MONEY

However, even apart from questions of statistical technique the posing of the problem by Rueff is not quite satisfactory. The decline in real wages associated with the increase in employment is according to the "classical" theory a conclusion from a more general principle of "increasing marginal costs". It follows from this principle that with the expansion of output the prices of

finished products increase in relation to the prime costs consisting of raw materials and wages. Since, at the same time, the prices of raw materials increase in relation to wages this enhances the rise in the prices of finished products relative to wages (compare pp. 41-42). Therefore in orders to check the theorems of the "classical" theory a somewhat different approach is required. It should first be ascertained whether the prices of finished products do really increase in relation to the costs of raw materials and wages when output expands. Indeed, according to our argument (see pp. 53-54) the position should be the reverse, because the marginal costs are constant rather than increasing over the relevant range of output, while "the degree of monopoly" increases during the slump and declines during the boom. Only after the answer to this basic question has been found may we turn to another problem: how are real wages affected by the changes in the ratio of the prices of finished goods to prime costs (costs of raw materials and labour) on the one hand and by the changes of the ratio of prices of raw materials to wages on the other. Indeed, should the "classical" theory be correct real wages would fall with the increase of production. But if, as we ma,intain, the ratio of the prices of finished goods to prime costs diminishes in the upswing and conversely, the direction of the changes in real wages cannot be foreseen. For while the changes in prices of finished goods in relation to prime costs tend to associate the increase in real wages with the expansion of employment, the changes in the relation of prices of raw materials to wages work in the opposite direction.1 In addition it should be recalled that real wages, apart from the cyclical fluctuations, tend to increase steadily as a result of the long-run rise in productivity due to technical progress etc.2 It is this method that we shall follow when analysing the processes in question in the Polish economy.