CH. 2 POSTULATES OF THE CLASSICAL ECONOMICS 5

underlying it has been deemed so simple and obviousthat it has received, at the most, a bare mention.1

I

The classical theory of employment — supposedlysimple and obvious—has been based, I think, on twofundamental postulates, though practically without dis-cussion, namely:

I. The wage is equal to the marginal -product of labour.

That is to say, the wage of an employed person is

equal to the value which would be lost if employ-ment were to be reduced by one unit (after deduct-ing any other costs which this reduction of outputwould avoid); subject, however, to the qualificationthat the equality may be disturbed, in accordance withcertain principles, if competition and markets are im-perfect.

II. The utility of the wage when a given volume of labour

is employed is equal to the marginal disutility of thatamount of employment.

That is to say, the real wage of an employed personis that which is just sufficient (in the estimation of theemployed persons themselves) to induce the volume oflabour actually employed to be forthcoming; subjectto the qualification that the equality for each individualunit of labour may be disturbed by combination be-tween employable units analogous to the imperfections

1 For example, Prof. Pigou in the Economics of Welfare (4th ed. p. 127)writes (my italics): “Throughout this discussion, except when the contraryis expressly stated, the fact that some resources are generally unemployedagainst the will of the owners is ignored. This does not affect the substance ofthe argument, while it simplifies its exposition.” Thus, whilst Ricardoexpressly disclaimed any attempt to deal with the amount of the nationaldividend as a whole, Prof. Pigou, in a book which is specifically directed tothe problem of the national dividend, maintains that the same theory holdsgood when there is some involuntary unemployment as in the case of fullemployment.