"The cause," says Mr. George, "which produces poverty in the midst of advancing wealth is evidently the cause which exhibits itself in the tendency, everywhere recognized, of wages to a minimum." The inquiry can therefore be put in the form, "Why, in spite of increase in productive power, do wages tend to a minimum, which will give but a bare living?" The answer given to this question by economic science has been the wage-fund theory. This theory holds that wages are determined by the ratio of the number of laborers to the capital devoted to their employment. As capital is the result of saving, industry can proceed no faster than this saving is effected. The wage-fund remaining the same, any increase in the number of laborers means a decrease in the share of each, and the reverse. The increase in the number of laborers constantly tends to overtake and surpass the increase in capital, and hence wages steadily tend to the minimum upon which laborers will consent to live and reproduce. The theory in this form is now pretty generally abandoned, but, as it is still held that wages are advanced out of capital, Mr. George considers that the abandonment is more nominal than real. On the contrary, he holds that wages are never advanced out of capital, but are drawn from the product of the labor for which they are paid. Labor creates wealth, and it is not until this wealth is created that labor receives its wages. The stock of capital on hand is never diminished by having to be paid for labor, but labor, as it goes along, creates the stock from which it is paid. Of the facts out of agreement with the wage-fund theory one of the most obvious is, that wages and interest do not vary inversely. By the theory, wages should be high where capital is abundant, and low where capital is scarce. The very reverse, says Mr. George, is true. Wages and interest rise and fall together. Labor moves for higher wages where capital flows for higher interest. Wages are high in new countries where capital is scarce, and low in old ones where it is abundant. This fact is generally noted by economists, but it is explained by them as due to the relatively greater production of wealth in new than in old countries. This, Mr. George holds, is demonstrably untrue.
The wage-fund theory also teaches that labor engaged in production is maintained out of present capital—that is, that present labor is subsisted on the product of past labor. This, Mr. George holds, is as baseless as the doctrine that wages are paid out of capital. He maintains that it is not at all necessary that there should have been a previous production of wealth sufficient to maintain the laborer. "It is only necessary," he says, "that there should be, somewhere within the circle of exchange, a contemporaneous production of sufficient subsistence for the laborer, and a willingness to exchange this subsistence for the thing on which labor is being bestowed." A government, when undertaking a work of years, does not collect a stock sufficient to support the laborers until the completion of the
