions had 
 increased from two millions to four millions. 
 
 It is well to cite the above facts dealing with the 
 
60 WAGES AND PRICES 
 
 fluctuation of prices, wages, and incomes in the 
 period before 1914, because the conditions have 
 been so abnormal during the war that there is 
 a disposition to attribute the great advances of 
 prices wholly to causes connected with the war. 
 
 For some time before August 1914 there had 
 been great unrest in the Labour world. The 
 remarkable growth of trade unionism, which has 
 been mentioned, was due to the increasing pinch 
 felt by the working classes owing to rising 
 prices and practically stationary wages. The slight 
 general advance of wages which began in 1910 
 and reached its culminating point in the first half 
 of 1912, was followed by a decline of wages in the 
 metal and mining industries, and by a slackening 
 in the advances in other industries. In the first 
 seven months of 1914 the net effect of all the 
 changes recorded was a decrease of wages of nearly 
 £13,000 per week. 
 
 At the outbreak of war the trade unions agreed 
 not to press for wages advances during the war, 
 in happy ignorance of what was in store for them 
 in the form of an increase in the cost of living. 
 After the outbreak of war, through the enlistments 
 and the demand for war material, employment 
 became very good. By the beginning of 1915 a 
 strong movement had started to raise wages. 
 The Annual Report of the Labour Department 
 for 1915 dealing with this point says : — 
 
 " This movement for wages advances in most 
 cases took the form of bonuses or of increases in 
 
THE THEORY OF PRICES 61 
 
 rates of wages limited to the duration of the war. 
 It first became evident in the trades more directly 
 concerned with the output of munitions and the 
 transport of troops and supplies. From March 
 1915 onwards, however, it spread to nearly all the 
 principal industries, and its effects have been far 
 greater than those of any other upward movement 
 of wages previously recorded. It is estimated that 
 during the first twelve months of the war about four 
 and a half million workpeople had their wages 
 increased by over £750,000 per week." 
 
 This aggregate sum, though apparently large, 
 represented an average increase of wages of about 
 3s. 6d, per head. It is pointed out in this Report 
 that apart from the advances in the rates of wages 
 many workpeople received substantial increases in 
 weekly earnings owing to the large amount of 
 overtime worked, to the speeding up of piece-work, 
 and to greater regularity of enfiployment. 
 
 Up to October 1915 the wages advances had 
 been about 3s. 6d. per week, and at this time the 
 price of food had risen by 37 per cent. The cost 
 of living continued to advance, and further advances 
 of wages were conceded. For 1916 the number of 
 workpeople who were reported to the Labour 
 Department as having received increases in rates 
 of wages or bonuses was 3,593,000, the net increase 
 in the weekly wages of those affected, as compared 
 with the previous year, being £637,000. At the 
 end of 1915 the general level of wholesale prices 
 was 86-5 per cent, above that of 1900, and 58 per 
 
62 WAGES AND PRICES 
 
 cent, above that rviling at the outbreak of war. 
 In 1917 the wages advances were more consider- 
 able ; 5,029,000 workpeople received increases in 
 their weekly wages as compared with 1916— 
 amounting to £2,307,000. These advances were 
 spread fairly evenly over the principal industries. 
 At the end of 1917 the general level of wholesale 
 prices was 109 per cent, above the figures of 1913. 
 Up to this point the wages had lagged behind the 
 increase in the cost of living. In the year 1918 
 the increase of wages was greater than that recorded 
 for 1917, and it exceeded the total of any previous 
 year. In this year (1918) 5,654,000 workpeople 
 obtained advances of wages, showing a total of 
 net increase in weekly wages as compared with 
 the previous year of £2,783,000. As in the previous 
 year the advances were spread fairly evenly over 
 the whole of industry. 
 
 The most noteworthy feature of the wage move- 
 ment of 1918 was the widely extended application 
 of the bonus of 12j per cent, on earnings which 
 towards the end of 1917 had been granted to men 
 engaged on plain time rates in munition works, 
 in engineering and shipbuilding establishments. 
 During 1918 this, bonus was extended to men on 
 munitions work in various other industries, and in 
 a large number of cases all the men employed, 
 whether engaged on munitions work or private 
 work, evaitually received the bonus. During this 
 year an advance of Is. 6d. a day was given to 
 colliery workers, and the cotton operatives obtained 
 
THE THEORY OF PRICES 63 
 
 an advance of 25 per cent, on standard list 
 prices in June, and a further advance of 25 per cent, 
 in December. From the beginning of the war up 
 to the end of 1917 the total increases obtained 
 by the cotton workers had been only 35 per cent., 
 although the advance in the cost of living had been 
 109 per cent. For railway servants engaged in 
 the manipulation of traffic war wages were in- 
 creased in April 1918 by 4s. per week in the case 
 of men and 2s. per week for boys under 18 years 
 of age. At the same time the war wage of females 
 of 18 and over was fixed at 2s. 6d. per week, with 
 a minimum increase of 2s. per week ; those under 
 18 years of age were to receive half the amount 
 given to adults. At later dates further increases 
 were granted, amounting to 8s. for men and women 
 and 4s. to youths and girls, making the total war 
 wage for men 33s. a week.^ 
 
 During 1919 wages continued to advance, and 
 in November of that year there were reported to 
 the Labour Department changes in rates of wages 
 as having come into operation in October, amount- 
 ing to an increase of nearly £100,000 in the weekly 
 wages of about 500,000 workpeople. During 1919 
 the cost of living continued to rise, and on the 
 1st (rf November, taking into account food, house 
 rent, clothing, fuel, light, etc., the average increase 
 over July 1914 was 125 per cent., as compared with 
 120 per cent, a month earlTer. No authentic 
 
 1 While these pages were going through the press the railway 
 workers obtained a further adTance of Ss. a week. 
 
64 WAGES AND PRICES 
 
 figures are available showing the average advance 
 of wages from the outbreak of war up to the end 
 of 1919, but it is assumed that the average is some- 
 where about 110 per cent. AcceJ)ting this figure 
 as fairly accurate, it will be observed that the 
 advances of wages during this war time have not 
 kept pace with the increase in the cost of living. 
 It is important to point out also that advances 
 of wages have lagged behind the increasing co;st 
 of commodities, so that there has always been a 
 shorter or longer period during which the difference 
 between increased wages and increased cost of 
 living has been considerably to the detriment of 
 the wage workers. 
 
 It is necessary to offer some criticism of the 
 figures of the Board of Trade relating to the in- 
 creases in the prices of commodities. The items 
 included in their estimates are not sufficiently 
 comprehensive, and many articles which necessarily 
 enter into the working class expenditure, and 
 which have increased very considerably in price, 
 are excluded. The range of increases shown by 
 the articles included in the Board of Trade Returns 
 is very wide, varying from nil in the case of work- 
 men's tickets on the railways to 300 per cent, or 
 more in matches, eggs, some articles of clothing, 
 and ironmongery. A return was recently made 
 to the writer by the manager of a large general 
 store who had complete records of retail prices 
 ruling in July 1914. This return gives the com- 
 parative price of 110 articles in general use, and 
 
THE THEORY OF PRICES 65 
 
 the average advance in the period mentioned was 
 154 per cent. 
 
 During 1919 arrangements were made in a 
 number of industries for the periodical adjustment 
 of wages in correspondence with the variations in 
 the cost of living. One of the most interesting of 
 these agreements covers the woollen and worsted 
 spinning and manufacture, wool sorting, wool 
 combing, mohair and alpaca sorting, and the 
 warehouse sections in the industry in the West 
 Riding of Yorkshire, and flannel weaving in the 
 Rochdale district. It is provided in all these 
 agreements that as from the pay day in the 
 month following the issue of the Labour Gazette 
 in which the ascertained change in the cost of living 
 reaches the figure stated below, the cost of living 
 to time workers should be increased or decreased 
 to the number of parts shown below, and so on in 
 proportion up or down as compared with the basic 
 wage of a hundred parts in some sections and 
 110 parts in others. 
 
 Cost of Living. f,^ .. j i^„- Uazimnm WeeKly 
 
 Increase p« °^^^^^- Cost of LlTing. 
 
 lOentage. "*»*■ Wage. 
 
 125 125 37s. 6d. 
 
 115 115 34s. 6d. 
 
 105 105 31s. 6d. 
 
 95 95 28s. 6d. 
 
 85 85 25s. 6d. 
 
 In other industries where some similar arrange- 
 ments have been made the method of adjusting 
 
66 WAGES AND PRICES 
 
 wages is less complicated. The calico printers 
 have an agreement by which it is provided that 
 the wages of calico printers shall be increased by 
 2|d. per week for every 1 per cent, in the cost of 
 living over that previously prevailing in July 1914, 
 with, however, the following modifications. The 
 2|d. is fixed when the cost of living stands at 
 115 per cent, above that of 1914, and if the cost of 
 living falls below this figure the decrease in wages 
 shall be at the rate of l|d. per week for each 
 fall of 1 per cent. In the asbestos manufacturing 
 industry a minimum rate of wages of 9d. per hour 
 is fixed for men, and an additional Jd. per hour 
 for each 10 per cent., by which the cost of living 
 exceeds the 1914 level. 
 
 The State regulation of wages, forced by the 
 consideration of the cost of living, has made 
 considerable progress during the war. Under the 
 Munitions Act the Minister had power to give 
 directions as to the rate of wages, as to the hours 
 of labour or conditions of employment of the 
 female workers and of semi-skilled and unskilled 
 labour in controlled establishments. Under the 
 Corn Production Act a statutory minimum wage 
 of 25s. a week for agricultural workers was laid 
 down, and District Boards were created with power 
 to -fix the district rate, and their awards have 
 secured an average minimum wage for this class 
 of labour of 37s, 6d. a week. The wages of 
 railwaymen, and those of the miners, have been 
 fixed by the Government, as these two great enter- 
 
THE THEORY OF PRICES 67 
 
 prises have been under Government control. In 
 November 1918 the Regulation of Wages Act was 
 passed by which the existing war wages and 
 bonuses were stabilised for twelve months. 
 
