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Monday, September 05, 2005

John Bates Clark Explains Why Labor Never Gets Exploited

Having presented Veblen’s institutionalist view of labor and its interaction with the capitalist power structure in the post above this one, here is the alternative neoclassical view of payments to labor, the view that prevails today. Within the neoclassical analytical structure, there is no exploitation, each factor of production returns to its owner the value of what the factor produces. That is, each factor receives an income equal to the value of marginal product and, importantly, this is true for both workers and owners:

J.B. Clark (1847-1938), Preface to The Distribution of Wealth: It is the purpose of this work to show that the distribution of the income of society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates. However wages may be adjusted by bargains freely made between individual men, the rates of pay that result from such transactions tend, it is here claimed, to equal that part of the product of industry which is traceable to the labor itself; and however interest may be adjusted by similarly free bargaining, it naturally tends to equal the fractional product that is separately traceable to capital. At the point in the economic system where titles to property originate,—where labor and capital come into possession of the amounts that the state afterwards treats as their own,—the social procedure is true to the principle on which the right of property rests. So far as it is not obstructed, it assigns to every one what he has specifically produced.

Because there is no class that exploits another class in the neoclassical model, an important distinction between classes disappears. Clark, with this book, completes a line of thought from Say and Senior before him by showing the payments to capitalists and laborers under capitalism are based upon natural law, a law that rewards each factor according to its contribution to production. In doing so, he provides capitalism with an important intellectual defense against the competing ideas at the time from the socialists and institutionalists that one group, the owners, exploited another, the workers, through the social and economic relationships inherent in the capitalist structure.

    Posted by on Monday, September 5, 2005 at 01:17 AM in Economics, History of Thought, Income Distribution, Unemployment | Permalink  TrackBack (1)  Comments (8)


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