Economic essays

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Monograph

Identifikator:: 1753623200

URN:: urn:nbn:de:zbw-retromon-136107

Document type:: Monograph

Title:: Economic essays

Place of publication:: New York

Publisher:: Macmillan

Year of publication:: 1927

Scope:: viii, 368 S.; Ill., graph. Darst.

Digitisation:: 2021

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: Elasticity of supply as a determinant of distribution / Paul H. Douglas

Collection:: Economics Books

108 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK a correct theoretical explanation of the forces governing the pro- cesses of distribution. 1. It will be noted from the discussion in the three preceding sections that we have tacitly assumed that the shares of the total product which the factors originally secured were equal, and that where only a change in bargaining power had occurred that an increase of one percent in the return to one factor meant a corresponding decrease of one percent in the return per unit of the other factor. But neither of these assumptions need be true, and in real life they certainly are not. What modifications in them would such other variables necessitate in our theory? Let us suppose that labor originally received two-thirds and capital but one-third of the total product. Then if, without any change in the net effectiveness of industry, labor were to increase its return per unit by five percent, its share of the total product would then rise to seventy percent; but the share of capital would fall to thirty percent, and if we assume that the total product would be unaltered, this would mean a fall of ten percent in the payment for each unit of capital. Thus, what would be a five percent increase in the return for each unit of labor would be a decrease of ten percent for each unit of capital. This would, of course, cause different movements of the supplies of these factors even though their elasticities were to be the same. Thus if each of their elasticities were positive and equal to unity, there would be an increase of five percent in the quantity of labor and a decrease of ten percent in the quantity of capital. This would be a stronger force towards restoring the original equilibrium than as if the supply of capital had only contracted in the same pro- portion by which the supply of labor had expanded. If the supply of labor were completely inelastic, while that of capital had positive unit elasticity, then an improvement in labor’s bargaining power would have similar results. For while the supply of labor would not increase, the supply of capital would decrease at twice the rate which it would, had the total product of industry been originally divided equally between the two. In consequence, the final gain of labor would be less than it would were a one percent gain for labor to cause a loss of only one percent to capital. The same results can be traced for all sets of positive elas- ticities. The larger is the share of the total product which is

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