A Sceptical View of the Theory of Wages [1929]

The marginal productivity theory of distribution, particularly in its application to the theory of wages, seems to be a favourite haunt of this fallacy. In the ordinary competitive theory of value the demand and supply curves represent two equations relating demand-price to quantity and supply-price to quantity. In the theory of distribution an attempt is made to carry over the same method of analysis and to apply it to the price of the factors of production. In the classical statement of the wages-fund doctrine wages were assumed to be a simple function of the wages fund, and the labouring population. Moreover, a particular corollary attaches to the theory of wages which gives to it the most important part of its practical value. Actually the whole tendency of modern theory is to abandon such psychological conceptions: to make utility and disutility coincident with observed offers on the market; to abandon a ‘theory of value’ in pursuit of a ‘theory of price’.