 One of the most recent, and in some respects 
 the most important instances of State regulation 
 of wages, is that afforded by the decision of the 
 Interim Court of Arbitration, given in November 
 1919. Twelve months before the Committee on 
 Production (which preceded the Interim Court of 
 Arbitration) had given an advance of 5s. a week 
 to the forty-seven trade unions connected with 
 the engineering trades, this award being based 
 upon the admission that the cost of Uving was 120 
 per cent, over the pre-war figure. When, twelve 
 months later, the workmen made an application 
 for the advance of wages, the figure of 120 per cent, 
 exactly represented the then average increase of 
 prices. On this fact alone it might have been 
 assumed that the Court would have been justified 
 in dismissing the application for an advance of 
 wages, but it awarded an advance of 5s. a week 
 to become operative on the 1st December. The 
 grounds upon which the Court made this award 
 are very interesting. They stated that there was 
 a general expectation, based on what appeared to 
 the Court to be substantial grounds, that consider- 
 able increases in the prices of various important 
 articles of food and commodities in common use 
 would take place in the immediate futvure. This 
 is the first, and so far the only instance where an 
 
68 WAGES AND PRICES 
 
 advance of wages has been granted to meet a 
 prospective increase in the cost of living. 
 
 The wages advances which have taken place 
 durmg the war have not been adopted on any 
 consistent and uniform plan. The workmen who 
 have had a powerful trade union, or who have 
 been employed in occupations which were essential 
 for the production of war materials, have been 
 able to wring advances of wages where other classes 
 of workmen, less able to exert pressure, have been 
 unable to do so. The effect of this haphazard 
 policy of dealing with wages has been to create 
 curious anomalies. A good instance of this is 
 afforded by the case of the agricultural labourers 
 and the railway platelayers. The pre-war wage 
 of agricultural labourers averaged about 18s. 9d. 
 per week. The average to-day is 37s. 6d. The 
 pre-war wage of platelayers varied from 18s. to 
 21s. per week. The present wages of railway 
 platelayers are the pre-war wage plus a bonus of 
 83s., that is from 51s. to 54s. per week.^ In the 
 one case it will be seen the advance of wages is 
 about 18s. 6d., and in the other case 33s., whereas 
 both classes of workmen are equally affected by 
 the advance in the cost of living. Some very 
 curious anomalies, too, have arisen in the en- 
 gineering and shipbuilding trades, where unskilled 
 and semi-skilled workmen, and even women, em- 
 ployed on piece rates, have earned more than 
 the wages of the skilled engineer who was paid at 
 ^ The bonus is now 38s. 
 
THE THEORY OF PRICES 69 
 
 time rates. The effect of these anomalies has been 
 to create constant unrest and demands for the 
 equalisation of wages for proportionately similar 
 work. The employers who, during the war, were 
 largely employed upon war work, and who were 
 able to charge the wages advance to the Govern- 
 ment were less unwilling than usual to grant 
 wages advances. 
 
 A survey of the changes of wages and the 
 advances of prices during the last five years leads 
 to the conclusion that wages on the average have 
 not advanced quite as much as the increase in the 
 cost of living. The Rent Restrictions Act has 
 prevented an increase of the rents of working class 
 houses which, in the absence of such legal restric- 
 tion, and in view of the scarcity of housing accom- 
 modation, would probably have soared to unheard- 
 of heights. Though wages have not kept pace 
 with the cost of Uving, it is undoubtedly the fact 
 that the aggregate income of working-class families 
 has increased much beyond what is indicated by 
 the advance of wages in individual cases. In a 
 vast number of cases women members of a family 
 have become wage earners, and their earnings have 
 considerably augmented the family income without 
 a proportionate increase of expenditure. 
 
 The people who have been most hardly hit by 
 the war are those earning salaries as distinct from 
 wages, and people with fixed incomes, derived 
 from annuities and pensions. 
 
 The increase of prices during the last five years 
 
70 WAGES AND PRICES 
 
 has been world-wide. At the end of October 1919 
 the retail prices of food in Paris were 183 per cent, 
 above those of July 1914 ; in Brussels the increase 
 was 249 per cent, as compared with April 1914 ; 
 in Italy an increase of 114 per cent, as compared 
 with the first half of 1914 ; in Norway the cost of 
 food, fuel, lighting, clothing, rent, taxation, and so 
 on showed an advance of 180 per cent, over July 
 1914 ; in Switzerland the advance has been 141 
 per cent. ; in Holland 103 per cent. ; in Canada 
 91-5 per cent. ; in New Zealand 50 "1 per cent,, 
 and in United States 84 per cent. 
 
CHAPTER VII 
 
 WAE-TIME PRICES AND PROFITS 
 
 The increase in the cost of living which began 
 immediately after the outbreak of war soon 
 became a pressing problem, and proposals were 
 put forward for dealing with it. Taking the year 
 1900 as the base year, the changes of wholesale 
 prices since that year in the index number of the 
 forty-seven articles comprised in the Board of 
 Trade tables show that in July 1914 prices were 
 13*6 per cent, above those of 1900, in December 
 of that year 22'6 per cent., in 1915 43*9 per cent., 
 in 1916 86-5 per cent., in 1917 143*0 per cent., in 
 1918 169'9 per cent. For a long time the Govern- 
 ment refused to take any steps to deal with the 
 advance of prices. In February 1915, six months 
 after the outbreak of war, in the course of a debate 
 upon food prices in the House of Commons, Mr 
 Asquith, then Prime Minister, deprecated taking 
 a serious view of the increase of prices, maintaining 
 that " the rise, stated in its most extreme terms 
 which the facts permitted, was substantially below 
 the level at which the most sober-minded and best 
 informed judges in the country would have appre- 
 hended or anticipated if they had been told that 
 
 71 
 
72 WAGES AND PRICES 
 
 a war upon this scale had been continued for so 
 long a time as six months," " and serious," he 
 added, "as is the rise in the prices of food, the 
 level they have obtained or are at all likely to 
 obtain, so far as one can form any forecast at all, 
 does not exceed, and in many. cases falls short of 
 the level which those of us who are now living, 
 and still mcflre those who went before, have ex- 
 perienced and been accustomed to in times of 
 profound peace." 
 
 He then went on to explain what, in the view 
 of the Government, were the causes responsible 
 for the increase which had taken place up to that 
 time, which was 27 per cent, above the prices of 
 1914. The increase in the price of wheat he 
 attributed to the diminished supply owing to 
 the shortage of labour due to the employment 
 of men on military service, and to increased 
 demand. Shipping \ was to some extent respon- 
 sible, through the withdrawal of vessels from 
 carrying food for the transport of troops and war 
 materials. Mr Asquith's speech on that occasion 
 is interesting because it shows how little even 
 persons who ought to have been well informed 
 upon the subject realised what was likely to happen 
 from a prolongation of the war. It is important, 
 too, to note, in view of the action the Government 
 was compelled at later dates to take, that he con- 
 demned the fixing of maximum prices and pur- 
 chases of food stocks by the Government. The 
 President of the Board of Trade, who followed 
 
WAR-TIME PRICES AND PROFITS 73 
 
 Mr Asquith, had but one proposal to make for 
 dealing with the increased cost of living, namely, 
 that it should be compensated for by higher wages. 
 
 From this time onward the advance of prices 
 continued, and the Government were ultimately 
 compelled to take steps, not only to regulate the 
 supply but to fix maximum prices of food. An 
 Act of Parliament was passed to set up a Ministry 
 of Food under the direction of a Food Controller, 
 whose duty was to regulate the supply and con- 
 sumption of food in such a manner as he considered 
 best for maintaining a proper supply of food, and 
 to take steps for encouraging the production of 
 food. The powers of the Food Controller were 
 not laid down by the Act of Parliament, but were 
 conferred upon him by Orders in Council. The 
 Food Controller has from time to time fixed 
 maximum wholesale or retail prices of practically 
 all articles of food ; he has also acted as a whole- 
 sale buyer iand distributor of certain food stuffs. 
 
 At the time the Ministry of Food was established 
 a Shipping Controller was appointed, whose duty 
 was to control and regulate any ships available for 
 the needs of the country, and to take steps for 
 providing and maintaining an efficient supply of 
 ships. Shipping rates had risen to an enormous 
 height, and this was undoubtedly one of the factors 
 responsible for the increased prices of imported 
 commodities. 
 
 It is impossible to say what the effect upon 
 prices has been of the control exercised by the 
 
74 WAGES AND PRICES 
 
 Minister of Food, and the Minister of Shipping. It 
 may be urged that had this control not been 
 adopted prices would have been higher than they 
 are, but it is certain that the control exercised by 
 these two departments has not had the effect of 
 bringing down prices. Prices have continued to 
 advance either in spite of, or with the assistance 
 of Government control, and in the summer of 1919 
 the public outcry against high prices became so 
 loud and insistent that the Government were com- 
 pelled to do something more in the matter. There 
 was a popular impression that high prices were 
 in the main due to profiteering, and to meet this 
 complaint the Profiteering Act was passed. This 
 Act conferred upon the Board of Trade power to 
 investigate prices, costs, and profits at all stages, 
 and for that purpose by Order to require any 
 person to appear before them, and to furnish such 
 information and produce such documents as they 
 might require ; and on any such investigation the 
 Board may, by order, fix maximum prices ; and 
 further, to receive and investigate complaints that 
 a profit is being, or has been since the passing of 
 this Act, made or sought by the sale of the article 
 (whether wholesale or retail) which is, in view of 
 all the circumstances, unreasonable ; and on any 
 such complaint the Board of Trade may, after 
 giving the parties an opportunity of being heard, 
 either dismiss the complaint or declare the price 
 which would yield a reasonable profit, and require 
 the seller to repay to the complainant any such 
 
WAR-TIME PRICES AND PROFITS 75 
 
 amount paid by the complainant in excess of such 
 price. 
 
 The Board acts, in regard to retail trade, through 
 local tribimaJs. The Act empowers the Board of 
 Trade to take proceedings against the seller before 
 a Court of Summary Jurisdiction, and if in such 
 proceedings it is found that the price charged, or 
 the price discovered by investigation to have been 
 charged, was such as to yield a profit which is, in 
 view of all the circumstances, unreasonable, the 
 seller should be liable on summary conviction to 
 a fine not exceeding £200, or to imprisonment for 
 a term not exceeding three months, or both im- 
 prisonment and fine. It provided that a rate of 
 profit which does not exceed the fair average rate 
 earned by persons in the same way of business as 
 the seller upon a sale of similar articles in pre-war 
 days should not be deemed to be unreasonable. 
 
 The provisions of this Act, as has beea stated, 
 were intended to put down excessive profit taking. 
 The operation of the Act during the first few months 
 has achieved practically nothing. Here and there 
 a retail trader has been convicted by a local 
 tribunal of charging a small sum in excess of what 
 the tribunal considered to be a reasonable profit. 
 The Act has had no apparent effect in reducing prices. 
 The Board of Trade alone can deal with the manu- 
 facturer or wholesaler, where it is believed that so 
 much of increased prices as is due to excess profits 
 are believed to have originated. That profiteering 
 has been rampant during the war both in the manu- 
 
76 WAGES AND PRICES 
 
 facturing, wholesale and retail trades admits of no 
 doubt, but there has prevailed an exaggerated idea 
 in the public mind of the importance of profiteering 
 as a cause of high prices. This observation must 
 not be interpreted to mean that profiteering has 
 not had a considerable influence in raising prices 
 to the consumer, but it is made to call attention 
 to the tindoubted truth that there are other causes 
 which, taken together, have had a greater effe'ct. 
 
