ADAM SMITH ON THE ACCUMULATION OF CAPITAL AND THE FUTURE OF WAGES1 by (original) (raw)

ADAM SMITH ON THE ACCUMULATION OF CAPITAL AND THE FUTURE OF WAGES* by FERDINANDO MEACCI University of Padova, Italy Department of Economics and Management E-mail: ferdinando.meacci@unipd.it Fax: 39 049 8274221 ABSTRACT The system of thought of the Wealth of Nations may be said to be mostly based on two theories and two principles. The two theories are the theory of value and the theory of capital while the two principles are the principle of self-interest and the principle of competition. The aim of this paper is to highlight the hidden links between these theories and principles, on the one hand, and Smith’s views of the labor market and of the future of wages, on the other. These views descend from Smith’s implicit adoption of the principle of demand and supply (as it was later called by Malthus) in determining not only the (short-run) market price of labor (as it was later admitted by Ricardo himself) but also its (long-run) natural price. The potential increase of this price (or natural wages) is admitted in Smith’s system of thought (though not in Ricardo’s and even more so in Marx’s) as the result of a continuous process of capital accumulation intended as an increasing demand for (productive) labor. This result is based on Smith’s principle of value as labor commanded by which the self-interest of “masters and manufacturers” is overturned, through their competition in the labor market, in an increasing demand for (command of) labor and, therefore, in the payment of increasing wages. Since this final effect is possible only if the aggregate supply of labor (population) turns out to increase by less than the aggregate demand for it, an adequate theory of population is needed for Smith’s system of thought to be closed. After examining Smith’s fragmentary introduction to such a theory and his related view of the liberal reward of labor as the “cause of increasing population” as much as the “effect of increasing wealth” (Book I, Chapter VIII), the paper moves beyond the limits of this equivalence by turning to Smith’s more advanced arguments on the “uniform, constant, and uninterrupted effort of every man to better his condition” (Book II, Chapter III). It is this effort that, whatever the form of birth control implied by it, will keep the rate of growth of the supply of labor below the rate of growth of the demand for it when a continuous process of capital accumulation (and of related technical progress) is under way. Hence one of the “many other cases” of Smith’s invisible hand (Book IV, Chapter II), i.e. the recurrent (long-run) increase of real wages in spite of the counter-interest of those who are to pay them. *Paper to be presented at the Annual Meeting of the International Adam Smith Society, Viña del Mar, Chile, January 12-13, 2018. Comments are welcome.