Why did Wicksell change his mind about the machinery question?

Abstract

The article investigates Wicksell's change of mind about the machinery question between 1890 and 1900/1901. Wicksell at first sided with the so-called “compensation theory” that workers are not harmed by the introduction of machinery. In his lecture notes of April 1900, made available here for the first time, Wicksell deployed marginal productivity theory to discuss the effects of labour-saving technical progress, with inconclusive results. Finally, in his published 1901 Lectures and in his 1900 article about marginal productivity, Wicksell claimed that the introduction of machinery increases output and reduces wages. His analysis was based on the demonstration that free competition maximizes output, but not total utility. It is argued that Wicksell's change of mind and his mature formulation of the machinery question result from his critical assessment of the then new concept of Pareto optimality, together with his reinterpretation and rejection of Ricardo's (1821) contention that the introduction of machinery may diminish output and employment.

Keywords

• Wicksell
• Machinery question
• Ricardo
• Free competition
• Pareto optimality