form to the estimated or even actual cost of production in that establishment, but will pitilessly fall to the point at which similar commodities are offered by the more fortunate producers. For these reasons we must inquire carefully after the elements of cost of production. These elements are two: cost of labor, and cost of capital. These are the only onerous elements that enter into production. Assisting the processes are, indeed, the natural powers of land, water, wind, steam, electricity, and so on, but as these are always gratuitous, they form no element of cost. Labor must have its wages, and capital must have its profits, and also a sinking-fund from which to replace the original capital when worn out or expended. It will be in vain to search for any other ingredient of cost than these two. 1. By cost of labor is meant, of course, its cost to the employer, and not to the laborer himself, in reference to whom the phrase would have no definite meaning. Now, if we make an exhaustive analysis of the cost of labor to the employer, we shall find that there are three things, and only three things, that go to determine its cost. 1. Efficiency of the labor. 2. The rate of nominal wages paid. 3. The cost of that in which the wages are paid. To illustrate each of these in order: If a capitalist hires two men to work for him at the same rate of wages, and if the one is twice as efficient a laborer as the other, the cost of his labor to the capitalist is one half less than the cost of the other's labor. The first element of the cost of labor is its efficiency. If a capitalist, accustomed to pay one dollar a day, is - now obliged to pay one dollar and a half a day to his laborers, their efficiency remaining the same, the cost of labor to him is just one half increased. The second element is nominal wages. If that commodity, whether money or other, in which wages are paid, varies in cost to the capitalist, the cost of the labor compensated by that commodity, nominal wages and efficiency remaining the same, is varied thereby of course. We shall discover in the next chapter that the value of money is by no means invariable, as we have already learned the variable nature of all other values, and accordingly the third element of cost of labor is the cost of that in which the labor is paid. It is easy to see that there is nothing else, aside from these three things, that can ever affect the cost of labor. This analysis is not given here for its own sake merely, but for some ulterior purposes, of which the first is to show, how various are the ingredients that enter into the computation which men ought rationally, to make before engaging in extended enterprises of production. They must make calculations on the prospective cost of production, since that is one element that will determine the value of their future product. In doing this they must calculate the cost of labor, and the cost of capital; and the cost of labor alone involves, as we have just seen, three variables, no one of which can be safely neglected in the supposed estimation. The second purpose is to explain from the analysis, that a great diversity of nominal wages may exist in different countries without necessarily affecting the cost of labor. If English wages, for exam ple, are, nominally, one half wages in the United States, it is very poor logic to jump to the conclusion, that the cost of labor in England is one half less than in the United States. That will depend partly on the efficiency of the labor, and partly on the cost of that in which the respective labor is paid. If English laborers are only one half as efficient as American laborers, then a difference of one half in nominal wages, cost of money in the two countries being the same, will occasion no difference at all in cost of labor. Because nominal wages in England are lower than with us, many people think and maintain, that the English have an advantage over us, whereas it is notorious, and admitted even by themselves, that American labor is more efficient. than English labor, and therefore there is no such difference in cost of labor as the difference in nominal wages would indicate, even if there be any difference in cost of labor at all. Just at this point great confusion has existed in the popular mind, and some by no means harmless fallacies are still current, arising from the want of a due analysis of the cost of labor. It is probable, all the elements being allowed for, that the cost of labor in one country is not very widely different from its cost in other countries; because, if there were much difference, there would be a greater difference than is actually observed in the rate per cent. of capital; and this conclusion is strengthened, when it is remembered, that in those countries in which the cost of labor is supposed to be low, as in England, the rate per cent. of capital is also low; and in those countries, as the United States, in which the cost of labor is sup posed to be high, the rate per cent. is also high. Before leaving this point, I wish to remove one or two causes of misapprehension, which have. frequently infected discussions of wages. The terms "high and low wages," are often used ambiguously; some meaning by the words, a high or low nominal rate; others, a high or low degree of comforts enjoyed by the laborers, as the fruit of their wages; others, still, as Ricardo, using the words high and low in relation only to profits, in which last sense, if wages are high, profits are low, and conversely. In the first two senses, wages and profits may both be high, or both be low, at the same time and place, but not in the last sense. When the first sense is meant, the expression should be money wages; when the second, real wages; when the third, relative wages. Had this nomenclature been adopted and consistently employed, many an angry dispute and many a false conclusion would have been avoided. Also, it has been thought by some, that high money wages create high prices of commodities, that is to say, that things are dear because laborers have been paid a high price for their agency in producing them. This does not follow. Their labor may be very efficient, and may be assisted by first-rate machinery, and the price of the commodities may be low, although the money wages may be high. Money wages must not be confounded with cost of labor, because it is only one element of cost of labor. A higher cost of labor in any department of production, other things being equal, will tend to raise the price of the product, but not higher money wages alone. Price is value expressed in money, and gen eral rise or fall of prices is usually due to changes in the currency. An inflated currency produces universally high prices, as well of labor as of commodities, and for the same reason of labor as of commodities, and it is a superficial view which supposes, that, of these two effects of a common cause, one is a cause of the other. On the other hand it is sometimes supposed, that the exact reverse of this takes place, and that money wages become high simply because the commodities which the laborers consume have become high. This is an error similar to the other. If an inflation of the volume of the current money of the country has supervened, then the price of labor rises by the same impulse that carries up the price of commodities. Both are effects; neither is the cause of the other. But if the currency has remained sound and stable, a high price of any of the commodities consumed by the laborers, has no tendency, that I can perceive, to raise the rate of money wages. The higher price of those commodities may have arisen from deficient harvests, or from a higher cost of labor in those departments, from inequality of taxation, or other similar causes; but no one of these enables capital to share the gross proceeds of production on better terms with labor. Neither money, nor real, nor relative wages can rise, as I see, merely from high prices of the commodities which the laborers consume. It seems to me, accordingly, that much clear light is thrown from this analysis of the cost of labor upon the whole vexed question of wages. The third ulterior purpose of presenting this analysis is briefly to unfold the principles according to |