REPLY.

This article presents the author's response to a comment on his paper about the theory of relative shares. Author Frederick Bell has raised certain fundamental questions with respect to the theory of relative shares proposed in my paper, questions of both a theoretical and empirical nature. From the theory side Bell suggests that I have perhaps played the neoclassical game to the extreme by not considering the possibility of unemployment of the economy's capital stock on the downswing of the business cycle. He rightly points out that such unemployment will produce a shift to the left of the real wage labor demand curve for the economy as a whole. Further, he argues that such a shift can lead to a fall in the real wage rate during the contraction phase of the cycle which raises the possibility of a fall in the relative price of labor. Such a result would reverse the adjustment mechanism suggested by me, although it would still produce an explanation for the behavior of relative shares. For his theoretical mechanism to function in the fashion he suggests during the contraction phase of the cycle, there must be a decrease in the relative price of labor, which, in turn, would induce a substitution of labor for capital.