Title:

Wages and capitalist production

My purpose is to build an explanation of production that takes time into account. Adam Smith and the English Classical economists approached the problem by studying the relation between profits and wages or wages and capital. they emphasise the time aspect of production by saying that capitalists "advance" wages to labour long before its final consumption product is ready. On the background of that conception they painted a rough picture of production through time. I follow the classical tradition both in the title of my work and in parts 2. and 3. of my work where I approached the problem of production by studying equilibrium between the rates of interest and wages. Some light is thrown on the nature of this equilibrium by the statistics of distribution of the national income. My main results are in part 4. which contains a fairly general theory of production that takes time into account, found the use of mathematics indispensable. The best known attempts to formulate such a theory are BohmBawerk's, Professor Fisher's and J.B. Clarks's (which is exemplified by Dr. Hicks' Theory of Wages). As I show BohmBawerk's famous doctrine of the "average period of production" is based on a mathematical mistake. Professor Fisher's analysis of the "output streams" while very instructive, contains a greater number of unknowns than equations to determine them. Dr Hicks assumes that capital is a homogeneous factor of production assisting the production of consumption goods which emerge wither instantaneously or after time lags. If there are time  lags, Dr. Hicks assumes it makes no difference what these lags are. This is an attempt to deal with the time aspect of production by means abstracting from it. In recent articles (Economica and the Economic Journal) a very distinguished economist, Professpr F. Knight, appears to think that the problem of capital is incomprehensible and that it is no use trying to understand it. All these difficulties of theory mean that the pronouncements of economists on every concrete question of production  such as wage policies  are necessarily surrounded by a penumbra of considerable doubt. And no substantial improvement can take place until matters of general principles are cleared up. I try to clear them up. The essence of my analysis in part 4 is this. Assuming for simplicity that each competing firm controls a vertically completely integrated process of production of a consumption good, and writing t=0 as "the present", and entrepreneur finds himself in possession of a set of goods c at t=0 and is aware of a large number of alternative production plans. Each plan provides for future investment at a rate f(t) in values terms and for output of the consumption good at a rate of u(t). For simplicity we can take the good as the "numeraire". As between all the alternatives plans the functions u(t), f(t) are different. I.e. they have certain fields of variation. the central idea of the analysis is this: for each particular input function f(t) the output function u(t) can be varied within a certain field by varying the methods of production. This is the "missing link" which the earlier theories failed to bring out. Given the interest rate p, the condition which determines which plan is chosen is that the present value of the collection of goods c is maximised. I.e. that the present value of future profits is maximised (and is zero under perfect competition). That means that for each possible input function f(t) such an output function u(t) has to be considered as maximises x. I.e. the first partial variation. As f(t) is varied, different output functions u(t) become possible, and for each f(t) an output function u(t) is segregated which maximises x i.e. satisfies (2). Thence, in (1) f(t) becomes the only independent variable, and the equilibrium condition is that x is maximised with respect to the input function f(t). This condition determines which plan is chosen i.e. determines the unknown functions f(t), u(t). From (1) (2) (3) i.e. the present value of the future marginal product equals the present value of the future marginal costs. In this way a marginal productivity theory is built up which takes time into account. Then the theory is extended: account is taken of uncertainty, of "vertical disintegration" etc., etc., until a fairly comprehensive picture is reach of the course of production through time.
