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Some notes on wages and competition in the labour market

As is known, Cannan (1967 [1917]) and others (Hollander, 1973; Knight, 1956; von Mises, 1949) claim that Smith’s reference to an ‘advantage’ enjoyed by the ‘masters’ in wage disputes and to a minimum below which wages cannot fall implies that he is suggesting an arbitrary decision on the part of the capitalist employers not to reduce wages below the level ‘which is consistent with common humanity’ (Smith, 1976a [1776], I, VIII). It would thus be possible to trace two theories of wages in Smith, namely an institutional or ‘fiat theory’ and a competitive one. In the latter, wages would be ‘liberal, moderate or scanty’ if the demand for labour (and consequently, population) happened to be, respectively, in an increasing, stationary or declining state.