 Especially in the early days of the war colossal 
 fortunes have been made by sheer profiteering, 
 that is, by the exploitation of the necessities of 
 the nation. When practically every trade has 
 shared in this exploitation, it is difficult to cite 
 particidar instances as exceptional. A few facts 
 as to the increased profits made by certain com- 
 panies, whose opportunities have arisen out of 
 war conditions, may be quoted. 
 
 Early in the war the profits of shipping concerns 
 became notorious. Mr Bonar Law, then Chan- 
 cellor of the Exchequer, made a sensation in the 
 House of Commons in 1917 by confessing the facts 
 in regard to the dividends he had received upon 
 certain investments in shipping. He said that the 
 sum of money he had invested in shipping was 
 spread over fifteen companies, and amounted to 
 £8110, which, at 5 per cent., would yield £405. 
 For the year 1915 he received in dividends £3624, 
 and for 1916, £8847. That was after paying 
 Excess Profits. One of these steamers was sunk, 
 and on his £200, after the handsome dividends he 
 
WAR-TIME PRICES AND PROFITS 77 
 
 had received, he was given a cheque for a little 
 over £1000 on liquidation. 
 
 The Cardiff Shipping Companies have made 
 enormous profits. The Tempus Shipping Com- 
 pany (a seven-year-old undertaking), during ten 
 months of 1915, made a profit of £34,000 on a 
 share capital of £100,000. The Red Croft Com- 
 pany has a capital of £100,000, and made £118,000 
 profit that year. These are moderate instances. 
 One of the oldest Cardiff shipowners in the autumn 
 of 1914 offered to sell a nine-year-old steamer of 
 8000 tons for £36,000, without finding a purchaser, 
 and was pleased in February 1915 when he secured 
 £44,000. In November of that year, however, he 
 regretted the bargain when he learned that this 
 vessel had been sold again for £72,000. The Lord 
 Mayor of Cardiff stated recently in a public speech 
 that there were at least twenty men in Cardiff 
 who could to-day sign a cheque for half-a-million 
 pounds without missing the amount from their 
 banking accounts. 
 
 The following table of prices of the Prince Ship- 
 ping Line shares indicates plainly how values have 
 been augmented simply and solely by the war: 
 1914, 22s. 9d, ; 1917, 122s. 6d. ; 1918, 120s. A 
 shareholder of this line in 1916 held 300,000 
 shares of the total capital of £600,000, in £1 
 shares. A proportion of his holding had been 
 acquired at 12s. per share. Other shares were 
 subsequently obtained at prices ranging up to 
 £4 per share. In September 1916 he disposed of 
 
78 WAGES AND PRICES 
 
 his total holding in the Prince Line to Furness, 
 Withy & Co., at £10 per share, and received a total 
 payment of three million pounds. The profits of 
 this company in 1913-14 were £115,413. In 1915- 
 16 they rose to £495,328. One more instance of 
 shipping profits during the war may be quoted. 
 The China Mutual Steam Navigation Company 
 made a profit in 1915 of £591,005 as against 
 £294,000 in 1914. 
 
 Similar facts to these in regard to shipping 
 profits may be quoted by the score. These profits 
 have of course been made out of increased freight 
 rates, and the increased rates have been added to 
 the selling prices of the commodities transported. 
 A few instances of freight rates for grain imported 
 into the United Kingdom, prevailing in the first 
 quarter of 1914 and in 1916 may be given to illus- 
 trate the enormous advance which took place. 
 The freight from New York in 1914 was 6s. per 
 ton, in the first quarter of 1916 it was 69s. From 
 the Argentine in 1914, 15s. 6d., and in the first 
 quarter of 1916 it was 144s. ; from Bombay in 
 1914, IBs. 6d., and in 1916, 130s. Since 1916 
 under Government control rates were reduced, 
 but they still remain very much higher than in 
 pre-war times. In October 1919 the shipping rate 
 from Newcastle to Rouen for coal was 40s, as 
 against 4s. 6d. before the war, and to Genoa 65s. 
 as against 10s. 
 
 The iron trades have shared to a great extent 
 in the war boom of profits. The Consett Iron 
 
WAR-TIME PRICES AND PROFITS 79 
 
 Company for the three years ending June 30th, 
 1919, paid dividends respectively of 35 per cent., 
 35 per cent., and 40 per cent. The well-known 
 firm of John Brown & Co. increased their profits 
 from £271,902 in the year before the war to £521,007 
 in the first complete year of war. A firm of leather 
 merchants in Liverpool issued a prospectus in 
 1915, in which the fact was disclosed that the 
 average yearly profit before the war was £24,000. 
 During the first five months of the war, according 
 to this prospectus, the profits were at the rate 
 of £180,000 a year. The £10 shares of Messrs 
 Levinstein, the dye manufacturers, were quoted 
 before the war at 50s. They rose during the war 
 to £190 ; and their annual balance-sheet, dated 
 October 31st, 1918, showed that working with a 
 capital of £90,000, they were liable that year to 
 excess profits duty of no less than £641,338. 
 
 The profits in the textile trades have been 
 notorious. A correspondent in the Yorkshire 
 Observer, dated March 31st, 1919, gives an example 
 of a well-known local firm of spinners and manu- 
 facturers whose profit during the year before the 
 war was £1621. In the first year of the war it 
 was £24,502, in the second year of the war £30,717, 
 in the third year £32,337, in the fourth year 
 £39,620. These profits do not include Excess 
 Profits Tax, which it is estimated would amount 
 to £80,000 a year, making a total profit of £112,000 
 a year during the war, against an average of £2000 
 before the war. 
 
80 WAGES AND PRICES 
 
 The profits made by J. & P- Coats, Limited, 
 the linen thread manufacturers, were in 1918- 
 14 £2,634,388, and in 1918-19 £4,000,000. In a 
 pamphlet written by Mr Titus Binns, who is him- 
 self connected with the worsted trade, some very 
 remarkable figures are given of the war profits in 
 that industry. In July 1914 the estimated net 
 profit per pound for the spinners who turned the 
 wool tops into thread or yarn ready for the manu- 
 facturer was Id. In January 1916 the estimated 
 profit was lOd. per pound. In July 1917 it was 
 19d. per, pound, and in January 1918 42d. per 
 pound, and in July 1918 51d. per pound. For 
 English wools, therefore, the spinner has increased 
 his profit from Id. to 4s. 3d. per pound, or 5000 per 
 cent. The spinner of cross-bred wools, and the 
 spinner of Botany wool has increased his profits 
 still more. The estimated net profit per pound of 
 the spinner of Botany wool in July 1914 was Id., 
 and in July 1918 78d. per pound, which was an 
 increase of 7,700 per cent. 
 
 Profits in the cotton industry have been phen- 
 omenal, far exceeding those made in the early 
 days of the Industrial Revolution. The figures of 
 180 companies in Lancashire which published their 
 dividends show that on a share capital of £7,404,990 
 a total of £2,868,290 was distributed or added to 
 capital amount, being equivalent to 38*73 per cent. 
 The capital employed by the 24 companies which 
 published the amounts of their profits was 
 £1,153,676, and they earned £355,550, equal to 
 
WAR-TIME PRICES AND PROFITS 81 
 
 SO'81 per cent,, distributing £219,561 in dividends, 
 or 19'03 per cent. The remaining 156 companies 
 had a share capital of £6,215,315, and paid in 
 dividends and bonus calls £2,648,729, equal to 
 42*37 per cent. It is estimated that the reserve 
 funds and credit balances of these companies total 
 between £4,000,000 and £5,000,000. 
 
 The present profitable character of the cotton 
 trade has led to gigantic speculation in the shares 
 of cotton spinning companies, and these are 
 changing hands in the market daily at three, four, 
 five, and even seven times the amount of the paid- 
 up capital. 
 
 The jute trade has been equally profitable. 
 The figures of three Dundee jute factories show 
 that the average profit for the three years before 
 the war was £283,188, while in 1916 the profit 
 was £1,327,857, in 1918 it was £2,584,916. 
 
 Profiteering has not been confined to the ship- 
 ping and manufacturing trades. Before maximum 
 prices were fixed for articles of food there was 
 scandalous profiteering. In the case of potatoes 
 this became especially notorious. In ordinary 
 times the price of good potatoes ranged from 60s. 
 to 70s. a ton. In the first years of the war prices 
 rose up to £lO and £16 per ton. 
 
 The profits of retail traders are not easily acces- 
 sible, as there are comparativdy few firms engaged 
 in this trade which are public- companies. A few 
 instances may be given which are probably typical 
 of the industry as a whole. Taking fifteen of 
 
 F 
 
82 WAGES AND PRICES 
 
 the biggest concerns carrying on buiness in all 
 parts of the country as retail drapers, the figures 
 show that their profits in the aggregate amounted 
 in 1918 to £235,727 as compared with £136,164 in 
 1914. One firm at Reading raised its profit from 
 £2312 in 1914 to £10,710 in 1918, and a well- 
 known firm at Hastings improved their profits 
 from £19,208 in 1914 to £56,927 in 1918. The 
 balance-sheets of some of the largest London 
 drapery houses were recently analysed, and it 
 was found that the aggregate profit for 1918 was 
 £3,466,979 as against £1,200,576 in 1914. The 
 firm of A. & S. Henry, stuff merchants, made a 
 profit in 1913-14 of £104,098, and in 1915-16 of 
 £404,440. The provision trades have done equally 
 well. The profits of Liptons rose from £80,797 
 in 1914-15 to £410,366 in 1918-19. 
 
 These profits have of course in all cases been 
 made out of prices charged to the consumer. It 
 is little wonder, in view of these facts, that a loud 
 outcry was made against profiteering. Not one 
 of the countries has been free from the profiteer. 
 The scandal has become so great that almost 
 every country has been compelled to take action 
 to deal with profiteering. In 1917 Sweden made 
 a law against unreasonable prices in extraordinary 
 circumstances resulting from the war, and in the 
 latter part of 1919 Canada, Italy, Germany, and 
 France all found it to be necessary to strengthen 
 their laws and regulations against the profiteers. 
 
