Monday, December 23, 2013

Alan Greenspan, Fool or Knave?

Robert Solow quotes Greenspan's new book:

"'In a free competitive market,' [Greenspan] writes, 'incomes earned by all participants in the joint effort of production reflect their marginal contributions to the output of the net national product. Market competition ensures that their incomes equal their "marginal product" share of total output, and are justly theirs.'" -- Robert M. Solow

I am not going to waste my time reading banal balderdash from Greenspan. Solow feels the same way about Ayn Rand:

"I got through maybe half of one of those fat paperbacks when I was young, the one about the architect. Since then I have found it impossible to take Ayn Rand seriously as a novelist or a thinker." -- Robert M. Solow

Anyway, as I have explained repeatedly, marginal productivity is not a theory of distribution, let alone justice. Firstly, in a long-run model, endowments of capital goods are not givens and marginal productivity conditions fail to pin down the functional distribution of income. A degree of freedom remains, which one might as well take to be the interest rate.

Second, ownership of capital goods does not contribute to the product, even though decisions must be made how to allocate capital, both as finance and as physically existing commodities. The New Republic is written for a popular audience, and Solow is plainly trying to avoid technicalities. Is his comment about property in the following an echo of my - actually, Joan Robinson's - point, albeit mixed in with other stuff, including comments about initial positions:

"Students of economics are taught that ... the actual outcome, including the relative incomes of participants, depends on 'initial endowments,' the resources that participants bring when they enter the market. Some were born to well-off parents in relatively rich parts of the country and grew up well-fed, well-educated, well-cared-for, and well-placed, endowed with property. Others were born to poor parents in relatively poor or benighted parts of the country, and grew up on bad diets, in bad schools, in bad situations, and without social advantages or property. Others grew up somewhere in between. These differences in starting points will be reflected in their marginal products and thus in their market-determined incomes. There is nothing just about it." -- Robert M. Solow

As far as I am concerned, Greenspan's job, for decades, has been ensuring, on behalf of the rulers of the United States, that workers do not get too big for their britches.


Ramanan said...


Nice post.

There's one thing you may want to look at urgently: if someone refers your post and I click on the link, Google's browser Chrome gives a malware warning. It says it is because of the link which also gives a warning on Chrome although it seems very harmless and genuine - needless to say since you have linked to it.

I think you should notify New School of this and also ask them to contact Google so that it certifies that the site has no issues.

Robert Vienneau said...

Thanks. I've sent email to the New School. I happen to not use Google Chrome, myself.