The Theory of Wages the Theory of Wages

THE THEORY OF WAGES THE THEORY OF WAGES BY J. R. HICKS, M.A., B.LrTT. Fellow of AU Srnd• CoUeue and Drum'IMTUl ProfeiBQ7' of Political Economv in the Uniwrlity of OxfQ7'd PALGRAVE MACMILLAN 1963 Copyright © J. R. Hicks 1963 First Edition 1932 Second Edition 1963 Softcover reprint of the hardcover 2nd edition 1963 978-0-333-02764-6 MACMILLAN AND COMPANY LIMITED StMartin's Street London WC 2 also Bombay Calcutta Madras Melbourne THE MACMILLAN COMPANY OF CANADA LIMITED Toronto ISBN 978-1-349-00191-0 ISBN 978-1-349-00189-7 (eBook) DOI 10.1007/978-1-349-00189-7 PREFACE TO THE SECOND EDITION THIS is only the second (regular) edition of a book which was first published in 1932 and which has been out of print in the United Kingdom for more than twenty years. I let it go out of print because my own views upon its subject had changed so much that I no longer desired to be represented by it. It has, however, been made clear to me that there is still a demand for it; not, I hope, because anyone wants to use the greater part of it as a source of direct instruction, but because there are several parts of it which are still alive in the sense that they provide convenient starting-points for much more modern discussion. References to it have indeed become too frequent for it to be left unavailable. That is the reason why I have finally decided that it ought to appear in a new edition; it also explains why the new edition has had to take so peculiar a form. The change in my own views since 1932 has been too drastic for it to be possible to produce a new edition in the usual way, by changing this and that, and adding extra passages. Besides, it is the old book which is wanted for the purpose mentioned above; so it is this which must be reproduced. I have decided to deal with the situation in the following way. Section I of this new edition is simply a reprint v1 PREFACE TO THE SECOND EDITION of the first edition. Section II, entitled "Documents", includes a couple of articles of my own, written within a few years of the book's first appearance, which serve to illustrate the kinds of change which I felt impelled to make, even in the first stages of further thinking on the subject. To these I have added an important work by another auther. This is the review of my book written in 1933 by Gerald Shove-one of the very small number of published works by that excellent economist. It is included here as a statement (I have come to think it to be a most admirable statement) of the Case for the Prosecution. I am very anxious that any readers (I am afraid there may be some) who even now are tempted to take the 1932 volume too literally should read Shove's criticism. Section III, entitled "Commentary", has been specially written for this new edition. It begins with an introductory section, which attempts to tell the story of the book (its pre-natal as well as its post-natal vicissitudes) in more detail than is appropriate for this preface. I then go through the various chapters, reviewing them (more or less as Shove did) from the standpoint which I would myself take today. There are of course some chapters on which there is little to be said; but there are others (1., VI. and IX.-X. in particular) on which I have had to sketch out a different, and I hope more constructive, treatment. I end with a set of "Notes on the Elasticity of Sub stitution", corresponding to the Appendix to the first edition. When I wrote that Appendix, I had no idea of the fruitful use that Mrs. Robinson was so PREFACE TO THE SECOND EDITION vn soon to make of what proved to be identically the same concept. Professor Lerner's simple proof of the "relative shares" proposition, proceeding from Mrs. Robinson's definition, is given in the "Revised Version" paper which appears in Section II; other ways in which my treatment could have been clarified by that alternative approach did not appear until much later. ACKNOWLEDGMENTS THE author wishes to acknowledge his indebtedness to the following, who have kindly given permission for the use of copyright material: the Editor of Oxford Economic Papers, for "Marshall's Third Rule", which appeared in the October 1961 issue in a slightly different form; the Editor of The Review of Economic Studies, for "Distribution and Economic Progress: A Revised Version", which appeared in the October 1936 issue; the Royal Economic Society, for "Wages and Interest: The Dynamic Problem", which appeared in the September 1935 issue of The Economic Journal; and the !lame Society and His Honour JudgeR. S. Shove, for Gerald Shove's reYiew of the first edition of this book, which appeared in the September 1933 issue of The Economic Jrmrnal. viii PREFACE TO THE FIRST EDITION THE task which is attempted in this book is a restate ment of the theory of wages in a form which shall be reasonably abreast of modern economic knowledge. It is thus an undertaking which seems to need little apology. Periodical reconsiderations of each of the main departments of economic theory are an important part of the duty of economists; since, for one thing, one field is often illuminated by advances which have been made in others, and for another, the events of con temporary history make it necessary to examine possibilities, of which earlier writers may have been aware, but which they naturally regarded as not worthy of special attention. Such a reconsideration of wage theory seems long overdue. For the most recent comprehensive statements of a positive theory of wages in English-<>£ anything more than an elementary character-are now thirty or forty years old. We have to go back for them to Marshall's Principles and Clark's Distribution of Wealth. Since that time important work on the subject has indeed been done, but it is nearly all special studies; even Professor Pigou's treatment of Labour, in the Economics of Welfare, ought probably so to be reckoned for our purposes. Of these works much use has been made in the following pages: to them lX x PHEFACE TO THE FIHST EDITION this book owes a great debt; but they have notre moved the need for some undertaking like the present. The historical fact which dominates the wage history of the present century-both in Britain and in other countries-is the growth of Trade Union power and the development of State Regulation of Wages. This fact, which is due to a complex of causes, and which could not have been wholly foreseen by econo mists thirty years ago, alters very considerably the range of problems with which we have to deal. It might even appear at first sight as if it ought to change the whole structure of our theory-that we ought to treat the regulation of wages as the normal case, and take its consideration first. But this course does not prove satisfactory. The same forces which determine wages in a free market are still present under regula tion; they only work rather differently. It is therefore best for us to begin in the traditional manner with the determination of wages under competition; though at a later stage we must examine regulation in more detail than the traditional theories do. By proceeding in this way, we secure the great advantage of being able to build directly upon familiar doctrines; and we naturally start with a consideration of that principle which was regarded by the economists of Marshall's generation as the basis of their theory of wages-the principle of Marginal Productivity. The validity and the importance of this principle we shall see no reason to question; but its very importance has one awkward consequence. For we shall get into end less difficulties if we allow any obscurity about so PREFACE TO THE FIRST EDITION xi essential a principle to persist; and it is unfortunately the case that its original propounders did leave it-or at least its application-in some obscurity. We are therefore faced at the start with the hard task of trying to make clear something which Marshall and J. B. Clark did not make altogether clear; and we cannot hope to do this if we shirk difficulties. The reader must therefore be asked to follow Chapter I. with attention and some patience; but he may be assured that rela tively smooth waters lie beyond. One very important aspect of the theory of wages it has unfortunately been necessary to leave undiscussed -the relation of wages to general industrial fluctua tions or trade cycles. In this branch of economics recent years have certainly seen striking advances; it does seem probable that in a few years' time we shall possess the main lines of an established theory of fluctuations; but that time is not yet. Thus to discuss trade fluctuations from any angle is hazardous, since nothing useful can be said unless one is prepared to take sides on the critical issues. And most of these lie altogether outside the theory of wages, although they have a direct bearing upon it. Thus I must confine myself here to stating a personal opinion. It is my own belief that some parts of this book-particularly the last chapters-have considerable relevance to the theory of fluctuations, although they are not stated with that particular reference.

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