Interpretations of the Classic: The Theory of Wages

Abstract

The well-known enduring controversy on the interpretation of Ricardo's wage theory, and by implication on classical wage theory, has undoubtedly been fuelled by the existence of some inconsistencies in Ricardo's writings. However, as far as the factors affecting normal wages are concerned, these inconsistencies may carry less weight than is usually believed.. The present paper aims to provide a critical overview of the controversy concerning the interpretation of the theory of wages in classical economists, offering a somewhat unusual perspective. I contend that there are major similarities between the two interpretations that have been regarded as the main contenders, the so-called New view and Fix wage interpretations. Due to these similarities, the controversy has tended to neglect a decisive point for the interpretation of the theory of wages in Ricardo and other classical economists, namely, the meaning of 'demand for labour' in classical thought. I also maintain that there is a third point of view concerning the interpretation of wage theory in the classical economists, which has not been accurately understood and discussed in earlier surveys of the controversy. Unlike the others, this Alternative interpretation, as I shall label it for brevity, centers on the absence of a systematic decreasing relation between real wages and employment in Ricardo and other classical economists. The Alternative interpretation will be presented in some detail, and some questions posed by the New view will be assessed from the point of view of this alternative interpretation.Classical economists; Classical theory of wages; David Ricardo; Adam Smith