The Distribution of Wealth: A Theory of Wages, Interest and Profits

by John Bates Clark, R. Medeiros (Editor)

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 everyone what he has specifically produced.

Genres: Economics

448 pages, Kindle Edition

First published January 1, 1899

About the author

1847-1938

Reviews

[Kevin Carson · Rating 2 out of 5]

The theory of "marginal productivity" is inherently circular, and in practice simply hides actual power relations behind a curtain of allegedly "neutral" laws. The marginal productivity of any input is what it adds to final price. In other words, the "marginal productivity" of land, capital and intellectual property amounts to whatever rent the holder of such artificial property rights is able to extract for allowing their use; and the "marginal productivity" of labor depends upon the balance of power between labor and capital, and how little employers can get away with paying. The marginal productivity of everything depends entirely on relative bargaining power, and on the prior definition of property rules.

[Josh Kraushaar · Rating 4 out of 5]

Here Clark claims that the prevailing trend in the economy is for Labor to get paid according to what it produces (the marginal productivity of labor), and that assuming labor is interchangeable all men's wages are regulated by the marginal productivity of the last man who can be hired. My question is what regulates this man's wages?

In this book Clark uses a farm as a model. The last man hired is employed because the amount he produces is equal to what it costs the farmer to hire him. In this way he effectively sets his own wages. But while it is easy to demonstrate how this works on a farm where the man is paid in wheat, it gets more complicated when money is actually used. Clark's theory seems to suggest some baseline where wages can't get lower, otherwise marginal productivity could continue to fall as long as wages fell on pace with them. So the marginal productivity of the final man hired is ultimately determined by what wage he is willing to pay? This seems incomplete, and also seems like it was skirting the larger question behind the question Clark was originally purporting to answer about whether or not laborers receive value equivalent to what their labor produces.

I partially answered my own question. This is all clearly working under the assumption that firms are price takers (which is something which seems more or less inherent in the theory of rent). Under these conditions there reaches a point where, regardless of the laborer's concerns, it no longer pays to produce additional units even if it would cost you nothing to do so, since you would make less.

Another issue is that the 'heroic' assumptions Clark uses to describe the static market, he bases his theory on a model that can really never happen. This alone isn't a deadly sin, but by assuming that the market is always trending towards giving laborers the full value of their marginal produce clark ignores the fact that entrepeneurs do exist and are here to stay. Overall his model has its benefits but is incomplete.

This book is well written and interesting but I think it effectively obfuscates some very important issues. I do think his extension of the theory of rent and how he describes the price of goods/capital are fascinating though.