Joseph A. Schumpeter, Lohnpolitik und Wissenschaft (1929)

Schumpeter’s article examines what economic science can legitimately contribute to wage policy, arguing that neither competitive equilibrium nor full employment automatically defines the wage most advantageous to workers. Its two sections move from the boundaries of scientific advice and the definition of workers’ economic interests to a qualified analysis of competition, collective bargaining, and unemployment. The central distinction is between maximizing employment and maximizing the aggregate wage bill: a wage policy may sacrifice the former while successfully pursuing the latter.

The opening makes economists and practitioners jointly responsible for their antagonism. Economics offers neither sufficiently established knowledge nor the simple answers demanded of it. Serious practical judgments necessarily depend on circumstances and uncertain possibilities. Practitioners also confuse explaining economic relationships with endorsing political objectives. Yet economists must reciprocally respect the boundary between explanation and prescription, and recognize that economic reasoning supplies only part of a practical decision. Schumpeter acknowledges why workers’ representatives resist arguments that appear to reason away their livelihoods. Scientific autonomy does not absolve economists from considering how their arguments operate publicly.

His proposed accommodation combines political realism with clarification of interests. Durable arrangements must appear beneficial to the majority of workers, given the distribution of social and political power. Conversely, workers need an understanding of their interests unclouded by economic error. Schumpeter therefore adopts workers’ economic interests as his criterion throughout, while explicitly declining to make their standard of living the sole cultural objective of economic policy.

»Zu hoch« oder »zu niedrig« soll also ein Lohnsatz pro Leistungseinheit heißen, welcher die Folge hat, daß die gesamte volkswirtschaftliche Lohnsumme geringer wird, als sie bei niedrigem oder höherem Lohnsatz wäre, »richtig« der Lohnsatz, der die Maximallohnsumme erzielt.

English translation: A wage rate per unit of output shall therefore be called “too high” or “too low” if it results in the aggregate wage bill of the economy being smaller than it would be at a lower or higher wage rate; the “right” wage rate is the one that achieves the maximum aggregate wage bill.

This definition shifts attention from individual wage rates to workers’ collective receipts. But the relevant maximum depends on time. Schumpeter distinguishes an immediate maximum, potentially financed beyond current gross receipts; a sustainable maximum under existing conditions; and a longer-term maximum attainable by preserving the financial conditions of economic development. Workers have an enduring interest in the market for their labor, not merely an opportunity to extract a temporary gain. Lower current wages might therefore yield greater eventual receipts.

These distinctions do not establish that contemporary German wages are excessive. Schumpeter insists that actual earnings are insufficiently known and that even striking wage increases require interpretation. One example in a note concerns high pay offered for skilled operation of valuable machinery, rather than imposed by collective pressure. His stronger warning concerns wages, employers’ social contributions, and taxation taken together: their combined burden threatens contraction and declining living standards. Consequently, wage bargaining, social expenditure, and public finance should be considered jointly rather than assigned to disconnected negotiating apparatuses.

Section II reconstructs the competitive equilibrium wage, then limits the conclusions that may be drawn from it. Under completely free competition, adjustment would produce a wage employing all workers and satisfying employers’ effective demand. Yet such competition has never been fully realized; the model identifies a tendency or gravitational center, not a direct description of actual labor markets.

Seine theoretische Eigenschaft sagt nichts über seine konkrete Höhe. Er könnte auch ein Hungerlohn sein und temporär selbst unter dem Existenzminimum liegen.

English translation: Its theoretical property says nothing about its actual level. It could also be a starvation wage and temporarily even fall below the subsistence minimum.

Equilibrium thus carries no guarantee of an acceptable livelihood. Nor does its tendency to emerge spontaneously establish that intervention must harm workers. Intervention necessarily provokes adjustments, but their consequences require investigation. Schumpeter also distinguishes modern equilibrium analysis from the classical population argument that wage increases would be undone by increased reproduction.

A further conceptual move makes equilibrium historically variable rather than fixed:

Daß der eine Gleichgewichtslohn sich auf die jeweilige Situation und deren Daten bezieht und mit jeder Änderung derselben ein anderer wird.

English translation: The single equilibrium wage relates to the particular situation and its given conditions, and becomes a different one with every change in those conditions.

Schumpeter asks whether wage intervention might itself transform economic conditions so that an initially unsustainable increase becomes an equilibrium wage—or helps make a still higher one possible. This is a possibility requiring concrete demonstration, not an unconditional endorsement of wage increases.

The conclusion separates unemployment from proof of policy failure. Depression-related dismissals may have causes that wage reductions cannot remove, although prolonged abnormal unemployment makes excessive industrial burdens more plausible. Even where above-equilibrium wages cause unemployment or short-time working, workers’ aggregate receipts may rise, much as restricted supply can increase a monopolist’s revenue.

Ein Lohn, der Arbeitslosigkeit hervorruft, kann vom Standpunkt der Arbeiter noch immer »richtig« sein.

English translation: A wage that causes unemployment can still be “right” from the workers’ standpoint.

This result can hold even if workers support their unemployed colleagues themselves; shifting unemployment costs elsewhere strengthens it. Likewise, a smaller total product can contain a larger absolute share for labor. Schumpeter leaves the practical limits of such policies to a subsequent article. This article’s enduring contribution is its disciplined separation of scientific explanation, political valuation, full employment, and collective labor income—criteria often conflated in arguments about whether wages are “too high.”