AN ATTEMPT AT CLARIFICATION

One of the less fortunate side effects of living so much of my life in my head is that I tend to think that if I include a qualification in a subordinate clause or make a passing allusion to a complex argument, what I say or write will be as clear to others as it is to me.  I could puff myself up and say that I am, in this regard, imitating Aristotle rather than Plato, but the truth is I simply forget that the world is not as intimately familiar with my inner thoughts as I am.  I fear I was guilty of such a failure of communication in my response to Professor Kates, a response that elicited comments from Professor Kates himself, from Daniel Langlois, and from S. Wallerstein.  The purpose of this post is to make amends and provide some clarification.

First, in response to S. Wallerstein, I had no intention to conflate Rawls with Becker.  As I have said elsewhere, Rawls’ writings strike me as an elegant and rather baroque rationale for New Deal/Fair Deal Safety Net Welfare State Redistributionist Liberalism of the sort I grew up with and, alas, took for granted as the unquestioned background for my more radical desires.  I am actually not interested in Rawls’ adjustments to his “theory,” because I do not find it a useful way to approach questions of economic and social justice, but I would not want to misrepresent him in the process of ignoring him, so to speak.

Professor Kates says that the Difference Principle is “agnostic between competing economic systems (say, capitalism and socialism).”  In my view, that is a deeply confused position.  Capitalism is an economic system that rests on private ownership of the means of production and the consequent exploitation of the working class.  Socialism rests on collective ownership of the means of production and the consequent banishment of that exploitation.  Any moral or political theory that purports to be agnostic as between these, in my judgment, does not understand the world well enough to have a coherent stand on any issue of major social importance.  I cannot imagine a plausible and defensible argument that would arrive at some first principle of social justice, such as the Difference Principle, while remaining agnostic along the way about the fundamental organization of society.  You will recall that Marx and Engels were scornful of theorists whom they called “Utopian socialists” precisely for conjuring ideal sets of social and economic arrangements without first undertaking an analysis of the structural reality of capitalism.

Now to Daniel Langlois’ rather overheated animadversions: a word or two about marginal product.  I have written about this before at some length, but as I observed above, I really must stop assuming that everyone has read everything I have written!  The concept of marginal product, strictly speaking [and in regard to this matter, I find it helpful to speak strictly] is parasitic on the concept of a production function.  The production function of some output is a real valued function that maps each n-tuple of production inputs onto the quantity of that output that is, of all the indefinitely many good, bad, and even absurd ways of using those inputs to produce that output, the maximum output achievable with that set of inputs.  With regard to each n-tuple of inputs, we may then ask:  Holding all inputs but one constant, and adding one unit to the remaining input, what change, if any, is there in the maximum output achievable with the resulting n-tuple of inputs?  [There is no assumption at all that the actual maximum technique of production with the revised n-tuple will bear any resemblance to the maximum technique with the original n-tuple.]  That change is called the marginal product of that input for that original n-tuple of inputs.

OK.  Is that absolutely clear?

Why on earth does this matter?  Well, a great 18^th century mathematician named Leonhard Euler proved a lovely theorem about a special species of functions of real variables called homogeneous functions.  One sub-species of homogeneous functions, linear homogeneous functions, has a mathematical property that, with some heavy breathing and creative imagination, can be interpreted as saying the following:  “If an economy can be represented by a production function of two variables, Capital and Labor, and if that social production function is linear homogeneous, and if Capital is paid the dollar value of its marginal product and Labor is paid the dollar value of its marginal product, then what is paid to Capital and what is paid to Labor exactly exhausts the total social output, and this can be construed as showing that if we leave Capital and Labor alone and do not muck with them by imposing minimum wage laws and such like social engineering, then Capital and Labor will each receive a reward exactly equal to what it contributes to society, and ALL WILL BE FOR THE BEST IN THE BEST OF ALL POSSIBLE WORLDS.”

Holy Becker, Batman, can this really be true?

Sure, if a capitalist economy can be represented by a linear homogeneous production function.  But can it?  Alas, no.  How do we know that?  Well, we know because if a capitalist economy has a linear homogeneous production function, then among the variety of things that follow mathematically from this fact is the conclusion that the economy has a zero profit rate [not a zero interest rate – that is something else.]  Has there ever been a functioning capitalist economy with a zero profit rate?

Uh, no. 

But don’t those super smart Economists know all this?  Of course they do.  They teach it to their students in their graduate courses on Microeconomics.  They just don’t mention it in their undergraduate courses or their Op Ed essays or their presentations at Davos.