No, Productivity Does Not Explain Income

Marginal productivity is a thought virus that is sabotaging the scientific study of income.
By Blair Fix – Did you hear the joke about the economists who tested their theory by defining it to be true? Oh, I forgot. It’s not a joke. It’s standard practice among mainstream economists. They propose that productivity explains income. And then they ‘test’ this idea by defining productivity in terms of income.

The marginal productivity theory of income distribution was born a little over a century ago. Its principle creator, John Bates Clark, was explicit that his theory was about ideology and not science. Clark wanted show that in capitalist societies, everyone got what they produced, and hence all was fair.

Clark was also explicit about why his theory was needed. The stability of the capitalist order was at stake!

Clark created marginal productivity theory to explain class-based income — the income split between laborers and capitalists. But his theory was soon used to explain income differences between workers.

In the mid 20th century, neoclassical economists invented a new form of capital. Workers, the economists claimed, owned ‘human capital’ — a stock of skills and knowledge. This human capital made skilled workers more productive, and hence, made them earn more money. So not only did productivity explain class-based income, it now explained personal income.

Given the problems with comparing the productivity of workers with different outputs, you’d think that marginal productivity theory would have died long ago. After all, a theory that can’t be tested is scientifically useless.

Fortunately (for themselves), neoclassical economists don’t play by the normal rules of science. If you browse the economics literature, you’ll find an endless stream of studies claiming that wages are proportional to productivity. Under the hood of these studies is a trick that allows productivity to be universally compared. And even better, it guarantees that income will be proportional to productivity. more>

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