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Saturday, July 13, 2013

Ricardo and Malthus on Wage Rigidity

In Letters of David Ricardo to Thomas Robert Malthus 1810-1823 (published in 1887), Ricardo argues against Malthus' contention that wage rigidity is a source of unemployment:

You say, 'We know from repeated experience that the money price of labour never falls till many workmen have been for some time out of work.' I know no such thing; and, if wages were previously high, I can see no reason whatever why they should not fall before many labourers are thrown out of work. All general reasoning, I apprehend, is in favour of my view of this question, for why should some agree to go without any wages while others were most liberally rewarded? Once more I must say that a sudden and diminished demand for labour in this case must mean a diminished reward to the labourer, and not a diminished employment of him; he will work at least as much as before, but will have a less proportion of the produce of his work, and this will be so in order that his employer may have an adequate motive for employing him at all, which he certainly would not have if his share of the produce were reduced so low as to make increased production an evil rather than a benefit to him.

    Posted by on Saturday, July 13, 2013 at 01:07 PM in Economics, History of Thought, Unemployment | Permalink  Comments (20)


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