The doctrine of the wages-fund

Appendix J

§1. This appendix covers a strange (and now forgotten?) debate over capital and labor. Although capital complements labor, some economists seemed to think that the “wages fund” (money available for wages) is limited by the amount of capital. This makes no sense to me in aggregate but it can matter in particular circumstances.

§2. In aggregate, wages depend on the balance of supply and demand (e.g., population versus economic activity), always mediated by relative market power.

§3. There is a connection between the markets for commodities and the markets for the capital and labor inputs to those commodities, but those connections are weaker or stronger depending on a number of factors (time, trade, substitutes, etc.). Many economists have wasted their time trying to identify the connection (e.g., Marx with labor theory of value).

§4. When is comes to divvying up the “national surplus” among various factors of production, relations are neither simple nor stable. There are many elements to consider.


This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

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Ricardo’s theory of value

Appendix I

§1. Ricardo didn’t spell out all his assumptions, connect his theories with the real world, or bring logical vigor to his 1820 Principles of Political-Economy, which has led to — according to Marshall — unfair critiques that focussed on his inconsistencies rather than his larger ideas.

§2. Marshall gives many examples of where Ricardo’s partial or over-simplified statements led to confusion. The most significant misunderstanding was where Marx, using Ricardo’s own words, concluded that Ricardo thought that value arose only through labor inputs whereas Ricardo considered other inputs’ influences in other parts of his work.

§3. Marshall spends a few pages documenting arguments about the relations between production cost (supply), utility value (demand) and price, which reconciles the two in the same way as each blade of scissors (Marshall’s analogy) jointly produce a cut.


This post is part of a series in the Marshall 2020 Project, i.e., an excuse for me to read Alfred Marshall’s Principles of Economics (1890 first edition/1920 eighth edition), which dominated economic thinking until Van Neumann and Morgenstern’s Theory of Games and Economic Behaviour (1944) and Samuelson’s Foundations of Economic Analysis (1946) pivoted economics from institutional induction to mathematical deduction.

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