The Generalized Efficiency Wage Hypothesis and the Scissors Problem.

This paper examines some positive aspects of a two-sector model of a hypothetical less developed country, in which the state exercises control over the relative prices of agricultural and industrial goods, and workers behave according to the generalized efficiency wage hypothesis. It is shown that, contrary to conventional wisdom, a propeasant pricing policy does not necessarily lead to a decline in the state's accumulation of industrial goods; empirical evidence from China suggests that a propeasant pricing policy has actually been conducive to the increase of such a type of accumulation.