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Henry George's influence on John Bates Clark: the concept of rent was pivotal to equating wages with the marginal product of labor
American Journal of Economics and Sociology, The, July, 1995 by Donald R. Stabile
I
Introduction
Historians of economic thought usually teach that John Bates Clark based his formulation of the marginal productivity theory of income distribution on "a generalization of Ricardo's theory of rent." (Rima 1978, 252) Scholars interested in the writings of Henry George, however, have often pointed out that Clark attributed his conception of the marginal product of labor to George's theory of rent. (Teilhac 1936, 172; Geiger 1941, 98; Bruchy 1972, 115; Dwyer 1982, 363; Genovese 1984, 133; Yeager 1984, 196-97) Despite this interest, George's influence on Clark has been analyzed only briefly. (Collier 1979, 266-67)
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Because Clark and George had different objectives in mind when it came to explaining the distribution of income, Clark's indication of George's influence needs to be explained with greater detail. After all, Clark has a reputation as a pioneer in neoclassical economics, being "a central figure in the emergence of the marginal productivity analysis of distribution." (Baumol 1985, 2) George on the other hand anticipated many arguments of institutional economics and had little use for the marginalist school. (Horner 1993, 248-50) Nevertheless, George and Clark had common interests. Clark employed a socioeconomic perspective before his discovery of marginalism and based it on a populist frame of mind similar to George's. (Henry 1982, 175-77) He shared George's sympathy for the goals of labor unions and distaste for socialism. (Clark 1886, 37 and 68; Henry 1983, 377; Genovese 1991, 113 and 123) Clark was also willing to adopt good ideas whatever their source. This article traces out that adaptation with respect to George, starting with the problem Clark needed to solve.
II
Clark's Theory of Distribution
Clark's socioeconomic perspective formed an important component of his first major treatise on economic theory, The Philosophy of Wealth. (Clark 1886) Its premises resembled institutional economics, (Jalladeau 1975, 213) for it stressed the need of envisioning society as a social organism:
It is not merely man as an individual that needs to be considered. A man is not independent. So close is the relationship between him and others of his race that his conduct is dictated and his nature transformed by it. Though a self-directing being of the highest organization, he is made by his relations to others, to be an atomic part of a higher organism - society. (Clark 1886, 37)
George shared Clark's appreciation for the usefulness of treating society as an organism and both recognized, as did Austrian economics, that analysis of the individual units of that organism were as important as analysis of the total picture. (Yeager 1954, 188)
As part of ongoing social change, Clark perceived a trend toward the consolidation of capital, which was replacing the individualist competition that previously existed. This trend altered the balance of power between capital and labor. (Clark 1886, 65-73) According to Clark, the "solidarity of capital" was being countered by "a solidarity of labor." (Clark 1886, 68) This opposed solidarity, however, fostered social strife, with each party claiming justice was on its side. At this point, Clark set forth the need for a standard regarding income distribution,
If it is humanly possible to thus settle the questions at the basis of the law of wages, no scientific work can be more immediately and widely beneficent. These questions tend, if rightly answered, to public order; if wrongly answered, to communism; and if unanswered, to agitation and peril. (Clark 1886, 109)
Clark eventually settled on the marginal productivity theory of wages as providing a standard of justice to which labor and capital could both comply. Royall Brandis characterizes Clark's analysis of income as a factor return on the basis of fairness in no uncertain terms, "The return measured the contribution to production, the contribution to production measured desert, and, thus, reward and desert were equated and justice was done." (Brandis 1985, 873)
In his classic statement of marginal productivity theory in The Distribution of Wealth (1989), Clark made this equation quite clear, "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." Regarding wages, he added, "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 the product of industry which is traceable to the labor itself . . ." The same rule applied to interest and profit. (Clark 1965, v) (The words italicized here presaged important work by other economists generations later.)
Clark devoted most of the book to explaining, justifying and applying this natural law. With some changes, Clark's version of marginal productivity theory has become standardized in modern economic theory when it uses the concept of an aggregate production function to explain the distribution of income. (Tobin 1985, 31-32) Clark defined this aggregation approach as follows, "The pay of labor in each industry tends to conform to the marginal product of social labor employed in connection with a fixed amount of social capital, as such." (Clark 1965, 116) At any time, society had a fixed amount of labor. It was the additional contribution made to total production by an individual unit of that social labor that determined wages.
