Professor Taussig on Wages and Capital

Schumpeter’s essay is a single-author work of intellectual history and theoretical appraisal. It is ostensibly about Taussig’s Wages and Capital, but its scope is the development of economic theory from the English classics to Marshall, Walras, Menger, and the modern American scene. Its thesis is that theory changes by cumulative logical refinement, and that Taussig’s book is central because it both ends the wages-fund muddle and redirects attention to capital as a time-structured process.

There is more logic in the history of those tools of analysis which we have come to call economic theory than either its friends or its foes admit.

Schumpeter first attacks two bad histories of economics: theorists overstate rupture and originality, while opponents reduce theory to schools, hypotheses, and policy attitudes. Against both, he argues that analytic tools develop by solving inherited problems. Ricardo clarifies Smith; later economists repair Ricardo; Jevons, Walras, and Menger continue rather than discard classical work. The image is sedimentary:

Only, preceding stages are not, as immediate successors invariably think, really cast away to make room for new structures; they remain like geological layers carrying and conditioning the ever new ones that overlay them and are in turn destined to be overlaid.

Part I therefore recasts the marginal revolution as continuity. Classical political economy had public force because it seemed to pronounce doctrine, especially on policy. Later theory lost that popular brilliance but gained scientific precision. Marshall becomes the English center of the new stage, while Walrasian and Marshallian programs lead toward calculus, equilibrium analysis, statistical demand curves, imperfect competition, expectations, and dynamics.

Now the theory that was worked out in the seventies and eighties was no longer a doctrine—although often and even to this day mistaken for it—either of laisser faire or of anything else. It had, at last, become what scientific theory is in any field, a tool of research that elicited interest and gathered devotees as such.

Part II asks whether American economics has a comparable line of development. Schumpeter grants little theoretical originality to the early republic, despite lively practical argument and ideas such as infant-industry protection. By the 1880s, however, Newcomb, Walker, Clark, and Taussig had raised American theory to a high level. Taussig’s importance appears where marginal utility and marginal productivity were insufficient: they analyze choice and imputation, but not the temporal structure of production. The economic process is a machine that absorbs productive services and emits consumers’ goods; its structure, especially the time labor must remain embodied in intermediate goods, is itself an objective condition.

Taussig’s Wages and Capital entered through the wages-fund controversy, and Schumpeter credits it with definitively disposing of that doctrine. The point is not that the wage total is indeterminate in equilibrium; it is that no independent fund mechanically fixes wages. Classical wages-fund reasoning confused real and monetary aggregates and misapplied supply-and-demand concepts. The episode also illustrates Schumpeter’s warning against the “Ricardian Vice”: abstraction is necessary, but its results become harmful when advertised as immediate policy truth.

To construct tools of analysis and to try them out on simplified models of reality is not only the right but the duty of the theorist.

But if he cannot resist the temptation to present results thus derived without qualification to the public at large, he betrays the cause of science.

The deeper contribution is positive. Taussig shows that production methods differ not only technologically but economically: they yield different quantities of output per man-hour and involve different waiting times. The period of production becomes a variable linking present labor and present consumable goods through capital’s organization. For Schumpeter, this makes Wages and Capital a theory of production and distribution in embryo, supplementing marginal productivity with an account of capital’s temporal form.

This opens an avenue which leads much nearer to the facts of production and distribution than we could ever hope to get by means of the marginal productivity idea alone.

The essay ends by widening Taussig’s legacy to his Principles, tariff writings, International Trade, teaching, and scholarly standards. Its relevance lies in recovering Taussig as a major theorist of capital while displaying Schumpeter’s own view of economics: not a procession of rival creeds, but an exact science built through historical layers of clarified analytic instruments.