James Ahiakpor is an interesting modern upholder of the wages-fund  
doctrine. He faults Henry George for failing to recognise the difference  
between (i) capital as capital goods and (ii) capital as funds. He says  
that George did not appreciate money's rightful place in a definition of  
capital (and money was one of Adam Smith's list of eight constituents of  
capital), and so failed to understand the truth of the classical  
wages-fund doctrine.  
  
James then asks: How is it that anyone can fail to recognize that most  
producers borrow funds (capital) out of which they purchase capital  
goods? He implies that this is what George failed to recognise in his  
attack on the wages-fund doctrine. Yet if James were to read George's  
chapter 2 on definitions he would see that he does accept that money in  
the hands of producers is indeed part of their capital (though he  
qualifies this by excluding paper money).  
  
James goes on to argue that the wages fund is that part of the money  
that producers borrow that is used to pay wages in advance of sale of  
the final product. He says that "such funds had to have been saved out  
of previously earned income to be offered on loan. Otherwise, they have  
to come up with their own savings or capital (funds)".  
  
But here is another example of the fallacy of composition. Yes, most  
producers borrow money to finance stocks ("working capital"). But the  
business sector as a whole is usually a net saver: in the aggregate the  
supply of business savings from depreciation accounts and retained  
earnings is consistently larger than the volume of business investment.  
  
Though many workers are paid in advance of the sale of the product, it  
is very rare indeed that they are paid in advance of their work. They  
may not be paid with the goods and services they have produced (past  
tense), but rather with money that workers can use to purchase an  
equivalent value of currently supplied final goods  
  
The producers use their own or borrowed money ("capital", according to  
George) to pay wages; but in return they accumulate stocks of finished  
or semi-finished goods (also part of "capital") that are growing along  
with the work of the workers. It is in this sense that George insisted  
that workers are paid out of the realised value of sales, or from the  
value of the increasing stocks that is collateral for borrowed money.  
  
Roger Sandilands