Chemists once believed, before Lavoisier and Priestly discovered oxygen, in the theory of phlogiston. Physicists, before Galileo, believed in the impetus theory of motion. Academic economists once believed that, in competitive markets, wages and employment tend to the point of intersection of supply and demand curves. The supply curve is supposed to slope up, showing that with a higher real wage, the hours offered for employment increase. The demand curve slopes down, modeling a smaller quantity demanded of labor services at higher wages. A short-run and long-run version of the theory existed.
When did this theory become obsolete? Some candidates:
- With the 2015 publication of Arrigo Opocher and Ian Steedman's Full Industry Equilibrium.
- With Pierangelo Garegnani's 1970 paper, Heterogeneous capital, the production function and the theory of distribution.
- With Piero Sraffa's 1960 book, The Production of Commodities by Means of Commodities.
- With the 1936 publication of John Maynard Keynes' The General Theory of Employment, Interest qand Money.
- With G. F. Shove's 1933 review of J. R. Hicks' The Theory of Wages.
Empirical work went along with this timeline, whether that includes the discovery that firms use markup pricing or the use of natural experiments showing that minimum wages do not decrease employment.
Oh, what’s that you say? You have not heard that the theory of supply and demand is obsolete? Well, not everybody can be expected to understand the periodic table or laws of motion.
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