The Employment Effect

Even an economy with constant per capita output will produce interest if quantity of labour changes. The source of interest is neither productivity of capital nor the roundaboutness of the production process (Böhm-Bawerk) nor the abstinence nor any other fancy explanation, but the growth of employment. Additional workers must be employed if we are to have full employment, which is a necessary condition for rational (optimal) social production. In this sense, the theory of profit is a normative theory. Pareto optimality and unemployment are, clearly, contradictions. And resources necessary for the establishment of additional working places are obtained from the reduction of consumption (given production), i.e., from the generation of surplus which corresponds to profit. Even with constant labour productivity (no technological progress), mere changes in employment create positive or negative surplus. If technological progress occurs, the surplus will be correspondingly greater. Labour growth increases, while technological progress decreases the amount of labour necessary for the production of the same final output and that must be born in mind. The problem will be reduced to bare essentials.2