Classical political economy: the subsistence wage, and job guarantee concerns

Abstract:

In the theoretical framework of classical political economy, including the revisions of Marx and the more recent work of Piero Sraffa and others, the concept of the subsistence wage figures prominently. Here, following a recounting of this concept and demonstrating its significance not only for classical theory but also for larger social concerns, I argue that the “base wage” (as it is sometimes termed) as articulated within a “Job Guarantee” program, is (or should be) comparable to the subsistence wage but requires modification to make it (roughly) equivalent. It will be demonstrated that adherents of the classical approach did not rest their wage theory on a quasi-neoclassical supply–demand approach (with some primitive marginal productivity notion lying behind a supposed demand for labor schedule), but understood wages as socially determined where institutional and historic forces established a normative standard around which market wages gravitated. Such an approach was shared by, among others, Thorstein Veblen and John Maynard Keynes.

Keywords::

• classical political economy
• job guarantee
• Keynes
• moral economy
• Sraffa
• wages

Notes

¹The main transfer payments referenced were those associated with the traditional, noncapitalist agricultural sector. Workers in the (capitalist) manufacturing sector would supplement their wages with foodstuffs grown on lands to which they still had access, as well as monetary payments for the sale of these goods. As well, Speenhamland, the “old” Poor Law, originated in 1795 as a mechanism to supplement wages through public support to offset high grain prices associated with the Napoleonic Wars.

²If one confines the argument to two economic classes, workers and capitalists, the distributional question is solved: profits are a residual and the only such residual. The problem arises when considering three class incomes. Rents are also a residual (“deduction” in Smith’s terminology). Unless rents and profits can be separated where either is determined independently—as wages in Smith’s theory—one cannot divide total income into its respective shares. This problem was left to Ricardo to solve.

³See Aspromourgos (2007) for Smith’s position on supply and demand.

⁴See Roncaglia (1988). Some confusion on the issue exists as Keynes did use Marshallian language in discussions of a so-called labor market. However, as James Galbraith has pointed out, there is no “labor market” in The General Theory. See Galbraith (1997).

⁵In “imperfectly” competitive markets, a form of technical exploitation does exist in that “factors of production” are not paid the value of their marginal product.

⁶To be fair to Sargent, his argument focused on redistribution as a solution to poverty, arguing that increased production has had a much greater effect on poverty alleviation. However, the standard economists concern regarding the “poisonous” nature of inquiries into distribution remains valid.

⁷This specific term can be traced to Hyman Minsky, 2008 (1986), though there are hints of such a program as early as 1923 in the work of Walton Hamilton (see Rutherford, 2013, p. 66).

⁸Because classical theory was developed in the period when “traditional economy” existed alongside the embryonic capitalist economy, the terms “full employment,” or “unemployment” had little or no meaning for these economists (see Weldon, 1988, pp. 16, 19).

⁹For brief introductions to such programs, see Mitchell (1998) and Wray (1998b). For a much fuller analysis, see Wray (1998a). As well, many papers published by the Levy Economics Institute of Bard College address these programs (http://www.levyinstitute.org). In particular, Jan Kregel, Pavlina Tcherneva, and L. Randall Wray have written extensively in the various series published by this organization. Finally, the New Economics Perspective blog of University of Missouri-Kansas City contains any number of essays and discussions addressing the employer of last resort approach (http://neweconomicperspectives.org).

¹⁰The above two paragraphs are taken from Henry (2012). See Henry (1999) for an elaboration of the above.

¹¹For a summary position on this debate, see Swedberg and Granovetter (1992). For applications of the embedded position, see Dalton (1971). For an argument critiquing the “universalist” perspective, see Henry (2009).

¹²See Tooze (2008) for the significance of this minimum determination of “subsistence” and its relation to the larger German economy and its war machine.

¹³Many associate the proposed wage with that of a “living wage.” This is a reasonable position in my opinion as long as the living wage is not based on current standards of “adequate” consumption but, rather, takes into account some (admittedly arbitrary) level of consumption that meets Sraffa’s requirement of decency. It should also be noted that this proposal is not inconsistent with an “income guarantee” program, nor those that go much further in their recommendations. See, for example, Darity and Hamilton (2012) for a proposal recommending a “child development account” that would institute an asset-based program ameliorating the differential advantages one experiences simply by being born into less wealthy families.

¹⁴On this and other points, see Mitchell (1998). For a contrary argument, see Seccareccia (2004).

Additional information

Notes on contributors

John F. Henry

John F. Henry is Visiting Professor in the Department of Economics at the University of Missouri-Kansas City. An earlier version of this paper was presented at the January 2015 meeting of the Allied Social Science Association meetings, under the auspices of the Association for Evolutionary Economics.