ELASTICITY OF SUPPLY AS A DETERMINANT OF DISTRIBUTION 79 
would also be little or no increase in the supply of labor price. 
The increased wage would lead to a higher standard of living 
and hence to a decrease in the birth-rate. This being so, the 
workers could improve their position at the expense of the 
capitalists and relative bargaining strength alone determined the 
amounts which each would secure. Other bargain theorists, such 
as Davidson, Ira Steward, George Gunton,” and others either 
made similar assumption or blithely took for granted that the 
supplies would not be altered. The modern residual theories of 
distribution, notably those of Taussig and Kleene, postulate 
almost infinitely elastic supply curves of one factor but tend to 
regard the supply of the other as unconnected with the return to 
it. Thus to Taussig ® the joint product of labor and of capital 
has deducted from it the rate of interest, with the result that the 
residual goes to labor. This rate of interest Taussig imagines 
has been historically steady through time, although as a matter 
of fact it seems to have varied greatly from decade to decade, and 
this to him seems to be proof that there is a “broad margin of 
savings.” If the rate of interest rises through technical progress 
or from some other cause, there will be such an outpouring of 
savings as will bring the rate back to the point where the broad 
margin is located. If the rate of interest should fall, then the 
supply of capital would fall off so greatly that its relative scarcity 
would cause its price to rise again and ultimately find its way 
back to its original figure. There is thus an “effective rate of 
accumulation” and the joint product is discounted at an approxi- 
mately constant rate, with the residue going in wages. 
Kleene * has a somewhat similar theory, although with him the 
rate of wages is the constant and not the rate of interest. He 
rejects the broad margin of savings but postulates a broad margin 
of population growth in the non-capitalistic areas of the world 
where he believes the principle of Malthusianism still holds. 
Through migration within and emigration from these countries, 
this rate of procreation establishes the wages of unskilled labor in 
capitalistic countries and upon these in turn, with appropriate 
differentials. the rates for skilled labor are based. An increase 
* John Davidson, The Bargain Theory of Wages. 
* Gunton, Wealth and Progress. rn 
*F. W. Taussig, “Outlines of a Theory of Wages,” Publications of the 
American Economic Association, 3rd series (1910), Vol. II, pp. 136-50; 
Principles of Economics, Vol. II. 
2 GG. A. Kleene. Profits and Waaes.