Wicksell picked up the discussion of the effects

Wicksell picked up the discussion of the effects of technical progress on distribution from where he had left it in 1890. Wicksell (1890, p. 257, n. 1) had complained that “any fully satisfactory and comprehensive treatment of the problem, once discussed in such a lively manner, of machinery\'s benefit or harm to workers does not, as far as I know, exist”. He repeated in his 1900 lecture notes that that “important issue” had not been hitherto “satisfactorily treated” in the economic literature. Marginal productivity should provide the key to the problem, under the explicit assumption of a production function with constant returns to scale made by him at the outset of the notes. Wicksell, however, was not fully satisfied with his lecture notes, as immediately indicated by the Swedish interjection “obs!” (meaning “note”). The puzzle posed by the effect of technical progress on distribution originates from the operation of two opposing influences on wages: on one hand, higher productivity of labour ought to render possible the payment of higher wages; on the other hand, it may cause excess supply in the labour market and reduce wages (see also Wicksell, 1958 [1900], p. 101, 1934 [1901,1911], p. 134, for a similar remark). The distinction between average and marginal productivities of labour could apparently provide a solution to the riddle. Just like in volume 1 of his printed Lectures (pp. 108, 133–144) and in his 1900 article on marginal productivity, Wicksell discusses in his notes the effects of technical progress under the assumption of “non-capitalistic production” with just wage and rent as factor shares. Machinery modifies the conditions of till between land and labour at the production margin. In modern terms, he is analysing disembodied technical change (Hansson, 1983, p. 50; Coleman, 1985, p. 355). The first diagram drawn by Wicksell illustrates the determination of the wage rate by the marginal productivity of labour, and the division of product between land rent and wages (see also Wicksell, 1934 [1901,1911], p. 115, for a similar diagram). Whereas that largely reproduces Clark\'s (1899, chapter 13) well-known diagram, the other figures drafted by Wicksell in his notes show the first application of marginal productivity theory to the interpretation of technical change. Those figures are reproduced in Appendix as originally sketched by Wicksell; they are redrawn in this section for clarity reasons. An increase in the productivity of labour brought about by technical progress may occur in different ways, as discussed in Wicksell\'s notes. The first case consists in a proportional increase in the average and marginal productivities of labour (and land as well, not shown) represented by a more or less parallel shift of the curve upwards, which benefits both workers and landowners (Fig. 1). It may be described as a “neutral” technical change that does not affect income distribution. Wicksell next considers the case of an increase in the marginal productivity of labour in a greater extent than in its average productivity, so that the former rises at the expense of the marginal productivity of land (Fig. 2). Consequently, the wage rate rises at the cost of land rent. He would argue elsewhere (particularly in his works on demography) that such inventions – that increase output per worker, not per acre – are especially relevant for promoting the “happiness of man” (see Boianovsky, 2001, p. 133). This may be described as “land-saving” technical progress, as suggested by Wicksell\'s (1958 [1900], p. 102) argument that such inventions have the effect, as it were, of “increasing natural resources”. Wicksell finally analyses in his lecture notes the case of an increase in the average productivity of labour greater than in its marginal productivity, associated with the introduction of labour-saving machinery. The old and new marginal productivity curves will intersect, as in Fig. 3. This is the case relevant for Ricardo\'s “machinery question”. As discussed in the next section, the crossing of the two curves is behind Wicksell\'s claim in his Lectures that both old and new techniques will be deployed in the new equilibrium. However, in his lecture notes Wicksell does not analyze the allocation of production between the old and new techniques. Instead – and in contrast with his discussion of the previous two cases of technical change – his treatment is inconclusive. The outcome depends on what happens to output. If labour-saving technical change brings about an increase in agricultural production and rent, part of rural workers will shift to the industrial sector to produce goods demanded by landowners. Labour reallocation increases the marginal productivity of rural workers and prevents their wages from falling. Alternatively, agricultural gross output may fall, as it would happen, for instance, if the introduction of labour-saving machines were associated with a replacement of workers for horses. In this latter scenario wages must come down, a possibility mentioned but disregarded by Wicksell (1890) for empirical reasons, as discussed above. Again, he resorts in his lecture notes to data showing that the increase of employment in Swedish industry and other urban sectors during the last two decades of the 19th century more than compensated its contraction in agriculture.