I proceed to make a corresponding analysis of the Full Employment path. As before, we start from a steady state under an old technique, and suppose that at time 0 a new and more profitable technique is introduced. We keep all the Standard assumptions. Each technique has a Simple Profile; the durations of the constructional period and of the utilizational period are the same in the two techniques. But whereas in the last chapter the wage was fixed and employment variable, here the wage may be variable but employment is constrained to move as it did in the old steady state. There is full employment of a labour supply which increases at this given growth rate.
Since the wage is variable, it would be fair to assume that the technique which is chosen for new processes will vary, in response to such changes in wages as occur. This complicates the problem considerably, for we can no longer confine ourselves to the effect of a single technical switch. Yet the single switches, which are here in question, are different from those which we have analysed previously; we need to understand them before we can go on. There is nothing for it but to break up the enquiry into two parts. I shall therefore, in this chapter, confine attention to the switch from one given technique to another. There will, in consequence of that switch, be effects on wages; but the effects on choice of technique of those changes in wages, and the effects on wages of those induced technical changes, will be held over to the next chapter. In the present chapter those effects will be neglected.
There is of course no question that this is an important decision. Current (and traditional) theories of wages, under Full Employment, are divisible into those which rely upon technical substitution—marginal productivity theories in the widest sense—and those for which it is no more than a secondary complication. By deciding to postpone the question of substitution, we are committing ourselves, for the time being, to the latter group. When we analyse the Traverse as proceeding from one given