Eighteenth Century Economics: Turgot, Beccaria and Smith and Their Contemporaries

By Peter Groenewegen | Go to book overview

4

Labour and theclassical economists

An interesting aspect of labour history is the attitude to labour adopted by the great classical economists, Smith, Ricardo, Hume, North and others. It is also instructive to compare their views with what modern economists have to say about wages and the role of labour in production.

In twentieth-century economic literature there has been a great deal of discussion on the relationship between wages and prices as an explanation of inflation, as well as discussions on the role of productivity in this ‘cost-push’ theory, as it has been called. 1 In most of these arguments, a definite relationship between wages and prices is posed, often with the assumption that either labour productivity is constant or that it is rising at a constant rate, and generally with the implicit assumption that there is complete independence between rising money wage rates and rising productivity. 2 In a closed economy, especially one with a high degree of monopoly in its market structure, it is then argued that rising money wages will increase prices, provided that the rate of increase in wages is greater than that of productivity. 3 At the same time, the policy objectives of ‘price stability’ and ‘external viability’ demand a zero or moderate rate of inflation in order to preserve living standards of those on fixed incomes and the competitiveness of domestic products in overseas markets. 4

It is interesting to note that these particular arguments are not new. The relationship between wages and prices and its relevance for international trade policy was an important tenet of seventeenth- and eighteenth-century economic policy; while in the literature of this period there were also discussions on the relationship between wages and productivity. However, although most writers at this time condemned rising wages for their effects on commodity prices and on the competitiveness of those commodities abroad, 5 there were other writers 6 who argued that rising money wages could lead to increased industriousness or productivity of the labourers. In the second case, the price effects assumed by the first group of writers would not necessarily follow. The first section of this chapter will examine this aspect of the debate.

A controversy of the nineteenth century has also some relevance in this connection. In his Wealth of Nations, Adam Smith had discussed the relationship between wages and prices, and had come to the conclusion that rising

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