CHAPTER VIII 
 
 TRUSTS AND PRICES 
 
 Profiteering, though by no means the only or 
 even the most important cause of high prices, is 
 undoubtedly responsible to some extent for the 
 present high cost of living. Profiteering on a huge 
 scale has been made possible during the war by 
 the absence of internal and external trade com- 
 petition. The shortage of shipping accommoda- 
 tion compelled the restriction of imports and gave 
 to manufacturers and traders in this country a 
 virtual monopoly of the home markets. The 
 country has been living, during the war, under a 
 system of Protection, not made by customs tariffs, 
 but established by war conditions. 
 
 Profiteering has been rendered more easy by 
 the extent to which amalgamations have taken 
 place in recent years in the manufacturing and 
 wholesale trades of firms formerly in competition 
 with each other. Though the movement towards 
 Trusts in British industry had made considerable 
 progress before the war, the special conditions of 
 war time have greatly accelerated its progress. 
 The Report of the Committee on Trusts, which 
 was issued in April 1919, states that many of the 
 
 83 
 
84 WAGES AND PRICES 
 
 organisations which have been brought to the [notice 
 of the Committee have been created in the last few 
 years, and by far the greater part of them appear 
 to have come into existence since the end of the 
 nineteenth century, and there has been a great 
 increase in the creation of trade associations during 
 the war. No inquiry into the causes of high prices 
 can be complete which does not deal with this 
 modern movement towards the aggregation of 
 capital and the elimination of competition. 
 
 The extent to which Trusts control nearly every 
 commodity in common use is little appjieciated by 
 the general public. The movement has reached a 
 higher stage of development in the iron and steel 
 industry than perhaps in any other trade. The 
 Report already referred to gives a list of Associa- 
 tions connected with this industry, which does not 
 claim to be at all exhaustive. There are 35 
 Associations enumerated, with which 345 firms are 
 connected. But it is important to note that the 
 firms within these Associations control a vast pro- 
 portion of the whole trade in iron and steel. 
 Combinations sufficiently powerful and large to 
 control production and prices exist in the textile 
 tracies, the chemical industry, the tobacco trade, 
 the soap trade., the pill trade, banking, building 
 materials, the mill trade, shipping, glass, cocoa, 
 margarine, thread, machines, whisky, furniture, 
 and linoleum, and indeed in practically every large 
 industry, 
 
 The simplest form of trade combination is that 
 
TRUSTS AND PRICES 85 
 
 in which traders associate together for the purpose 
 of discussing and arranging prices. The purpose 
 of price Associations is to secure agreement among 
 all members of trades to sell goods at the same 
 price. It was admitted by three of the most 
 important Associations in a joint memorandum of 
 evidence presented to the Committee on Trusts 
 that the elimination of competition results in a 
 higher level of prices and the provision of addi- 
 tional profits whereby the manufacturers are 
 encouraged and enabled to improve their processes, 
 and by scrapping old plant and installing new 
 machinery, and improved methods of production, 
 to reduce appreciably the cost of manufacture. 
 The members of these Associations naturally will 
 not readily admit that the result of combination 
 is to raise prices. This might apply to a Trust 
 which had a practical monopoly of the markets, 
 but it certainly is not the case in regard to Asso- 
 ciations which have come into being primarily 
 and solely for the purpose of maintaining prices. 
 The opinion of the distributors who are de- 
 pendent for their supplies upon members of 
 these Associations is pretty universal that prices 
 are raised by their operations. An important 
 distributing agency furnished to the Committee 
 on Trusts the following opinion with regard to 
 one of the Associations which has already been 
 referred to : — 
 
 " The combination in question," it was said, 
 
86 WAGES AND PRICES 
 
 " has not been of any advantage to the retailer 
 or to the public. They hold a very strong position 
 in the trade and one of the great resulting evils is 
 that competition in the goods referred to is greatly 
 curtailed. As a rule when this happens the con- 
 sumer suffers." 
 
 The distributing agencies complain that the 
 Associations have been starving the distributors, 
 that their heavy profits are a toll on the wages 
 of, the poor and the public necessity becomes their 
 opportunity. This opinion is one which can hardly 
 be questioned. 
 
 Beyond the simple form of combinations where 
 traders join together for the purpose of discussing 
 and arranging prices there is the close combination 
 where the businesses are completely amalgamated, 
 the capital combined, and the management con^ 
 solidated. Between these two, as the Report of 
 the Committee on Trusts points ■ out, are many 
 more or less loosely organised Associations, usually 
 known as Federations. These Federations retain 
 their separate identity, but arrange among them- 
 selves what the total output of a commodity shall 
 be, and assign to each firm its respective share. 
 The most complete type of combination is that 
 known as the Trust or Combine. The separate 
 firms engaged in one line of business enter into 
 an arrangement by which the businesses are merged 
 into one, combined with a consolidated capital. 
 In some cases such a Combine has close relation 
 
TRUSTS AND PRICES 87 
 
 with other firms in the same line of business which 
 stUl retain their separate identity, the Trust 
 having considerable holdings in the outside firms. 
 
 We are concerned in this chapter with Associa- 
 tions and Trusts only in so far as they are able to 
 raise prices and are inimical to the interests of the 
 community. That there are great economic ad- 
 vantages inherent in Trusts and Combinations 
 cannot be denied. There is no reason why a 
 Trust which is soundly capitalised and efficiently 
 managed should not make the maximum profit 
 in normal times by charging a reasonable price. 
 But though this is so in theory, it does not 
 work out like this in practice, and especially in 
 the abnormal conditions which prevail to-day. 
 
 One of the safeguards against a Trust abusing 
 its power which existed in normal times was 
 foreign competition. L'^his restraint [does not 
 operate to-day, and indeed, before the war this 
 influence was getting weaker because of the grow- 
 ing extent to which international agreements were 
 made for the regulation of prices, the allocation 
 of markets, and the control of the sources of the 
 raw materials. Some Associations and Trusts in 
 pre-war days endeavoured to overcome foreign 
 competition by compelling distributors and whole- 
 sale merchants not to import foreign goods in 
 competition with those of the Trust, the distributors 
 and wholesale merchants receiving in exchange a 
 guarantee of a larger profit than was previously 
 current in the trade. The effect of this is that 
 
88 WAGES AND PRICES 
 
 high prices are maintained, and the consumer 
 pays. 
 
 Powerful Trusts and Combinations exercise 
 great political influence. They are able to deter- 
 mine the fiscal policy of a country. Instances of 
 this were afforded by the policy of the Board of 
 Trade in prohibiting certain imports and granting 
 licences arbitrarily for the import of other goods. 
 This policy had all the baneful effects of the ordin- 
 ary methods of Protection, but in addition lent 
 itself to favouritism and corruption. It gave 
 complete protection to the home manufacturer 
 and trader who were fortunate enough to be 
 engaged in a business which was wholly relieved 
 from foreign competition by the embargo on 
 imports issued by the Board of Trade. Instances 
 might be quoted to show that when the Board of 
 Trade embargoes were removed and foreign im- 
 ports were permitted to come more or less freely 
 into the country there was an immediate slump 
 in prices in the home market. 
 
 The price of meat in the British market is very 
 largely determined by the American Meat Trust, 
 which is a combination of the five principal meat 
 packing corporations in the United States. This 
 Trust controls the American meat industry, and 
 has also secured control over the principal sub- 
 stitutes for meat, such as eggs, cheese, and vege- 
 tables, and it is stated that the Trust is rapidly 
 extending its power to cover fish, and nearly every 
 kind of foodstuff. The explanation of the anxiety 
 
TRUSTS AND PRICES 89 
 
 of the Trust to obtain control of all the artides of 
 food which might be used as substitutes for meat 
 is quite obvious. As was pointed out in a previous 
 chapter, if the price of one article of food is raised 
 a consumer turns to some substitute which is 
 cheaper. When the substitutes for meat are con- 
 trolled by those who control the meat also, this 
 monopoly will eliminate competition and enable 
 the Trust to fix a non-competitive price for all the 
 commodities. In 1918 a Federal Trade Com- 
 mission reported upon the activities of this Meat 
 Packing Trust, and it charged the Trust with 
 using its power to manipulate live stock markets, 
 to restrict national suppjies of food, to control the 
 prices of dressed meats and other foods, to defraud 
 both producer and consumer, to crush effective 
 competition, to secure special privileges from rail- 
 roads, stockyard companies, and municipalities to 
 profiteer. The Packers' profits in 1917 were more 
 than four times as great as the average year 
 before the war, although their sales in dollars and 
 cents at even the inflated prices, had barely 
 doubled. In the first three years of the war four 
 or five packers made profits of $178,000,000. 
 The charges which were made by the Federal 
 Trade Commission against the Meat Trust may 
 with little modification be made against all 
 trading monopolies which have operated during 
 the war. 
 
 The increase in the cost of house building during 
 the last five years has made the solution of the 
 
90 WAGES AND PRICES 
 
 housing problem extremely difficult, if not impos- 
 sible. There have, of course, been causes which 
 have contributed to this increase, apart from the 
 operation of Trusts and deliberate profiteering, 
 but these two causes undoubtedly are responsible 
 for the increased cost to a very considerable ex- 
 tent. Speaking in the House of Commons on 
 December 5th, 1919, Sir J, Tudor Walters, who 
 has an unrivalled experience of the business "^ide 
 of the housing question, said : — 
 
 " Get the houses. The cry that the Govern- 
 ment subsidy wovdd assist private builders to 
 profiteer had been raised. Profiteering ! There 
 was never more profiteering in this island than is 
 going on under the local authorities' housing 
 scheme. Look at the prices being asked for the 
 erection of five- and six-room houses — £800, £900, 
 even £1000. The thing is monstrous, ridiculous, 
 and absurd. How are these prices arrived at ? 
 By the grossest form of profiteering. 
 
 " Three classes of people are profiteering — ^the 
 people who supply the materials, the contractors, 
 and the men who lay the bricks. Yes, every one 
 of them. The old-fashioned builder was content 
 with a profit of £20, £30, or £35 on a house. The 
 contractor under these Government schemes wants 
 £200, £250, or £300. 
 
 " I think there is gross profiteering going on, 
 and I believe that any builder who sets to work 
 in the ordinary way, and knowing that the money 
 
TRUSTS AND PRICES 91 
 
 will come out of his own pocket, will be able to 
 build these houses for at least £300 apiece less than 
 they are being built for now." 
 
