The Optimists: Carey and Bastiat

The Optimists: Carey and Bastiat

In spite of these conflicting and critical ideas offered by advo­cates of socialism and co-operation, classical ideas of distribution continued to be generally accepted by the majority of economists.

Following the work of John Stuart Mill who accepted the basic formulas of Smith and Ricardo while compromising at various points with Socialism, there appeared further elaborations and modifications of classical ideas. Bastiat and Carey, respectively French and American economists of the middle 19th century, gave an optimistic turn to the analysis of distribution made by earlier economists. The similarity of the ideas of these authors was the cause of much comment; indeed, Carey insisted that Bastiat had plagiarized his work. There is little need, therefore, to differentiate between their ideas. In the opinion of these authors annual income is divided into three portions: rent, in­terest and profit, and wages, corresponding to the three factors in production: land, capital, and labor. Whereas Ricardo had stated that as population increased less fertile lands were brought under cultivation, and rent (the differential payment received by the good land) increased accordingly, the Optimists (especially Carey) held that the less fertile lands were the first to be culti­vated and more fertile lands, which usually required clearing and draining, came into production later. While the total rent might increase, rent tended to decrease in proportion to wages, because as richer land came into cultivation labor's productivity increased and the price of farm produce would tend to fall.

Very much the same view was taken of capital. Indeed, Carey claimed that no distinction existed between land and capital. Thus as capital accumulated, the interest rate (and rate of profit) fell; so that while the total amount paid as a return on capital increased, the rate of return decreased and the proportion of total income taken by capital got smaller in relation to wages. Interests of owners of capital and workers were therefore not antagonistic; in fact the evolution of economic society would ultimately bring about equality between labor and the capitalist since the wages earned would in time equal the amount received by the owner of capital. Proof of these ideas was offered in the form of tables and historical summaries. For the most part, how­ever, the tables were merely hypothetical situations reduced to quantitative terms, and the historical data was sketchy and ob­viously selective. For example, in spite of Bastiat's contention that the interest rate tended to fall, during the 19th century it appeared to rise and profits to increase proportionately much faster than wages.

The Austrian School The attempt to explain distribution in terms of the utility of the three factors in production (land, labor, and capital) was pursued most ardently by the members of the Austrian school of economic thought. The names of Menger, von Wieser, and von Bohm-Bawerk are associated with the most elaborate development of the explanation of economic processes in terms of utility, that is, the want-satisfying power of economic goods. The process of dis­tribution is based upon the power of each factor in production to impute value to the final product. It is the value contributed by the last unit added (marginal unit) which determines the return of all the units used. Thus the difference in the return obtained by labor in a productive process as compared to the return of capital and land is judged by a comparison of the value con­tributed to the final product by the last or marginal unit of labor as compared to the last or marginal units of land and capital. This is essentially von Wieser's explanation. Von Bohm-Bawerk confused the issue terribly by ignoring the idea of a factor of production imputing value to an article, and emphasizing the reverse and unreal process of the value of the final product as judged by its utility, back-tracking to the factors of production. How this could be done was never clarified. Von Wieser seems to be on fairly firm ground when he says that payment is determined by the value produced by the marginal unit of land, labor, and capital.