Essays in the Development, Methodology and Policy

Prescriptions of Neoclassical Distribution Theory

by

Paul Robert Flatau

B.Ec. (Syd.), M.Ec. (UWA)

2006

A thesis submitted in fulfilment of the requirements for the degree of

Doctor of Philosophy

Murdoch University

To Jane, Huw and Ella

I declare that this thesis is my own account of my research. No part of this thesis has been submitted for a degree at any other University.

………………………………………………

Paul Robert Flatau i

Abstract

This thesis consists of revised versions of five published papers on the development of neoclassical distribution theory, in the English-speaking world together with an introduction and conclusion, which draw together the themes of the papers. The thesis covers the origins of neo-classical distribution theory in the English-speaking world in the work of Jevons and Marshall, through to the second generation of Wicksteed, Clark and Pigou, and finally on to the

1930s and the new perspectives of Hicks and Robinson.

Drawing on archival sources and primary and secondary texts, these essays review the major statements on distribution theory made by key figures in the Jevonian and Marshallian marginalist traditions. The essays shed new light on the origins of neoclassical distribution theory and provide insights into the methodology of nascent neoclassical distribution theory. A drive towards a universal, all-embracing marginal productivity theory of the distribution of income characterises the work of Clark and Wicksteed, but not so Marshall. A formalist mode of analysis, which was to become the hallmark of neoclassical economics in the second half of the twentieth century, is also evident in key works of the period. However, the role of empirical evidence in theory generation and appraisal remains an undeveloped component of late nineteenth and early twentieth century neoclassical theory—Marshall again provides an exception to the general rule.

There is a common adherence, among the key figures examined, to the joint proposition that competitive market wage outcomes are ‘fair’, but that low ii incomes (fair or not) are unjust when they fail to meet minimum needs standards. State remedial action (tax and expenditure policies) is required to remove such injustices. Robinson’s theory of exploitation provided an important extension to the neoclassical normative framework. She highlighted the extent to which labour may be exploited due to imperfections in both product and labour markets. iii

