"The model also maintains the neoclassical conclusion that, given ability, people are paid the value of their marginal product. That is, people are paid what they contribute to society." -- Greg Mankiw
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12 years ago
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I was thinking about such a claim during the recent postal workers strikes here in the UK.
The media was full of figures saying that the strikes were causing "the economy" billions of pounds. I'm 99% sure that the quoted figures did not equate to the actual wages of the striking postal workers. They were always much, much higher.
Now, if the postal workers wage did equal their "contribution to society" then, surely, their strike would only have cost society exactly their lost wages? But, obviously, they did not so suggesting that their wages do not reflect their "contribution."
As Marx and Kropotkin both pointed out, production is so interwoven that it is impossible to say what a person's "contribution" actually is. The postal strike showed that, with the "contribution" of the postal workers work ensuring that much more economic activity could go on -- exactly like Kropotkin's examples in The Conquest of Bread. Hence the need for communism...
Still, marginal productivity theory does provide a defence for inequality and the returns to capital and land -- hence its continued use in spite of the Cambridge Capital debates!
Iain
An Anarchist FAQ
While Mankiw has often made use himself of the neoclassical central verity that income depends solely on productivity, in his comments he talks about something he calls "the standard model" for inequality:
«The whole theory of optimal taxation and redistribution, best exemplified by the literature that follows Mirrlees, assumes that the social planner cares about inequality in itself.» «The model also maintains the neoclassical conclusion that, given ability, people are paid the value of their marginal product.»
and his conclusion is that the model may be flawed:
«If Gintis is right, then the standard model is barking up the wrong tree.»
but of course as to aims not assumptions. But his argument is not specifically that.
«Now, if the postal workers wage did equal their "contribution to society" then, surely, their strike would only have cost society exactly their lost wages?»
This is a stupid argument about the central verity of Economics; the absurdity of the central verity does not depend on a confusion between use and exchange value...
Robert, this is silly. What he claims is true in his model/the model he has in mind. It's analytically true. It's not true in your model. So?
We can come up with a long list of things that are not true in his/your/my model and true in his/your/my model. Does that make any of us bad guys?
Iain, thanks for the the comment.
Gabriel, this has nothing to do with two models. I am claiming that neoclassical economics, wherever "informed economic theory" (Samuelson) has been taught for, say, the past quarter century, does not maintain what Mankiw says it maintains.
Blissex, I see your point. I'm not familiar with the literature following Mirrlees. Perhaps it typically assumes all individuals are identical and pins down income distribution (which marginal conditions notorously don't). Maybe I would have to qualify my position if I read more.
Is Mankiw's statement positive or normative?
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