Progress and Poverty

The central problem in this book is as follows, “Why, in spite of increase in productive power, do wages tend to a minimum which will give but a bare living?” (17). The political economy of the time claimed that “wages are fixed by the ratio between the number of laborers and the amount of capital devoted to the employment of labor” (17). According to this theory, wages “tend to the lowest amount on which laborers will consent to live and reproduce” (17). However, this theory does not correspond to facts because “capital must be relatively abundant where wages are high, and relatively scarce where wages are low” (19). Capital, in turn, seeks investment.

If this relationship is accurate, then high wages are linked to the scarcity of labor and low interest, while low wages are linked to high interest. However, the opposite occurs. For example, in California, wages are high, and interest is high. Furthermore, wages are higher in new countries, such as the United States, where capital is somewhat scarce, compared to the countries in Europe where capital is plentiful. Some theorists argue that the difference between the countries of the Old and New Worlds is such because the capital is distributed differently in the New World within the industries that are mainly focused on raw materials.