In what follows I think I shall be able to show that this explanation is based upon a total misapprehension of the relations of labor to capital—a fundamental error as to the fund from which wages are drawn; but at present it is necessary only to point out that the connection in the fluctuation of wages and interest in the same countries and in the same branches of industry cannot thus be explained. In those alternations known as “good times” and “hard times” a brisk demand for labor and good wages is always accompanied by a brisk demand for capital and stiff rates of interest. While, when laborers cannot find employment and wages droop, there is always an accumulation of capital seeking investment at low rates.[4] The present depression has been no less marked by want of employment and distress among the working classes than by the accumulation of unemployed capital in all the great centers, and by nominal rates of interest on undoubted security. Thus, under conditions which admit of no explanation consistent with the current theory, do we find high interest coinciding with high wages, and low interest with low wages—capital seemingly scarce when labor is scarce, and abundant when labor is abundant. All these well known facts, which coincide with each other, point to a relation between wages and interest, but it is to a relation of conjunction, not of opposition. Evidently they are utterly inconsistent with the theory that wages are determined by the ratio between labor and capital, or any part of capital. How, then, it will be asked, could such a theory arise? How is it that it has been accepted by a succession of economists, from the time of Adam Smith to the present day? If we examine the reasoning by which in current treatises this theory of wages is supported, we see at once that it is not an induction from observed facts, but a deduction from a previously assumed theory—viz., that wages are drawn from capital. It being assumed that capital is the source of wages, it necessarily follows that the gross amount of wages must be limited by the amount of capital devoted to the employment of labor, and hence that the amount individual laborers can receive must be determined by the ratio between their number and the amount of capital existing for their recompense.[5] This reasoning is valid, but the conclusion, as we have seen, does not correspond with the facts. The fault, therefore, must be in the premises. Let us see.