CHAPTER V.

DEMAND AND SUPPLY IN RELATION TO LABOUR,

CONCLUDED.

ness of growth

§ 1. THE next peculiarity in the action of demand and supply with regard to labour, which we have to Fifth peculiconsider, is closely connected with some of those arity. Slowwe have already discussed. It consists in the of new supplies length of time that is required to prepare and of labour. train labour for its work, and in the slowness of the returns which result from this training.

future of

Not much less than a generation elapses between the choice by parents of a skilled trade for one of their Difficulty of children, and his reaping the full results of their forecasting the choice. And meanwhile the character of the trades. trade may have been almost revolutionized by changes, of which some probably threw long shadows before them, but others were such as could not have been foreseen even by the shrewdest persons and those best acquainted with the circumstances of the trade.

The working classes in nearly all parts of England are constantly on the look-out for advantageous openings for the labour of themselves and their children; and they are eager to learn from friends and relations who have settled in other districts everything that they can as to the wages that are to be got in other trades. It is astonishing with what assiduity and sagacity many of them pursue their inquiries, not only as to the money wages to be obtained in a trade, but also as to all those incidental advantages and disadvantages which have been discussed in the last chapter but one. But it is very difficult to ascertain the causes that are likely to determine

the distant future of the trades which they are selecting for their children; and there are not many who enter on this abstruse inquiry. The majority assume without a further thought that the condition of each trade in their own time sufficiently indicates what it will be in the future; and, so far as the influence of this habit extends, the supply of labour in a trade in any one generation tends to conform to its earnings not in that but in the preceding generation.

Again, some parents, observing that the earnings in one trade have been for some years rising relatively to others in the same grade, assume that the course of change is likely to continue in the same direction. But it often happens that the previous rise was due to temporary causes, and that, even if there had been no exceptional influx of labour into the trade, the rise would have been followed by a fall instead of a further rise: and, if there is such an exceptional influx, the consequence may be a supply of labour so excessive, that its earnings remain below their normal level for many years.

The move

labour,

§ 2. But we must not omit to notice those adjustments of the supply of labour to the demand for it, which are effected by movements of adults from one trade to another, one grade to another, and one place to another. The movements of adult ments from one grade to another can seldom be on a very large scale; although it is true that exceptional opportunities may sometimes develop rapidly a great deal of latent ability among the lower grades. Thus, for instance, the sudden opening out of a new country, or such an event as the American War, will raise from the lower ranks of labour many men who bear themselves well in difficult and responsible posts.

are however

And the movements of adult labour from trade to trade and from place to place can in some cases be so large and so rapid as to reduce within a very short compass the period which is required to

of increasing importance.

enable the supply of labour to adjust itself to the demand. That general ability which is easily transferable from one trade to another, is every year rising in importance relatively to that manual skill and technical knowledge which are specialized to one branch of industry'. And thus economic progress brings with it on the one hand a constantly increasing changefulness in the methods of industry, and therefore a constantly increasing difficulty in predicting the demand for labour of any kind a generation ahead; but on the other hand it brings also an increasing power of remedying such errors of adjustment as have been made.

Fluctuations

chiefly by

§ 3. Thus these market variations in the price of a commodity are governed by the temporary relations between demand and the stock that is in of earnings are the market or within easy access of it. When governed the market price so determined is above its fluctuations of normal level, those who are able to bring new supplies into the market in time to take advantage of the high price receive an abnormally high reward. If they are small handicraftsmen working on their own account, the whole of this rise in price goes to increase their earnings.

demand.

In the modern industrial world, however, those who undertake the risks of production and to whom the benefits of any rise in price, and the evils of any fall come in the first instance, are capitalist undertakers of industry. But the force of competition among the employers themselves, each desiring to extend his business, and to get for himself as much as possible of the rich harvest that is to be reaped when their trade is prosperous, makes them consent to pay higher wages to their employés in order to obtain their services.

Thus the high wages of coal-miners during the inflation which culminated in 1873, were determined for the time by 1 See Book IV. Ch. VI. § 1.

2 These earnings include for the time a very high Quasi-rent of their stock of trained ability. If they have any considerable stock of trade implements, they are to that extent capitalists; and part of their income is Quasi-rent on this capital.

Illustration from the history of the coal trade.

the relation in which the demand for their services stood to the amount of skilled mining labour available, the unskilled labour imported into the trade being counted as equivalent to an amount of skilled labour of equal efficiency. Had it been impossible to import any such labour at all, the earnings of miners would have been limited only by the elasticity of the demand for coal on the one hand, and the gradual coming to age of the rising generation of miners on the other. As it was, men were drawn from other occupations which they were not eager to leave; for they could have got high wages by staying where they were, since the prosperity of the coal and iron trades was but the highest crest of a swelling tide of credit. men were unaccustomed to underground work; its discomforts told heavily on them, while its dangers were increased by their want of technical knowledge, and their want of skill caused them to waste much of their strength. The limits therefore which their competition imposed on the rise of the temporary wages (or Quasi-rent) of miners' skill were not narrow.

These new

When the tide turned, those of the new-comers who were least adapted for the work, left the mines; but even then the miners who remained were too many for the work to be done, and their wage fell, till it reached that limit at which they could get more by selling their labour in other trades. And that limit was a low one; for the swollen tide of credit, which culminated in 1873, had undermined solid business, impaired the true foundations of prosperity, and left nearly every trade in a more or less unhealthy and depressed condition. The miners had therefore to sell their skilled labour in markets which were already over full, and in which their special skill counted for nothing.

§ 4. To conclude this part of our argument. The market price of everything, i.e. its price for short periods, is determined mainly by the relations in which the demand for it stands to the available stocks of it; and in the case of labour or any other agent of production this demand is

"derived" from the demand for those things which the agent is used in making. In these relatively short periods fluctuations in wages follow, and do not precede, fluctuations in the selling prices of the goods produced.

But the incomes which are being earned by all agents of production, human as well as material, and those which appear likely to be earned by them in the future, exercise a ceaseless influence on those persons by whose action the future supplies of these agents are determined. There is a constant tendency towards a position of normal equilibrium, in which the supply of each of these agents shall stand in such a relation to the demand for its services, as to give to those who have provided the supply a sufficient reward for their efforts and sacrifices. If the economic conditions of the country remained stationary sufficiently long, this tendency would realize itself in such an adjustment of supply to demand, that both machines and human beings would earn generally an amount that corresponded fairly with their cost of production; but as it is, the economic conditions of the country are constantly changing, and the point of adjustment of normal demand to normal supply is constantly shifting its position. There are indeed constant tendencies towards that point, as surely as, to use an old simile, there is a constant tendency of the surface of the sea towards a position of rest: but the moon and the sun are always shifting their places and always therefore changing the conditions by which the equilibrium of the sea is governed and meanwhile there are ceaseless currents of winds; the surface is always tending towards a position of normal equilibrium, but never attains it1.

1 In Principles VI. v., the argument of this last Section is pursued more at length, and with reference to several difficulties that are ignored here. In particular it is argued that the extra income earned by some natural abilities may be regarded as a Rent sometimes, but not when we are considering the normal earnings of a trade. This analogy is valid so long as we are merely analysing the source of the incomes of individuals, and it might even be carried further if persons were born with rare abilities specialised to particular branches of production.