HISTORY OF THE THEORETICAL SCHOOL
Labor economics as a separate branch of economics emerged out of the political turmoil swirling around two major theoretical traditions and their competing theories of wage determination. On one side stood classical political economy, on the other neoclassical or marginalist political economy. In general, answers to two key questions divide the two traditions. First, do capitalist market forces function to guarantee that workers will receive their "fair share" of the output they generate? Second, if not, is it possible through collective/union efforts to gain a larger share, given the constraints imposed by capitalist market forces?
Classical political economy, which flourished and dominated the field of economic theory and analysis from the 18th century until the middle of the 19th, would have answered no to the first question and, under certain conditions, yes to the second. The field found its most cogent expression in Adam Smith's (1723-1790) Wealth of Nations in 1776, which is popularly demarcated as the founding work of modern political economy. The tradition extended through other major figures such as David Ricardo (1772-1823) and Karl Marx (1818-83); these three brought the field to its highest development. Marx developed his labor theory of value and exploitation to demonstrate how workers received only a portion of their product, with the remainder forming an economic surplus appropriated by capitalists for the maintenance of their consumption and investment activities.
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