chapter  5
25 Pages

From pain cost to opportunity cost: The eclipse of the quality of work as a factor in economic theory

Man ought to work in order to live: his life, physical, moral, and mental, should be strengthened and made full by his work.

(Alfred Marshall 1966a)

The last decades of the nineteenth century have been conventionally viewed as a major turning point in the history of economic thought. It is the period that witnessed the occurrence of the so-called ‘marginalist revolution’. The trio of W.S. Jevons, Carl Menger, and Léon Walras published significant works in the early 1870s that challenged some of the core ideas of the classical school and their own theories have been credited with providing the foundation for ‘neoclassical economics’ that subsequently came to dominate economic thought. This transitional episode, importantly, heralded a shift in the focus and content of value theory. Hence Jevons, Menger, and Walras sought to promote a subjective theory of value based on the concept of ‘marginal utility’. These writers rejected the classical theory of value that laid emphasis on costs of production. Instead, they argued that value was an essentially subjective category linked to the act of consumption. The transformation of value theory had important ramifications for the

study of work and labour in economics. Most obviously, it served to challenge the idea that the cost of labour was the principal source of value in exchange. Politically, this was an important step given the use by Marx of the labour theory of value to critique capitalism (see Chapter 4). But it would be wrong to see the marginalist revolution as putting aside all issues of labour cost in the theory of value. On the contrary, such issues remained a focus for intense discussion in economics during the late nineteenth and early twentieth centuries. In the ‘cost controversies’, as they became known, there was specific disagreement over the nature of the cost of labour and its relationship to the value of output. There were two sides in these controversies (see Pagano 1985: 76-94). On

the one side, Jevons argued in support of the psychic measurement of the

‘pain’ or ‘disutility’ of actual work done. Jevons believed that the supply of labour was affected by the dissatisfaction as well as satisfaction that workers experienced from work, and he argued that the direct costs and benefits of work were an important influence on the supply of output and hence relative prices. This approach to cost was not just accepted by Jevons; it was also supported by other English economists, most notably Alfred Marshall. On the other side, Austrian economists (e.g. Wieser 1892) emphasised the importance of the alternative uses or ‘opportunity cost’ of work time. They argued that workers resisted work not because of the displeasure of work but rather because of the putative benefits of leisure time, and they identified the advantage of work with the utility of its product. By effectively dispensing with the disutility concept, the Austrians were able to articulate and promote a ‘pure’ subjective theory of value that focused upon the marginal utility of final consumption. The divide between Jevons and Marshall, and the Austrian economists

over the status of the cost of labour was substantial. Jevons and Marshall were willing to admit a role for the subjective experience of work in economic analysis. The Austrians, by contrast, saw work as a means only and sought to deny that it had any wider significance in the understanding of individual welfare. This chapter seeks to re-evaluate the debate regarding the cost of labour in

early neoclassical economics. It considers, in particular, the significance of this debate for the conception of work in the neoclassical paradigm. The ‘cost controversies’ have been the subject of relatively little discussion in modern economic debates. Yet, the resolution of these controversies had an important bearing upon the nature and scope of subsequent neoclassical research. In the theory of labour supply, as is argued below, the critique and ultimate rejection of Jevons’s notion of the marginal disutility of labour in favour of the Austrian concept of opportunity cost culminated in the eclipse of the quality of work as a factor in neoclassical economics. With the move to embrace the Austrian approach, neoclassical economists came to view the supply of labour as a simple trade-off between income and leisure and as a result ignored the role and impact of work itself. The chapter is organised as follows. The following section reconsiders

Jevons’s original definition of the marginal disutility of labour. Jevons portrayed work as a direct source of pain and pleasure and he looked to include the qualitative aspects of work in the analysis of the supply of labour. The second section considers the Austrian counterchallenge to Jevons’s approach. Austrian economists redefined the cost of labour in terms of the loss of leisure time rather than the painfulness of work activities and this led to the conflation of the marginal disutility of labour with the marginal utility of leisure time. The third section deals with the contribution of Alfred Marshall. Marshall’s theory of labour was distinctive in several respects. Not only did he consider directly the impact of work on the process of character formation but he also argued for improvement in the conditions of work, in

order to enhance the physical as well as moral health of the working class. The fourth section discusses the reasons for and implications of the triumph of the Austrian notion of opportunity cost in terms of the theoretical understanding of labour supply within neoclassical economics. The fifth section concludes.