9: The Fallacy of the "Wage Fund"
Walker means to address another common fallacy of his time, and one which seems to be generally accepted by the English school of economics. (EN: my notes may be brief, as this seems another chapter in which the author is arguing against a theory that is no longer in fashion.)
The concept of the "wage fund" maintains that in any market there is a sum of wealth set apart for the payment of wages, which is derived from the capital available in the market. It is sometimes expressed as a ratio (percentage of capital resources earmarked) and varies over time - but it is always determined by the amount of available capital.
In the broad sense, this pool of wages includes the capital available from investors and creditors, which choose which industries to apportion funds. In the narrow sense, the pool available to a single employer is apportioned among their employees. This creates a sense of competition over shares in the wage fund, such that one laborer's gain is a loss of another laborer.
All of this, frankly, is asinine. As mentioned in the previous chapter, employers offer wages to workers based on the profit they expect to make on the sale of products those laborers produce. As to investors and creditors, they select investments based on their desire to earn a return and accept risk - and while there is a limited amount of capital in a given location, capital is fluid: if there is sufficient opportunity for profit, investors will be drawn from outside the market.
(EN: The same has been said of supply and demand in general - that there is a finite amount of demand for all goods in a market, determined by the collective budget of the shoppers, and this sets the maximum amount of revenue all sellers of all goods can expect to obtain. Because demand of goods and the price customers are willing to pay for them, the sales in a given market are, in fact, a finite amount shared among suppliers to that market [ignoring foreign trade for the moment], and in their consumption choices buyers apportion a fixed pool of funds to suppliers. My sense is that the notion of the "wage fund" recognizes this, but incorrectly attributes it to the owners of capital.)
Historically, the notion of the wage-fund hearkens to the feudal estate, in which a lord was master of all economic activity and commanded his subjects to produce specific things in specific proportions and rewarded them accordingly. In a more direct manner, the feudal lord indicated who shall be farmers and who shall be tailors, and decided how they should be treated in terms of their homes, food, possessions, and all material goods. But in so doing, the lord acted as both financier and consumer of the product of his fiefdom.
There were also certain properties in England that led this theory to appear more plausible, namely that capital was so concentrated in so few hands that a small number of individuals effectively controlled the availability of capital to producers. Also, the wages paid to workers were indeed focused on their needs rather than their productivity - given the cartel power of capital, employers could attract workers by paying no more than a bare subsistence, and this wage was fixed across multiple employers: "a factory worker" would be paid a given amount, regardless of what factory he worked in or what his task happened to be.
This arrangement is atypical in the present day, as economies have transitioned from a system in which capital was aggregated in the hands of one (the lord), to the hands of few (bankers and capitalists) to the hands of many (holders of savings accounts and investments) such that the decisions made in a market represent multiple suppliers of capital, each of whom has partial information and follows his own agenda.
(EN: I sense this is the case in the present day, though the aggregation of personal savings into retirement accounts and mutual funds often means that decision-making power has been re-centralized to some degree. It will likely not return to the point where there is only one supplier of capital, or a small handful of them.)
It was likewise a point in evolution, rather than a fixed condition, that there were few employers controlling wages in a market - in some instances, one large employer dominated entire towns. Strictly speaking, even that situation does not constitute domination. Except under conditions of slavery or serfdom, an individual may find a variety of ways to earn his living other than taking employment as well as the ability to leave the vicinity.
He does concede that the notion of a "wage fund" may have seemed sensible under the conditions prior to the industrial revolution, so their error was likely well-intentioned and sound, based on the assumption that the economic situation of their time would continue indefinitely. Less innocent, however, are those that use the notion of the age fund, knowing it to be untrue, to create discontent among their workforces - to create the sense that increasing the pay of one worker diminished that of others was very much in the interest of miserly and cowardly employers.
(EN: The remainder of the chapter belabors the argument further, with various examples and illustrations - which I'm skipping, as the point has been made and the notion is no longer common in present day politics.)