John Bates Clark – Economic History

John Bates Clark, American Economic History

Many hold that Professor John Bates Clark (1847-1938) was the greatest constructive general theorist that America has yet produced. His claim to some originality in developing the significance of marginal utility is strong, and his name will ever be associated with the marginal-productivity analysis in static distribution. His calm, clear analysis was very suggestive; and did much to clarify distribution problems.

It is interesting to speculate upon some of the influences that must have helped stimulate and mold the thought of one who is, perhaps, America's most notable economic theorist. Pro­fessor Clark's thought shows some similarities to that of Bastiat, and it is not unlikely that in his early days he was somewhat influenced by the latter. He himself refers to the influence of a suggestion received from Henry George. As a pupil of Knies, too, he no doubt drew upon that acute thinker. For the rest he accepted the idea current among economists of the historico-sociological type, that society is an organism. Add to this back­ground Professor Clark's great power of sustained abstract spec­ulation, and some of the chief factors in his work are apparent.

In his Philosophy of Wealth (1885) the two main ideas are (1) that the prevalent theory of value misconceived the part played by utility, and (2) that society is an organism to be treated as a unit in discussing processes of wealth distribution. Clark distinguishes absolute from "effective utility," defining the latter as "power to modify our subjective condition, under actual circumstances, and . . . mentally measured by suppos­ing something which we possess to be annihilated, or some­thing which we lack to be attained." Market value is measured by this utility, estimated by society considered as a distinct organism.

Clark also emphasizes the limits set to competition in modern society, assigning a large part to non-competitive economics. An ethical purpose is very prominent: a just distribution of wealth is contrasted with the existing conditions; an appeal is made for a more rational means of effecting distribution; and the higher ethical forms of wealth are emphasized.

It is by his Distribution of Wealth, published in 1899, that Clark is best known. Put in a nutshell, it is the idea of the book that in a "static" condition the factors of production receive shares corresponding to the productivity of their final or mar­ginal increments; the process being "controlled by a natural law."

The social point of view being taken, and society being regarded as an organism, it follows that distribution and exchange, with value, are included in the round of production. Distribution has three stages; the division of social income, first among various groups of industries, then among sub-groups, and finally among the factors of production within the sub-group. The first two processes are controlled by the market price of the produce; the last — or functional distribution, as we would say — is governed by productivity, labor tending to get what it separately produces, and capital likewise.

In order to reduce all units to homogeneity, Clark would fund all the factors of production. Land and capital are reduced to an abstract mobile capital fund ("social capital"), and labor to productivity units ("social labor"). Then the specific prod­uct of a unit of any factor may be segregated, he maintains, by turning to the margin. In the case of labor this margin may be found widespread in a zone of indifference as to employing more men. In all industries there is an intensive margin. It is a chief service of Clark's to have developed and defined (not originated) the idea of a fund of productive wealth, abstract and not lost in the capital goods through which it finds expression at any given time. This is similar to the business usage. It is a con­cept which helps to an understanding of the mobility of capital under competitive conditions.

Though, for the most part, a "natural" tendency to equalize returns in different industries is posited as the force assuring the productivity correlation, it is made clear that it is the free competition among employers that is assumed in the static state which insures the full value of his product to the laborer. The pleasure-and-pain calculus is the mainspring of the whole machine.

Both wages and interest can be "translated" into the form of rents on concrete producers' goods, and these rents are to be considered as elements in determining values. Clark denies peculiar significance to land rent, and such rent plays an almost inappreciable part in his system.

Professor Clark's theories did not remain unquestioned. Relatively few were in agreement as to the organic character of society, and some believed that such abstraction as characterizes his theory is hardly fruitful. His "static state" is after all quite similar to one in which the "natural" conditions thought of by the Classical economists exist. Hobson and others attacked the validity of the "dosing" method of isolating the specific product of a given factor. Others denied that land can be treated as a mobile fund, holding that in this it differs from capital.

To the author, one of the most interesting features of Pro­fessor Clark's thought is his philosophical consistency. His social point of view, his optimism, and his minimization of the limitations inherent in the differences in land are manifesta­tions of a pretty thoroughgoing idealism. His hedonistic trend, however, introduces a jarring note.