The competition-of-capitals doctrine and the wage-profit relationship

The wage-profit relationship is usually linked up with Ricardo and his notion of “proportional wages” (Principles, Chapters I, VI and passim). This relationship is based on Ricardo’s theory of value and supports his diminishing-returns-to-agriculture theory of the falling rate of profit. A wage-profit relationship, however, exists also in the Wealth of Nations (Book I, Chapter IX and passim). Here it is related to the alternative competition-of-capitals theory of the falling rate of profit which in turn is based on Smith’s different theory of value. The purpose of this paper is to extract from Smith’s language and arguments his own wage-profit relationship, to examine it in the light both of his theory of value and of his competition-of-capitals doctrine, and to contrast this theory and doctrine with Ricardo’s. This purpose will be achieved by considering the Malthus-Ricardo disputes on the falling rate of profit as well as their relevance for understanding the impact of growth on wages and profits in past and modern economies.