 The Memorandum on Housing in En^and and 
 Wales issued by the Reconstruction Committee, 
 dated May 1917, contains the following references 
 to the subject of trade combinations. " From 
 information confidentially given it appears urgent 
 difficulties may arise owing to the tight control 
 of certain building materials by combinations of 
 manufacturers." The Committee on Trusts re- 
 ported that they analysed the building costs of a 
 number of groups of typical cottages and found 
 that on the average 42*07 per cent, of the materials 
 used were uncontrolled, 33'25 per cent, partially 
 controlled, and 24-68 per cent, controlled. The 
 purposes of the combinations in the building trade 
 are to regulate selling prices by severe restrictions 
 of competition, to secure a monopoly of raw 
 materials or means of production by limitation 
 of output, and maintenance or inflation of prices, 
 and by a system of boycotting or undercutting, 
 or otherwise intimidating competitors in order to 
 compass the suppression of a non-associated 
 employer. One of the most powerful Associations, 
 whose members manufacture goods needed in the 
 construction of workmen's cottages, had until 
 recently, at the head of its rules, these words : 
 " The object of the Association is, that of raising 
 and keeping up the price to the buyer of goods 
 
92 WAGES AND PRICES 
 
 and articles made or supplied by its members. 
 This should be done by means of pooling arrange- 
 ments so controlling production that prices will 
 rise naturally and inevitably as they always must 
 do when supply is brought into equilibrium with 
 or is ever so little below demand." This Associa- 
 tion has within its membership over 90 per cent, 
 of the manufacturers and the classes of goods so 
 controlled in output and price. 
 
 The war necessitated the spending of thousands 
 of millions of pounds upon materials. This was 
 the opportunity of the private contractor. There 
 was no competition, and profiteering upon a colossal 
 scale became rampant. A good illustration was 
 afforded of the way in which the private contractors 
 fleeced the Government in a statement made in 
 the House of Commons on August 18th, 1919, by 
 the Prime Minister. He said : — 
 
 " National factories were set up, which checked 
 the prices, and a shell for which the War Office at 
 the time the Ministry was formed was paying 
 22s. 6d. was reduced to 12s., and when you had 
 85,000,000 shells that saved £35,000,000. When 
 we took the Lewis guns in hand they cost £165, 
 and we reduced them to £35. There was a saving 
 of £14,000,000 there, and through the costing 
 system and the checking of the national factories 
 we set up before the end of the war there was a 
 saving of £440,000,000." 
 
 The purpose of Associations and Trusts is to 
 
TRUSTS AND PRICES 98 
 
 prevent the operation of the law of supply and 
 demand, and this they manage to do very effec- 
 tively. Two facts taken from an official report 
 will give some indication of the extent to which 
 profits have risen during the war. The yield of 
 the Excess Profits Duty discloses profits liable to 
 this tax, that is, profits in excess of pre-war profits 
 of £400,000,000 a year. In December 1919 a 
 comparative statement was is^ed by the Treasury 
 of the gross amounts of income brought under 
 the review of the Inland Revenue Department for 
 each of the last four years. In 1913-14 the amount 
 was £1,167,184,229 and in 1918-19 (estimated) it 
 was £2,290,000,000. This latter sum shows an 
 increase of £323,000,000 over the previous year, 
 although there had been no new class of tax- 
 payers brought under review, It is, of course, not 
 the fact that this increase wholly represents trading 
 profits, but the vast bulk of it undoubtedly does. 
 
 The facts given in this chapter in regard to 
 profiteering and the operation of Trusts prove 
 that these are a very important cause of high 
 prices. Competition has largely ceased to operate 
 in affecting prices. Traders have discovered that 
 the public can be exploited to a far greater extent 
 than was formerly believed to be possible. There 
 are, of course, still restraints which prevent 
 Associations and Combinations and wholesale 
 and retail traders from charging prices beyond 
 certain limits, the principal one being the hmita- 
 tion of the spending power of the community. 
 
CHAPTER IX 
 
 CURRENCY, CREDIT AND PRICES 
 
 We Avill now proceed to the consideration of other 
 causes of the advance of prices. It will be re- 
 membered that prices had been advancing all 
 over the world for seven years before the out- 
 break of war. The orthodox explanation of these 
 advances was the increased output of gold. As 
 this explanation is still widely entertained, it may 
 be well to deal with it at some little length. The 
 theory of the influence of gold output on prices 
 is based upon the unquestioned fact that an 
 increase in the amount of money without a corre- 
 sponding increase of goods changes their relative 
 values, depressing the price of money and increasing 
 the price of goods. An increase in the output of 
 gold which is used as money would therefore raise 
 prices, unless there were a corresponding increase 
 in the volume of goods. But the effect of the 
 increase of the output of gold on prices has been 
 exaggerated. From 1851 to about 1890 the out- 
 put of gold remained practically stationary. From 
 1891 with scarcely a variation the output con- 
 tinued to rise, up to 1916. During the whole of 
 this period from 1890, with the exception of the 
 
 94 
 
CURRENCY, CREDIT AND PRICES 95 
 
 years immediately preceding the war, prices had 
 fallen concurrently with a progressive increase in 
 the output of gold. It might, of course, be argued 
 that the output of commodities had through the 
 same period increased at a much greater rate than 
 the increased output of gold. It is true, of course, 
 that the world output of commodities did increase 
 very greatly dming these years, but so it did during 
 the period of rising prices from 1906 to 1915. It 
 is important to note, too, that the increase in the 
 output of gold was very much slower between 
 1906 and 1913 than in the previous years of 
 stationary prices. The annual output of gold 
 rose from £53,629,000 in 1901 to £82,707,000 in 
 1906, and for the year 1913 it was £94,700,000. 
 These material facts do not appear to give much 
 support to the theory that the increased output 
 of gold was responsible for the advance of prices 
 which took place in the seven years preceding the 
 outbreak of war. 
 
 The quantity of gold in circulation before the 
 war which was used as money was very small in 
 comparison with the total quantity of money used 
 for the payment of goods. By money in this 
 connection we mean all the instruments for the 
 purchase of goods, such as coin, cheques, and 
 credit. Between 1906 and 1913 the average 
 annual increase in the output of gold was not more 
 than £2,000,000. The total amoimt of gold used 
 as money is an insignificant proportion of the 
 total money used for trading purposes. The 
 
96 WAGES AND PRICES 
 
 amount of gold in use in 1913 in the United King- 
 dom, including bank reserves, was £180,000,000. 
 The total quantity of money circulating in the 
 World during a year in pre-war times, on a very 
 moderate estimate, would be a hundred thousand 
 million pounds. The addition of £90,000,000 of 
 gold ±0 this sum would influence prices in the 
 proportion it bore to the total quantity of money. 
 The normal effect of an increase of the quantity 
 of money used is an exactly proportionate increase 
 in the general level of prices. The effect of gold 
 output, therefore, would be less than one-tenth 
 per cent.^ 
 
 The indirect effect of the output of gold on prices 
 is greater than its direct influence. The passing 
 of gold into bank reserves tends to cheapen money, 
 to increase borrowing, to stimulate trade, to in- 
 crease the volume of goods and to lower prices. 
 The theory that the increased output of gold 
 explains the rise of prices in normal times is not 
 substantiated. That it has some slight influence 
 in this direction is no doubt true, but the complete 
 explanation of the advance of prices must be sought 
 elsewhere. 
 
 The main cause of the increase of prices which 
 took place between 1906 and 1913 was the expan- 
 sion of credit. The increased quantity of gold 
 has strengthened bank credits, especially in 
 countries where the basis of credit is not strong, 
 but it is not gold but goods which is the main 
 
 1 See " Gold, Prices, and Wages," by J. A. Hobson, chapter iii. 
 
CURRENCY, CREDIT AND PRICES 97 
 
 basis of credit. This fact is made obvious when 
 it is remembered that bank credit is given on. 
 security which represents wealth. With the vast 
 increase in recent years of securities representing 
 shares in joint stock companies and public loans 
 the basis of credit has been greatly extended. 
 Credit advances on such security increase the 
 amount of money available for the purchase of 
 commodities, thus increasing the amount of money 
 without an equivalent increase of commodities. 
 This changes the relative value of money and 
 commodities, lowering the value of money and 
 raising the value of commodities, or, in other 
 words, causing an iftcrease of prices. 
 
 The increase of prices which took place in the 
 years before the war was in the main due to the 
 increase of credit or the floating of loans for the 
 development of backward countries. If this move- 
 ment had been temporary the advance of prices 
 would ultimately have been checked when the 
 capital invested in these development schemes 
 had become productive and an increase in the 
 volume of commodities had taken place, assuming 
 of course that the employment of credit for this 
 purpose had lessened. The purpose for which an 
 increase of money is employed is important. If 
 a larger quantity of money be devoted to the 
 production of goods which do not figure in the 
 markets of the world, that is, which are not pro- 
 duced for the purpose of exchange, such as war 
 material and armaments, or upon services of a 
 
98 WAGES AND PRICES 
 
 luxurious nature, a disproportion will be created 
 between the volume of money and the volume of 
 marketable goods, with the result that prices will 
 rise. An increase of luxurious expenditure- was 
 one of the causes of advancing prices in pre-war 
 times. This form of expenditure withdraws labour 
 from the production of staple commodities. In 
 the same way expenditure by the State on un- 
 productive purposes lessens the volume of pro- 
 duction, increases relatively the proportion of 
 money to goods, and raises the prices. Though the 
 actual volume of goods produced might not fall, 
 or indeed might rise, unless this increase keeps 
 pace with the increase of population, with the 
 effective demand for goods and with the increase 
 in the quantity of money, an advance of prices 
 must take place. 
 
 The increase of prices which was taking place 
 in the years before the war is to be explained to 
 a very slight extent only by the increase in the 
 output of gold, but materially by the increase of 
 other forms of money, stimulated by the demand 
 for foreign investments which were employed in 
 developments which did not for some time become 
 remunerative by increasing the world's volume of 
 goods. 
 
