§ 2. High wages do not prevent one Country from underselling another.

According to the preceding doctrine, a country can not be undersold in any commodity, unless the rival country [pg 453] has a stronger inducement than itself for devoting its labor and capital to the production of the commodity; arising from the fact that by doing so it occasions a greater saving of labor and capital, to be shared between itself and its customers—a greater increase of the aggregate produce of the world. The underselling, therefore, though a loss to the undersold country, is an advantage to the world at large; the substituted commerce being one which economizes more of the labor and capital of mankind, and adds more to their collective wealth, than the commerce superseded by it. The advantage, of course, consists in being able to produce the commodity of better quality, or with less labor (compared with other things); or perhaps not with less labor, but in less time; with a less prolonged detention of the capital employed. This may arise from greater natural advantages (such as soil, climate, richness of mines); superior capability, either natural or acquired, in the laborers; better division of labor, and better tools, or machinery. But there is no place left in this theory for the case of lower wages. This, however, in the theories commonly current, is a favorite cause of underselling. We continually hear of the disadvantage under which the [American] producer labors, both in foreign markets and even in his own, through the lower wages paid by his foreign rivals. These lower wages, we are told, enable, or are always on the point of enabling, them to sell at lower prices, and to dislodge the [American] manufacturer from all markets in which he is not artificially protected.

It will be remembered that, as we have before seen, international trade, in actual practice, depends on comparative prices within the same country (even though the exporter may not consciously make a comparison). We send wheat abroad, because it is low in price relatively to certain manufactured goods; that is, we send the wheat, but we do not send the manufactured goods. But, so far, this is considering only the comparative prices in the same country. Yet we shall fail to realize in actual practice the application of the above principles, when we use the terms prices and money, if we do not admit that there is in the matter of underselling a comparison, also, between the absolute price of the goods in one country and the absolute [pg 454] price of the same goods in the competing country. For example, wheat is not shipped to England unless the price is lower here than there. If India or Morocco were to send wheat into the English market in close competition with the United States, and the price were to fall in London, it would mean that, if we continued our shipments of wheat to England, we must part with our wheat at a less advantage in the international exchange. In the illustration already used, we must, for example, offer more than seventeen bushels of wheat for ten cwts. of iron. The fall in the price of wheat, without any change in that of iron, implies the necessity of offering a greater quantity of wheat for the same quantity of iron, perhaps nineteen or twenty bushels for ten cwts. of iron. If the price went so low as to require twenty-one bushels to pay for ten cwts. of iron, then we should be entirely undersold; and the price here as compared with the price in London would be an indication of the fact. So that the comparison of prices here with prices abroad is merely a register of the terms at which our international exchanges are performed; but not the cause of the existence of the international trade. If the price falls so low in a foreign market that we can not sell wheat there, it simply means that we have reached in the exchange ratios the limit of our comparative advantages in wheat and iron; so that we are obliged to offer twenty or more bushels of wheat for ten cwts. of iron.

But in all this it must be noted that this price must include the return to capital also, and that it must be equal to the usual reward for capital in other competing industries, that is, the ordinary rate of profit. In exporting wheat from the United States the capital engaged will insist on getting the rate of profit to be found in other occupations to which the capital can go, in the United States. Now, the price, if it stands for the value (which is supposed to be governed by cost of production in this case), is the sum out of which wages and profits are paid. If the price were to fall in the foreign market, then there might not be the means with which to pay the usual rate of wages and the usual rate of profit also. Then we should probably hear of complaints by the shippers that there is no profit in the exportation of wheat, and of a falling off in the trade. In other words, as the capitalist is the one who manages the operation, and is the one first affected, the diminution of advantage in foreign trade arising from competition, generally shows itself first in lessened profits. The price, then, is the means by which we determine whether a certain article gives us that comparative advantage which will insure a gain from international trade.

An exportable article whose price in this country is low—since [pg 455] it is for this reason selected as an export—is one whose cost is low. If the cost be low, it means that the industry is very productive; that the same capital and labor produce more for their exertion in this than in other industries. And yet it is precisely in the most productive industries that higher wages and profits can be, and are, paid. Although each article is sold at a low price, the great quantity produced makes the total sum, or value, out of which the industrial rewards, profits, and wages, are paid, large. That is, the price may be very low (lower, also, in direct comparison with prices abroad) and yet pay the rate of wages and profits current in this country. Consequently, although wages and profits may be very high (relatively to older countries) in those industries of the United States whose productiveness is great, yet the very fact of this low cost, and consequently this low price (where competition is effective), is that which fits the commodity for exportation. We are, therefore, inevitably led to a position in which we see that high wages and low prices naturally go together in an exportable commodity. In practice, certainly, the high wages do not, by raising the price, prevent us, by comparing our price with English prices, from sending goods abroad—because we send goods abroad from our most productive employments. As an illustration of this principle, it is found that the leading exports of the United States, in 1883, were cotton, breadstuffs, provisions, tobacco, mineral oils, and wood.

