The Classical Theory of Wages and the Role of Demand Schedules in the Determination of Relative Prices

The paper argues that in neoclassical theory, the role of demand functions in determining prices depends on their role in determining distribution by influencing the ‘relative scarcity’ of the ‘factors of production’. It follows that in the approach of Adam Smith and Ricardo, who did not explain distribution in this way, those functions would play no role in determining relative prices. These conclusions help to distinguish the neoclassical notion of commodity demand schedule from the notion of ‘effectual demand’ of Smith and Ricardo, and thus cast doubt on the possibility of finding in the classical authors an explanation of relative prices along the lines of the later neoclassical theory.