The Theory of Wages
The Theory of Wages. By J. R. Hicks. (Macmillan. Ss. ed.)
IT is probable that the, majority of those controversies with which professional economists entertain themselves arise not from faulty logic on one side or the other but from a difference between the assumptions made by the two parties. Partly for this reason, the theory of wages has remained for long a Controversial and confusing topic. Many economists speak as though the connexion between wages and employment were as direct and immediate as that between price and the quantity bought in the most highly competitive commodity market. Other observers notice that in actual fact no such intimate connexion exists, and in consequence dismiss the whole theory as completely valueless. The first part of Mr. Hicks's book should go a long way to closing the gap between these two points of view. At the outset he explains precisely the condi- tions under which alone we can say that the currently accepted theory—that wages correspond to the marginal product of Labour—is true. This correspondence is continually disturbed by dynamic forces and the readjustment, which in some market& is more or less immediate, in the labour market is unusually slow. The most important cause of this time-lag is the durability of capital, which prevents an immediate variation in the quantity of labour employed. It is only as capital, through depreciation, becomes free and takes a new and labour-saving 'form that unemployment follows a too high wage level. Mr. Hicks maintains that indivisibility in the factors of production is not a serious hindrance to the identity of theory and practice, but he points out that certain types of unemployment are to be expected even when wages are in equilibrium. Then, turning to the supply side, he analyses in an intricate but impeccably sound fashion the various relationships possible between wages and the " quantity " of work done. Part I concludes with a brilliant essay on the future of the distribution of national dividend. With his new and illuminating classification of " autonomous " and " induced " inventions, and the concept of the " elasticity of substitution," Mr. Hicks shows with inescapable logic that we must expect a decline in the relative share of labour. For once in a way a pure theorist finds himself in agreement with the Marxians.
The second half of the book is concerned with the effects of regulation. Mr. Hicks believes that wages in post-War England have been above the equilibrium level. Now the emphasis laid in the earlier chapters on the substitution of machinery for labour leads him to expect that in this period the heavy goods industries would have been prosperous. He finds on the contrary that they have been exceptionally depressed. The contradiction is explained by the fact that high wages (and presumably taxation) have diminished the volume of savings and hence the demand for capital goods. Theoretically this is the expected sequence of events in a closed economy. But it is scarcely legitimate to apply the argument to a single country in an international system. Mr. Hicks appears to overlook the difference between his conditions and those of the real world and hence to lay undue emphasis on this particular cause of depression.
One is inclined to criticize this extremely able book on the grounds of what is omitted rather than what is said. It is a pity, for example, that there is no examination of the theory of collective bargaining and that no attempt is made to deal with the short period. So far as the argument of the text is con- cerned the only vulnerable point is Mr. Hicks's emphasis on the Law of Substitution. It seems that except under certain rather artificial conditions the significance of this part of the theory is apt to be exaggerated. There can be no doubt however that . the book is a contribution of first-class importance to economic theory add will be welcomed by all professional economists. Whether it will appeal to the public is another matter. From this point of view it is a pity that the rather severe and dry first five chapters should precede the simpler, more important and more exciting
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