 We have already dealt with some of the con- 
 tributory causes of the enormous increases of 
 prices during the war. The causes of the advance 
 of prices between 1906 and 1913 which have just 
 been examined, but which exercised a slight 
 
CURRENCY, CREDIT AND PRICES 99 
 
 influence by comparison with the effect they have 
 had during the war, are the main causes of war- 
 time increase of prices, namely, the retardation 
 of the supply of goods, the expenditure of vast 
 sums upon the production of articles which did 
 not enter into world exchange, the vast expansion 
 of credit, and the increase of currency without a 
 corresponding increase of marketable goods. The 
 first of these reasons for the rise in the cost of 
 Uving is a reduction of production, or, in other 
 words, a scarcity of supply. The war drew from 
 ordinary productive work probably not less than 
 five million men and women. It turned probably 
 two million more from former occupations to 
 war work. The demand for food and clothing was 
 greater than in pre-war times, for it was necessary 
 to feed and clothe the army better than the soldiers 
 had been fed and clothed as civilians. Nearly 
 the whole world was engaged in the war and all 
 the belligerent countries were demanding goods. 
 The withdrawal of labour from the production of 
 staple commodities was compensated to some 
 extent by the greater intensity of production 
 among those workers who remained in such 
 occupations, and to a very small extent by the 
 retardation of the production of luxuries, and the 
 employment of people in unproductive services. 
 A White Paper was issued by the Government in 
 November 1919, gi\Tng particulars of production, 
 prices movement, currency expansion in the prin- 
 cipal countries. According to this report, the 
 
100 WAGES AND PRICES 
 
 production of wheat in the countries for which 
 particulars are available, was in 1919 91*5 per cent, 
 of the production in 1918, and 99"3 per cent, of the 
 average of the years 1910 to 1914. Rye, barley, 
 and maize were produced in larger quantities in 
 1919 than the average of 1910 to 1914. The out- 
 put of coal in the United Kingdom, the United 
 States, France, Belgium, the Netherlands, and 
 (Jermany for the first half of 1919 was 80"6 per 
 cent, of the figures for 1913. The output of pig- 
 iron in the United Kingdom, the United States, 
 and Germany in the first half of 1919 was 85"2 per 
 cent, of the output in 1913. The corresponding 
 figures for steel was 802 per cent. The world's 
 production of wool in 1919 was 91 "8 per cent, of 
 the output in 1913. The quantity of ginned cotton 
 in 1919 was 73"6 per cent, of the average of 1910 
 to 1914. 
 
 These figures do not perhaps show so much of 
 a decline in the world production of staple com- 
 modities as is popularly supposed, but they are 
 quite sufficient to have a very material influence 
 upon prices, especially when there is increased 
 demand for the lessened output. It is an estab- 
 lished economic law that a very small excess of 
 demand over supply raises prices quite dispro- 
 portionately, and in normal times such a falUng 
 off of the supply of essential commodities, apart 
 from other considerations, would have led to a 
 considerable advance in prices. The scarcity of 
 goods must therefore be set down as one of the 
 
CURRENCY, CREDIT AND PRICES 101 
 
 causes of the present ruling high prices. The 
 lessening of world output would alone have caused 
 a rise in the level of prices, but we should have 
 expected, had there been no other complications, 
 that the increase of prices would have affected 
 all countries very much the same. This has not 
 been the case, for the rise of wholesale prices in 
 the principal countries varied from 106 per cent, 
 in the United States to 230 per cent, in Italy and 
 Prance, 239 per cent, in Sweden, and 157 per cent, 
 in the United Eongdom. 
 
CHAPTER X 
 
 INFLATION AND PRICES 
 
 The main cause of the advance of prices during 
 the war is the increase of currency and credit. 
 The opinions of 'economists and financial experts 
 differ widely as to the effect which the issue of 
 currency notes, which are practically inconvertible, 
 has had upon prices. The Select Committee on 
 National Expenditure came to the conclusion that 
 the increase of paper money has played a some- 
 what subordinate part in raising prices. The 
 Chairman of this Committee, Mr Herbert Samuel, 
 speaking in the House of Commons on January 
 29th, 1918, said : " This problem is an exceedingly 
 difficult one, and different views are held by 
 various students of the subject. Most of us, 
 however, were disposed to the conclusion, with 
 some diffidence, that in the case of this country at 
 the present time the printing of currency notes has 
 not played by any means the leading part in the 
 great rise in prices which has taken place. . . . 
 Notes are never printed for the purpose of making 
 Government payments. Notes are printed only 
 for issue by the banks to meet the needs of their 
 customers, and the banks have to pay for these 
 
 102 
 
INFLATION AND PRICES 103 
 
 notes in exchange by presenting valid securities, 
 or in other ways. That being so, the currency 
 note issue of this country stands on quite a different 
 footing from that in which it stands in some other 
 ■coimtries." 
 
 This contention was, however, severely criticised 
 in the course of the debate by Mr D. M. Mason, a 
 banker of repute, who has not only a practical 
 but a theoretical knowledge of financial operations. 
 Mr Mason pointed out that the method adopted 
 by the Government in issuing Treasury Notes did 
 not differ in its effects from the practice of 
 other countries of using the printing press to 
 make payments of Government debts. The valid 
 securities on which the Select Committee claimed 
 the Treasury Note issue was based were in effect 
 fictitious credits created by the banks. " The 
 Government issues large orders for various muni- 
 tions and other necessaries which it requires for 
 the carrying on of the war, and for its credit which 
 is created the Government give Treasury Bills and 
 other pieces of paper to these banks. Those pro- 
 ceeds being used for expansion of industry, as 
 they are bound to do when fresh credit is created, 
 that money flows into the banks and swells their 
 deposits. The banks have the right under the 
 Treasury Currency Act to get Treasury Notes 
 from the Treasury up to 20 per cent, of their 
 current deposit liabilities, and as the deposits are 
 swelled by this creation of credit they are qualified 
 to get the Treasury Notes from the Treasury, and 
 
104 WAGES AND PRICES 
 
 so this inflation is created and stimulated. There 
 is, therefore, very little difference in a sense between 
 the Government using their printing press and by 
 inflation of credits increasing the rights of the 
 bank to draw out notes and thereby increase 
 circulation. The result is shown by the adverse 
 exchanges and the stimulation of imports." 
 
 The enormous increase in bank deposits during 
 the war supports Mr Mason's contention. These 
 increased deposits represent in the main the in- 
 flation of credit. The thing works in a vicious 
 circle. Every inflation of credit encourages still 
 further inflation. An increase of currency is 
 required to meet the increase of financial transac- 
 tions. This increase of currency causes a further 
 increase of credit, and so the process continues. 
 
 Another financial authority, Mr A. M. Samuel, 
 M.P., speaking in the House of Commons in 
 December 1919, on the Second Report of the 
 Cunliffe Currency Committee, strongly supported 
 the view that the issue of currency notes had had 
 little effect upon prices. He pointed out that the 
 increase of currency in this country had risen from 
 £180,000,000 before the war to £320,000,000, an 
 increase of £140,000,000, and this, he maintained^ 
 could have had little , effect upon prices. He 
 agreed that the increase of credit was in the main 
 responsible for high prices, but it was not the 
 increase of currency notes, but of other forms of 
 currency, such as cheques, which was responsible. 
 Mr Bonar Law, a former Chancellor of the Ex- 
 
INFLATION AND PRICES 105 
 
 chequer, appears to hold this opinion. Speaking 
 in Glasgow on December 4th, 1919, he said : " One 
 of the greatest evils of this moment is the high cost 
 of living, and this is due partly, I am not sure it is not 
 due mainly, to the inflation. That does not mean 
 to an increase in the number of currency notes. 
 Inflation goes far deeper than that. The currency 
 notes are the symbol. The real basis of inflation 
 is the borrowed money, and the credit which that 
 borrowed money creates." 
 
 A considerable volume of opinion on the other 
 side can be cited. Dr Edwin Cannan, the dis- 
 tinguished Oxford economist, recently laid a com- 
 plaint before the Oxford Profiteering Committee 
 against the issue of Treasury Notes, which he 
 maintained was in the main responsible for the 
 increase of prices. " The more plentiful a currency 
 is," he said, " the higher will prices and the cost 
 of living be. The supply of paper money is 
 devastating Europe and threatening the whole 
 mundane civilisation." 
 
 The orthodox political economists agree with 
 the view expressed by Dr Cannan as to the effect 
 of an inconvertible paper currency. Professor 
 Walker says, " We have suffered more from this 
 cause (that is paper currency) than from any other 
 cause or calamity. It has killed more men, per- 
 verted and corrupted the choicest of the interests 
 of our country, and done more injustice than even 
 the arms and artifices of the enemy." A very 
 important contribution to the discussion of the 
 
106 WAGES AND PRICES 
 
 effect of an inflated currency on prices was made 
 in the House of Lords on November 26th, 1919, by 
 Lord D'Abernon, who is a great authority on 
 international finance. He takes the extreme view 
 that the increase of world prices is wholly due to 
 the inflation of currency. He appears, however, 
 to unduly minimise the influence of other con- 
 tributory causes. At his request the Government 
 produced a White Paper showing the aggregate 
 of production in 1918 compared with that of 
 1913 ; the amount of paper money in the principal 
 countries of the world in December 1918 compared 
 with 1913 ; and the total indebtedness of the 
 principal countries. This Paper had admittedly 
 been very hurriedly prepared, and from insufficient 
 data ; but the figures dealing with the increase of 
 paper currency appear to confirm the view that 
 this factor is mainly responsible for the increase 
 of prices. Prices have risen in each country, very 
 closely in accordance with the excessive issue of 
 paper currency. In France and Italy, where they 
 have a currency of 365 as compared with 100 in 
 1913, prices have risen the most ; whereas in the 
 United States, where currency had increased by 
 only about 73 per cent, compared with 1913 the 
 rise both in wholesale and retail prices has been 
 considerably less than in the other belligerent 
 countries. Russia, Austria, and Turkey are ex- 
 cluded from this return, and if reliable facts could 
 be obtained in regard to these countries it is 
 probable that they would strongly enforce the 
 
INFLATION AND PRICES 107 
 
 conclusion that the unrestricted use of paper 
 currency has largely contributed to the enormous 
 rise of prices. 
 
 The increase of currency has affected inter- 
 national exchange. The rates of exchange on 
 London have fallen most in those countries which 
 have increased their currency, and the adverse 
 exchanges of course increase prices. At the 
 present time the value of the English sovereign 
 in New York is about 25 per cent, below par value, 
 and this means a corresponding increase of prices 
 of goods imported from the United States, In 
 countries like Russia, Germany, and Austria the 
 unit of Currency has diminished in value almost 
 to vanishing point. In France it has declined to 
 nearly one-fourth of its pre-war value, and in 
 England to between one-half and one-third. 
 
 When experts differ so widely and fundamentally 
 about the effect of currency, it is risky for a mere 
 layman to venture an opinion. It may be noted, 
 however, that experts differ only in the degree of 
 importance they attach to the influence of an 
 inflated currency upon prices. Even the Cunliffe 
 Currency Committee, though minimising the extent 
 of its influence, admitted that the increase of paper 
 currency has had some effect on prices ; and their 
 recommendation, which has been accepted by the 
 Chancellor of the Exchequer, that the issue of 
 Treasury Notes beyond the limit of £320,000,000 
 should be stopped, is an admission of the case 
 against excessive inflation. 
 
