Adam Smith’s Macrodynamic Conception of the Natural Wage1

A. M. C. Waterman

History of Economics Review, 2009, vol. 49, issue 1, 45-60

Abstract: Adam Smith argued that the ‘natural’ wage is an increasing function of the rate of accumulation; and only in the stationary state would it be at the ‘subsistence’ (ZPG) level. In a world with no capital goods, no technical progress and no scale effects, Smith’s macrodynamic conception would constitute a theory of the natural wage in the steady state. But when these complications are allowed for, no steady state is possible in general. Moreover, even without these complications, Smith’s reasoning is shown to rest crucially on historically contingent behavioural assumptions. If the lower orders make decisions that affect the rate of population growth, Smith’s conclusions are turned upside down. Given the masters’ degree of parsimony, high wages are then associated with a stationary or declining economy and vice versa.

Date: 2009
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DOI: 10.1080/18386318.2009.11682141

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