But, since a direct comparison is in practice made between prices here and prices in England (for example), in order to determine whether the trade can be a profitable one, we constantly hear it said that we can not send goods abroad because our labor is so dear. It need scarcely be observed that we do not hear this from those engaged in any of the extractive industries just mentioned as furnishing large exports, which are admittedly very productive; it is generally heard in regard to certain kinds of manufactured goods. The difficulty arises not with regard to articles in which we have the greatest advantage in productiveness, but those in which we have a less advantage. If the majority of occupations are so productive as to assure a generally high reward to labor and capital throughout the country, these less advantageously situated industries—not being so productive as others (either from lack of skill or good management, or high cost of machinery and materials, or peculiarities of climate, or heavy taxation)—can not pay the usual high reward to labor, and at the same time get for the capitalist the same high reward he can everywhere else receive at home. For, at a price low enough to warrant an exportation, the quantity made by a given amount of labor and [pg 456] capital does not yield a total value so great as is given in the majority of other occupations to the same amount of labor and capital, and out of which the usual high wages and profits can be paid. The less productiveness of an industry, compared with other industries in the same country, then, is the real cause which prevents it from competing with foreign countries consistently with receiving the ordinary rate of profit. It is the high rate of profits as well as the high rate of wages common in the country which prevents selling abroad. It is absurd to say that it is only high wages: it is just as much high profits. Of course, if the less productive industries wish to compete with England, and if they pay—as we know they must—the high rate of wages due to the general productiveness of our country's industries, they must submit to less profits for the pleasure of having that particular desire. It is not possible that we should produce everything equally well here; nor is it possible that England should produce everything equally well. If we wish to send any goods at all to England, we must receive some goods from her. In order to get the gain arising from our productiveness, we must earnestly wish that England should have some commodity also in which she has a comparative advantage, in order that any trade whatever may exist. It is not, however, worth while, in my opinion, to go on in this discussion to consider the position of those who would shut us off from any and all foreign trade.

Our present high wages should be a cause for congratulation, because they are due to the generally high productiveness of our resources, or, in other words, due to low cost; and it is to be hoped that they may long continue high. We do not seem to be in imminent danger of not having goods which we can export in quantities which will buy for us all we may wish to import from abroad. (See Chart No. XIII, and note the vast increase of exports at the same time that wages are known to be higher in this country than abroad.) So long as wages continue high, we may possibly be unwilling to see gratified that false and ignorant desire which leads some people to think that we ought to produce, equally well with any competitor in the world, everything that is made. If, as was pointed out under the discussion on cost of labor,289we must necessarily connect with efficiency of labor all natural advantages under which labor works, it is easy to see that high wages are entirely consistent with low prices; and that high wages do not prevent us to-day from having an hitherto unequaled export trade. Even if all wages and all profits were lower, it would, however, affect all industries alike, and some would still be more productive relatively [pg 457] to others, and the same inequality would remain. If, however, we learn to use our materials better, use machinery with more effect on the quantity produced, adapt our industries to our climate, get the raw products more cheaply, free ourselves from excessive and unreasonable taxation, it would be difficult to say what commodities we might not be able eventually to manufacture in competition with the rest of the world. For we have scarcely ever, as a country, had the advantage of such conditions to aid us in our foreign trade.

Mr. Mill now goes on to consider the suggestive fact that wages are higher in England than on the Continent, and yet that the English have no difficulty in underselling their Continental rivals.

Before examining this opinion on grounds of principle, it is worth while to bestow a moment's consideration upon it as a question of fact. Is it true that the wages of manufacturing labor are lower in foreign countries than in England, in any sense in which low wages are an advantage to the capitalist? The artisan of Ghent or Lyons may earn less wages in a day, but does he not do less work? Degrees of efficiency considered, does his labor cost less to his employer? Though wages may be lower on the Continent, is not the Cost of Labor, which is the real element in the competition, very nearly the same? That it is so seems the opinion of competent judges, and is confirmed by the very little difference in the rate of profit between England and the Continental countries. But, if so, the opinion is absurd that English producers can be undersold by their Continental rivals from this cause. It is only in America that the supposition is prima facie admissible. In America wages are much higher than in England, if we mean by wages the daily earnings of a laborer; but the productive power of American labor is so great—its efficiency, combined with the favorable circumstances in which it is exerted, makes it worth so much to the purchaser—that the Cost of Labor is lower in America than in England; as is proved by the fact that the general rate of profits and of interest is very much higher.