108 WAGES AND PRICES 
 
 The layman, unversed in economics and finance, 
 is naturally bewildered by the difficulties and 
 intricacies of this problem. But he may be helped 
 to an understanding of the subject if the meaning 
 and purpose of currency or money can be made 
 plain to him. Money, whatever form it takes, 
 whether it be notes, sovereigns, or cheques, has 
 no intrinsic value of its own, but is merely a con- 
 venient medium for expressing the relative value 
 of goods. It is a token to express the relative 
 ' value of goods exchanged, for all trade is really 
 barter. When a person buys a pair of boots he 
 pays two one-pound notes, but he has in reality 
 exchanged for the boots some other article which 
 he himeslf has produced or possesses. The person 
 who gets the notes in exchange for the boots buys 
 with them some other commodity, and in effect 
 there has been an exchange of boots and this other 
 commodity, the notes being merely the convenient 
 medium for expressing the relative values of the 
 articles exchanged. 
 
 Inflation means an increase in currency beyond 
 an increase in the production of goods. If the 
 amount of cm:rency in the hands of the general 
 public at a particular time and place is equal to 
 the value of the commodities in the market then 
 prices will not be affected. But during the war 
 there have been at the same time an increase of 
 currency and a reduction in the volume of com- 
 modities in the market. Before the war the 
 amount of currency in circulation in the United 
 
INFLATION AND PRICES 109 
 
 Kingdom was about £180,000,000. This repre- 
 sented the value of commodities and services in 
 the market at a particular time. At the end of 
 1919 the total amount of paper currency in circula- 
 tion had risen to £450,379,417 (including Bank of 
 England Notes), and the volume of commodities 
 was less. This means that the currency in the 
 hands of the public is in excess of the value of 
 commodities available for exchange, and therefore 
 a larger amount of money is required to express 
 the exchange value of the goods. The same 
 nominal amount of currency represents a reduced 
 amount of commodity ; or, in other words, the 
 former volume of commodities can only be pur- 
 chased by a larger amount of currency. To take 
 a simple illustration. Suppose the amount of trade 
 done between six persons in pre-war time was a 
 thousand pounds a year. This represented the 
 value of the commodities or services exchanged. 
 It required, say, a hundred pounds of currency to 
 facilitate the exchange. But if the amount of 
 currency to transact the same amount of trade, 
 that is, to exchange the same volume of com- 
 modities, is increased to the nominal amount of 
 two himdred pounds by using the printing press 
 to make notes, then the nominal value of the 
 goods or services exchanged in the year, calculated 
 in currency, is two thousand pounds. This 
 means that prices have nominally doubled, the 
 sum of two thousand poimds being required to 
 express the value of the same amount of goods. 
 
110 WAGES AND PRICES 
 
 In other words, prices have nominally risen 100 
 per cent, and the value of money has decreased 
 by 50 per cent. The total amount of money in 
 circulation to-day is in excess of the goods, the 
 exchange of which this money is intended to 
 facflitate. 
 
 This undoubted fact is sufficient of itself to 
 explain the increase of prices. But at this point 
 we are faced with a difficulty which no economist 
 or financier has yet clearly explained. On this 
 theory a doubling of the ciu-rency without a corre- 
 sponding increase of goods should double prices. 
 If that were accepted to the exclusion of all other 
 considerations it would explain the rise of prices, 
 but as a matter of fact the increase of currency 
 is only a small part of the inflation which has taken 
 place during the war. Currency notes are used 
 almost exclusively to facilitate retail trade and to 
 pay for services. The currency by which the 
 manufacturing and wholesale trades are carried 
 on is cheques and credit. Where cheques are 
 drawn against actual bank balances there is no 
 inflation of currency. But a vast and increasing 
 amount of trade is conducted on bank credits and 
 to a greater extent still in these days on credit 
 based upon Government Bonds. 
 
 The Government have, diiring the war, added 
 to the National Debt a sum of about £7,000,000,000, 
 including the unfunded Debt. If the subscriptions 
 to the War Loans had been contributions out of 
 actual savings there would have been no increase 
 
INFLATION AND PRICES 111 
 
 in effective currency. Individuals would have 
 transferred their real savings to the Government, 
 who would have become possessed of the power 
 to use this additional wealth which previously 
 was possessed by private individuals. But this 
 is not all that has taken place. Instead of lending 
 their existing savings or bank balances to the 
 Government, many individuals have borrowed 
 from their bankers to invest in War Loans. This 
 plan has worked out as follows. A man had a 
 thousand pounds standing to his credit in his bank 
 pass-book. Out of this he subscribed £950 to the 
 War Loan. By this transaction he becomes pos- 
 sessed of script nominally worth £1000. The 
 Government is put in a position to spend £950. 
 The lender can take his script to his bankers and 
 obtain upon it a loan of say £900 which he can use 
 either for further investment in the War Loan, 
 thus adding another £900 to the spending power of 
 the Government, or he can use this sum for busi- 
 ness purposes. This operation may be repeated 
 several times, and out of the original £950 in- 
 vestment secured by a real bank credit, £2000 or 
 £3000 of additional credit may be created, for 
 which there is no security in reaT wealth. This 
 practice increases the effective currency of the 
 country. 
 
 But the evil does not stop there. A similar 
 thing has taken place, but probably on a much 
 larger scale, in connection with loans subscribed 
 by the banks themselves. The Jjanks originally 
 
112 WAGES AND PRICES 
 
 invested in the War Loans out of their deposits, 
 that is, out of their customers' money. The banks 
 have then deposited the War Loan script at the 
 Bank of England. This has been regarded as valid 
 security for ctedit, and on the strength, of these 
 bonds the banks have made further advances to 
 their customers, either for investment in the War 
 Loans or for trading purposes. The extent to 
 which this inflation of credit has been carried on 
 by the banks is not known, but it is believed to 
 amount to many hundreds of millions. By this 
 manipulation of credits, by giving to an original 
 £100 a purchasing power of £300 the effectiveness 
 of currency has been increased without any corre- 
 sponding increase of marketable goods. 
 
 The financial policy of successive Governments 
 during the war has been to raise money by loans 
 instead of by the sound policy of financing the war 
 out of the current savings of individuals. The 
 effects of this policy are now being felt in the high 
 cost of living and the serious position of the foreign 
 exchanges. Government borrowing can only be 
 justified when the purpose of the loan is to carry 
 out some scheme which will ultimately become 
 remunerative, that is for an undertaking which 
 will, in the end, repay the loans. In so far as 
 War Loans have been subscribed out of acitual 
 savings they have been taken from wealth which 
 otherwise would have been devoted to the develop- 
 ment of trade and commerce. Government bor- 
 rowing in this country has reached a point which 
 
INFLATION AND PRICES 113 
 
 threatens national bankruptcy. National bank- 
 ruptcy means that the National Debt has increased 
 to such an extent that further taxation cannot be 
 imposed to supply the necessary interest and the 
 necessary sums for paying off the Debt. It means, 
 in other words, that a Government has gone on 
 mortgaging and re-mortgaging its resources until 
 its security has no longer any unexhausted 
 value. 
 
 The taxation necessary to meet the interest of 
 the War Debt has undoubtedly had an effect upon 
 prices. It withdraws money from the pockets of 
 the tax-payers which otherwise would be employed 
 in encouragement and development of trade. 
 Many forms of taxation indirectly increase the 
 prices of conunodities, as, for instance, the duties 
 upon tea, sugar, coffee, dried fruits, alcohol, and 
 manufactured articles. It is a debatable point 
 as to whether the incidence of the Income Tax on 
 trade profits can be shifted on to the consumer ; 
 but there can be little doubt that the Excess 
 Profits Duty, though so admirable in its aim, has 
 had the effect of increasing prices and has been in 
 reahty an indirect tax upon the general public. 
 An interesting letter from the Chairman of the 
 Associated Chambers of Commerce dealing with 
 this matter appeared in the Times on July 8th, 
 1919. The writer maintained that the increased 
 cost of production is primarily caused by two 
 factors, namely, the greatly increased cost of 
 labour and heavy taxation, and only to a minim- 
 
 H 
 
114 WAGES AND PRICES 
 
 ised extent by increased earnings of capital. He 
 supported his statement by figures as to a business 
 with which he was famiUar, and his conclusions 
 were that of the extra amounts paid out to (a) 
 labour, (6) for taxation, and (c) as extra dividends 
 on capital, labour received just over 57 per cent., 
 taxation 40 per cent., and capital 3 per cent, extra. 
 The writer pointed out that under an 80 per cent. 
 Excess Profits Tax it was impossible for anybody 
 to make £1 profit without charging £5 to the 
 consumer, because the Government took £4 of it: 
 This has a cumulative effect in forcing up prices. 
 Every manufactured article passes through the 
 hands of a number of firms before it reaches the 
 consumer. In order to make the extra pound 
 each firm finds it necessary to charge £5 extra 
 to the consumer, and where a commodity passes 
 through five hands before it reaches the consumer, 
 which is quite common, a charge of £85 is made 
 to the consumer, out of which the Government 
 takes £28 and the traders £5. That there is a 
 substantial amount of truth in this statement 
 cannot be denied. It is, however, not an argu- 
 ment against the appropriation by the State of 
 war profits, but rather an argument against this 
 method of appropriation of them. It is within 
 the knowledge of the writer that one very profit- 
 able trade in this country, the products of which 
 are heavily taxed for national revenue, was incited 
 by the Government to charge high prices in order 
 that Excess Profits might be made, and the 
 
INFLATION AND PRICES 115 
 
 Government relieved from the unpopularity of 
 imposing additional taxation upon the trade. 
 
 The conclusion to be drawn from the facts and 
 arguments set forth in this chapter is that the 
 inflation of currency and credit is the main cause 
 of the present ruling high prices. Inflation is the 
 result of the unsound financial policy followed by 
 successive Governments during the war. Other 
 incidental factors, though not to be ignored, are 
 relatively unimportant. 
 
