Just Distribution of Income

Of course, justice is a matter of normative economics, not positive economics, since saying that something is just implies that "it ought to be." How could Clark claim that payment according to the marginal product is just? Clark was applying a value judgment that it is just to pay people according to what they contribute to the product of society. He claimed that the marginal product of labor is the appropriate measure of what the individual worker contributes, so it would be just that the worker be paid her or his value marginal product. The rent, interest, and profits, incomes to property owners, would correspond to the marginal product of the land and capital, according to Clark, so their payment would also be just.

But, of course, this is controversial. Not everyone would accept the idea that people ought to be paid according to their contribution. The Reasonable Dialog perspective is especially important here. We can easily make two opposite mistakes: first, to suppose that this value judgment is obviously true -- if we agree with it in the first place! -- or that it is a matter of arbitrary opinion, without any basis in reason at all. Here are some criticisms of the value judgment that "it is just to pay people according to what they contribute to the product of society:"

What people contribute depends on the opportunities they have to contribute. For example, if a person cannot find a job, despite his best attempts, his failure to contribute to society is unavoidable, and it is unjust that he be deprived of an income on that account.

Clark would probably respond that in the competitive society he envisioned this would be impossible, since all obstacles to finding employment would be removed. The idea behind the supply and demand model is that everyone who is willing to supply labor finds a matching demand -- at the equilibrium wage.

What people contribute to production is mostly a result of factors they themselves had nothing to do with. For example, very few of us could contribute anything much without relying on the methods, technology and experience we have taken from the generations that preceded us. Some of our output may also be the result of gifts of nature (or of God) that we are fortunate to have. Why should we be rewarded for being lucky enough to have access to these resources of natural gifts and technology and historic experience?

I'm not sure how Clark would respond to this one. He would probably say that natural gifts really don't differ very much, and that in any case the resources of natural gifts and technology and experience wouldn't produce anything if they were not propelled by human effort, so that the product really is proportionate to the effort, and that effort should be rewarded.

Just what is a contribution? Followers of the American activist Henry George, for example, say that land is not a contribution on the part of the landowner, since land is a free gift of nature. Marxists and other labor radicals would go even further, saying that only work is a contribution to the social product, so that workers are entitled (individually or as a group) to 100% of the product.

Clark would probably dismiss this as a confusion, saying that the Marxist misses the point of marginal analysis. But that response could be hasty. The real difference seems to be in the definition of terms: what really counts as a "contribution?"

Another unspoken assumption in the John Bates Clark version of normative economics is that the distribution of property is just. No-one would say that it is just for a thief to be paid for contributing the property he has stolen. Income to property-owners cannot be just unless the owner has a just claim to own the property. Not everyone would agree that capitalist property ownership is just. Marxists say that all capitalist property originates from exploitation, or from actual plunder, so they would say the distribution and ownership of property in a capitalist market system is itself not just, so no distribution of income to property could be just. Clark's model doesn't address this question.

So there is plenty of room for controversy about the normative economics of income distribution. But even if we do not agree with it, we must recognize Clark's contribution of a precise and logically constructed account of one view in normative economics. Because of its precision and clarity, it lends itself to more constructive discussion, both from a critical and supportive point of view.

However, we will not be able to explore the controversy much further in our book, but instead will return to positive economics -- the description and explanation of what is. As we have seen, the John Bates Clark theory is mostly a theory of the functional distribution of income, while normative economics is also concerned with the personal distribution of income. Let's look a little more carefully at equality and inequality in the personal distribution of income.