In his paper unsuccessfully submitted to EJ Wicksell

In his 1923 paper unsuccessfully submitted to EJ, Wicksell referred to Ricardo\'s attempt, “hardly with success, to mitigate somewhat his own conclusions” by considering the positive effects of an increase in savings, caused by price reduction upon the introduction of machinery. In NVP-TNKS656 with his early 1890 argument, Wicksell now dismisses Ricardo\'s qualification on the grounds that “it is difficult to see how this could be done” (Jonung, 1981, p. 202). Wicksell rejected in his Lectures (p. 136) another qualification by Ricardo, that expenditure of higher rents by landowners could increase labour demand and compensate for the immediate effects of machinery (again differently from his 1890 article). Such circumstance may “more or less modify” the output reduction result “but can scarcely reverse it”. More importantly, Wicksell assumed in his discussion of the machinery question in the Lectures – as he did throughout part II (“Theory of Production and Distribution”) of volume 1 of that book – that prices are given. He envisaged an economy that produces just one or a few goods and imports everything else it requires, at exchange values determined in the world market (Wicksell, 1934 [1901,1911], pp. 103, 136, 196). In this case, there is “no question of compensation to the workers in the form of another demand for labour” (p. 137). Wicksell\'s assumption of constant prices was not just a simplification. It was necessary for his (and Pareto\'s) demonstration that output is maximized under free competition. This is made clear in the passage quoted in section 3 above from Wicksell (1958 [1913], p. 169), where he also refers to the fact that, if prices are variable, the proposition can only be “roughly” formulated, “since it is impossible to make a direct comparison of separate commodities and services”. Wicksell\'s optimum production conditions are independent of prices and distribution, as Dobb (1969, p. 53) pointed out. In his 1923 manuscript, Wicksell (see Jonung, 1981, p. 201) stressed the potential effects of machinery in bringing out (what we now call) a new Pareto-optimal equilibrium through compensation payment: “The machinery will always have the effect of raising the gross produce of the country to its greatest possible amount, and in so far it will provide the means for bettering the economic conditions of the working men as well as of their employers”. A substantial portion of Ricardo\'s (1951 [1821], pp. 388–391) discussion of the machinery problem was based on the notion that the production of new machinery involves the transformation of circulating capital (the “wage fund”) into fixed capital. The diversion of labour previously used in the production of wage goods – a reduction of the wage fund – may bring down output and employment (see Barkai, 1986). Wicksell (1934 [1901,1911], p. 134), in contrast with most commentators, claimed that the essence of Ricardo\'s position on machinery did not reside in changes in the structure of capital but in the final output outcome per se. Those issues should be kept separated, since the negative effect on wages of the transformation of circulating into fixed capital (which Wicksell endorsed) was a completely different matter from the alleged output reduction, as he explained in the Lectures (p. 164). Hence, in his section about technical progress, Wicksell\'s (p. 134) treated machinery not as capital, but exclusively as a modifier of the “conditions under which labour and land replace each other at the margin of production”. In the 1923 manuscript, however, Wicksell tackled Ricardo in his own terms by discussing in detail the wage fund model deployed in chapter 31 of the Principles. He concluded, just like in the Lectures, that the transition to the new production method is only partial, accompanied by increased output increases and lower wages (the latter is the valid element in Ricardo\'s argument, as pointed out by Wicksell).