CH. 2 POSTULATES OF THE CLASSICAL ECONOMICS 17
the second postulate of the classical doctrine and towork out the behaviour of a system in which involun-tary unemployment in the strict sense is possible.
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In emphasising our point of departure from theclassical system, we must not overlook an importantpoint of agreement. For we shall maintain the firstpostulate as heretofore, subject only to the same quali-fications as in the classical theory; and we must pause,for a moment, to consider what this involves.
It means that, with a given organisation, equipmentand technique, real wages and the volume of output(and hence of employment) are uniquely correlated,so that, in general, an increase in employment can onlyoccur to the accompaniment of a decline in the rate ofreal wages. Thus I am not disputing this vital factwhich the classical economists have (rightly) asserted asindefeasible. In a given state of organisation, equip-ment and technique, the real wage earned by a unit oflabour has a unique (inverse) correlation with thevolume of employment. Thus if employment in-creases, then, in the short period, the reward per unitof labour in terms of wage-goods must, in general,decline and profits increase .1 This is simply the ob-verse of the familiar proposition that industry is nor-mally working subject to decreasing returns in theshort period during which equipment etc. is assumedto be constant; so that the marginal product in thewage-good industries (which governs real wages) neces-
1 The argument runs as follows: n men are employed, the nth man addsa bushel a day to the harvest, and wages have a buying power of a bushel aday. The n + 1th man, however, would only add9 bushel a day, andemployment cannot, therefore, rise to n + 1 men unless the price of corn risesrelatively to wages until daily wages have a buying power of9 bushel.Aggregate wages would then amount to 9/l 0 ( n + 1) bushels as compared withn bushels previously. Thus the employment of an additional man will, ifit occurs, necessarily involve a transfer of income from those previously inwork to the entrepreneurs.
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