Abstract
An examination of the part played by wages in the price and output mechanism requires a clear distinction to be drawn between sections of the economy in which basically different relationships apply.
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Notes
- 1.
From the point of view of “supply” and “pricing” relationships, national income must for convenience be counted gross of depreciation, since “market prices” and “value added” include depreciation, and capital goods produced for replacement purposes are physically indistinguishable from the capital goods which constitute “net investment”. On the other hand dwelling rents, which (unlike industrial rent are not included in the market prices of other goods and services, and can scarcely be regarded as part of the current output of a labour force, should not be counted in Y. However, from the point of view of “income” relationships (such as the share of labour in national income) depreciation should clearly be excluded and dwelling rents included. For simplicity, this last point has been neglected in dealing with k; fortunately, both rents and depreciation are fairly stable and of not dissimilar orders of magnitude, so that the discrepancy is not great. If necessary, it can easily be allowed for.
- 2.
Absence of indirect taxation is also assumed.
- 3.
For each individual firm, prime costs would of course include “unfinished” material purchased from other firms, and proceeds would include such materials sold to other firms. For the economy as a whole, these transactions can be regarded as cancelling out. However, a significant error may be involved in identifying prime cost with labour cost—chiefly because some labour cost, such as higher salaries, is “overhead” rather than “prime” cost. This means that fluctuations in labour cost Nw probably understate the true fluctuations in prime cost, partly by reason of the greater stability of the number of “overhead” employees, and partly by reason of the greater stability of “overhead” salary levels. To some extent, this error can be allowed for in subsequent reasoning; on a fairly long-term view it may not be a very great error, since only in the very short run can a clear distinction be drawn between “overhead” and “prime” labour.
- 4.
Indirect taxes, such as customs, excise, sales and pay-roll tax, should be countered with the cost of these external materials, since they are similarly a part of prime cost not traceable back to internal labour cost. Since, in general, all imports—whether finished or unfinished—are prime costs to some firm, which makes a profit on their sale, even imports of finished goods should be countered as “external materials”. For the non-rural economy, “external materials” include all rural materials used.
- 5.
It might be thought that the level of money wages in relation to export prices would exercise an independent influence on the share of labour in national income. But under the rigid assumptions of pure competition in a “capitalistic” economy, this is not so: a rise in money wages relative to export prices would merely lead to an appropriate fall in output and employment, with marginal cost and price still kept equal, and firms unable to reduce marginal cost sufficiently by reducing output forced out of business. (The Australian rural economy is in “pure competition” in the sense that there are many small producers each of whose prices are independent of his output, but it is not, in the main, “capitalistically” organized).
- 6.
The “irrational” tendency of firms to increase their gross profit ratio “in order to cover overheads at a lower turnover” probably causes on balance a rise in the true degree of monopoly in bad times, but in our calculations this is masked by the treatment of all labour costs as “prime” costs, whereas some part is properly “overhead” cost.
- 7.
For what it is worth, considering the doubtful statistics available.
- 8.
This is Keynes “Aggregate Supply Function”.
- 9.
The “solid” circles, showing the relationship after adjusting for time-lags on the pre-war basis, are of doubtful relevance in wartime conditions of price and output control.
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Swan, P.L. (2022). T. W. Swan: “The Role of Wages in the Australian Economy”. In: Trevor Winchester Swan, Volume I. Palgrave Studies in the History of Economic Thought. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-13737-2_8
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