CHAPTER XI 
 
 THE VICIOUS CIRCLE OF WAGES AND PRICES 
 
 During the war the workman has sought to main- 
 tain his previous standard of Uving by seeking an 
 advance of wages commensurate with the increased 
 cost of commodities. The workman is a consumer. 
 He works that he may obtain the wherewithal 
 to consume. Roughly speaking, wages have ad- 
 vanced with rising prices, though as the increase of 
 prices had the start, wages advances have followed 
 behind. There is a connection between wages ad- 
 vances and increased prices, though wages advances 
 are an effect rather than a cause of increased prices. 
 An increase of wages in normal times does not 
 necessarily justify an increase of prices. On the 
 contrary, a moderate advance of wages may have 
 the effect of lowering the cost of production. 
 During the last fifty years of the nineteenth cen- 
 tury wages advanced considerably and prices fell 
 during the same period. An increase of wages in 
 normal times give the workman a higher standard 
 of living, and his productivity ought therefore to be 
 increased. The economy of high wages has long 
 been recognised by shrewd American capitalists. 
 When competition operates in the home and 
 
 llG 
 
VICIOUS CIRCLE OF WAGES & PRICES 117 
 
 foreign markets profits are reduced to a minimum 
 on the edge of the economic pool. If an advance 
 of wages increases cost of production one of two 
 results will follow. The employers, working on 
 the outside margin, will be eliminated. The other 
 employers will seek by improvements in machinery 
 and methods, and by eliminating waste, to obtain 
 compensation for the higher wages bill. But in 
 manufacturing trades a moderate increase of wages 
 in ordinary times ought not to increase the cost 
 of production or to reduce profits. Wages in the 
 United States are higher than in any other country, 
 but the cost of labour is lower than elsewhere 
 because of its greater output. The payment of 
 higher wages puts increased purchasing power into 
 the hands of the working classes, who, after all, 
 are the main supporters of our staple trades. 
 
 These . observations apply to productive under- 
 takings, but they cannot be used to the same extent 
 to support the argument for higher wages in dis- 
 tributive trades. There is, however, another set 
 of arguments, not less powerful, in favour of high 
 wages in the latter class of occupations ; but it is 
 clear that in such services as the railways, tram- 
 ways, work of distribution — occupations in short 
 where the amount of work done is in proportion 
 to the number of hours worked — ^an increase of 
 wages must increase the cost of the service. War- 
 time advances of wages have proved this to be 
 true. The increases which have been given to 
 teachers, policemen, railway servants, tramway 
 
118 WAGES AND PRICES 
 
 workers, and a host of other people who are em- 
 ployed on non-productive work, have compelled 
 an increase of rates or charges for the service. 
 The war-time increases of wages have been ab- 
 normal, and have not been subject to the laws 
 which operate in ordinary times and under ordinary 
 conditions. The workmen have been compelled to 
 demand wages advances to meet the increased cost 
 of living. They have never attacked the cause of 
 high prices. They have seemed to have had no 
 other idea of meeting the increased cost of Uving 
 than to demand compensating advances of wages ; 
 but at the end of five years all their efforts have 
 left them practically in the same position as they 
 were before wages advances were given. These 
 increases of wages and prices work in a vicious 
 circle. The workers get an advance of wages ; 
 the capitaUsts raise prices ; the workers demand 
 a further advance to meet the increased cost of 
 living ; then the capitalists again raise prices. 
 Wages advances are again demanded, and so the 
 process continues. To those bodies of workmen who 
 are able to secure wages advances to meet to some 
 extent the increase in the cost of living, all this 
 perhaps matters very little ; but there is a very 
 large proportion of the community to whom the 
 increase of prices is a very serious matter indeed, 
 because upon them falls the whole burden, for they 
 are unable to compensate themselves by an increase 
 of income. 
 The wages advances which have taken place 
 
VICIOUS CIRCLE OF WAGES & PRICES 119 
 
 during the war are not in reality wages increases 
 at all. They are the adjustment of nominal and 
 real wages to maintain the pre-war standard of 
 living. When an increase of prices has taken place, 
 and this is followed by an advance of wages, the 
 relation between wages and prices remains un- 
 changed, and profits are not affected. An increase 
 of 100 per cent, in wages in the conditions existing 
 before the war would undoubtedly have caused 
 an enormous increase of prices, or more probably 
 an almost complete breakdown of commercialism. 
 Indeed, this has happened during the war in the 
 railway service, financial bankruptcy having been 
 averted by the intervention of the Government, 
 who, out of the public taxes, have paid the interest 
 upon the railway stock.^ 
 
 A mere increase of wages under existing con- 
 ditions cannot improve the lot of the working 
 classes on the average, and where an increase of 
 wages, as in the case of the railways and mines 
 and public services, necessitates an increase of 
 prices or rates, it has a disastrous effect upon 
 the large body of consumers who are living on 
 fixed incomes which cannot be adjusted to the 
 depreciated val^e of money. 
 
 If, then, the workers, in seeking an advance 
 of wages, are following a will-of-the-wisp, what 
 are the realities they ought to pursue ? Real 
 
 ^ It has jnst been announced that railway rates are to be 
 inoreaaed to yield an additional £50,000,000 a year to meet the 
 deficit. 
 
120 WAGES AND PRICES 
 
 wages, and not nominal wages, is the thing after 
 which they should strive. Their efforts, therefore, 
 should be directed to a reduction of the cost of 
 hving. It is a much more difficult thing to force 
 a reduction of wages than to secure an advance. 
 Unless a fall of prices is accompanied by severe 
 bad trade and widespread unemployment, wages 
 will not decline as prices fall. The workers will 
 fight tenaciously to keep their nominal wages, and 
 as the value of the nominal wage is increased by 
 the fall of prices, a. real advance in the standard 
 of living will be effected. High prices mean high 
 profits. And a fall of prices will reduce profits. 
 We may expect, therefore, that when effective 
 steps have been taken to reduce prices there 
 will be strong efforts made to reduce wages. But 
 the power of the trade unions is now so 
 strong, and the recognition of Labour's right to a 
 higher standard of living is now so general, that 
 in this struggle Labour is bound to retain a con- 
 siderable part of the nominal wages advances 
 secured during the war. 
 
 Just as the causes of the high cost of living are 
 many, so the remedies to be applied to reduce it 
 must be varied. The first step should be to with- 
 draw the Treasury Notes, and to return to a sound 
 currency based upon adequate reserves. At the 
 same time steps should be taken to fund the Float- 
 ing Debt, and to adopt measures for reducing the 
 national indebtedness by drastic taxation. The 
 annual burden of £400,000,000 a year for interest 
 
VICIOUS CIRCLE OF WAGES & PRICES 121 
 
 upon the Debt is one that cannot be carried without 
 serious injury to industry. A capital levy, which 
 in normal times would have been a very doubtful 
 expedient, has now become a necessity through the 
 nation's financial embarrassments. The practical 
 difficulties of applying a capital levy have been 
 minimised almost to vanishing point by the fact 
 that practically every person who would be subject 
 to, a capital levy is a holder of war stock, which 
 could be surrendered in payment of the levy. 
 
 The nation must relieve itself from the tyranny 
 of the Money Trust. The amalgamation of banking 
 has proceeded at such a rate in recent years that 
 now five banking concerns control practically 
 the whole of the banking business of the country. 
 The increase in the bank rate made during the 
 autumn of 1919, for which no financial authority 
 has ever been able to offer a reason, and which 
 laid an additional tribute of £17,000,000 a year upon 
 the tax-payers, apart from what it took fi'om the 
 private borrower, proves the necessity of the control 
 of money being taken out of the hands of profit- 
 making institutions. These are the main steps 
 which should be taken to reduce prices. 
 
 There are others of less though still of consider- 
 able importance. The operations of the trusts 
 should be regulated. It is not desirable that the 
 movement towards the unification of capital 
 should be arrested ; but during the transition 
 stage, and up to the time when these amalgamations 
 have assumed a form suitable for public acquisi- 
 
122 WAGES AND PRICES 
 
 tion, their operations should be controlled so 
 as to prevent them from unduly raising prices. 
 Associations which exist solely for the purpose of 
 raising prices ought to be made illegal, and com- 
 bination for the purpose of restricting output, 
 regulating imports, and fixing prices should be 
 rigorously suppressed. Ilr should not be difficult 
 to maintain for peace time use the system of 
 " costing " which was practised in controlled 
 establishments during the war. By this means 
 the cost of production can be ascertained, and a 
 fair price for an article can be fixed. 
 
 Demands have been made by Labour for the 
 fixing of the prices of the principal necessaries 
 below the cost. In a time of emergency some- 
 thing may be said in defence of such a policy, 
 but as a permanent practice it cannot be defended. 
 In its operation it has all the evils of indirect taxa- 
 tion, and it benefits one section of the community 
 at the expense of the rest. Moreover, if steps 
 were taken to prevent profiteering and speculation, 
 and if artificial restraints upon industry were 
 removed, and if the reform of the currency were 
 carried out and the manufacturing of credit were 
 stopped, prices would fall to a reasonable level, 
 and no State subsidy would be necessary to put a 
 sufficiency of the necessaries of life within the 
 command of every household. 
 
 In addition to all these reforms there is the 
 urgent need for increased production. The war 
 proved that in pre-war times the productive power 
 
VICIOUS CIRCLE OF WAGES & PRICES 123 
 
 of the nation had not been utilised to anything 
 approaching its full capacity. It has been 
 repeatedly pointed out that the main cause of high 
 prices is the disproportion between the amount 
 of currency and credit and the volume of com- 
 modities. Every increase in the output of goods, 
 if not accompanied by a disproportionate increase 
 of currency, will cause a reduction of prices. 
 
 To secure this necessary increase of output 
 a new spirit will have to prevail in industry. 
 Generations of experience have taught the workmen 
 the futility, from the point of view of their interest, 
 of increased production. The workmen cannot 
 reasonably be expected to increase production 
 for the profit of the employing classes. If the 
 workmen could be assured that every ounce of 
 increased energy they put into their work would 
 retm-n to them in the form of increased consuming 
 power, their objection to increased output would 
 be removed. To achieve this desirable object 
 a new conception of the place of the workmen in 
 industry will have to be put into practice. He 
 must no longer be regarded in the same light as 
 the machinery of the workshop or the capital of 
 the business. He must be treated as a partner 
 in mdustry, and as the partner who has the first 
 claim on the distribution of the product. 
 
 Bound up with this question of increased pro- 
 duction is the whole problem of the reorganisation 
 of industry and ,the Social Order. The waste 
 of competition is notorious. The solution of the 
 
124 WAGES AND PRICES 
 
 social problem has been well defined as the 
 elimination of waste. Economy of production 
 means increased output. Taxation, equitably 
 levied and wisely employed, can be a potent 
 instrument for lessening useless employment and 
 expenditure on luxuries. The problem of transport 
 must be taken in hand and dealt with in a thorough 
 way. Cheap and efficient transport is essential 
 for economical and intensive production. 
 
 The problem of wages and prices is in reality 
 the problem of the production and distribution 
 of wealth. The aim of the social reformer must 
 be to eliminate as parties sharing in the distribution 
 of wealth all who do not labour by hand or brain 
 and thus contribute to the production of wealth. 
 We must get back to " that original state of things 
 where the whole produce of labour belongs to the 
 labourer, where he has neither idle landlord nor 
 useless master, to share with him, where the wages 
 of labour will be augmented with all those improve- 
 ments in its productive powers to which a division 
 of labour gives occasion." 
 
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