CHAPTER II. ULTIMATE ANALYSIS OF COST OF PRODUCTION. §1. THE Component elements of Cost of Production have been set forth in the First Part of this inquiry.' The principal of them, and so much the principal as to be nearly the sole, was found to be Labor. What the production of a thing costs to its producer, or its series of producers, is the labor expended in producing it. If we consider as the producer the capitalist who makes the advances, the word Labor may be replaced by the word Wages: what the produce costs to him, is the wages which he has had to pay. At the first glance, indeed, this seems to be only a part of his outlay, since he has not only paid wages to laborers, but has likewise provided them with tools, materials, and perhaps buildings. These tools, materials, and buildings, however, were produced by labor and capital; and their value, like that of the article to the production of which they are subservient, depends on cost of production, which again is resolvable into labor. The cost of production of broadcloth does not wholly consist in the wages of weavers; which alone are directly paid by the cloth-manufacturer. It consists also of the wages of spinners and wool-combers, and, it may be added, of shepherds, all of which the clothier has paid for in the price of yarn. It consists, too, of the wages of builders and brickmakers, which he has reimbursed in the contract price of erecting his factory. It partly consists of the wages of machine-makers, iron-founders, and miners. And to these must be added the wages of the carriers who transported any of 1 Book I, Chap. I, § 2. the means and appliances of the production to the place where they were to be used, and the product itself to the place where it is to be sold. Confirmation is here given, in the above words, of the opinion that, in Mr. Mill's mind, Cost of Production was looked at wholly from the stand-point of the capitalist, and was identical with Cost of Labor to the capitalist. The value of commodities, therefore, depends principally (we shall presently see whether it depends solely) on the quantity of labor required for their production, including in the idea of production that of conveyance to the market. But since the cost of production to the capitalist is not labor but wages, and since wages may be either greater or less, the quantity of labor being the same, it would seem that the value of the product can not be determined solely by the quantity of labor, but by the quantity together with the remuneration, and that values must partly depend on wages. Now the relation of one thing to another can not be altered by any cause which affects them both alike. A rise or fall of general wages is a fact which affects all commodities in the same manner, and therefore affords no reason why they should exchange for each other in one rather than in another proportion. Though there is no such thing as a general rise of values, there is such a thing as a general rise of prices. As soon as we form distinctly the idea of values, we see that high or low wages can have nothing to do with them; but that high wages make high prices, is a popular and widely spread opinion. The whole amount of error involved in this proposition can only be seen thoroughly when we come to the theory of money; at present we need only say that if it be true, there can be no such thing as a real rise of wages; for if wages could not rise without a proportional rise of the price of everything, they could not, for any substantial purpose, rise at all. It must be remembered, too, that general high prices, even supposing them to exist, can be of no use to a producer or dealer, considered as such; for, if they increase his money returns, they increase in the same degree all his expenses. There is no mode in which capitalists can compensate themselves for a high cost of labor, through any action on values or prices. It can not be prevented from taking its effect in low profits. If the laborers really get more, that is, get the produce of more labor, a smaller percentage must remain for profit. § 2. Although, however, general wages, whether high or low, do not affect values, yet if wages are higher in one employment than another, or if they rise or fall permanently in one employment without doing so in others, these inequalities do really operate upon values. Things, for example, which are made by skilled labor, exchange for the produce of a much greater quantity of unskilled labor, for no reason but because the labor is more highly paid. We have before remarked that the difficulty of passing from one class of employments to a class greatly superior has hitherto caused the wages of all those classes of laborers who are separated from one another by any very marked barrier to depend more than might be supposed upon the increase of the population of each class considered separately, and that the inequalities in the remuneration of labor are much greater than could exist if the competition of the laboring people generally could be brought practically to bear on each particular employment. It follows from this that wages in different employments do not rise or fall simultaneously, but are, for short and sometimes even for long periods, nearly independ ent of one another. All such disparities evidently alter the relative cost of production of different commodities, and will therefore be completely represented in their natural or average value. This is again a clear recognition of the influence of Mr. Cairnes's theory of "non-competing groups.": Wages do enter into value. The relative wages of the labor necessary for producing different commodities affect their value just as much as the relative quantities of labor. * See supra, p. 210. Berse It is true, the absolute wages paid have no effect upon values, but neither has the absolute quantity of labor. If that were to vary simultaneously and equally in all commodities, values would not be affected. If, for instance, the general efficiency of all labor were increased, so that all things without exception could be produced in the same quantity as before with a smaller amount of labor, no trace of this general diminution of cost of production would show itself in the values of commodities. § 3. Thus far of labor or wages as an element in cost of production. But in our analysis, in the First Book, of the requisites of production, we found that there is another necessary element in it besides labor. There is also capital; and this being the result of abstinence, the produce, or its value, must be sufficient to remunerate, not only all the labor required, but the abstinence of all the persons by whom the remuneration of the different classes of laborers was advanced. The return from abstinence is Profit. And profit, we have also seen, is not exclusively the surplus remaining to the capitalist after he has been compensated for his outlay, but forms, in most cases, no unimportant part of the outlay itself. The flax-spinner, part of whose expenses consists of the purchase of flax and of machinery, has had to pay, in their price, not only the wages of the labor by which the flax was grown and the machinery made, but the profits of the grower, the flax-dresser, the miner, the iron-founder, and the machine-maker. All these profits, together with those of the spinner himself, were again advanced by the weaver, in the price of his material-linen yarn; and along with them the profits of a fresh set of machine-makers, and of the miners and iron-workers who supplied them with their metallic material. All these advances form part of the cost of production of linen. Profits, therefore, as well as wages, enter into the cost of production which determines the value of the produce. § 4. In discussing Cost of Labor (supra, pp. 225, 226), Mr. Mill found that the advances of the immediate producer con sisted not only of wages, but also of tools, materials, etc., in the price of which he was including the profits of an auxiliary capitalist who advanced the capital for making these tools, etc. But, then, if a line of division were to be passed down through all these advances, separating wages from profits, he urged that, if all the capitalists (auxiliary and immediate both) were one, all the advances of the capitalist might be considered as wages. Profits did not form a part of the outlay to the capitalists in the former analysis. And this seems correct enough. Now, however, he suggests that the outlay of the immediate producers should include the profit of the auxiliary capitalist. More than this, Mr. Mill now includes in cost to the capitalist the profit of the immediate capitalist. For example, in his illustration of the manufacture of linen, he includes not merely the profit of the auxiliary capital engaged in spinning and weaving, but the profit of the immediate and last capitalist, the linen-manufacturer, also. This includes in the cost of producing an article a profit not realized until after the commodity is produced. It is now time to give a more correct idea of cost of production. Every one admits, for example, that the "cost of production" of wheat is less in the United States than in England. If, for instance, three men with a capital of one hundred dollars may on a plot of ground, A, in the United States produce one hundred bushels of wheat, it will happen that the same men and capital will only produce sixty bushels on ground, B, in England. In ordinary language, then, we say that the cost of production is greater in England than in the United States, because the same labor and capital here produce one hundred bushels for sixty in England; or, what amounts to the same thing, that less labor and capital could produce sixty bushels in the United States than sixty bushels in England. If we suppose that one fourth of the crop is profit, and three fourths is assigned to wages in both countries, then in the United States the one hundred dollars of capital receives twenty-five bushels of profit, while in England it receives only fifteen; and the three men receive as wages in the United States twenty-five bushels each, while in England they receive only fifteen bushels each. The first important induction to be made is that where cost of pro |