The Economy of High Wages.

The theory of a “natural” rate of wages fixed at the bare subsistence-point which was first clearly formulated in the writings of Quesnay and the so-called “physiocratic” school was little more than a rough generalisation of the facts of labour in France. But these facts, summed up in the phrase, “Il ne gagne que sa vie,” and elevated to the position of a natural law, implied the general belief that a higher rate of wage would not result in a correspondent increase of the product of labour, that it would not pay an employer to give wages above the point of bare sustenance and reproduction. This dogma of the economy of cheap labour, taught in a slightly modified form by many of the leading English economists of the first half of the nineteenth century, has dominated the thought and indirectly influenced the practice of the business world. It is true that Adam Smith in a well-known passage had given powerful utterance to a different view of the relation between work and wages:—“The liberal reward of labour as it encourages the propagation so it encourages the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives.” ¹ But the teaching of Ricardo, and the writers who most closely followed him in his conception of the industrial system, leaned heavily in favour of low wages as the sound basis of industrial progress.