Table of Contents

Abstract ...... i

Acknowledgement ...... vii

1. Overview ...... 1

1.1 Background ...... 1

1.2 Aims, Themes and Structure ...... 5

1.3 Chapter 2: Wicksteed (and Jevons) ...... 9

1.4 Chapter 3: Marshall and Pigou on Fair Wages and Just Outcomes ...... 11

1.5 Chapter 4: the Methodology of Neoclassical Distribution Theory ...... 12

1.6 Chapter 5: Hicks’s The Theory of Wages ...... 15

1.7 Chapter 6: Robinson and the Theory of Exploitation ...... 17

2. Jevons’s One Great Disciple: Wicksteed and the Jevonian Revolution in the

Second Generation ...... 22

2.1 Introduction ...... 22

2.2 Early Life and Influences ...... 29

2.3 Henry George and Wicksteed’s Move into Economics ...... 34

2.4 The Pearson-Wicksteed Correspondence ...... 40

2.5 The Alphabet ...... 50

2.6 Wicksteed’s Essay ...... 62

2.7 More on Wicksteed’s Non-economic Studies ...... 69

2.8 The Common Sense and Beyond ...... 77

2.9 Conclusions ...... 86 iv

Appendix: Jevons and the Theory of Wages ...... 100

Introduction ...... 100

Early Explorations ...... 102

Notice of a General Mathematical Theory of Political Economy ...... 103

Trade Unions, Wages and the Operation of the Labour Market ...... 106

The Theory of Political Economy (TPE)...... 114

TPE: first edition ...... 114

TPE: second edition ...... 120

The Lectures, Political Economy and other Mature Works ...... 123

Conclusion ...... 126

3. Fair Wages and Just Outcomes: Marshall and Pigou on the Labour Market and

Redistribution ...... 131

3.1 Introduction ...... 131

3.2 Exploitation and Unfair Wages ...... 134

The linguistic dimension ...... 135

The structural argument ...... 141

3.3 Minimum Conditions and Just Outcomes ...... 148

3.4 Conclusion ...... 157

4. The Methodology of Early Neoclassical Distribution Theory: Universalism, the

Deductive Method and Ethics ...... 168

4.1 Introduction ...... 168

4.2 The Scope of Economic Theories: Universalism Vs. Relativism ...... 174

4.3 Theory Generation and Appraisal: The Deductive Method and the Role of

Mathematics and Science ...... 185 v

The deductive method ...... 185

The role of mathematics and science ...... 188

4.4 The Positive and Normative Divide: Ethics and Justice in the Labour Market

and in Public Policy ...... 192

4.5 Conclusion ...... 200

5. Hicks’s The Theory of Wages: Its Place in the History of Neoclassical Distribution

Theory ...... 210

5.1 Introduction ...... 210

5.2 Marginal Productivity Theory and Imperfect Competition ...... 215

5.3 Labour Supply Theory ...... 221

5.4 The Workings of the Labour Market ...... 223

5.5 Strike Activity and Wages ...... 230

5.6 Technical Change, Growth and Distribution ...... 233

5.7 Macroeconomics (Just) Before Keynes ...... 236

5.8 Conclusion ...... 240

6. Some Reflections on the ‘Pigou-Robinson’ Theory of Exploitation ...... 249

Introduction ...... 249

Pigou and Robinson on Exploitation ...... 253

6.3 Style ...... 263

6.4 The Importance of Exploitation to The Economics of Imperfect Competition

264

6.5 Postscript ...... 270

Conclusion ...... 279 vi

Bibliography ...... 284 vii

Acknowledgement

I would like to thank my supervisors, Ray Petridis and Herb Thompson, for their supportive guidance of this project over a number of years and Robert

Leeson who supervised the thesis in its final stages. I am particularly grateful to the three examiners of the thesis for their very helpful reports. I would also like to thank participants at History of Economic Thought Society of Australia conferences, where previous versions of the papers were presented. John King as editor, and anonymous referees of the History of Economics Review provided invaluable comments on papers submitted to the History of Economics Review for publication.

I am grateful to the archivists at the Special Collections section of

Library Services at University College London, the Manuscripts and Archives

Section of the New York Public Library and the London School of Economics

Archives for providing access to the papers of Wicksteed, Henry George and

Pearson. I would also like to thank Alex Saunders and Rowland Thomas of the

Marshall Library, Faculty of Economics and Politics for providing access to the

Marshall Archive and responding to the many queries I had concerning

Marshall’s papers. Material from the Marshall Archive is quoted by kind permission of the Faculty of Economics and Politics, .

I am grateful to the archivists at The Archive Centre, Kings College, The

Wren Library, Trinity College, and The Faculty of Economics and Politics,

University of Cambridge for access to the papers of , Richard

Kahn, , Maurice Dobb, Piero Sraffa, Dennis Robertson, and viii

Austin Robinson. Rosalind Moad (at Kings) and Alex Saunders (at the Marshall

Library) provided both invaluable comments on the Pigou-Robinson exploitation theory paper and advice on source material.

For permission to quote from the unpublished writings of Joan

Robinson, A.C. Pigou, Nicholas Kaldor, Richard Kahn, Roy Harrod, and John

Hicks, I am grateful to the following sources: (1) King’s College, Cambridge for permission to quote from the unpublished writings of Joan Robinson copyright The Provost and Scholars of King’s College Cambridge 2001 held in the King’s College Library, Cambridge and the Marshall Library, The Faculty of Economics and Politics, University of Cambridge; (2) The Marshall Library,

The Faculty of Economics and Politics, University of Cambridge, for permission to quote from a letter from Joan Robinson to Austin Robinson of 11

October 1932 held in the Austin Robinson collection at The Marshall Library;

(3) Elizabeth Fairbairn of John Johnson Limited (managers of the estate of A.C.

Pigou) for permission to quote from the unpublished letters of A.C. Pigou held in The Archive Centre, Kings College; (4) Tony Thirlwall (Nicholas Kaldor’s literary executor) for permission to use material from the Kaldor papers held at

The Archive Centre, Kings College; (5) David Papineau (administrator of

Richard Kahn’s estate) for permission to quote from the unpublished writings of

Richard Kahn; (6) Dominik Harrod for permission to quote from the unpublished writings of Roy Harrod; and (7) Anthony Courakis (’s literary executor) and the John Hicks Foundation for permission to quote from the unpublished writings of John Hicks. ix

Finally, I would like to thank my family Jane, Huw and Ella for all their love and support over the project’s duration and beyond.