ABSTRACT
It is frequently stated in the classical literature that a specific annual real wages bill is ‘destined’ to be paid out to labour, so that annual wage income should be treated as a constant. From this assumption follows the celebrated labour demand curve of unitary elasticity. The most explicit statement of this doctrine is by J.S.Mill at the time of his retraction of belief in the existence of a ‘wages fund’. Here he laid out what he considered to be received doctrine:
The demand for labour consists of the whole circulating capital of the country, including what is paid in wages for unproductive labour. The supply is the whole labouring population. If the supply is in excess of what the capital can at present employ, wages must fall. If the labourers are all employed, and there is a surplus of capital still unused, wages will rise. This series of deductions is generally received as incontrovertible. They are found, I presume, in every systematic treatise on political economy, my own certainly included….
