Schumpeter’s 1928 lecture-article turns a politically charged question into an analytical one. It asks not whether higher wages are desirable, but what causal relation holds between wage formation and capitalist development: do wages drive development, or does development make higher real wages possible?
Der Vortrag, welcher im Folgenden zum Teil kürzend und zum Teil ausarbeitend zusammengefaßt wird, galt den beiden Fragen: Wie beeinflußt die Höhe der Löhne die Entwicklung der Volkswirtschaft und die Entwicklung der Volkswirtschaft die Höhe der Löhne?
English translation: The lecture, which is summarized in the following in part by abridgement and in part by elaboration, addressed two questions: how does the level of wages affect the development of the economy, and how does the development of the economy affect the level of wages?
He begins by warning against simple answers. Wage levels are shaped by productivity, prices, capital accumulation, institutional bargaining power, foreign competition, and cyclical conditions. The invocation of Edgeworth signals Schumpeter’s methodological point: wage theory cannot be reduced to a slogan about justice, demand, or class power.
Edgeworth unterscheidet 80 Jahre später in seiner berühmten Abhandlung über denselben Gegenstand 256 Fälle, von denen keiner ganz ebenso zu behandeln ist wie ein anderer.
English translation: Edgeworth, 80 years later in his famous treatise on the same subject, distinguishes 256 cases, none of which is to be treated in quite the same way as any other.
The essay’s first major claim is historical. Schumpeter does not deny that unions or labor legislation can affect particular wage bargains. He denies that long-run real wage growth can be explained chiefly by such intervention. Durable wage increases require a rising social product. Where productivity grows, wage policy may appear effective because it helps distribute gains already made possible by development; where productivity stagnates, policy cannot create real purchasing power by decree. The American comparison is important because high wages there coexist with weaker European-style union power.
Die Gewerkschaften sind auch dort eine Macht, aber nicht annähernd so sehr wie in Europa.
English translation: The trade unions are a power there too, but nowhere near as much as in Europe.
Schumpeter then narrows the imagined scope for redistribution. Popular rhetoric treats capitalist income as a large reservoir from which wages could be raised without consequence. He argues instead that much national income is already labor income broadly understood, while taxes, replacement costs, savings, entrepreneurial functions, and investment needs sharply limit what can be transferred without damaging production. The workers’ lasting interest therefore lies less in exhausting a supposed surplus than in expanding the productive base from which wages are paid.
The theoretical core is dynamic. In a stationary economy, wages tend toward a level related to labor’s marginal contribution. But capitalist development is not stationary: entrepreneurs introduce new combinations, reduce costs, gain temporary profits, and then face imitation and competition. As innovations spread, exceptional profits are eroded, prices fall, output expands, and real income rises. Higher real wages are thus not primarily the result of seizing profit after the fact; they are the social consequence of a changed productive structure.
This also explains Schumpeter’s critique of wage-led demand arguments. He allows that in some cases higher wages may improve nutrition, health, discipline, or morale and thereby raise efficiency. But he rejects the broader claim that higher money wages generally create prosperity. If wage increases come from other incomes, purchasing power is transferred rather than created. If they are passed into prices, consumers lose elsewhere what workers gain here. If credit expansion finances them, the result is likely nominal stimulus or inflation rather than a stable rise in real wages. Saving, for Schumpeter, is not mere withdrawal from demand; under capitalist conditions it is tied to investment and future production.
The American “high wage” example therefore receives a reversed interpretation. High wages are not the independent cause of American development; they are largely its outcome, made possible by productivity, resources, capital organization, and innovation. Mass consumption may accompany and reinforce development, but it cannot explain a general rise of real income unless production has first made that consumption possible.
Schumpeter’s conclusion is deliberately asymmetrical: economic development can raise wages in a lasting way, but wage increases do not generally generate development. He permits exceptions and transitional cases, yet rejects the inference that historical wage gains prove the independent power of wage policy.
Allein es handelt sich auch gar nicht darum, damit etwas Positives zu beweisen, sondern nur darum, den Anspruch, daß die unanalysierten Tatsachen prima facie die Wirksamkeit der Lohnpolitik bezeugen, als unbegründet abzulehnen.
English translation: But it is not a matter of proving anything positive by this, only of rejecting as unfounded the claim that the unanalyzed facts prima facie attest to the efficacy of wage policy.
The essay’s significance lies in this compact Schumpeterian synthesis: innovation, capital formation, and productivity growth are the main sources of rising real wages; entrepreneurial profit is temporary; competition diffuses gains; and nominal purchasing power cannot substitute for real economic development.
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